Second Circuit confirms excess insurance is triggered only upon actual payment of all underlying limits

Federal Insurance Company has achieved an important victory in a long-standing insurance coverage litigation concerning the proper trigger of excess directors and officers insurance. DLA Piper represented Federal, a division of Chubb & Son, in the case.

In a much-anticipated decision on 4 June, the US Court of Appeals for the Second Circuit confirmed the position advanced by Federal, holding that Federal’s excess directors’ and officers’ liability insurance policies issued to the former executives of long-defunct Commodore International Ltd (maker of the classic Commodore 64 personal computer) cannot be triggered absent actual payment of the limits of liability of all underlying insurance.

The Second Circuit opinion, Medhi Ali, et al v Federal Insurance Company, authored by Judge José A Cabranes, affirms a precedent-setting decision by District Court judge Richard J Sullivan, Federal Insurance Company v The Estate of Irving Gould, et al, in the Southern District of New York. The Second Circuit held that Federal and Travelers (another excess insurer on the tower) have no obligation under their excess policies until the amount of the underlying insurance limits is paid, even if unpaid exposure in the underlying case or an unpaid settlement reaches the excess insurance layers…

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