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final analysis, the language of the particular insurance policy is determinative;
(4) ambiguities in the policy on the drop‐down issue will be resolved against
the insurer; (5) policies which contain references to "collectible" primary
insurance will be construed to cover the event of insolvency; (6) a policy that
says without limitation that it drops down when primary coverage is reduced
provides first dollar coverage should the primary issuer become insolvent.
Excess policy coverage indicating that an excess insurer's liability would attach
only after a primary carrier paid or had been "held liable to pay," in effect,
protected the insured against the possible insolvency of the primary carrier
and consequently dropped down to provide first dollar coverage upon such
insolvency up to policy limits. An excess coverage policy does not drop down
upon a primary insurer's insolvency when the excess policy unambiguously
states that it presupposes primary insurance to be in force and that if such
coverage is not in force the insured is responsible for the lower level of
damages.
Vickodil v. Lexington Insurance Co., 412 Mass. 132, 587 N.E.2d 777 (1992).
Coverage provided by an excess insurer does not drop down where the
underlying insurer becomes insolvent and cannot pay up to its policy limit
where excess insurer agreed only to pay in excess of "commitments made" by
underlying insurer; no drop down absent language to effect that excess
insurer will pay in excess of what underlying insurer both is obligated to pay
and actually does pay.
Michigan Morbark Industries, Inc. v. Western Employers Insurance, 429 N.W. 2d 213
(Mich. App. 1988). Excess insurers provided umbrella coverage for liability in
excess of $1,000,000. Upon insolvency of primary insurers, insured claimed
that excess insurers were liable for the whole amount. The court disagreed,
holding that liability of excess insurers was only for an amount over
$1,000,000, and not as primary insurance in the case of insolvency.
Mississippi
Caldwell Freight Lines, Inc. v. Lumbermans Mut'l 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 the catastrophe policy prevents
“drop down” where the language provides that the catastrophe insurer is
only liable for the “amount in excess of sums actually payable under the
terms of the ‘underlying insurance.’” A secondary aspect of the catastrophe
policy providing for umbrella coverage in the event that there is no other
insurance applicable did nothing to “drop down” the catastrophe policy to
primary coverage. The applicable limit of insurance was never reached in the
catastrophe policy, so no duty to defend arose. In sum, the language of the
catastrophe policy controls whether or not the policy will drop down in the
event of the primary insurer’s insolvency.
Nat’l Union Fire Ins. Co. v. Miss. Ins. Guar. Ass’n, 990 So. 2d 174 (Miss. 2008). The
U.S. Court of Appeals for the Fifth Circuit certified a question to the Supreme
Court of Mississippi of whether a solvent insurer’s coverage containing an
“other insurance” clause must be exhausted under Mississippi law prior to
initiation of the statutory coverage of the Mississippi Insurance Guaranty
Association where the “other [primary] insurance” is provided by an insurance
company that has become insolvent. The state supreme court described this
clause as providing primary insurance in excess of any other primary insurance