A.R. Wilfley & Sons, Inc. v. National Union Fire Insurance Company of Pittsburgh, PA.

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Civil Action No. 23-cv-02198-NRN
A.R. WILFLEY & SONS, INC.,
Plaintiff and Counterclaim Defendant,
v.
FEDERAL INSURANCE COMPANY, and
UNITED STATES FIRE INSURANCE COMPANY,
Defendants and Counterclaim Plaintiffs,
and
NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA,
Defendant.
ORDER ON DEFENDANT AND COUNTERCLAIM PLAINTIFF FEDERAL
INSURANCE COMPANY’S MOTION FOR JUDGMENT ON THE PLEADINGS
(ECF NO. 70)
N. REID NEUREITER
United States Magistrate Judge
This case is before the Court for all purposes upon the consent of the parties,
ECF No. 58, and an Order of Reference by Chief Judge Philip A. Brimmer pursuant to
28 U.S.C. § 636(c), ECF No. 59. Now pending before the Court is Defendant and
Counterclaim Plaintiff Federal Insurance Company’s (“Federal”) Motion for Judgment on
the Pleadings, ECF No. 70, pursuant to Fed. R. Civ. P. 12(c), based on asserted
undisputed facts in Plaintiff and Counterclaim Defendant A.R. Wilfley & Sons Inc.’s
(“Wilfley”) Amended Complaint, ECF No. 34, Federal’s Answer and Counterclaims, ECF
No. 44, and Wilfley’s Answer to Federal’s Counterclaims, ECF No. 50. Specifically,
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Federal moves for judgment on the pleadings with respect to (a) all of Wilfley’s claims
against Federal, including Claim 5 (breach of contract), Claim 6 (declaratory relief),
Claim 7 (estoppel), and Claim 8 (common law insurance bad faith); and (b) all of
Federal’s counterclaims against Wilfley, including Counterclaims 1 and 2 (declaratory
relief) and Counterclaim 3 (monetary damages).
Wilfley filed a response to Federal’s Motion for Judgment on the Pleadings, ECF
No. 76, and Federal filed a reply, ECF No. 78. On March 4, 2025, the Court ordered
additional briefing on certain language in the Federal policies. ECF No. 82. Federal filed
its supplemental brief on March 11, 2025, ECF No. 83, and Wilfley filed its supplemental
brief on March 17, 2025, ECF No. 84.
As described below, Federal’s Motion for Judgment on the Pleadings, ECF No.
70, will be GRANTED with respect to Wilfley’s Claims 5 through 8 and Federal’s
Counterclaims 1 and 2, and DENIED with respect to Federal’s Counterclaim 3.
I. 	BACKGROUND
This is a complicated insurance dispute arising out of numerous asbestos bodily
injury actions brought against Wilfley. For over 100 years, Wilfley has been in the
business of manufacturing American-made pumps in Colorado for use in mining and
industrial operations. Wilfley has approximately 150 employees, most of whom work at
its facilities in Colorado. ECF No. 34 ¶ 3. Federal is a property and casualty insurance
company incorporated in Indiana and authorized to do business in Colorado. Id. ¶ 5.
Since the 1980s, Wilfley has been named as a defendant in numerous lawsuits
by individuals alleging personal or bodily injury due to exposure to asbestos in Wilfley
products and other alleged sources of asbestos (“Underlying Actions”). Id. ¶ 12. The
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Underlying Actions are continuing, and Wilfley expects new actions of this kind to be
filed for years to come. Id. ¶ 13.
Until recently, coverage for the Underlying Actions was provided by non-party
Great Northern Insurance Company under primary comprehensive general liability
policies for periods covering November 1, 1999, through November 1, 2001 (the “Great
Northern Primary Policies”). Id. ¶ 14. However, all coverage under the Great Northern
Primary Policies has now been exhausted, either by payment of claims or by
agreements to pay settlements in the Underlying Actions in the very near future. Id. ¶¶
14–15. Wilfley also had other underlying policies besides the Great Northern Primary
Policies, but it seems the insurers who issued those other policies have become
insolvent. ECF Nos. 34 ¶ 37; 44 ¶ 4; 50 ¶ 4.
Federal has issued Wilfley at least five umbrella liability insurance policies (the
“Federal Umbrella Policies”). The Federal Umbrella Policies provide coverage for
personal injury, including asbestos injury, and cover policy periods from January 1,
1981, through January 1, 1986. The Federal Umbrella Policies provided up to $5 million
in coverage per occurrence, except for the first policy, which was for $3 million. ECF No.
¶ 31.
In sum, with the exception of the Federal Umbrella Policies and an umbrella
policy issued by Defendant United States Fire Insurance Company, all other policies
Wilfley is aware of do not provide collectible coverage for the Underlying Actions, either
because their applicable limits have been exhausted, they were issued by now insolvent
insurers, they do not drop down to fill coverage gaps left by uncollectible insurance, or
they contain exclusions for claims alleging asbestos bodily injury. ECF No. 34 ¶ 20.
