An Exhausting Question for Insurers
Excess insurance policies are typically written so that excess coverage is triggered only by "exhaustion" of specified underlying insurance. The questions of how and when an underlying policy is "exhausted," thereby triggering an excess carrier's duty to defend, are commonly litigated issues. One particular issue that parties routinely dispute is whether a primary carrier's tender of its policy limits through an offer of settlement before the claim against the insured is settled or judgment has been entered constitutes "exhaustion" of the underlying policy.
This very question was posed as a matter of first impression before a Connecticut federal court in Cambridge Mutual Fire Insurance v. Ketchum, No. 3:11-CV-00743 VLB, 2012 WL 3544885 (D. Conn. Aug. 16, 2012). However, that court decided not to answer it. Instead, Cambridge, adopting a minority view, found that there was exhaustion of the primary policy where the claim for damages in the underlying action exceeded the primary carrier's liability limits, thereby triggering the excess carrier's duty to defend, regardless of whether the primary carrier tendered its policy limits.
While it is tempting to construe Cambridge as effectively converting an excess carrier into a "co-primary insurer" with a concurrent duty to defend, it appears that courts in Connecticut instead will look to policy language and consider the "total policy insuring intent" in determining the order of coverage as between insurers, even when both carriers' duties to defend have been triggered.
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