Recent Developments in Excess Policy Language Requiring Exhaustion of Primary Limits

Since the seminal case of Zeig v. Massachusetts Bonding & Insurance Co., 23 F.2d 665 (2d Cir. 1928), courts have sent conflicting signals regarding whether an underlying carrier’s settlement below policy limits meets exhaustion requirements and triggers excess coverage.[7] Some courts have held that the gap between a primary or underlying policy and an excess policy does not trigger excess coverage.[8] Other courts permit functional exhaustion, whereby the insured settles with a primary or underlying carrier for less than full limits, yet the policy limits are considered to be “exhausted.”[9] But courts in the past six years have provided additional guidance consistent enough to constitute a basic principle: If an insuring agreement or exhaustion provision unambiguously requires that primary or underlying carriers pay full limits under their policies before excess coverage is triggered, it will be enforced. If a policy is unspecific about who must pay, howlimits are to be exhausted, and whether full limits must be exhausted, courts allow functional exhaustion by construing the language against the excess insurer, often citing public policy reasons for functional exhaustion.
               
Even the recent court opinions permitting functional exhaustion have consistently acknowledged that excess carriers are permitted to require actual exhaustion through actual payment of legal currency, but the courts have concluded excess carriers are out of luck where the policy language does not clearly require it.[10] The collective admonition by courts in recent decisions to excess carriers who argue that exhaustion through actual payment of full policy limits by underlying carriers is required is that’s what the policy language should clearly say. Excess carriers should embrace this plain language approach, not scorn the courts for doing what insurers have uniformly told courts they should be doing in any coverage dispute: applying what they perceive to be the plain language.
               
The collective admonition to excess carriers in recent decisions is similar to the admonition from the March Hare to Alice in Alice’s Adventures in Wonderland:

Interpreting excess insurance exhaustion wording in light of the string of recent cases is important not only for excess insurance carriers but also for claimants, insureds, and primary carriers considering whether to settle for less than primary policy limits. There will be close calls on whether particular policy language permits functional exhaustion, but the developing case law provides useful signposts. Focusing on the policy language, not theoretical or actual harm to excess insurers, should help claims adjusters, insureds, and coverage counsel in making litigation, valuation, and settlement decisions.

Zeig—Where It All Began

Ongoing efforts of insureds over the past 80 years to settle with a primary carrier for less than limits, and courts considering such settlements as exhausting primary policy limits, successfully began with the Second Circuit’s 1928 decision in Zeig v. Massachusetts Bonding & Insurance Co.[12] The insured, Zeig, experienced a burglary loss but had different layers of first-party burglary insurance.[13] Zeig had an excess burglary insurance policy that required at least $5,000 in primary coverage; instead of carrying the minimum of $5,000 in primary coverage, Zeig had three underlying burglary insurance policies covering the first $15,000.[14] Zeig settled his claims under these primary policies for $6,000 but sought to recover an additional $5,000 in excess coverage.[15]

The excess policy provided that it shall apply and cover only after all other insurance herein referred to shall have been “exhausted in the payment of claims to the full amount of the expressed limits” of such other insurance.[16] The excess carrier argued that this policy language required the underlying carriers to make actual payments of full policy limits before coverage under the excess policy was triggered.[17] Accordingly, the excess carrier refused to pay under the policy, arguing that the underlying carriers had settled for less than the “full amount of the[ir] expressed limits,” thereby failing to exhaust policy limits and not triggering excess coverage.[18]

The Second Circuit rejected the argument that exhaustion of the limits of the underlying insurance required the insured to have actually collected the full amount of the underlying policies from the insurers.[19] The court held that it would be “unnecessarily stringent” to require the insured to actually collect the full amount of the primary coverage before the underlying policies could be considered exhausted; instead, the court formulated the idea of functional exhaustion—the excess carrier must pay, regardless of how the underlying insurer satisfied the payment obligation.[20] The court concluded that claims are paid to the full amount of the policies if they are settled and discharged, rendering the primary coverage exhausted.[21] Without citing any precedent, the court stated that “payment” need not be interpreted “as only relating to payment in cash” but is often used to refer to “satisfaction of a claim by compromise, or in other ways.”[22] The court reasoned that the excess carrier

Although subsequent courts have often cited the above passage and rationale of Zeig—promotion of settlement and no harm to the excess insurer—it is noteworthy that the court looked at the plain language of the policy and employed its public policy rationale only because the court considered the policy’s language ambiguous. The court stated that “[i]t is doubtless true that the parties could impose such condition precedent [of the primary policies being exhausted only by payment and collection of legal tender], if they chose to do so,” but the court found the language ambiguous because it could “see nothing in the clause before [it] to require a construction so burdensome to the insured.”[24] In other words, the court looked first to the policy’s plain language, which did not expressly require actual payment of money for exhaustion or some other specification regarding the manner in which exhaustion was to occur. Without further indication from the policy language and without finding sufficient reason to impose such a requirement, the court declined to do so.

