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Colorado court says excess umbrella coverage is not triggered by insurer insolvency
In a dispute over asbestos liabilities for pump maker A.R. Wilfley & Sons, the court ruled “not covered” in Federal Insurance Company’s umbrella/excess policies refers to claim scope, not whether the primary carrier can pay.
Colorado’s highest court ruled that when a primary insurer becomes insolvent, the excess or umbrella carrier above it is not required to provide first-dollar coverage. Insurance Business reports that the Colorado Supreme Court answered a certified question from federal court on September 21, ruling unanimously on the meaning of “not covered” in umbrella/excess policies.
According to Insurance Business, the court held that “not covered” refers to the scope of coverage, not the primary insurer’s ability to pay. The dispute centered on A.R. Wilfley & Sons, a Colorado pump manufacturer facing decades of asbestos bodily-injury lawsuits.
The case involved stacked insurance layers, with primary policies from Reliance Insurance Company at the bottom and umbrella/excess policies issued by Federal Insurance Company, a member of the Chubb group, above. When Reliance became insolvent and Wilfley lost access to payments from the primary layer, Wilfley argued that this should make the claims “not covered” under Federal’s policies and require Federal to drop down to provide defense and indemnity from the first dollar of loss.
Federal argued that “not covered” meant the claim fell outside the underlying policy’s coverage scope, not that the primary insurer could not pay. Insurance Business says the court sided with Federal, stating that the insolvency did not change the coverage scope so as to trigger excess coverage to replace the primary carrier’s unpaid obligations.