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insurance, and that Mission was not liable for expenses when they were
included in other valid and collectible insurance. Thus, Mission had a duty to
pay defense costs "only if the accident was not covered by underlying
insurance." Moreover, under "ultimate net loss" provisions of the policy, the
court held Mission was not liable for any defense costs until the limits of the
primary insurance policy had been exhausted. "Excess carriers have no
obligation to defend or to contribute to a settlement or judgment where the
final loss figure, whether by judgment or settlement, is within the primary
coverage limit . . . ."
Lechner v. Scharer, 145 Wis. 2d 664, 429 N.W. 2d 491 (Wis. App. 1988). Where
primary insurer became insolvent, the Court of Appeals held that the
insolvency caused the excess insurer to "drop down" and become the primary
coverage.
Seats, Inc. v. Nutmeg Ins. Co., 178 Wis. 2d 219, 504 N.W.2d 613 (Wis. Ct. App.
1993). Nutmeg issued an umbrella liability policy to Seats which provided
coverage in excess of a primary policy issues by Holland‐America. When
Holland‐America became insolvent, Seats argued that the Nutmeg policy
must drop down to occupy the position of the Holland‐America policy. The
court held that the policy language required Seats to maintain underlying
insurance coverage. Thus, the Nutmeg policy did not drop down, and
Nutmeg was not required to pay defense and/or settlement costs.
Reinsurer's Liability
Second Circuit
Commercial Union Ins. Co. v. Lines, 378 F. 3d 204 (2d Cir. 2004) on remand to
Nos. 02 CIV 0573 (TPG), 03 CIV 7376 (TPG), 2008 WL 2234634 (S.D.N.Y. May 30,
2008). In the reinsurer’s action against the liquidator to vacate an arbitration
award denying the reinsurer’s request for rescission and enjoin further
arbitration as to the reinsurer’s liability for environmental claims against the
insured, the court granted the reinsurer’s motion to vacate the arbitration
award. The court held that the insurer’s liquidation in Bermuda could have
affected the arbitration results and impacted equitable principles. On remand,
the court affirmed the arbitration award and found no prejudice as a result of
redomestication to Bermuda.
Third Circuit Taggart v. Keim, 103 F.2d 194 (3rd Cir. 1939). A Pennsylvania insurance
company in liquidation had entered into a reinsurance treaty which obligated
the company to transfer its entire property in return for reinsurance of all its
assets in the event of insolvency. The agreement was approved by the
commissioner of insurance. When the reinsurer in this transaction
subsequently become insolvent, the insurance company's liquidator was not
entitled to equitable rescission of the transfer of assets.
Fourth Circuit
Safeway Trails v. Stuyvesant Ins. Co., 316 F.2d 234 (4th Cir. 1963). The court
affirmed a dismissal of a declaratory judgment against an insolvent insurer
which attempted to have reinsurance proceeds paid directly to claimants
rather than the receiver.
Fifth Circuit Martin Insurance Agency, Inc. v. Prudential Reinsurance Company, 910 F.2d 249
(5th Cir. 1990). After the insolvency of Transit Casualty Insurance Company, a
Missouri domiciliary, the plaintiff insurance agency paid the
policyholder/claimants and sought reimbursement directly from reinsurers.
The reinsurance certificates at issue contained standard insolvency clauses,
requiring payment to the receiver in the event of insolvency of Transit; thus,
the reinsurance proceeds could be considered assets of the estate. Further,
the reinsurers were exposed to double liability because claims to the