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insolvent carrier, sought to interpret the provisions of a reinsurance contract in
state court. The reinsurance carrier removed the action to federal district
court which declined to remand the action and decided the merits of the case.
In reversing the decision of the district court, the United States Court of
Appeals for the Tenth Circuit held that the State of Oklahoma had "adopted a
comprehensive scheme to oversee the liquidation of insolvent insurers" and,
therefore, the district court should have abstained from exercising its
jurisdiction in the matter. 857 F.2d at 705.
Arizona
California
Maicopa County v. Federal Insurance Company, 157 Ariz. 308, 757 P.2d 112 (Ct.
App. 1988). The insolvency of the primary liability insurer did not require the
excess liability insurer to pay as the primary insurer. A fixed policy requirement
which must be met before the excess insurer became liable, was exhaustion of
the underlying policy limits. This requirement was not satisfied and therefore
the excess insurer was not held liable for a claim falling within the coverage of
the insolvent primary insurer. Further, the Court held that a statute, making a
policy issued by the insolvent insurer excess coverage, and requiring the
exhaustion of other applicable insurance, would not allow the insured to
interpret excess coverage beyond its plain meaning and transform the
character of other coverage into something other than that clearly expressed
in the policy.
Coca‐Cola Bottling Co. of San Diego v. Columbia Casualty Ins. Co., 11 Cal. App.
4th 1176 (1992). The California Court of Appeal held that an excess carrier was
required to "drop down" and provide coverage when the underlying insurer
was declared insolvent. The court analyzed the excess policy, which required
the excess insurer to pay the "ultimate net loss . . . in excess of the amount
recoverable under the underlying insurance." Following previous decisions by
the California Supreme Court, the court concluded that the term "amount
recoverable" was ambiguous, and should be construed in terms most
favorable to the insured.
Denny's, Inc. v. Chicago Ins. Co., 234 Cal. App. 3d 1786 (1991). The California
Court of Appeal held that an excess insurer did not have to "drop down" and
provide coverage in the event of the insolvency of the underlying insurer. The
court refused to find that the excess policy was ambiguous. The excess policy
provided for coverage if the underlying insurers "have paid or have been held
liable to pay" the full amount of their liability. In addition, the excess policies at
issue provided that the excess insurer's obligation only attached in excess of
the full amount of the underlying insurance coverage.
Span, Inc. v. Associated Int'l Ins. Co., 227 Cal. App. 3d 463 (1991). The California
Court of Appeal held that an excess insurer had no duty to "drop down" and
provide first dollar coverage when the underlying carrier became insolvent.
The court looked to the specific language of the excess policy, which provided
coverage in the event of reduction or exhaustion of the primary policy by
"reason of losses paid thereunder." According to the court, this language
required the payment of the underlying limit before the excess insurer's
liability would arise.
Colorado
Skandia America Reinsurance Corp. v. Barnes, 458 F. Supp. 13 (D. Colo. 1978). A
reinsurer asked the court to resolve conflicting claims for payment of its
obligation to an insolvent Colorado insurer under an excess of loss reinsurance
agreement. The Colorado receiver claimed the payment, as did the California
guarantee fund, which had paid the insolvent insurer's obligation to one of its
insureds. The court held that the insolvent insurer's Colorado receiver was
entitled to the reinsurance contract payment, but that California guaranty
fund's claim could be presented to the Colorado receiver.