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Large companies generally purchase liability insurance coverage in layers. The first layer is a primary policy that responds initially to an insured's covered loss. Above that are excess policies that respond to covered losses exceeding the primary policy limits. The two types of policies present insurers with different (though overlapping) concerns. A primary insurer is usually most concerned about the coverage provided in its policies-i.e., whether it has a duty to defend the allegations in the complaint and indemnify the insured for an eventual settlement or judgment, and if so, how it can carry out those obligations most effectively and efficiently.
Excess insurers share primary insurers' concerns about the coverage their policies provide, and how best to carry out their coverage obligations when the policies are triggered. In addition, however, an excess insurer must consider whether an allegedly covered loss has actually exhausted the underlying limit, so as to trigger the excess coverage, and it must consider how to appropriately protect its interests before the policy is triggered-while the primary carrier is controlling the handling and defense of the claim.
These different perspectives and concerns may give rise to conflicts of interest between insureds, excess carriers, and primary carriers. In this article, we consider several such conflicts. These include: (1) conflicts in the provision of notice, when it appears a claim may exceed the primary limits and penetrate the excess layer; (2) conflicts in the defense of a claim, when the primary carrier is defending the claim in a way the excess carrier considers inadequate; (3) conflicts during settlement negotiations, when a primary carrier is given the opportunity to settle within its policy limits but is reluctant to do so; (4) conflicts after settlement, if the primary insurer settles for less than the full limits of its policy and seeks to transfer responsibilities to the excess carrier; and (5) conflicts when an excess carrier issues coverage over a self-insured retention, or "retained limit," with the insured itself agreeing to provide primary coverage, or its equivalent.
These are not the only conflicts that may exist, but they usefully illustrate a few of the issues insurers and their counsel may confront in this area of law.
Primary vs. Excess Insurance
Insurance, as noted above, is generally...