Tenth Circuit Affirms That Primary Insurer’s Insolvency Did Not Trigger Excess Insurer’s Obligation

An Oklahoma corporation distributed a drilling mud viscofier containing asbestos to the oilfield between 1966 and 1985.  Thereafter, the corporation faced multiple personal injury suits based on asbestos exposure.  Its primary insurer from 1975 to 1984, however, was declared insolvent by a New Hampshire court in 2003 before the insurer had paid out any claims for bodily injury on the corporation’s behalf.  The corporation’s excess insurer then filed suit alleging it had no present duty to defend or indemnify the corporation in third-party personal injury actions arising from exposure to this product.

Last week, the Tenth Circuit affirmed the district court’s judgement in favor of the excess insurer.  First, the court explained that the insolvency of the primary insurer was not an “occurrence” under the excess policy, which was defined as “an accident which takes place during the policy period . . . which causes personal injury, property damage or advertising liability.”  Second, the court focused on the policy’s excess clause, which stated that when the primary insurer’s limits are reduced by payment of loss, the excess insurer’s liability was triggered — here, however, the underlying insurer’s inability pay was not payment of loss.  Similarly, the court found that it would be inequitable to read an “other insurance clause” as insuring the solvency of the underlying primary insurer.

The court concluded that because the excess insurer’s duty to defend and indemnify was contingent on future events, specifically until the underlying primary insurance is exhausted by payment of loss, there was no case or controversy and that the district court was correct in dismissing the action.