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California Supreme Court lets policyholders sue excess insurers early
The unanimous July 27, 2026 ruling removes the need to prove underlying coverage is exhausted before filing for declaratory relief and good-faith bad faith claims against excess carriers in California.
California’s Supreme Court has ruled that policyholders do not need to wait for all underlying layers of coverage to be exhausted before suing excess insurers for declaratory relief and breach of the implied covenant of good faith and fair dealing. In a unanimous decision issued July 27, 2026, the court said exhaustion is not required for insureds to bring those claims against excess carriers, a change that affects how disputes are litigated under layered insurance programs. The ruling stems from a years-long dispute tied to Fox Paine & Company LLC after its partnership between cofounders Saul Fox and Dexter Paine collapsed. The firm had a $50 million insurance tower structured as a $10 million primary policy and four excess policies issued by Twin City Fire Insurance Company, St. Paul Mercury Insurance Company, and Liberty Mutual Insurance Company. According to Risk & Insurance, the plaintiffs alleged the excess insurers improperly permitted a rival Paine faction to take control of the insurance claim, leading to payments to that group while the Fox parties received nothing. The plaintiffs sought to hold excess insurers liable for breach of contract, declaratory relief, and bad faith, arguing losses exceeded $43 million, after lower courts had limited the case based on whether the underlying layers were fully exhausted.