Excess E&O Policy Not Triggered After Exhaustion Of Primary Policy, Where There Is At Least Potential For Coverage Under Separate D&O Policy

The United States District Court for the District of Kansas, applying Kansas law, has held that an excess E&O policy was not triggered where coverage under a potentially responsive D&O policy had not yet been resolved.  Bedivere Ins. Co. v. Blue Cross & Blue Shield of Kansas, Inc., 2019 WL 4752051 (D. Kan. Sept. 30, 2019).  The court further held that the excess insurer alleged sufficient facts to state a claim for relief for breach of the excess policy’s cooperation clause due to the insured’s refusal to provide documents requested for purposes of “coverage investigation” and assessment of “potential liability.”

After it was named in several antitrust class action lawsuits, the insured sought coverage for defense expenses and indemnity under its primary and excess E&O policies, and under a D&O policy.  The primary E&O carrier agreed to provide coverage for the lawsuits, but the insurer for the D&O policy denied coverage, leading to litigation between the insured and the D&O carrier.

After the primary E&O policy was exhausted, the excess E&O insurer began reimbursing the insured for defense expenses, but then filed coverage litigation seeking to clarify its rights and obligations.  In the coverage litigation, the excess E&O insurer contended that the excess E&O policy was applied in excess of all other coverage, including the D&O policy, based on the excess policy’s “other insurance” provision, which stated that the excess policy is “excess of and shall not contribute with. . . any other insurance. . . (whether collectible or not).”  The excess insurer also asserted a claim for breach of the excess policy’s cooperation provision based on the insured’s failure to provide requested information.  Both the insured and the D&O carrier were named defendants in the litigation, and both filed motions to dismiss the excess carrier’s complaint.

The court denied the motions to dismiss, concluding that the excess carrier had stated a plausible claim that it was entitled to a declaration stating that the insured needed to exhaust “all other insurance and indemnity to which it is entitled,” including the D&O policy, before coverage was triggered under the excess E&O policy.  In reaching this conclusion, the court noted a split of authority, but went on to adopt the majority rule “requiring exhaustion of all primary insurance before an excess insurance policy with an ‘other insurance’ clause like [the excess insurer’s] is required to provide coverage.”  Applying this rule, the court concluded that the excess E&O policy would apply as excess over all available coverage, including the D&O policy, if the D&O policy was ultimately determined to apply to the loss at issue.  The court further held that the excess carrier had no obligation to reimburse the insured for defense costs while the dispute over coverage under the D&O policy was litigated.

The court also denied the insured’s motion to dismiss the excess insurer’s claim for breach of the cooperation clause.  The court rejected the insured’s argument that the excess insurer’s allegations were conclusory, finding that the documents requested by the excess insurer were “necessary for its coverage investigation” and would enable the excess insurer to “assess [the insured’s] potential liability” and “make determinations regarding coverage” for “any potential settlement or judgment.”  The court further concluded that it was plausible that the insured’s continued refusal to provide the requested documents would constitute a failure to cooperate that caused substantial prejudice to the excess insurer.