January 19, 2016 Practice Points

Excess Insurer Not Required to Drop Down Following Insolvency of Primary Insurer

The Montello case is an example of how courts will not rewrite excess liability insurance policies to provide coverage that the parties to the contract did not intend would be provided and for which a premium was not paid

by Michael McCormack

The Tenth Circuit Court of Appeals recently held that an excess liability insurer is not required to drop down and provide indemnity or defense coverage to an insured when the primary insurer becomes insolvent and is not able to honor its obligations under the primary insurance policy. Canal Ins. Co. v. Montello, Inc. , 2015 WL 7597429, 2015 U.S. App. LEXIS 20625 (10th Cir. Nov. 27, 2015).

The issue addressed by the Montello court may arise in toxic tort lawsuits involving alleged exposure to asbestos or other toxins spanning many years and multiple liability insurance policies. Montello, a distributor of products used in the oil-drilling industries, distributed a product which contained asbestos during the years 1966 to 1985. After it was sued by a number of individuals claiming injuries caused by exposure to asbestos, Montello sought coverage under various business liability policies it purchased from various insurers over a period of time. During a portion of the period of time in which the exposure to asbestos occurred, Montello had purchased liability insurance from The Home Insurance Company. Home Insurance was declared insolvent in 2003 and had not paid out any claims for bodily injury on behalf of Montello at the time it was declared insolvent.

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