May 29, 2015 Articles

Transition from Primary to Excess Coverage: Effortless Step or Grand Canyon Leap?

An exploration of methodologies and factors to consider in demonstrating the exhaustion of underlying coverage in order to transition to its excess layers of coverage

by Patrick J. McGrath

Excess insurance, by its very nature, applies only when primary insurance has been exhausted by payments made or other measurable value considerations by either the policyholder or primary insurer. Excess insurance insures against a loss as specified within the language of the policy as a pledge to indemnify or reimburse the insured for amounts paid in excess of the underlying coverage.

Typically, an excess insurer has no duty to settle or respond to a claim unless and until the primary policy limits have been exhausted.[2] This axiom flows directly from the terms and provisions of the excess insurance policy.

This article explores methodologies and factors to consider in demonstrating the exhaustion of underlying coverage in order to transition to its excess layers of coverage.

Methods for Proving an Underlying Policy’s Exhaustion

Although an insured may demonstrate an underlying insurance policy exhausts for the purpose of triggering coverage under an excess policy, courts have not adopted a uniform test for determining how an insured must show such exhaustion. Some courts have not articulated any standard for demonstrating underlying exhaustion. Other courts, which have explained how exhaustion should be established, generally recognize that, absent limiting language in the excess policy,[3] an insured may establish an underlying policy’s exhaustion through several methods:

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