The Tenth Circuit Court of Appeals upheld summary judgment in favor of an excess liability insurer sued by its insured for breach of contract and bad faith for not proactively investigating claims against the insured and for refusal to tender its limits in initiation of settlement negotiations, making an Erie guess that no such affirmative duties existed under Oklahoma law for the excess insurer until the primary policy was exhausted. SRM, Inc. v. Great American Ins. Co., 2015 WL 5011719 (10th Cir. Aug. 25, 2015).

The insured was sued after its truck collided with a train. Three train workers sued the insured’s primary insurer. The excess insurer received notice of the claims and monitored the case for potential exposure under its policy. The primary insurer projected exposure in excess of the primary policy limits. The insured demanded policy limits by both insurers, arguing that exposure could exceed the combined limits of insurance. The primary insurer offered its limits, but the excess insurer declined, advising that additional discovery was required and that the case would likely settle in mediation. The excess insurer’s counsel estimated the damages to exceed combined policy limits, but believed a jury verdict would be less. The case eventually settled for an amount greater than combined limits.

The insured then sued its excess insurer for the excess it paid in settlement, alleging that the excess insurer’s failure to tender policy limits caused a delay in negotiations and the plaintiffs were willing to settle for policy limits earlier in litigation. The district court found that an excess insurer’s contractual duties to an insured are not triggered until the primary insurer’s policy limits have been exhausted, noting that the policy provided that unless primary insurance limits were exhausted or the insured faced a claim not covered by a primary insurer’s policy, the excess insurer would not be obligated to assume charge of investigation, settlement or defense of any claim or suit against the insured. Summary judgment in the insurer’s favor was granted.

The Tenth Circuit affirmed, ruling that no duty by an excess insurer exists to investigate, initiate settlement negotiations, or proactively tender policy limits in the face of unambiguous policy language and absent a settlement demand from plaintiffs or proposed settlement agreement from a primary insurer.