Exhaustion of Limits Post-Zeig

Zeig and the public policy rationale influence. Numerous courts followed Zeig’s lead and adopted the same public policy rationale, expanding beyond first-party insurance, such as the burglary insurance at issue in Zeig. Many of these cases, however, took place in Louisiana and Wisconsin, which have direct-action statutes permitting claimants to sue insurers directly, prior to obtaining a judgment against an insured.[25] For instance, in Benroth v. Continental Casualty Co., the claimant relied on Louisiana’s direct-action statute to sue an insured’s primary and excess auto liability carriers after a car accident.[26] The claimant settled with the primary carrier for less than the primary policy limit and released the insured from liability for damages, with the exception of any liability the excess policy covered.[27] The claimant gave a credit for the gap between the primary policy limit and the amount actually paid, such that the excess insurer was only obligated to pay amounts exceeding the primary policy limit.[28] The court concluded that the credit for the gap sufficed to trigger the excess policy, citing Zeig and noting that the excess carrier’s policy did not expressly require that the primary coverage be exhausted by actual payment of money.[29]

Reliance on Zeig continued over the next several decades. In Gasquet v. Commercial Union Insurance Co., the Louisiana Court of Appeals held that coverage under an excess policy was triggered where an insured, claimant, and underlying carrier settled for less than the full primary policy limits, and the excess carrier was given a credit for the gap in coverage between the settlement amount and the excess policy’s attachment point.[30] The excess policy stated that “[l]iability under this policy with respect to any occurrence shall not attach unless and until the insured, or the insured’s underlying insurer, shall have paid the amount of the underlying limits.”[31] The excess carrier argued that because neither the insured nor the underlying carrier had paid the underlying limits, it had no liability under the excess policy.[32] The court disagreed, reasoning that because of Louisiana’s direct-action statute, the excess carrier’s liability was fixed as of the time of the accident and the excess carrier is independently liable to the claimant, so the underlying limit did not need to be paid in currency, separate from a credit up to the full primary policy limits.[33]
               
In Wisconsin, another direct-action state like Louisiana, two cases—Teigen v. Jelco of Wisconsin, Inc.[34] and Loy v. Bunderson[35] —have led to what has become known in Wisconsin and Minnesota as a Loy-Teigen agreement.[36] A Loy-Teigen agreement allows an insured and claimant to settle with a primary carrier for less than the full limits and to pursue any additional recovery in excess of the primary limits from an excess carrier as long as the insured or claimant “swallow[s] the gap” between the amount of the settlement and the primary limits.[37] The courts permitting such agreements did so to encourage “partial settlements in future cases, thereby fostering effective and expeditious resolution of lawsuits.”[38] But even in these cases, which permitted partial settlement with a primary carrier to trigger excess coverage, the courts were not faced with unambiguous policy language in an excess policy.[39] In fact, Teigen did not even analyze the excess insurer’s policy language.[40]
               
Outside direct-action states, courts also began following Zeig.In Stargatt v. Fidelity and Casualty Co. of New York, a bankrupt securities brokerage insured had a $50,000 deductible and a $250,000 primary policy for securities claims made against it; certain underwriters at Lloyd’s of London provided the next $750,000 in coverage.[41] The insured’s bankruptcy receiver settled with the primary carrier for $135,000. Because of the settlement for less than the primary policy’s limits, Underwriters argued they had no liability under the excess policy because their policy was triggered “only when the Primary Policy in the amount of $250,000 . . . has been exhausted.”[42] The Federal District Court of Delaware, applying Delaware law, rejected the argument that “has been exhausted” should be construed as “actually paid,” relying on the rationale from Zeig that an excess insurer has no “rational advantage” in requiring that actual payment be made, so long as the excess insurer is liable only for amounts in excess of the primary policy.[43]
               
More recently, in Koppers Co., Inc. v. Aetna Casualty & Surety Co., the Third Circuit applied Pennsylvania law and concluded that settlement with primary or underlying carriers “functionally ‘exhausts’ primary coverage and therefore triggers [an] excess policy—though by settling the policyholder loses any right to coverage of the difference between the settlement amount and the primary policy’s limits.”[44] The court concluded that the primary policies had been “exhausted” by way of settlement, regardless of the settlement amount, and coverage under the excess policies was triggered.[45] Like the excess policy in Zeig,the excess policies at issue did not contain any specific language regarding the manner in which the underlying policies were to be exhausted.[46]