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Wilfley asserts that all of the Federal Umbrella Policies include the following
standard terms:
1. 	COVERAGE
In consideration of the payment of the required premium, the Company
hereby agrees, subject to all of the terms of this policy, to pay on behalf of
the insured all sums, as more fully defined by the term ultimate net loss, for
which the insured shall become obligated to pay by reason of liability
(a) 	imposed upon the insured by law or
(b) 	assumed under contract or agreement by the insured,
arising out of personal injury, property damage or advertising liability caused
by an occurrence.
2. 	UNDERLYING LIMIT–RETAINED LIMIT
The Company shall be liable only for the ultimate net loss the excess of the
greater of the insured’s underlying limit or retained limit defined as:
(a) 	Underlying limit – an amount equal to the limits of liability
indicated 	beside 	the 	underlying 	insurance 	listed 	in 	the
schedule of underlying insurance, plus the applicable limits of
any other underlying insurance collectible by the insured;
(b) 	Retained limit – The amount specified in Item 4(c) of the
declarations as the result of all occurrences not covered by
said underlying insurance, and which shall be borne by the
insured, separately as respects each annual period of this
policy.
When the retained limit has been exhausted, the policy shall
apply without application of the retained limit for the remainder
of that annual period.
. . .
4. 	DEFENSE PROVISIONS
(a) 	The Company shall not be called upon to assume charge of
the investigation, settlement or defense of any claim made, or
suit brought, or proceedings instituted against the insured, but
shall have the right and be given the opportunity to be
associated in the defense and trial of any such claims, suits
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or proceedings relative to 	any occurrence which, in the
opinion of the Company, may create liability on the part of the
Company under the terms of this policy. If the Company avails
itself of such right and opportunity the Company shall do so at
its own expense. Court costs and interest, if incurred with the
consent of the Company, shall be borne by the Company and
other interested parties in proportion that each party’s share
of ultimate net loss bears to the total amount of ultimate net
loss sustained by all interested parties. The provisions of this
paragraph apply in all circumstances except as provided for
in paragraph (b) below.
(b) 	With respect to any occurrence not covered by the underlying
policies listed in the schedule of underlying insurance, or any
other underlying insurance collectible by the insured, but
covered 	by 	the 	terms 	and 	conditions 	of 	this 	policy 	the
Company shall, in addition to the amount of the ultimate net
loss payable;.
1) 	defend any suit against the insured seeking damages
on account of personal injury, property damage or
advertising liability, even if any of the allegations of the
suit are groundless, false or fraudulent’ and may make
such investigation and settlement of any claim or suit
as it deems expedient;
2) 	pay all expenses incurred by the Company, all costs
taxed against the insured in any such suit and all
interest on the entire amount of any judgment therein
which accrues after entry of the judgment and before
the Company has paid or tendered or deposited in
court that part of the judgment which does not exceed
the limit of the Company’s liability thereon;
. . .
ECF No. 34-3 at 2–3.1 The Federal Umbrella Policies do require, as a condition, the
“Maintenance of Underlying Insurance”:
The policy or policies referred to in the attached schedule of underlying
insurance or renewals or replacements thereof not more restrictive in
coverage, shall be maintained in full effect during the currency of this policy,
1 For ease and readability, throughout this Order, the Court has removed the
bolded typeface found throughout the original text of the Federal Umbrella Policies.
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except for any reduction in the aggregate limit or limits contained therein
solely by payment of claims in respect to occurrences happening during the
period of this policy. Failure of the insured to comply with the foregoing shall
not invalidate this policy but in the event of such failure, the Company shall
only be liable to the same extent as if the insured had complied with this
condition.
Id. at 4. Another listed condition refers to “Other Insurance”:
If other valid and collectible insurance with any other insurer is available to
the insured covering a loss also covered by this policy, other than insurance
that is in excess of the insurance afforded by this policy, the insurance
afforded by this policy shall be in excess of and shall not contribute with
such other insurance. Nothing contained herein shall be construed to make
this policy subject to the terms, conditions and limitations of other insurance.
Id. Also included among the conditions is a section relating to the “Payment of Ultimate
Net Loss”:
Coverage under this policy shall not apply unless and until the insured, or
the insured’s underlying insurer, shall be obligated to pay the amount of the
underlying limit or retained limit on account of personal injury, property
damage or advertising liability. When the amount of ultimate net loss has
finally been determined, the Company shall promptly pay on behalf of the
insured the amount of ultimate net loss falling within the terms of this policy.
The named insured shall promptly reimburse the Company for any amount
within the retained limit specified in the insuring agreements paid by the
Company on behalf of an insured in settlement or satisfaction of any claim
or suit.
Id. at 4–5.
Wilfley tendered the pending underlying actions to Federal for coverage under
the Federal Umbrella Policies. Federal agreed to participate in Wilfley’s defense and
pay indemnity costs incurred in the Underlying Actions pending resolution of this case,
but subject to a purported full reservation of rights to discontinue coverage and to
recoup amounts paid. ECF No. 34 ¶¶ 38–39; see also ECF No. 44-2 at 1 (letter to
Wilfley dated March 4, 2024 (“Reservation of Rights Letter”) stating, “Please be advised
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that Federal will continue to defend and indemnify Wilfley against the Claims upon
expiration of the Agreement and during the pendency of the coverage litigation but
subject to a full and complete reservation of rights under the Policies, at law and in
equity.”).
