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Connecticut
England v. Reliance Ins. Co., No. CV020079606S, 2004 WL 425139 (Conn. Super.
Feb. 24, 2004). An umbrella insurer was not required to step into the shoes of
the underlying insurer to provide coverage in the event of the underlying
insurer’s insolvency, where the umbrella policy provided that liability attaches
only when loss exceeds the amount specified in the underlying policy and the
policy contained a drop down exclusion stating that insolvency of the
underlying insurer did not increase the umbrella insurer’s liability.
Enviro Express, Inc. v. AIU Ins. Co., 901 A.2d 666 (Conn. 2006). Payments made
to an injured third party pursuant to an uninsured motorist insurance policy
would be treated as payment the insured tortfeasor was legally obligated to
make for purposes of determining whether the retained limit of the tortfeasor’s
umbrella insurance policy was met following insolvency and liquidation of the
tortfeasor’s primary insurer. Despite inclusion of a drop down exclusion in the
umbrella policy, the policy was ambiguous regarding which payments counted
toward the umbrella policy’s retained limit.
Delaware
Louisiana
In re Integrated Health Services, Inc. v. Integrated Health Services, Inc. v. Ace
Indemnity Ins. Co., 375 B.R. 730 (D. Del. 2007). An excess insurer contended that
the exhaustion of all underlying policies through actual cash payments was an
absolute condition precedent to its obligations to pay under its own excess
policies. It further argued that since the underlying insurer, Reliance, was
declared insolvent it had no obligation to make payments to the plaintiff. The
excess insurer also argued that forcing it to pay, even though the underlying
insurer never actually paid its portion, was forcing the excess insurer to “drop
down” and cover unpaid portions of the underlying insurer. The court found this
argument unpersuasive because the excess insurer would only have to pay the
portion owed in its own layer of coverage and not the underlying insolvent
insurer’s portion. The court held that although Reliance was unable to pay its
claims as a result of its insolvency, Reliance’s failure to exhaust its claims
through the actual payment of them did not effect the responsibility of the
excess insurer to have to pay its own layer of coverage.
Huggins v. Gerry Lane Enters. Inc., 950 So. 2d 750 (La. Ct. App. 2006). Plaintiff
filed suit against defendant and its insolvent insurer. The insolvent insurer had
provided a $1 million liability insurance policy. Defendant and Louisiana
Insurance Guaranty Association (“LIGA”) filed an answer and a third‐party
demand against excess of loss insurer alleging that the excess insurer’s $10
million commercial umbrella policy should drop down to provide coverage for
the first $1 million in liability unavailable due to the liability insurer’s insolvency.
The court of appeals rejected defendant’s and LIGA’s argument for “drop
down” because the language of the excess of loss policy specifically provided
that no drop down would occur if there was underlying coverage for the first $1
million. Therefore, the excess of loss policy, which coverage began at $1 million,
would not be reached until the net loss to defendant exceeded $1 million. In
sum, the excess of loss policy was intended to drop down to provide coverage
for an underlying insolvent insurer.
Mississippi Caldwell Freight Lines, Inc. v. Lumberman’s Mut. Cas. Co., Inc., 947 So. 2d 948
(Miss. 2007). The Supreme Court of Mississippi addressed the issue of whether
the insured’s catastrophe policy “dropped down” to cover the primary insurer’s
insolvency, or whether the North Carolina Insurance Guaranty Association was
obligated to pay the statutory maximum amount in the event that liability of the
insured was established. The court, applying North Carolina law, found that the
plain language of the catastrophe policy provides that the catastrophe insurer
was only liable in excess of $1 million. Moreover, the “loss payable” clause of