The insured under an umbrella insurance policy faced with numerous asbestos-related injury lawsuits failed to persuade a Texas court that the insurer had a duty to defend the claims. The insurer was obliged to defend claims “not covered” by the underlying policy. The insured unsuccessfully contended that “not covered” included “no longer covered”, which was the situation because the indemnity under the underlying policy had been exhausted.
The court found that the natural meaning of the phrase “not covered by the underlying insurance” means that the occurrence of risk in question is not included within the scope of the underlying insurance policy’s coverage. Exhaustion of the underlying policy does not mean that the risk is outside the scope of the policy. It means simply that the policy limit has been reached. This conclusion follows from the conventional usage of “coverage” which contemplates the risks covered. Because the asbestos-related claims were among the risks covered by the underlying policy, they were covered, even if the policy limits had been exhausted. Exhaustion of the underlying policy limits or the inability to collect does not mean that a risk is “no longer covered”.
The insurer was obliged to indemnify for the ultimate net losses up to the limit of $1 million, but had no duty to defend the insured in the asbestos lawsuits.
The same result would follow in South Africa on those facts and policy terms.
[ACE American Insurance Co v Murco Wall Products Inc case no 4:22-cv-01137-P, in the US District Court for the Northern District of Texas (24 June 2024)]