Wilfley also alleges that in 2018, former defendant Brandywine Holdings
Corporation (“Brandywine”) 2 assured Wilfley that Federal would provide full coverage
under the Federal Umbrella Policies upon exhaustion of the Great Northern Primary
Policies. Brandywine also provided Wilfley with a coverage chart showing the state of
exhaustion of the Great Northern Primary Policies and including all of the Federal
Umbrella Policies under the heading “Aggregate Impairment Summary.” Wilfley alleges
that this chart confirmed Brandywine’s verbal assurances that coverage would continue
under the Federal Umbrella Policies upon exhaustion of the Great Northern Primary
Policies. Id. ¶ 40.
Wilfley further alleges that, in reliance on Brandywine’s assurances, Wilfley
invested in new facilities, technologies, and products in order to remain in business and
continue to provide jobs. Wilfley alleges that it would not have made those investments
if it had reason for concern that Federal and Brandywine would not honor their promise
that the Federal Umbrella Policies would provide full coverage immediately upon the
exhaustion of the Great Northern Primary Policies. Id. ¶ 41. On July 12, 2019, Wilfley
wrote to Brandywine: “If Wilfley should not be relying upon your assurances that
CHUBB will pay in full . . . please let us know immediately so Wilfley can reassess its
2 Wilfley alleges that Brandywine is an affiliate of Federal and was authorized to
make claim determinations for Federal.
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expansion plans.” Id. ¶ 42. 3 Wilfley never received a response to its July 12, 2019 email
and claims that it reasonably relied upon Brandywine’s prior assurances that full
coverage would be provided. Id. ¶ 43. By emails in February 2020, April 2021, and
November 2022, Brandywine again allegedly provided Wilfley with charts, titled
“Aggregate Impairment Summaries,” again listing all the Federal Umbrella Policies,
which caused Wilfley to further reasonably rely upon Brandywine’s assurances. Id. ¶ 45.
Wilfley alleges that it was not until the last of the solvent underlying policies neared
exhaustion in early 2023 that Brandywine first informed Wilfley of Federal and
Brandywine’s position that the Federal Umbrella Policies do not provide any defense
coverage and that Federal would not pay indemnity coverage in full upon the exhaustion
of primary coverage. Id. ¶ 46.
In light of the exhaustion of the Great Northern Primary Policies and the
insolvency of the other scheduled primary insurers, Wilfley filed this lawsuit seeking
defense and indemnity coverage from Federal for claims that would have been covered
by scheduled underlying primary policies but for the insolvency. ECF No. 34 ¶¶ 83–104
(Claims 5 through 8 for breach of contract, declaratory relief, estoppel, and common law
insurance bad faith). Wilfley argues that even if the terms of the Federal Umbrella
Policies do not provide for coverage, Federal should be estopped from denying full
defense and indemnity coverage for the Underlying Actions up to the full limits of the
Federal Umbrella Policies.
Federal brings three counterclaims against Wilfley. In Counterclaims 1 and 2,
Federal seeks declarations that: 1) Federal’s duty to defend Wilfley is not triggered by
3 Wilfley alleges that CHUBB is the prior owner of Great Northern and Federal.
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the insolvency of scheduled underlying primary insurance, and 2) Federal’s duty to
indemnify is not triggered until the applicable underlying primary policy limits have been
exhausted. ECF No. 44 ¶¶ 13–24. In Counterclaim 3, Federal seeks recoupment of
defense and indemnity payments paid on Wilfley’s behalf in connection with uncovered
claims at issue in the Underlying Actions. Id. ¶¶ 25–31.
Federal now seeks judgment on the pleadings with respect to all of Wilfley’s
claims against Federal and all Federal’s counterclaims against Wilfley. ECF No. 70 at 2.
Federal argues that the plain language of the Federal Umbrella Policies provides that
Federal’s duty to defend and indemnify is triggered only when (1) the limits of the
scheduled underlying primary insurance have been exhausted via payment; or (2) the
alleged damages are covered by the terms and conditions of the Federal Umbrella
Policies but not by those of the scheduled underlying primary insurance. Id. at 1. The
essential question is whether Federal is obligated under the Federal Umbrella Policies
to step down into the shoes of the now insolvent primary insurers and provide to Wilfley
(1) a defense in the Underlying Actions, and (2) the first-dollar indemnity that the now-
insolvent primary insurers would have otherwise provided.
II. 	LEGAL STANDARDS
a. 	Motion for Judgment on the Pleadings
“‘A motion for judgment on the pleadings under Rule 12(c) is treated as a motion
to dismiss under Rule 12(b)(6).’” Cummings v. Dean, 913 F.3d 1227, 1238 (10th Cir.
2019) (citation omitted). Therefore, in ruling on a motion for judgment on the pleadings,
courts look to the specific allegations of the complaint to determine whether they
plausibly support a legal claim for relief—that is, a complaint must include “‘enough
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facts to state a claim for relief that is plausible on its face.’” TON Servs., Inc. v. Qwest
Corp., 493 F.3d 1225, 1236 (10th Cir. 2007) (citation omitted); see also Alvarado v.
KOB-TV, LLC, 493 F.3d 1210, 1215 (10th Cir. 2007). The Court accepts as true the
well-pleaded factual allegations in the Amended Complaint and views them in the light
most favorable to Wilfley as the nonmoving party. See Nelson v. State Farm Mut. Auto.
