(Article from Insurance Law Alert, April 2018)
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Applying New York law, the Ninth Circuit ruled that an excess policy unambiguously required exhaustion of underlying limits through payment by underlying insurers, rather than by the insured. Cooper v. Certain Underwriters at Lloyd’s, London, 2018 WL 1548208 (9th Cir. Mar. 30, 2018).
The dispute arose from the settlement of several lawsuits following the bankruptcy of Quality Home Loans, Inc. Plaintiffs sought to recover under a second-tier excess policy issued by Lloyd’s. Lloyd’s denied coverage, citing a provision that defines exhaustion as “by reason of the payment of any claims or losses or costs and expenses . . . . by the insurers of the Underlying Policies.” Lloyd’s argued that there had been no exhaustion because, pursuant to the settlement agreement, the underlying insurer paid only $3.47 million of the $5 million policy limit, with additional amounts paid by the insured. The court agreed, stating that the exhaustion provision “forecloses the possibility of exhaustion through payment by parties other than the underlying insurers.”