Primary v. Excess Insurance: Vertical and Horizontal Exhaustion of Policy Limits Priority and Allocation of Coverage

Resolving when and in what order a policyholder may access primary and excess insurance coverage is always challenging. This is particularly true when there are multiple-years of layered primary and excess policies to cover claims made or settled long after the insurance policy expired. Many policies attempt to specify the order of coverage access and often make benefits available only after "other insurance" has been exhausted.

In Montrose Chemical Corp. v. The Superior Ct. of Los Angeles Cty, the court held that “other insurance” clauses do not clearly specify whether a rule of horizontal or vertical exhaustion and that the analysis is governed instead by other policy provisions, such as those addressing the attachment of liability and information contained within the schedules of underlying insurance in the excess policies. Policyholders can identify which policy years have the best coverage, collect, and leave the carriers to resolve further allocation among themselves.

Nonetheless, carriers may still hold a great deal of power by refusing to settle until after concluding allocation matters.

Listen as our authoritative panel discusses this ruling, how policyholders benefit, and why the impact of this decision is not limited to California jurisdictions.