Ins. Co., 419 F.3d 1117, 1119 (10th Cir. 2005). To satisfy its burden on a motion for
judgment on the pleadings, “the moving party must show that ‘no material issue of fact
remains to be resolved and the party is entitled to judgment as a matter of law.’” DTC
Energy Grp., Inc. v. Hirschfeld, No. 17-CV-01718-PAB-KLM, 2020 WL 1333090, at *3
(D. Colo. Mar. 23, 2020) (citation omitted).
The Court here considers a motion for judgment on the pleadings with respect to
claims in the operative complaint as well as counterclaims. In ruling on such a motion,
the Court may consider Wilfley’s Amended Complaint and its attachments, ECF No. 34,
Federal’s Answer and Counterclaims and its attachments, ECF No. 44, and Wilfley’s
Answer to Federal’s Counterclaims, ECF No. 50. See Park Univ. Enters. v. Am. Cas.
Co., 442 F.3d 1239, 1244 (10th Cir. 2006); Nau Holdings, LLC v. Dlorah, Inc., No. 08-
cv-02743-CMA-BNB, 2010 WL 447393, at *3 (D. Colo. Feb. 3, 2010). Additionally, the
Court may take judicial notice of court documents. Denver Health & Hosp. Auth. v.
Beverage Distrib. Co., LLC, 546 F. App’x 742, 747 n.3 (10th Cir. 2013).
b. Interpretation of Insurance Contracts
In cases arising under diversity jurisdiction, the federal court’s task is not to reach
its own judgment regarding the substance of the common law, but simply to “‘ascertain
and apply the state law.’” Wankier v. Crown Equip. Corp., 353 F.3d 862, 866 (10th Cir.
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2003) (quoting Huddleston v. Dwyer, 322 U.S. 232, 236 (1944)). The federal court must
follow the most recent decisions of the state’s highest court. Id. “Where no controlling
state decision exists, the federal court must attempt to predict what the state’s highest
court would do.” Id.; see also Webco Indus., Inc. v. Thermatool Corp., 278 F.3d 1120,
1132 (10th Cir. 2002) (“[W]here jurisdiction rests solely on diversity of citizenship and
there is no controlling decision by the highest court of a state, a decision by an
intermediate court should be followed by the Federal court, absent . . . convincing
evidence that the highest court of the state would decide otherwise.”) (quotation marks
and citation omitted).
When interpreting an insurance policy, Colorado courts apply principles of
contract interpretation. Am. Fam. Mut. Ins. Co. v. Allen, 102 P.3d 333, 340 (Colo. 2004).
In Colorado, a contract is interpreted according to the plain and ordinary meaning of its
language. Chacon v. Am. Fam. Mut. Ins. Co., 788 P.2d 748, 750 (Colo. 1990). A court
should enforce the insurance contract as written, unless an ambiguity exists. Ballow v.
PHICO Ins. Co., 875 P.2d 1354, 1359 (Colo. 1993). “In determining the plain and
ordinary meaning of a term in an insurance policy, the Colorado Supreme Court has
eschewed the use of ‘technical readings’ and instead looks to ‘what meaning a person
of ordinary intelligence would attach to’ a policy term.” Sullivan v. Nationwide Affinity
Ins. Co. of Am., 842 F. App’x 251, 254 (10th Cir. 2021) (quoting Bailey v. Lincoln Gen.
Ins. Co., 255 P.3d 1039, 1051 (Colo. 2011)). A court’s construction of policy provisions
must be “fair, natural and reasonable rather than strained or strictly technical.” Vill.
Homes of Colorado, Inc. v. Travelers Cas. & Sur. Co., 148 P.3d 293, 296 (Colo. App.
2006), aff’d, 155 P.3d 369 (Colo. 2007) (internal quotation marks and citation omitted).
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Colorado courts honor “the doctrine of reasonable expectations.” Bailey, 255 P.3d at
1048. “Courts should not rewrite insurance policy provisions that are clear and
unambiguous.” Vill. Homes of Colo., Inc., 148 P.3d at 296. “If, based on how an
ordinary, objectively reasonable insured would read the policy, the question of whether
certain coverage exists is susceptible to more than one reasonable interpretation, then
the coverage provisions are ambiguous and must be construed against the insurer as
the drafter of the policy.” Todd v. USAA Gen. Indem. Co., 713 F. Supp. 3d 1088, 1098
(D. Colo. 2024) (internal quotation marks and citations omitted).
Where the Colorado Supreme Court has not interpreted the language of a
particular insurance provision, this Court may rely on legal interpretations of similar
issues, cases from other jurisdictions, and from Colorado’s lower courts as persuasive
authority in evaluating and resolving potential coverage questions. See Wade v.
EMCASCO Ins. Co., 483 F.3d 657, 666 (10th Cir. 2007).
III. 	ANALYSIS
a. 	Relevant Language in the Federal Umbrella Policies is Undisputed
As an initial matter, the Court addresses Wilfley’s argument in opposition to
Federal’s Motion for Judgment on the Pleadings that there is some uncertainty about
the exact language of the Federal Umbrella Policies, in part because two of those
policies have not been located. See ECF No. 76 at 3 (arguing that “[t]he number of
policies, and the terms and conditions of the policies, are disputed issues of fact”).
