Excess Carrier Must Provide Coverage Despite Primary Carrier Insolvency, Court Rules
A Washington insured has secured a victory via summary judgment, establishing that its excess carrier is obligated to provide coverage despite the insolvency of its primary carrier and the primary carrier’s failure to make any payments toward the policy limit. The ruling, based on Ninth Circuit precedent, found that the term “exhausted” within the excess policy—requiring exhaustion of all underlying insurance—can be satisfied through insolvency rather than actual payment.
The insured, Water Applications Distribution Group1 (WADG), initially held primary insurance through a subsidiary of Reliance Insurance Company, which was declared insolvent and dissolved on November 29, 2021. Unable to recover funds from the Reliance policy, WADG sought coverage from its excess carrier, Federal Insurance Company, a unit of Chubb, for asbestos claims. WADG argued that the primary policy was exhausted due to the insolvency.
Federal contended that the policy’s exhaustion requirement was unambiguous and consistently interpreted to necessitate actual payment up to the policy limit. However, the court disagreed, applying the two-step framework outlined in Fed. Ins. Co. V. Scarsella Bros., 931 F.2d 599, 603 (9th Cir. 1991). First, the court determined the term “exhausted” was ambiguous, capable of meaning either full payment of limits or complete consumption through insolvency. Second, Washington law mandates interpreting ambiguous language in favor of the insured.
the court concluded that the primary insurance was exhausted upon the insurer’s insolvency, establishing “a certainty that the primary carrier will not be making any payments on the insured’s covered losses.”
The court dismissed Federal’s reliance on case law, emphasizing that those cases involved policies with more specific exhaustion requirements. The court also rejected arguments based on public policy, stating that such considerations are irrelevant once a term is deemed ambiguous. WADG’s motion for summary judgment was granted, compelling Federal to provide coverage.
1. Successor in interest to Pacific Waterworks Supply Co.
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