The shift toward enforcement of plain language of excess policies. Although some courts have continued to invoke Zeig and public policy reasons for permitting functional exhaustion, courts have generally shifted their focus from simply relying on public policy reasons, such as promotion of settlement, to carefully analyzing the policy language to determine whether a settlement of an underlying policy triggers excess coverage.[47] For instance, in Rummel v. Lexington Insurance Co., the court analyzed whether an excess policy was triggered where underlying insurers had not paid full limits under their policies.[48] The court noted that whether the underlying policies should be considered exhausted so as to trigger the excess policy was something that had to be resolved by “the facts of this particular case and on the language of the individual insurance contract.”[49] The excess policy’s insuring agreement stated that “[l]iability of the Company under this policy shall not attach unless and until the Insured’s Underlying Insurance has paid or has been held liable to pay the total applicable underlying limits.”[50] The court scrutinized the clause “has paid or has been held liable to pay,” noting that the present perfect progressive tense denotes “action in progress in the past that could possibly continue into the future,” and concluded that being held liable to pay “is a completely different circumstance than actually handing over a cash payment.”[51] The court noted that other policy provisions supported interpreting the policy as not requiring actual payment, and that while the excess carrier “could have included explicit language that would have insisted upon such a requirement,” it failed to include such a condition precedent.[52] In fact, the court concluded that the policy unambiguously anticipated situations where the underlying policies would not be exhausted by full payment in cash.[53] Therefore, the court concluded that the excess policy did not require actual payment in cash as a condition precedent to coverage.[54]
               
Two notable cases that continued the trend of focusing on the policy language to determine whether underlying policies had been exhausted so as to trigger excess coverage were Comerica, Inc. v. Zurich American Insurance Co.[55] and Qualcomm, Inc. v. Certain Underwriters at Lloyd’s, London.[56] These cases represent the start of a recent line of cases focusing on the policy language and enforcing language that unambiguously requires exhaustion of full underlying limits through actual payment of money by the insurer. These cases also reflect that some excess insurers have been busy tinkering with policy language in order to enable courts to impose the condition precedent of exhaustion of underlying insurance through actual payment of money, despite the influence of Zeig and other cases such as Loy and Teigen.
               
In Comerica, an insured bank settled five securities fraud class action lawsuits for $21 million.[57] The primary carrier disputed coverage of some of the claims but settled with the insured, agreeing to pay $14 million of the primary policy’s $20 million limit.[58] The insured filled the gap by paying the other $7 million of the settlement but sought recovery from its excess carrier for $1 million, plus defense costs of $1.6 million (amounts above the $20 million primary limit).[59] The excess policy was a following form policy with an insuring agreement that provided that coverage “shall attach only after all such ‘Underlying Insurance’ has been reduced or exhausted by payments for losses.”[60] Another section stated that underlying policy limits had to be depleted by “actual payment of loss” by the underlying insurers in order to trigger coverage.[61]
               
The insured argued that its payment of the $6 million gap between the settlement with the primary carrier and the primary policy’s limit was the “functional equivalent of exhausting the primary policy limit because it exposed [the excess carrier] to no greater liability than if [the primary carrier] had made the payment,” thereby triggering excess coverage.[62] The court disagreed and concluded that the policy’s plain language required actual payment by the underlying insurer, noting that “[p]ayments by the insured to fill the gap, settlements that extinguish liability up to the primary insurer’s limits, and agreements to give the excess insurer ‘credit’ against a judgment or settlement up the primary insurer’s limit of liability are not the same as actual payment.”[63] Because actual payment had not been made, the excess carrier had no obligation to contribute to indemnity or defense costs.[64]
               
The court rejected the argument that other policy provisions should be read as permitting the insured to fill the gap by its own payment where underlying insurance had lapsed, the underlying insurer became insolvent, or the underlying insurance was exhausted by a claim before the excess policy’s effective date.[65] The court reasoned that those situations were not at issue and that, furthermore, they undercut the insured’s “argument that it should be able to fill the gap by its own payment, since the possibility of such an instance apparently occurred to the parties and they chose not to include the present scenario among the circumstances where gap payments by the insured would be acceptable.”[66] In reaching its holding, the court in Comerica parted company with the Zeig line of cases that relied on public policy arguments. The court noted that cases relying on Zeig when addressing exhaustion did so in the context of finding an ambiguity in a policy’s definition of “exhaustion” or because the excess policy was not specific regarding how the primary insurance was to be discharged.[67] The court rejected the notion that public policy arguments could supersede unambiguous policy language.
               
Similarly, in Qualcomm, Inc. v. Certain Underwriters at Lloyd’s, London, the court held that the insured was not entitled to excess coverage because it settled with the primary insurer for less than the primary policy’s full limits, even though the insured agreed to pay the gap between the primary policy limit and the excess policy’s attachment point.[68] The insured argued that with the primary insurer paying part of the policy and with the insured filling the gap by paying the remainder, the excess insurer was obligated to indemnify it for unreimbursed litigation expenses and settlement costs exceeding the primary policy’s limit.[69] The court focused on the excess policy’s exhaustion clause, which stated that the excess carrier “shall be liable only after the insurers under each of the Underlying Policies have paid or have been held liable to pay the full amount of the Underlying Limit of Liability.”[70]
               
The court held that the excess carrier’s obligations were unambiguously triggered only after the underlying carrier actually paid the full amount of its underlying limits:

Because the primary carrier did not actually pay its full limits, the court concluded that the excess carrier’s obligations were not triggered. The court stated that it was bound to apply the clear meaning of the policy’s provisions, which had to be interpreted in their popular and ordinary sense.[72] The court refused to interpret “paid” when used in the phrase “have paid . . . the full amount of the Underlying Limit of Liability,” as encompassing anything other than a “payment in cash,” rejecting the interpretation in Zeig that “payment” also signified “the satisfaction of a claim by compromise, or in other ways.”[73] The court found Zeig’s interpretation of “payment” to be strained and that “[a] ‘settlement plus credit’ does not constitute ‘payment’ of liability limits as that term is commonly and ordinarily understood.”[74] The court also dismissed the argument that public policy concerns should override the policy language:

Exhaustion of Limits Post-Qualcomm: What Courts Have Recently Said

Qualcomm was not the final word on whether exhaustion of underlying policies requires actual payment by the underlying insurers. In fact, the past six years appear to have resulted in more cases interpreting exhaustion language than the previous 80 years combined. Some courts have concluded that actual payment of full limits by underlying insurers is not required, while other courts have concluded that actual payment by underlying insurers of full limits is a condition precedent to coverage. Despite the differing results, recent decisions are consistent in how they have reached their conclusion; they have focused on whether the policy language unambiguously requires an underlying carrier to exhaust policy limits through actual payment of money.
               
Because of the number of cases from the past six years addressing exhaustion language and the depletion requirement and the varying conclusions, it is helpful to look at policy language that courts have concluded unambiguously requires actual payment of money by an underlying carrier to exhaust limits:

Unambiguous Policy Language Requiring Actual Payment of Money

               
Some of the recent decisions concluding that excess policy language unambiguously required exhaustion of underlying policy limits by actual payment of legal currency from underlying insurers have distinguished the exhaustion requirement from policy conditions such as cooperation or notice requirements.[76] These courts have done so by noting that the payment by underlying carriers of full policy limits in legal currency goes to the heart of the type of coverage provided by the excess carrier because it was within the insuring agreement.[77] For instance, in Goodyear Tire & Rubber Co. v. National Union Fire Insurance Co., the Sixth Circuit stated that the excess policy “provision at issue here is where the rubber hits the road: the agreement’s Insuring Clause, under whose terms [the excess carrier] undisputedly did not agree to provide the coverage that [the insured] now seeks.”[78] And the Washington Court of Appeals in Quellos Group LLC v. Federal Insurance Co. stated that requiring exhaustion by payment of full policy limits in legal currency by underlying carriers “reflects the distinguishing characteristic and function of an excess insurance policy.”[79] Because the courts applying the plain language of the excess policies requiring exhaustion of full policy limits by payment of legal currency from underlying carriers view such requirement as going to the heart of the coverage agreement, in contrast to notice and cooperation requirements, the courts have not required excess carriers to show prejudice where exhaustion did not occur.[80]
               
In contrast to the above cases concluding that the exhaustion requirement was unambiguous, the following recent cases concluded that the policy language did not require the underlying insurers to make actual payment of full limits of their policies in order to trigger excess coverage:

Policy Language Not Requiring Actual Payment of Money by Underlying Insurers to Exhaust Full Limits

Specific Lessons from Courts Permitting Functional Exhaustion

Although courts in the past six years have focused on whether an excess policy specifically requires an underlying insurer to pay full policy limits as a condition precedent to coverage, it is not always clear whether a court will decide that policy language is ambiguous or unambiguous. The best lessons from the plethora of recent cases are from the courts opining on what a policy should have said or noting what the policy did not say.
               
If an excess policy does not specify who must actually pay in order to exhaust the limits, or specify howpayment is to be made, a court will likely conclude the policy is ambiguous and permit an insured to fill the gap. For instance, in Trinity Homes LLC v. Ohio Casualty Insurance Co., the Seventh Circuit concluded that an umbrella policy was ambiguous because although it stated that the primary general liability policy “is exhausted when the policy limit has been completely expended, it [did] not clearly provide that the full limit must be paid out by the CGL insurer alone.”[81] Similarly, in Pacific Employers Insurance Co. v. Clean Harbors Environmental Services, Inc., the court noted that to avoid ambiguity, the excess insurer should have provided “that the sole method of exhaustion is payment by the underlying insurer.”[82] And in Chartis Specialty Insurance Co. v. Queen Anne HS, LLC, the court observed that the excess policy lacked a definition of “actual payment” and failed to state that “actual payment requires payment of the full limit of an underlying policy by the lower-tier carriers.”[83] The Queen Anne court also noted that “actual payment” can mean payment in cash or payment by a promise to pay, and concluded that an insured’s execution of a promissory note as part of a settlement qualified as “actual payment.”[84] Therefore, a policy should also specify that payment should be made by actual transfer of assets in the form of legal currency or something convertible to legal currency.
               