Wilfley argues that Federal issued five policies, and not just the three policies that it
acknowledges. Id. Wilfley further disputes the contents of the Federal Umbrella Policies,
claiming that that Court cannot rely on Federal’s business records affidavit of Donald E.
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Brown, ECF No. 44-1 at 2–3, and the accompanying specimen of the insuring
agreements provided with that affidavit, id. at 6–12.
The Court agrees with Federal with respect to the number of Federal Umbrella
Policies and their contents. Both Federal and Wilfley appear to agree that there were
five policies issued by Federal to Wilfley. ECF No. 76 at 4 n. 1. In addition, the critical
language of these policies is not in dispute. The Court has no reason to question the
specimen form policy attached to Mr. Brown’s affidavit, in which he attests that the
specimen was the form issued as part of Federal umbrella liability policies during the
relevant time period, 1981 to 1986. ECF No. 44-1 at 2–3. Indeed, Wilfley’s Amended
Complaint attaches the same specimen form, see ECF No. 34-3, and recites the same
relevant policy language, id. ¶¶ 33–34. If Wilfley had a different view as to the contents
of the Federal Umbrella Policies, it should have alleged as much and should not have
attached Federal’s specimen to its Amended Complaint or quoted from its language.
For purposes of the Federal’s Motion for Judgment on the Pleadings, the Court finds the
policy language to be undisputed and accurately reflected in the “specimen” form, ECF
No. 34-3.
b. Whether the Federal Umbrella Policies Require “Drop Down”
i. 	Federal’s Arguments
Federal argues that the insolvency of an underlying insurance carrier (and the
associated inability to collect from that carrier) is not enough to trigger coverage under
the Federal Umbrella Policies. This is because, in Federal’s view, neither of the
triggering events under the Federal Umbrella Policies has occurred: (1) the limits of the
underlying primary insurance have not been exhausted via payment, and (2) the alleged
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damages are covered by the scheduled underlying primary insurance. Federal argues
that Wilfley’s inability to collect due to the insolvency of an underlying primary insurer is
not enough to trigger payment under the Federal Umbrella Policies. Per Federal, in
arguing that the Federal Umbrella Policies have been triggered, Wilfley is conflating the
terms, “covered” and “collectible.” ECF No. 70 at 7. Federal argues that Wilfley’s
position is “contrary to the plain and unambiguous language of the Federal Umbrella
Policies” because the term “covered” is not ambiguous. ECF No. 70 at 7. In Federal’s
view, the word “covered” refers to “the scope of the underlying coverage” and “not
payment by the underlying primary insurer.” ECF No. 70 at 7. In Federal’s view, the
words “covered” and “collectible” mean two distinctly different things.
Federal also emphasizes that the Federal Umbrella Policies further provide that
“[c]overage under this policy shall not apply unless and until the ‘insured,’ or the
‘insured’s’ underlying insurer, shall be obligated to pay the amount of the ‘underlying
limit’ or ‘retained limit’[.]” ECF No. 44-3 at 5. Because the asbestos bodily injury claims
are covered by the scheduled underlying primary insurance, regardless of the solvency
of the underlying primary insurers, in Federal’s view, indemnity coverage under the
Federal Umbrella Policies is triggered solely by exhaustion of the “underlying limits.”
See ECF No. 70 at 9. And, to date, the “underlying limits” have not been exhausted.
The questions raised by Federal’s Motion for Judgment on the Pleadings address
the allocation of risk in the Federal Umbrella Policies. In issuing the Federal Umbrella
Policies, Federal was agreeing to cover the risk to Wilfley (a) of liabilities not covered by
the Great Northern Primary Policies and other underlying policies, and (b) that the lower
layer of insurance (the Great Northern Primary Policies and other underlying policies)
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would be exhausted by payment of covered liabilities. Here, the Court must decide
whether Federal was also accepting the risk of the underlying primary insurers
becoming insolvent. See, e.g., Prince Carpentry, Inc. v. Cosmopolitan Mut. Ins. Co., 479
N.Y.S.2d 284, 292–93 (Sup. Ct. 1984) (holding that an excess policy was triggered by
“exhaustion” of the underlying policy only by reason of losses paid thereunder, and
“[c]atastrophic policy though it may be, the excess insurer is not insuring against the
insolvency of the primary insurer”); Cont’l Marble & Granite v. Canal Ins. Co., 785 F.2d
1258 (5th Cir. 1986) (holding that primary insurer’s insolvency did not render the
primary insurance “inapplicable” to an occurrence covered by the terms of the primary
policy, explaining that “[i]mposing the duty of indemnification on [the excess insurer]
would, in effect, transmogrify the policy into one of guaranteeing the solvency of
whatever primary insurer the insured might choose”); Canal Ins. Co. v. Montello, Inc.,
No. 10-CV-411-JHP-TLW, 2013 WL 6732658 (N.D. Okla., Dec. 19, 2013) at *5
(surveying numerous decisions from multiple jurisdictions and consulting multiple
secondary sources before concluding that “the majority of the courts that have
confronted the issue hold that when a primary insurer becomes insolvent, the excess
insurer is not required to ‘drop down’ to assume the primary carrier’s coverage
obligations”) (quoting Barry S. Ostrager & Thomas R. Newman, Handbook on Insurance
Coverage Disputes §§ 13.03, 13.12 at 875–78 and 900–07 (7th ed. 1994), aff’d 632
Fed. App’x 448 (10th Cir. 2015)).
