Download PDF - Goodmans

coverage. The court held that coverage under a solvent carrier’s insurance
policy containing an “other insurance” clause must be exhausted prior to MIGA
assuming its statutory obligation to pay.
New York
Ambassador Assocs. v. Corcoran, N.Y.L.J. May 12, 1989, at 24, col. 4 (N.Y. Sup.
Ct., May 12, 1989). In a declaratory judgment action, the court held that an
insurer providing the second layer of excess coverage did not drop down upon
the insolvency of the insurer providing the first layer of excess coverage. It
reasoned that the insurance clause providing that the insurer shall pay the
"ultimate net loss in excess of the underlying insurance" indicates that the
second layer excess insurer would pay for the loss beyond the amount
provided for by the underlying policies, irrespective of the fact that the first
layer excess insurer was insolvent.
Ambassador Associates v. Corcoran, 143 Misc. 2d 706, 541 N.Y.S.2d 715
(Supreme Court, New York County 1989), aff'd, 168 A.D.2d 281, 562 N.Y.S.2d
507 (1st Dep't 1990), aff'd, 79 N.Y.2d 871, 581 N.Y.S.2d 276, 589 N.E.2d 1258
(1992). The owners of property which suffered extensive fire damage brought
a declaratory judgment action against the Liquidator of its first‐layer excess
insurer, Mission Insurance and against its second‐layer excess insurer, Home
Insurance Company, seeking a determination that Home's coverage should
"drop down" to cover any losses not covered by other carriers. The New York
Court of Appeals affirmed the decisions below that Home's obligations
depended on the terms of the policy and that, based on those unambiguous
terms, Home was not required to "drop down" and afford coverage.
American Re‐Ins. Co. v. SGB Universal Builders Supply Inc., 141 Misc. 2d 375, 532
N.Y.S. 2d 712 (N.Y. Sup. Ct. 1988). An employer brought a declaratory judgment
action to determine who was responsible for paying an insured employee
under an excess umbrella liability policy when the primary insurer became
insolvent. The court held that New York law did not require excess liability
insurer to "drop down" when the primary insurer becomes insolvent,
especially where the excess liability policy indicates that it will provide
coverage in excess of the underlying insurance policies.
Ohio
Revco D.S. Inc. v. Government Employees Ins. Co., 791 F. Supp 1254 (N.D.
Ohio 1991). Insured had multiple levels of excess insurance coverage above
the level provided by a primary insurer. The insured was sued for injuries and
deaths resulting from the use of a drug manufactured by the insured. The
primary insurer paid out its limit; the first layer excess insurer was declared
insolvent before paying out its limit, so the Ohio Insurance Guaranty
Association paid for claims arising from the insolvency of that insurer; one of
the two second layer excess insurers was declared insolvent before paying
out any monies. The level of the third layer excess insurer was not reached.
In a lawsuit brought by the insured against the second and third layer excess
insurers, the district court, analyzing the language in the various insurance
policies, held: (1) unless an excess insurer expressly agrees to provide "drop
down" coverage, that excess insurer does not have a duty to "drop down"
and assume coverage when an underlying insurer becomes insolvent, (2)
unless an excess insurer expressly agrees to do otherwise, that excess
insurer, when sharing an excess layer of insurance coverage with another
excess insurer on a percentage basis (40%‐60%), has no duty to "drop over"
and assume full responsibility (100%) for claims in the layer when the other
excess insurer in the layer becomes insolvent, (3) unless an excess insurer
expressly agrees to do otherwise, that excess insurer does not have a duty
to defend the insured in a lawsuit unless and until its layer of coverage is
reached, and (4) a waiver by an underlying insurer of its right to deny
coverage for a plaintiff's claims against the insured does not bind an excess
insurer that took no action in defending the insured.