On Monday, the Sixth Circuit affirmed dismissal of insurance coverage claims against an umbrella insurer for defense costs associated with asbestos claims. Federal-Mogul v. Continental Casualty, No. 10–1290 (6th Cir. July 11, 2011) (pdf). This ruling leaves the other insurers to pick up the entire defense bill until their limits are exhausted. According to the Court's decision, only then would the umbrella coverage be triggered.
In reaching this conclusion, the Court found that unscheduled primary policies constituted "underlying insurance" that must also be exhausted before the terms of the umbrella policy provided coverage. The umbrella policy did not define "underlying insurance" and only listed one of the three primary policies that were triggered by the asbestos claims.
Consistent with the Seventh Circuit's recent holding in Castronovo v. National Union Fire Insurance Co., 571 F.3d 667, 671 (7th Cir. 2009) (pdf), the Sixth Circuit found that the fact that "underlying insurance" included two policies not specifically scheduled in the umbrella policy. Because plaintiff alleged that those two policies were providing coverage for defense costs, not all underlying coverage had been exhausted. For similar reasons, the umbrella insurer was also able to avoid having to "continue as underlying insurance" and perhaps pay defense costs.