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Louisiana
Republic of Texas Savings Association v. First Republic Life Insurance
Company, 417 So.2d 1251 (La. App. 1st Cir. 1982). Plaintiff savings and loan
brought suit against the rehabilitator of insolvent insurer seeking to foreclose
on mortgage. Defenses of estoppel and equitable relief based on
misrepresentations allegedly made by the carrier prior to its insolvency were
held not to apply to the rehabilitator, who, because of his statutory duties to
protect creditors, policyholders, and the insurer, does not stand precisely in
the shoes of the insolvent carrier. After reviewing Louisiana negotiable
instruments law and the Uniform Commercial Code as adopted in Louisiana,
the court applied a "subjective good faith" test to determine whether the
plaintiff note holder was a holder in due course of the note. Finding that
plaintiff was in good faith, the court granted the requested relief and denied
the injunction requested by the rehabilitator.
Dropdown
Seventh Circuit
Eighth Circuit
Premcor USA, Inc. v. American Home Assurance Co., 400 F.3d523 (7th Cir.
2005) – Employer brought suit against umbrella insurer, seeking declaration
that such insurer must drop down, after commercial general liability insurer
became insolvent and could not indemnifying employer against otherwise
covered defense costs. While the umbrella liability policy provided for
coverage in excess of the “amount recoverable” under the underlying
insurance, the primary insurance provided an unlimited duty to defend. Where
umbrella policy expressly covered employer’s costs only in excess of
underlying insurance regardless of underlying insurers’ insolvency or insured’s
ability to collect, umbrella insurer was not required to drop down. Additionally,
umbrella insurer was not required to indemnify employer for costs in excess of
underlying insurance based on umbrella policy’s express language.
Interco Incorporated v. National Surety Corporation, 900 F.2d 1264, 8th Cir.
(1990). Insured brought declaratory judgment action to determine the liability
of second and third‐tier excess liability carriers when Mission, the first‐tier
excess carrier, became insolvent. The trial court granted summary judgment in
favor of the insurers. The Eighth Circuit affirmed holding that excess policies
were unambiguous in precluding drop down coverage when the first‐tier
excess liability carrier became insolvent. Construing the policies otherwise
would make the excess insurers guarantors of Mission's solvency.
Waste Mgmt. Minn., Inc. v. Transcontinental Ins. Co., 502 F.3d 769 (8th Cir.
2007). The primary insurer for a truck company was insolvent. The issue before
the court was whether an excess insurer of the truck company was obligated to
“drop down” and assume the responsibility of the insolvent primary insurer.
Minnesota does not required excess insurers to insure the full loss when the
primary insurer is insolvent. Thus, the excess insurer’s “no drop down”
provision would be enforced according to its terms under Minnesota law. The
validity of the provision; however, did not invalidate a settlement payment by
the excess insurer. It is not a violation of the “no drop down” provision to settle
a potential drop‐down exposure.
Ninth Circuit Republic Western Ins. Co. v. C.V. Starr & Co., No. 92‐15493, 1993 WL 326445
(9th Cir. Aug. 26, 1993). The Ninth Circuit held that the language of an excess
insurance policy did not require the excess carrier to drop down to fill the
coverage gap left by an insolvent underlying insurer. The court determined
that Reserve Ins. Co. v. Pisciotta, 640 P.2d 764 (Cal. 1982), requires only that
ambiguity in the policy language be resolved in favor of the insured, not that