Excess Insurance Dropdown Question

Excess Insurance Drop Down Question

February 2006

How Insolvency of Primary Carrier Affects Excess Coverage

Summary: By definition and longstanding principle, excess liability insurance comes into play not until all other valid insurance has been exhausted in paying a loss. However, if the primary limits have not been exhausted due to payment of claims, but rather, are not available to apply to existing claims due to the insolvency of the primary carrier, is the excess insurer required to fill the void and drop down to pay the sums that the insured has become legally obligated to pay? This article explores the current legal thinking on the subject.

Topics covered:Legal decisions against drop downLegal decisions in favor of drop downConclusion

Legal Decisions against Drop Down

Legal opinion is split rather simply into those courts that favor drop down and those that do not. The overwhelming majority opinion is that the insolvency of the primary carrier does not mean that the insured’s excess carrier has to drop down to primary coverage. The following cases support that opinion.