In addition to including language that exhaustion requires that underlying carriers themselves pay full policy limits in legal currency, an excess policy should contain “a clear statement that settling for less than the full amount of coverage voids the excess coverage” in order to make the “exhaustion provision absolutely clear.”[85] Or, stated differently, an excess policy should “expressly preclude the insured from filling the gap to exhaust the underlying policy.”[86]
               
The courts that, in the past six years, have permitted functional exhaustion have distinguished policy language in cases in which the policy language unambiguously requires underlying carriers to actually pay full limits as a condition precedent to coverage. The courts allowing functional exhaustion generally agree that the following policy language would preclude functional exhaustion:

Therefore, an excess carrier should consider its own policy language to determine whether it specifies who must pay, how limits are to be exhausted, whether full limits must be exhausted, and whether there is any wording precluding an insured from filling the gap to exhaust any underlying policy. Now that a growing number of courts have analyzed exhaustion language and related provisions in excess policies, carriers must look at their own policy language and what courts in the relevant jurisdictions have said about exhaustion provisions.

Actual or Theoretical Harm? Who Cares?

Excess insurers’ insistence on full exhaustion of underlying limits through actual payment by underlying insurers raises the question of whether there is any harm to excess insurers if functional exhaustion is permitted. In other words, should excess carriers insist on actual payment by underlying insurers of full policy limits?
               
Numerous insurers and authors over the years have stressed the importance of exhaustion of full underlying limits by actual payment from underlying insurers.[89] Primary carriers play a gatekeeper role regarding claims. Excess carriers provide substantial policy limits for a relatively low premium because they rely on primary carriers’ underwriting of a risk and claims adjustment process, including investigation, review, and analysis of a claim, defense of a claim, and a determination of whether there is coverage.[90] It has been argued that functional exhaustion of underlying policies deprives excess carriers of the natural vetting process that primary carriers engage in for both liability and damages.[91] Another potential harm to an excess carrier would occur if functional exhaustion were to allow a primary carrier to stop defending an insured and shift defense costs to the excess carrier, if the excess policy imposes payment of defense costs upon exhaustion of underlying limits.[92] Functional exhaustion also carries the potential for settlement manipulation or inflation where it involves a partial settlement between a claimant, insured, and underlying carrier.
               
In the end, whether the harm of functional exhaustion is actual or theoretical, significant or insignificant, appears inconsequential. The recent string of cases shows that courts will allow or not allow functional exhaustion based on whether the policy language permits it, and not focus on public policy or other arguments on why courts should or should not permit functional exhaustion of underlying limits. This is helpful for everyone—claimants, insureds, primary carriers, and excess carriers—so that everyone can make more informed decisions about settlement and litigation. There will be close calls on whether particular policy language permits functional exhaustion, but the developing case law provides useful signposts. Focusing on the policy language, not theoretical or actual harm to excess insurers, should help claims adjusters and insureds make litigation, valuation, and settlement decisions.
               
Some have suggested that primary or underlying carriers agreeing to partial settlements or settlements with insureds for less than full limits are “disreputable,” and insurers offering excess coverage might want to avoid offering coverage excess to such carriers.[93] But it might be difficult to find a carrier that has not entered into a partial settlement or settlement for less than limits at some point. A primary carrier does not have a duty to the excess carrier to refrain from entering into a settlement for less than limits. In fact, there might be good reason to do so where the carrier and insured disagree on whether there is coverage, the extent of coverage, or available limits. Excess carriers should instead ensure that their policy language (or the underlying policy language, if following form) takes into account that settlements for less than limits might occur.
               
In addition, insurers frequently switch hats; they might be an excess carrier on one claim and a primary carrier on the next, or even provide two different layers in a coverage tower on the same claim. One concern a carrier might face is whether it is inconsistent for the carrier to engage in settlements for less than limits on certain claims where it is a primary or underlying carrier and, on other claims, insist that functional exhaustion precludes excess coverage. Such actions should not be construed as inconsistent because, again, the focus should be on the policy language. Primary and underlying carriers must assume that excess carriers have used clear exhaustion requirement language in their policies. Thus, the consistent approach for carriers regarding functional exhaustion is not to condemn it universally but to address it through clear policy language. Insurers consistently ask courts to apply the plain language of the policy. Courts, arguably, are doing that regarding exhaustion requirements in excess policies, and carriers should be writing their policies and trying to enforce them accordingly.

Conclusion

Claim handlers, insureds, primary carriers, and excess carriers must carefully consider excess policy exhaustion requirements when discussing settlement possibilities. Failure to do so might remove millions of dollars of excess coverage. Excess carriers should take advantage of the recent cases addressing exhaustion requirements in excess policies and compare their current policy language to language analyzed by courts in relevant jurisdictions in order to determine whether an insured’s settlement for less than limits triggers excess coverage. Courts that have held excess policy provisions to be ambiguous and allowed settlement by an insured with a primary or underlying carrier for less than full limits as constituting “exhaustion” have noted that the excess carriers were free to word their policies as they wanted, making them as specific as they wanted, but they failed to provide the specific wording that other carriers had used in policies where there was no ambiguity.[94] Excess carriers should be mindful of these admonitions and adjust their policy wording accordingly in order to say what they mean, and not simply mean what they say.

