Before any settlement is reached with the primary insurance carrier, policyholders should make sure that the settlement will not hinder pursuing coverage with the umbrella and excess carriers.
In light of the 6th Circuit’s decision in Goodyear Tire & Rubber Company v. National Union Fire Insurance Company, 694 F.3d 781 (6th Cir. 2012), policyholders should carefully review their umbrella and excess liability policies to determine whether they contain language that requires the underlying primary policy to pay 100% of its limits before the umbrella and excess policies attach.
While a majority of courts have followed the rationale expressed in Zeig v. Massachusetts Bonding & Insurance Co., 23 F.2d 665 (2d. Cir. 1928), which held that the underlying policy was deemed exhausted by virtue of the payment of the underlying claim for less than the underlying limits, some courts, like the 6th Circuit, have held that settling a claim below policy limits with a primary insurer prevents the policyholder from recovering from the umbrella and excess carriers. (1)
Before any settlement is reached with the primary insurance carrier, policyholders should make sure that the settlement will not hinder pursuing coverage with the umbrella and excess carriers.
When the policyholder is renewing its policies, and a review of the policies results in a finding that the policies contain language as found in the Comerica, Goodyear and Qualcomm policies, policyholders should work with their insurance brokers to get the language deleted, or have an endorsement added to the policies that has the effect that liability for a covered loss attaches to the umbrella or excess carrier after the insurers of the underlying policies, the insured company and/or insured persons shall have paid the full amount of the underlying limit.
1 - See Comerica Inc. v. Zurich Am. Ins. Co. 498 F. Supp. 2d 1019 (E. D. Mich. 2007); Qualcomm, Inc. v. Certain Underwriters at Lloyd’s, London, 73 Cal. Rptr. 3d 770 (Cal. Ct. App. 2008).
While a majority of courts have followed the rationale expressed in Zeig v. Massachusetts Bonding & Insurance Co., 23 F.2d 665 (2d. Cir. 1928), which held that the underlying policy was deemed exhausted by virtue of the payment of the underlying claim for less than the underlying limits, some courts, like the 6th Circuit, have held that settling a claim below policy limits with a primary insurer prevents the policyholder from recovering from the umbrella and excess carriers. (1)
Before any settlement is reached with the primary insurance carrier, policyholders should make sure that the settlement will not hinder pursuing coverage with the umbrella and excess carriers.
When the policyholder is renewing its policies, and a review of the policies results in a finding that the policies contain language as found in the Comerica, Goodyear and Qualcomm policies, policyholders should work with their insurance brokers to get the language deleted, or have an endorsement added to the policies that has the effect that liability for a covered loss attaches to the umbrella or excess carrier after the insurers of the underlying policies, the insured company and/or insured persons shall have paid the full amount of the underlying limit.
1 - See Comerica Inc. v. Zurich Am. Ins. Co. 498 F. Supp. 2d 1019 (E. D. Mich. 2007); Qualcomm, Inc. v. Certain Underwriters at Lloyd’s, London, 73 Cal. Rptr. 3d 770 (Cal. Ct. App. 2008).
RSS Feed