A US company with a primary professional liability insurer and a $10 million policy limit settled with the primary insurer for about $5 million. It then paid further losses exceeding the $10 million limit and unsuccessfully sought to trigger two excess policies for claims of the tens of millions of dollars in settlements and legal costs. They were unsuccessful because the excess coverage could be triggered “only after” the underlying policies were exhausted by actual “payment of loss”.
The wording of the policy is all-important. And if clients refuse more generous cover that is available, the courts will not be generous to them.
The claim arose from an offshore tax shelter strategy that the tax authorities had found to be fraudulent leading to claims against the company and its directors and officers.
The Washington Court of Appeals found that the plain and unambiguous language of the excess policies properly reflected the distinguishing characteristic and function of an excess insurance policy. The underlying insurers have to pay the full amount of the underlying limit before the excess policies can be brought into the picture. There was evidence that the insured had previously had insurance which triggered the excess cover if there was a settlement with the underlying carrier and the insured filled the gap itself. One of the excess layer insurers also showed the court an available endorsement that would have given that cover.
As always, the wording of the policy is all-important. And if clients refuse more generous cover that is available, the courts will not be generous to them.