Keywords: excess coverage, exhaustion of underlying limits, functional exhaustion, actual payment, trigger, settlement

Bradley M. Jones and Anthony J. Alt are with Meagher & Geer, P.L.L.P., in Minneapolis.

[1] The authors are with Meagher & Geer, P.L.L.P., in Minneapolis. Meagher & Geer advises and represents clients throughout the United States. The firm has a particular focus on insurance coverage, working with insurance carriers and representing professionals. The matter contained herein does not constitute legal advice and is for informational purposes only.
[2] E.g.,15 Couch on Insurance § 220:32, Nature of Excess and Umbrella Policies.
[3] Quellos Grp. LLC v. Fed. Ins. Co., 312 P.3d 734, 741 (Wash. Ct. App. 2013) (quoting Diaz v. Nat’l Car Rental Sys., Inc., 17 P.3d 603, 605 (Wash. 2001)).
[4] Thomas M. Brower, “Partial Settlements by Primary Insurers,” 29 Tort & Ins. L.J. 536, 536 (1994).
[5] See, e.g., Trinity Homes LLC v. Ohio Cas. Ins. Co., 629 F.3d 653, 658 (7th Cir. 2010) (applying Indiana law and concluding that exhaustion language in umbrella policy was ambiguous and could be satisfied by insured’s settlement with primary insurers for less than limits and insured “takes responsibility for the remainder”); Drake v. Ryan, 514 N.W.2d 785, 789 (Minn. 1994); Teigen v. Jelco of Wis., Inc., 367 N.W.2d 806, 810 (Wis. 1985).
[6] See Lee M. Brewer & Barbara A. Ewing, “Exhaustion—What Does It Mean?,” 16 Fid. L.J. 207, 208 (2010) (stating that “[t]he principle of excess insurance is based on the consideration that the upper layers of coverage will not often be needed, so their cost can be lower than comparable coverage at a lower level”).
[7] Compare U.S. Fire Ins. Co. v. Lay, 577 F.2d 421, 423 (7th Cir. 1978) (concluding that excess carrier’s coverage obligations were not triggered where settlement agreement between claimant and primary insurer was for less than primary insurer’s policy limits), with Stargatt v. Fid. & Cas. Co. of N.Y., 67 F.R.D. 689, 691 (D. Del. 1975) (holding that it was not necessary that primary policy limits actually be paid in order to trigger excess coverage), aff’d without op., 578 F.2d 1375 (3d Cir. 1978).
[8] E.g., Citigroup, Inc. v. Fed. Ins. Co., 649 F.3d 367, 372–73 (5th Cir. 2011); Great Am. Ins. Co. v. Bally Total Fitness Holding Corp., No. 06-C-4554, 2010 U.S. Dist. LEXIS 61553, at *16–18 (N.D. Ill. June 22, 2010).
[9] E.g., Koppers Co., Inc. v. Aetna Cas. & Sur. Co., 98 F.3d 1440, 1454 (3d Cir. 1996) (stating that “settlement with the primary insurer functionally ‘exhausts’ primary coverage and therefore triggers the excess policy”).
[10] E.g., Chartis Specialty Ins. Co. v. Queen Anne HS, LLC, 867 F. Supp. 2d 1111, 1120–21 (W.D. Wash. 2012).
[11] Lewis Carroll, Alice’s Adventures in Wonderland 62 (Delacorte Press/Seymour Lawrence 1977); see also Brooklyn Bridge, Inc. v. S.C. Ins. Co., 420 S.E.2d 511, 513 n.1 (S.C. Ct. App. 1992) (“The purpose of an insurance policy is to insure. Insurance policies are written by insurance companies. Like Humpty Dumpty, they have the rare privilege of choosing what their words mean. But, unlike Humpty Dumpty, they should say what they mean in advance, not after the fact.”).
[12] 23 F.2d 665 (2d Cir. 1928).
[13] Zeig, 23 F.2d at 665.
[14] Zeig, 23 F.2d at 665.
[15] See Zeig, 23 F.2d at 665.
[16] Zeig, 23 F.2d at 666.
[17] Zeig, 23 F.2d at 666.
[18] Zeig, 23 F.2d at 666.
[19] Zeig, 23 F.2dat 666.
[20] Zeig, 23 F.2d at 666.
[21] See Zeig, 23 F.2d at 666.
[22] Zeig, 23 F.2d at 666.
[23] Zeig, 23 F.2d at 666.
[24] Zeig, 23 F.2d at 666.
[25] La. Rev. Stat. Ann. § 22:1269; Wis. Stat. § 632.24.
