The U.S. Fifth Circuit Court of Appeals has held that an excess insurer’s policy obligations did not attach where the primary insurer settled claims against its insured for less than policy limits.Martin Resource Mgmt. Corp. v. Axis Ins. Co., 803 F.3d 766 (5th Cir. 2015).
The insured sought recovery from its primary and excess insurers for losses suffered and settled with its primary insurer for less than primary limits. It argued that if it paid the difference between primary limits and the settlement amount, the excess policy attachment point is reached. The excess insurer moved for summary judgment arguing that the terms of the excess policy calling for “actual payment under such Underlying Insurance” required the primary insurer (and no one else) to actually pay the primary limits. Summary judgment was granted.
The Fifth Circuit affirmed, holding that the excess policy unambiguously precluded exhaustion by below-limit settlement and that such exhaustion must be by the primary insurer. It further found that other provisions of the excess policy confirm that it unambiguously bars the insured from exhausting the primary policy by paying the difference between the underlying limit of liability and a below-limit settlement.