Commercial Litigation and Arbitration

Anticipatory Repudiation by Excess D&O Carrier Does Not Excuse Exhaustion of Primary Policy

The defendant excess D&O carrier in Comerica Inc. v. Zurich Am. Ins. Co., 2007 U.S. Dist. LEXIS 54517 (E.D. Mich. July 27, 2007), denied coverage for Section 11 claims asserted against the plaintiff Company. The Company settled with the plaintiffs for an amount in excess of the $20 million primary policy, but the primary carrier paid only $14 million, with the Company making up the difference. The Company then sued the excess carrier, claiming, among other things, that the excess carrier’s denial of coverage amounted to an anticipatory repudiation which excused its obligation to exhaust the primary layer. District Judge David M. Lawson rejected the argument because the Company’s failure to meet the condition precedent — exhaustion — was unaffected by the so-called repudiation:

[T]he repudiation must have caused or substantially contributed to the nonoccurrence of the condition. If the condition would not have occurred in any event, its nonoccurrence is not excused. In such a case, both parties are discharged from their duty to perform the contract.

The Company also argued that its payment of $ 6 million toward the settlement filled the gap between the primary carrier’s payment and the balance of the policy limit, and that should serve as the functional equivalent of exhausting the primary policy limit because it exposed the excess carrier to no greater liability than if Federal had made the payment. The Court rejected that argument as inconsistent with the unambiguous language of the policy. Held, summary judgment granted for excess carrier.

Share this article:


Recent Posts