Excess E&O Insurer Must Reimburse Defense Expenses Pending Resolution of Insured’s Coverage Dispute with Primary D&O Insurer

The United States District Court for the District of Kansas, applying Kansas law, has held that an excess E&O insurer was required to advance defense costs where coverage under a potentially responsive D&O policy had not yet been resolved and no other coverage was available.  Bedivere Ins. Co. v. Blue Cross & Blue Shield of Kansas, Inc., 2019 WL 5819612 (D. Kan. Sept. 30, 2020).

The insured sought E&O and D&O coverage after it was sued in several antitrust class actions.  The primary E&O carrier acknowledged coverage and ultimately exhausted its policy.  The primary D&O carrier denied coverage, and the insured sued to establish coverage under the D&O policy.

The excess E&O carrier sought a declaratory judgment that the excess E&O policy was not triggered until the primary D&O policy was exhausted.  The excess E&O policy stated that it would “not have any obligation to make any payment hereunder unless and until the full amount of the applicable limit of liability of the Underlying Insurance has been paid by the issuer(s) of the Underlying Insurance.”  In addition, the primary E&O policy, to which the excess E&O policy followed form, stated that it “shall be excess of and shall not contribute with. . . any other insurance. . . (whether collectible or not)[.]”

The insured and the primary D&O carrier filed motions to dismiss, which the court denied.  The Executive Summary’s coverage of the court’s prior ruling can be found here.  On reconsideration, the court modified its opinion to hold that the excess E&O carrier would need to advance defense costs, subject to its subrogation rights against the D&O carrier.  The court explained that “while other insurance clauses often are used to apportion liability among insurers, they generally have ‘no bearing upon insurance companies’ respective obligations to the policyholder.’”  The court held that the “whether collectible or not” language in the E&O policies’ other insurance clause was ambiguous, as it could have referred to the other insurer’s insolvency rather than denial of coverage.  The court reasoned that the insured should not be worse off for having both E&O and D&O coverage and leaving the insured “without coverage while the existence of other insurance is disputed” would “impose a manifest injustice.”