[26] Benroth v. Cont’l Cas. Co., 132 F. Supp. 270, 272 (W.D. La. 1955).
[27] Benroth, 132 F. Supp.at 272–73.
[28] Benroth, 132 F. Supp.at 276.
[29] Benroth, 132 F. Supp. at 276& n.6.
[30] Gasquet v. Commercial Union Ins. Co., 391 So. 2d 466, 472 (La. Ct. App. 1980).
[31] Gasquet, 391 So. 2dat 470.
[32] Gasquet, 391 So. 2d at 470.
[33] Gasquet, 391 So. 2dat 471–72. Other Louisiana courts reached similar conclusions. Futch v. Fid. & Cas. Co., 166 So. 2d 274 (La. 1964); Am. Home Assurance Co. v. Commercial Union Assurance Co., 379 So. 2d 757 (La. Ct. App. 1979).
[34] 367 N.W.2d 806 (Wis. 1985).
[35] 320 N.W.2d 175 (Wis. 1982).
[36] Drake v. Ryan, 514 N.W.2d 785, 789 (Minn. 1994) (recognizing such agreements in Minnesota, though the Minnesota Supreme Court did not analyze the policy language).
[37] See Drake, 514 N.W.2d at 789.
[38] Teigen, 367 N.W.2d at 810.
[39] See, e.g., Danbeck Am. Family Mut. Ins. Co., 629 N.W.2d 150, 155–56 (Wis. 2001) (noting that the court in Teigen did not address whether the policy language was ambiguous, and distinguishing Teigen because “public policy, as important as it is, cannot supersede unambiguous policy language or impose obligations under the contract which otherwise do not exist. The generalized public policy favoring settlements is insufficient to justify voiding or refusing to enforce the clear language of the policy in this case.”).
[40] See generally Teigen, 367 N.W.2d 806.
[41] Stargatt v. Fed. & Cas. Co. of N.Y., 67 F.R.D. 689, 690 (D. Del. 1975), aff’d without op., 578 F.2d 1325 (3d Cir. 1978).
[42] Stargatt, 67 F.R.D. at 690.
[43] Stargatt, 67 F.R.D.at 691.
[44] Koppers Co., Inc. v. Aetna Cas. & Sur. Co., 98 F.3d 1440, 1454 (3d Cir. 1996).
[45] Koppers, 98 F.3d 1440at 1454–55.
[46] See Koppers, 98 F.3d at 1450 & n.10, 1454 & n.16.
[47] Compare HLTH Corp. v. Agric. Excess & Surplus Ins. Co., No. 07C-09-102 RRC, 2008 Del. Super. LEXIS 280, at *43–47 (Del. Super. Ct. July 31, 2008) (applying New Jersey and Delaware law, and relying on Zeig and public policy reasons to conclude that primary directors’ and officers’ policies were exhausted by settlement for less than limits, ignoring the plain language of the excess policies), with Intel Corp. v. Am. Guar. & Liab. Ins. Co., 51 A.3d 442, 450 & n.20 (Del. 2012) (applying California law and concluding that the plain language of the excess policy controls, making Zeig and public policy arguments inapplicable).
[48] Rummel v. Lexington Ins. Co., 945 P.2d 970, 977 (N.M. 1997). One primary insurer was insolvent, one primary refused to pay, and the third primary insurer settled for less than policy limits. Rummel, 945 P.2dat 980–81.
[49] Rummel, 945 P.2dat 977.
[50] Rummel, 945 P.2d at 977.
[51] Rummel, 945 P.2dat 978.
[52] Rummel, 945 P.2dat 979.
[53] Rummel, 945 P.2d at 979(noting that the definition of “loss” referred to sums paid or payable in settlement for which the insured is liable “after making deductions for all other . . . insurance (other than recoveries under underlying insurance, whether recoverable or not)” and that the Maintenance of Underlying Insurance provision stated that the excess carrier was still liable to the same extent even if the underlying insurance lapses (emphasis added)).
[54] Rummel, 945 P.2d at 979.
[55] 498 F. Supp. 2d 1019 (E.D. Mich. 2007).
[56] 73 Cal. Rptr. 3d 770 (Cal. Ct. App. 2008).
[57] Comerica, 498 F. Supp. 2d at 1020.
[58] Comerica, 498 F. Supp. 2d at 1020.
[59] Comerica, 498 F. Supp. 2d at 1020.
[60] Comerica, 498 F. Supp. 2dat 1022.
[61] Comerica, 498 F. Supp. 2d at 1022.
[62] Comerica, 498 F. Supp. 2dat 1029.
[63] Comerica, 498 F. Supp. 2dat 1032.
[64] Comerica, 498 F. Supp. 2dat 1034.