ii. 	Wilfley’s Argument
Wilfley argues that under the “plain language” of the Federal Umbrella Policies,
Federal must drop down to fill the void left by insolvent underlying primary insurers. See
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ECF No. 76 at 4. Wilfley relies on the following language in the “Insuring Agreement”
section and “Defense Provisions” subsection (sections 4(a) and 4(a)(b):
With respect to any occurrence not covered by the underlying policies listed
in the schedule of underlying insurance, or any other underlying insurance
collectible by the insured, but covered by the terms and conditions of this
policy the Company shall, in addition to the amount of ultimate net loss
payable; . . . defend any suit against the insured seeking damages on
account of personal injury . . . .
ECF No. 34-3 at 2–3 (emphasis added). In Wilfley’s view, the emphasized language
“groups together all underlying policies which cannot be called upon to pay a claim
because the insurance is uncollectible.” ECF No. 76 at 5. Wilfley argues that this is why
the policy uses the phrase “or any other underlying insurance collectible by the insured.”
ECF No. 34-3 at 2–3 (emphasis added). Per Wilfley, the Federal Umbrella Policies must
therefore provide 100% first-dollar defense and indemnity coverage in the absence of
any “collectible underlying insurance.” ECF No. 76 at 5. According to Wilfley, this
interpretation comports with the reasonable expectations of a policyholder who
purchased broad umbrella coverage, rather than a pure excess policy. The policyholder
would expect its umbrella policy to provide coverage when there was no underlying
coverage for any reason, because “the distinguishing feature of an umbrella policy is
that it drops down to fill gaps in the policyholder’s protection.” Id. (citing Mid-Continent
Cas. Co. v. Circle S Feed Store, LLC, 754 F.3d 1175, 1179 (10th Cir. 2014), for the
proposition that umbrella policies are different from excess policies because they are
designed to fill gaps in coverage both vertically (by providing excess coverage) and
horizontally (by providing primary coverage)). According to Wilfley, a reasonable
policyholder would not expect the insolvency of a scheduled underlying policy to prevent
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a drop down of the umbrella policy but at the same time require drop down if some other
(albeit unscheduled) underlying insurance is insolvent. ECF No. 76 at 6.
Wilfley cites one Colorado case in support of its position. In Deisch & Marion,
P.C. v. International Insurance Co., 771 P.2d 19, 20 (Colo. App. 1989), the Colorado
Court of Appeals affirmed an unjust enrichment award against an excess insurer for
attorneys fees incurred in the defense of the insured. The law firm had been retained by
the underlying carrier to defend the insured, but then the underlying carrier had become
insolvent. The law firm had expended time defending the insured, but the insolvency of
the underlying carrier meant the law firm was not getting paid. It sued the
excess/umbrella carrier, which had benefited from the legal services provided. The
excess policy language in Deisch was similar to the critical language in the instant case:
With respect to any occurrence not covered, as agreed, by the underlying
policies listed in Schedule A hereof or not covered by any other underlying
insurance 	collectible 	by 	the 	insured, 	but 	covered 	by 	the 	terms 	and
conditions of this policy except for the amount of retained limit specified in
Item 4(C) of the declarations, the company shall: (a) defend any suit against
the insured alleging such injury or destruction and seeking damages on
account thereof, even if such suit is groundless, false or fraudulent; but the
company may make such investigation, negotiation and settlement of any
claim or suit as it deems expedient.
Id. The Deisch court ultimately found that because of the insolvency of the underlying
(primary) carrier, the underlying insurance was not “collectible by the insured,” at least
for purposes of paying defense costs. Id. Thus, the Court concluded that by the policy’s
“very terms,” the insurance contract “provides that [the excess carrier] had a duty to
defend. Id. Although this case purports to be an interpretation of the terms of the
contract, the contract interpretation language arguably constitutes dicta, because the
decision was, at base, an unjust enrichment/quasi-contract case where the court
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ultimately found “it would be inequitable to permit [the excess insurer] to have the
benefit of the defense provided by [the law firm] without paying for it.” Id.
iii. 	Court’s Analysis
To the extent that Federal’s Motion for Judgment on the Pleadings requires
interpretation of the language of the Federal Umbrella Policies, the Colorado Supreme
Court has not interpreted the specific disputed language. Therefore, this Court may rely
on legal interpretations of similar issues, cases from other jurisdictions, and from
Colorado’s lower courts as persuasive authority in evaluating potential coverage for the
asbestos bodily injury suits under the Federal Umbrella Policies. Also to be considered
is “‘the general weight and trend of authority’ in the relevant area of law.” See Wade,
483 F.3d at 666 (quoting MidAmerica Constr. Mgmt., Inc. v. MasTec N. Am., Inc., 436
F.3d 1257, 1262 (10th Cir. 2006)).
The Court concludes that Federal’s interpretation of the disputed Federal
Umbrella Policies language is correct, and that the insolvency of the underlying
scheduled insurers does not trigger Federal’s obligation to defend the underlying lawsuit
or to pay indemnity until the underlying limits have been exhausted (or paid by Wilfley).
