Excess Policy Attachment: Policy Language Prevails
One of the most important issues under excess insurance policies relates to when liability attaches to the excess policy. In recent years, attachment disputes have arisen with increased frequency, particularly under excess D&O insurance policies.
In many large D&O cases which settle for an amount implicating multiple layers within the D&O insurance tower, the insurers raise various actual and potential coverage defenses and then seek to negotiate with the insureds a discount off the limits of the implicated excess policies. In that situation, the primary insurer will pay some, but not all, of its limit of liability in exchange for a release from the insureds, thereby creating a question whether liability then attaches to the excess policies despite the primary insurer failing to pay its entire limit.
In many large claims, all of the excess insurers potentially implicated by the large settlement will collectively agree to contribute a portion of their limit towards the settlement even though the underlying insurers have not paid their full limit. The rationale for that consensual arrangement is that it is in the mutual best interests of both the excess insurers and the insureds to resolve those coverage issues pursuant to a compromise rather than engage in a lengthy and expensive coverage litigation or arbitration proceeding pursuant to which the insurers would pay either nothing or their full limit of liability.