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Delaware
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 any payments to the plaintiff.
The excess insurer also argued that forcing it to pay although 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 out
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 pay its own layer of coverage.
Georgia Lamb Bros. Lumber Co. v. South Carolina Insurance Co., 186 Ga. App. 51, 366
S.E. 2d 388 (1988). It was determined that an umbrella liability insurer was not
required to provide a Georgia insured with either first‐dollar coverage or a legal
defense after the Georgia insured's primary automobile insurer was declared
insolvent where the excess policy explicitly provided a lower limit of coverage
"[i]n the event there is no recovery available to the insured as a result of
insolvency of an underlying insurer..." The Georgia Insurers Insolvency Pool
provided coverage of only $50,000 to the Georgia insured, and the excess
carrier was not required to provide any coverage to the Georgia insured until a
judgment exceeding the underlying policy limits of $500,000 is rendered
against the insured.
United State Fire Insurance Co., v. Capital Ford Truck Sales, Inc. 257 Ga. 77, 355
S.E. 2d 428 (1987). The insolvency of an underlying insurer does not require an
excess insurer to defend an action brought against the insured or to provide
first‐dollar coverage where the excess policy repeatedly distinguished
between the "underlying insurance policy" and "other insurance," repeatedly
stated that "other insurance" had to be collectible, but did not state the
"underlying insurance" had to be collectible.
Illinois
Illinois Insurance Guaranty Fund v. Farmland Mutual Insurance Co., 274 Ill.
App. 3d 671, 653 N.E.2d 856 (1995). The Illinois Insurance Guaranty Fund
sought a declaratory judgment that Farmland, an excess insurer, was
obligated to defend and indemnify certain defendants in underlying
litigation given that the primary insurer had become insolvent. Farmland, on
the other hand, claimed that the Guaranty Fund had the obligation of
defending and indemnifying the defendants, since the "other insurance"
clause in Farmland's policy stated that it was only liable for sums over "any
other collectable insurance". After noting that the Guaranty Fund was
created to provide protection to the public and not insurance companies,
the court held that the Guaranty Fund proceeds did not constitute "other
collectable insurance" under Illinois statutory and case law.
S.C. Johnson & Son Inc. v. Transcontinental Ins. Co., 1992 U.S. Dist. LEXIS
5227 (N.D. Ill. April 21, 1992). A second‐layer excess liability insurer is not
required to bear the risk of a primary insurer becoming insolvent, and the
court will not oblige the excess liability insurer to "drop down" with its
coverage in the event of insolvency. In this case, the policy language was
clear, and it explicitly limited the excess insurer's coverage obligations to
situations where the primary insurance coverage was exhausted as a result
of a covered occurrence. The court also reasoned that the excess insurer
should not become the guarantor of the primary carrier's solvency.