The Court comes to this conclusion based on the language of the Federal Umbrella
Policies and relevant caselaw interpreting similar language.
As noted above, Wilfley seeks to rely on a particular section of the Federal
Umbrella Policies’ language which states that Federal should pay the ultimate amount
of net loss and provide a defense with respect to any occurrences “not covered by the
underlying policies listed in the schedule of underlying insurance, or any other
underlying insurance collectible by the insured, but covered by the terms and conditions
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of this policy.” ECF No. 34-3 at 2–3. Under Wilfley’s interpretation, the word “collectible”
applies not just to some other insurance that Wilfley might have that is not listed on the
schedule of underlying insurance, but also to occurrences that are covered by the
schedule of underlying insurance but are not collectible. This is inconsistent with the
written language of the policy. There is a comma between the clause, “not covered by
the underlying policies listed in the schedule of underlying insurance” and the clause,
“or any other underlying insurance collectible by the insured.” The word “collectible”
does not modify or limit the language in the clause before the comma.
As the Court interprets this language, Federal does not have to provide a
defense for or pay the ultimate amount of net loss for claims that are covered by the
underlying scheduled policies, or are covered by any other (non-scheduled) valid
insurance policies that might be collectible. Nowhere in the plain reading of this section
does it suggest that Federal might have to provide a defense for, or provide first-dollar
coverage for, a claim that is covered by the underlying scheduled insurance but is not
collectible.
This interpretation is consistent with the other provisions of the policy. For
example, the section relating to the “Payment of Ultimate Net Loss” says that
“[c]overage under this policy shall not apply unless and until the insured, or the
insured’s underlying insurer, shall be obligated to pay the amount of the underlying limit
or retained limit on account of personal injury, property damage or advertising liability.”
ECF No. 34-3 at 4–5. Once the “ultimate net loss has finally been determined,” Federal
shall “promptly pay on behalf of the insured the amount of ultimate net loss falling within
the terms of this policy.” Id. This language fits Federal’s view that it need not pay out on
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the umbrella coverage unless or until either Wilfley or its underlying insurer pays the
amount of the underlying or retained limit. The underlying insurer’s insolvency (without
the underlying limit having been exhausted via payment) is not an event that triggers
Federal’s obligation to pay.
The Court’s interpretation is also consistent with the other mention of the word
“collectible” in the Federal policy. One listed condition specifically refers to “Other
Insurance:”
If other valid and collectible insurance with any other insurer is available to
the insured covering a loss also covered by this policy, other than insurance
that is in excess of the insurance afforded by this policy, the insurance
afforded by this policy shall be in excess of and shall not contribute with
such other insurance.
ECF No. 34-3 at 4 (emphasis added). This provision makes clear that if Wilfley had
procured any other insurance beyond the scheduled underlying insurance, and that
insurance was valid and collectible, then Federal’s policy would be in excess of that
other insurance. But there was no requirement that Wilfley procure other insurance
beyond the scheduled underlying insurance, and it is reasonable to assume that
Federal was not incorporating the existence of any other unspecified insurance into its
underwriting of its policy premiums. Insolvency of the other insurer or insurers would
make that other insurance uncollectible, and Federal would still be obligated to pay its
excess or umbrella obligations. But collectability is not mentioned in connection with the
underlying scheduled insurance.
Other courts have come to the same conclusion when interpreting similar
language. For example, in Mission National Insurance Co. v. Duke Transportation Co.,
792 F.2d 550, 553 (5th Cir. 1986), the Fifth Circuit held that, under Louisiana law, the
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excess insurer was not obligated to provide primary coverage or to defend the insured
as a result of the primary insurance carrier becoming insolvent. The court there stated,
When an excess insurer uses the term “collectible” or “recoverable” it is
agreeing 	to 	drop 	down 	in 	the 	event 	the 	primary 	coverage 	becomes
uncollectible or unrecoverable; on the other hand, when an excess insurer
uses the term “covered” or “not covered,” it is agreeing to drop down only in
the event that the terms of the underlying policy do not provide coverage for
the occurrence or occurrences in question.
Id. In the instant case, the Federal policy uses the term “collectible” only to refer to
“other” insurance besides the scheduled underlying insurance.
Similarly, in Radar v. Duke Transportation Inc., 492 So.2d 532, 535–36 (La. App.
1986), the court interpreted language nearly identical to the language to the Federal
Umbrella Policies and concluded that an excess policy did not require the excess
insurer to defend an action after the primary insurer’s insolvency. This was because the
excess insurer owed the insured a defense only “if [the insolvent] underlying insurance
policy does not provide coverage for the specific occurrence or if the occurrence is not
covered by any other collectible insurance.” Id. at 535. The court there found that the
word “or” separating the two conditions was “a disjunctive conjunction setting apart the
two mutually exclusive alternatives.” Id. And because the underlying insurance policy
did provide coverage for the occurrence giving rise to the lawsuit, the excess insurer
was relieved of the duty to defend the insured. Id. Per the “plain and ordinary meaning
of the [excess] policy,” the excess insurer’s “duty to defend does not arise in the instant
case where the accident at issue is covered by the underlying insurance policy . . . ,
irrespective of [the underlying insurer’s] insolvency.” Id. at 536.