[65] Comerica, 498 F. Supp. 2d at 1034.
[66] Comerica, 498 F. Supp. 2d at 1034.
[67] Comerica, 498 F. Supp. 2dat 1030.
[68] Qualcomm, Inc. v. Certain Underwriters at Lloyd’s, London, 73 Cal. Rptr. 3d 770, 773 (Cal. Ct. App. 2008).
[69] Qualcomm, 73 Cal. Rptr. 3dat 774.
[70] See Qualcomm, 73 Cal. Rptr. 3dat 778 (emphasis in original).
[71] Qualcomm, 73 Cal. Rptr. 3d at 778.
[72] Qualcomm, 73 Cal. Rptr. 3dat 778–80.
[73] Qualcomm, 73 Cal. Rptr. 3dat 780.
[74] Qualcomm, 73 Cal. Rptr. 3d at 781 (quoting Danbeck v. Am. Family Mut. Ins. Co., 629 N.W.2d 150 (Wis. 2001)).
[75] Qualcomm, 73 Cal. Rptr. 3dat 785–86 (internal citations and quotation marks omitted).
[76] E.g., Goodyear Tire & Rubber Co. v. Nat’l Union Fire Ins. Co., 694 F.3d 781, 783(6th Cir. 2012).
[77] E.g., Goodyear Tire, 694 F.3d at 783.
[78] Goodyear Tire, 694 F.3d at 783.
[79] Quellos Grp. LLC v. Fed. Ins. Co., 312 P.3d 734, 743 (Wash. Ct. App. 2013).
[80] Goodyear Tire, 694 F.3d at 783; Quellos, 312 P.3d at 743.
[81] Trinity Homes LLC v. Ohio Cas. Ins. Co., 629 F.3d 653, 658 (7th Cir. 2010).
[82] Pac. Emp’rs Ins. Co. v. Clean Harbors Envtl. Servs., Inc., No. 08-C-2180, 2011 U.S. Dist. LEXIS 20000, at *9 (N.D. Ill. Feb. 24, 2011).
[83] Chartis Specialty Ins. Co. v. Queen Anne HS, LLC, 867 F. Supp. 2d 1111, 1117–18, 1121 (W.D. Wash. 2012).
[84] Queen Anne, 867 F. Supp. 2dat 1118.
[85] Maximus, Inc. v. Twin City Fire Ins. Co., 856 F. Supp. 2d 797, 803 (E.D. Va. 2012).
[86] Queen Anne, 867 F. Supp. 2d at 801.
[87] Quoted with approval by Queen Anne, 867 F. Supp. 2d at 1121; Maximus, 856 F. Supp. 2d at 803.
[88] Quoted with approval by Trinity Homes LLC v. Ohio Cas. Ins. Co., 629 F.3d 653, 659 Shepardize (7th Cir. 2010); Maximus, 856 F. Supp. 2d at 803; Schmitz v. Great Am. Assurance Co., 337 S.W.3d 700, 707 n.6 (Mo. 2011).
[89] See, e.g., U.S. Fire Ins. Co. v. Lay, 577 F.2d 421, 423 (7th Cir. 1978); Mass. Mut. Life Ins. Co. v. Certain Underwriters at Lloyd’s of London, No. N10C-11-219, 2014 Del. Super. LEXIS 373 (Del. Super. Ct. Mar. 20, 2014);Michael F. Aylward, “Paying to Play: What Does It Mean to ‘Exhaust’ Underlying Insurance?,” 54 DRI for Def. 27 (May 2012); Brewer & Ewing, supra note 6; David Greenwald, “Partial Settlements by Primary Insurers: A Critique,” 29 Tort & Ins. L.J. 555 (1994); Michael M. Marick,“Excess Insurance: An Overview of General Principles and Current Issues,”24 Tort & Ins. L.J. 715, 729, 737 (1989);John F. O’Connor, “Insurance Coverage Settlements and the Rights of Excess Insurers,” 62 Md. L. Rev. 30 (2003); Scott M. Seaman & Jason R. Schulze, Allocation of Losses in Complex Insurance Coverage Claims § 10.4, Proper Exhaustion Required (Nov. 2013).
[90] Aylward, supra note 89, at 27; Seaman & Schulze, supra note 89, at § 10.4.
[91] Aylward, supra note 89, at 27; Citigroup, Inc. v. Nat’l Union Fire Ins. Co., No. H-06-3666, 2010 U.S. Dist. LEXIS 60128, at *7 (S.D. Tex. May 28, 2010) (stating that the court “may not allow the assured to pay the loss up to the point that it was obligated to have had and used primary coverage because that difference could alter the [excess] carrier’s underwriting calculation”).
[92] Marick, supra note 89, at 729.
[93] Marick, supra note 89, at 737.
[94] Trinity Homes LLC v. Ohio Cas. Ins. Co., 629 F.3d 653, 659 (7th Cir. 2010) (citing various cases in which other umbrella or excess policies had more specific wording and were found unambiguous, but noting that the umbrella carrier before it “could have used similarly clear language in its policy, but it did not, and it must now bear the burden of its ambiguity”).

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