An appellate court in Texas reversed summary judgment for an excess insurer, finding that the primary insurers did not have to exhaust policy limits before an excess insurer was obligated to pay for loss in excess of the primary insurers’ payments.  Plantation Pipe Line Co. v. Highlands Ins. Co., 2014 WL 4346160 (Tex. App.—Eastland Aug. 29, 2014).

The insurer had a leak in one of its underground oil pipelines requiring recovery of lost oil and environmental remediation.  The issue was thought to be resolved, but the insured was later directed to further remediate the site, resulting in further costs.  The insured had multiple layers of insurance, and a “Special Risk Policy” from an excess insurer.  The underlying insurers all denied the insured’s claims due to pollution exclusions contained in their policies, but later settled for less than the full limits of the policies.  The insured claimed the balance of the proceeds from the excess policy.

The excess insurer claimed it did not owe the insured because the full policy limits of the primary policies had not been exhausted.  The court of appeals, however, held that the actual language of the excess policy, in fact, did not require exhaustion of “full policy limits.”  Instead, it found that the policy stated that excess coverage attached when the underlying insurers have paid the full amount of their respective  “ultimate net loss.”  It concluded that the definition of “ultimate net loss” included obligations to pay the insured by reason of adjudication or settlement.