Establishing and Challenging Exhaustion of Insurance Policies: Recurring Issues, Factors to Consider, Below Limits Settlements

Description

Even for the most experienced professionals, proving or challenging insurance policy exhaustion can be burdensome and costly. The policyholder generally has the burden of proof, but insurers may will want to test claims of underlying exhaustion, including sometimes seeking review of how the underlying insurer handled and treated underlying claims. Excess carriers sometimes dispute whether all claims paid by underlying policies should be counted toward the applicable underlying limit. Often disputes arise between insurers. Proving proper underlying exhaustion is seldom straightforward.

The parties must have a plan and be aware of their options. Determining how multiple policies with differing language and coverages relate to each other sometimes may appear to be its own Augean task, including ascertaining which policies follow form to what underlying coverage, factoring the impact of other-insurance, non-cumulation and other policy provisions, and considering how multi-year, "stub" policies and policy extensions affect applicable limits.

Courts differ as to whether horizontal or vertical exhaustion is required both in pro rata and “all sums” jurisdictions. Courts also differ on what constitutes "exhaustion," what proof of exhaustion is required, and how to prove exhaustion when a settlement or judgment encompasses covered and uncovered claims, such as a settlement that includes a release of uncovered punitive damages claims. Counsel also should understand whether a settlement with one insurer for less than its full policy limits concurrently precludes access to any overlying excess coverage--policy language and case law (Qualcomm and others) continue to develop in this area. Indeed, functional exhaustion has been the most important excess insurance issue over the past couple of decades.

Listen as the panel discusses what factors must be shown to establish exhaustion, the various types of evidence, data, statistics, and other tools to show exhaustion, and the best approaches for counsel.