And, in United States Fire Insurance Co., Inc. v. Capital Ford Truck Sales, Inc.,
355 S.E.2d 428 (Ga. 1987), the Supreme Court of Georgia, also interpreting similar
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policy language, addressed the precise issue in question here—whether an excess or
umbrella carrier is required to provide first-dollar coverage to the insured, and to defend
an action against an insured, if the primary insurer has become insolvent. The court
there found the near identical provision “requires other underlying insurance to be
‘collectible,’ but does not so specify with respect to the underlying policy.” Id. at 433.
The court held:
[S]ince this excess-insurance policy repeatedly distinguishes between the
underlying insurance policy and other insurance, and since it repeatedly
states that other insurance must be collectible, but does not so state with
respect to the underlying insurance—the insolvency of the underlying
insurer does not require the excess insurer to defend the insured in an
action resulting from an occurrence covered by the underlying insurance
policy, or to provide first-dollar coverage with respect to such occurrence.
Id.
Under the language of the instant policy, Federal would never have reasonably
expected that it would have to drop down and provide first-dollar coverage in the event
the underlying scheduled insurance was not collectible. And no reasonable insured
would read the policy to require Federal to drop down and provide first-dollar coverage.
The “Maintenance of Underlying Insurance” provision of the Federal Umbrella Policies
confirms this reading, as it requires that that the scheduled underlying insurance “be
maintained in full effect during the currency of this policy.” ECF No. 34-3 at 4. Critically,
the failure to comply with that provision would not invalidate the contract, “but in the
event of such failure,” Federal would only be liable to the “same extent as if the insured
had complied with this condition.” Id. Thus, if Wilfley had never procured or maintained
the scheduled underlying insurance, although the excess insurance would not become
void, Wilfley itself would be on the hook for the obligations expected from the primary
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insurers. Nothing about this provision, or any other aspect of the Federal Umbrella
Policies, suggests that Federal would ever be required to drop down and pay first-dollar
coverage or for Wilfley’s defense for risks covered by the scheduled underlying
insurance.
Thus, reading the policy as a whole and using the doctrine of reasonable
expectations, as the Court is required to do, see Bailey, 255 P.3d at 1051, no ordinary
insured could reasonably read the Federal Umbrella Policies to mean that, in the event
of the insolvency of the scheduled underlying insurers, Federal would be required to
drop down and step into the shoes of the insolvent insurers, both in providing a defense
and paying first-dollar indemnity. “This court will not reach a strained interpretation of a
contract, especially when the interpretation runs counter to the obvious intentions of the
parties.” Scott’s Liquid Gold, Inc. v. Lexington Ins. Co., 293 F.3d 1180, 1187 (10th Cir.
2002) (citing Allstate Ins. Co. v. Starke, 797 P.2d 14, 17–18 (Colo. 1990)).
To the extent that the Colorado Court of Appeals came to a different conclusion
in Deisch by requiring an excess insurer to pay the legal fees of defense counsel after a
primary insurer had gone insolvent, the Court finds that opinion unpersuasive. See
Dullmaier v. Xanterra Parks & Resorts, 883 F.3d 1278, 1283–84 (10th Cir. 2018) (when
applying state law, federal court should follow opinion of state intermediate appellate
court unless “convinced by other persuasive data that the highest court of the state
would decide otherwise”). First, Deisch focused primarily on the principles of unjust
enrichment, implied contract, and the unfairness of allowing the excess insurer to get
the benefit of the law firm’s work without paying for it. In particular, the Court held:
Thus, the only factor which, being an issue of equity, we may review is
whether, under the circumstances of this case, it would be inequitable for
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[the excess insurer] to retain the benefit of the law firm’s work product
without paying for it and for the law firm to have performed the services
without compensation from anyone.
771 P.2d at 20. Second, the opinion is very short and made no effort to review other
provisions of the policy at issue there, so it cannot be said that the Court in Deisch was
“reading the policy as a whole” in its interpretation of the critical coverage language.
Third, the Deisch decision also did not review the general trend in the law that, absent
specific language to the contrary, an excess policy does not drop down in the event of
the insolvency of the underlying carrier.
The Court observes that “the general weight and trend of authority” in this area of
the law supports the conclusion that Federal is not required to drop down to replace the
insolvent primary insurers. See Wade, 483 F.3d at 666. The vast majority of cases that
have considered this issue conclude that an excess or umbrella insurer does not drop
down to cover the obligations of an insolvent primary insurer, absent policy language to
the contrary. This trend is explained in detail in Montello, which, although it was
interpreting Oklahoma law, gives a good survey of cases from other jurisdictions
concluding that, absent an intent in an excess policy to do so, when a primary insurer
becomes insolvent, the excess insurer is not required to assume the primary insurer’s
coverage obligations. 2013 WL 6732658 at *5–6 (citing treatises and collecting cases
from Texas, Illinois, North Carolina, Missouri, Louisiana, Wisconsin, West Virginia,
Mississippi, Maryland, Illinois, Alabama, Massachusetts, Pennsylvania, Georgia,
Michigan and New York). This general view is consistent with the principle that an
excess insurer’s obligations are not triggered until the primary coverage limits have
been exhausted. Requiring the excess insurer to provide coverage prior to the
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exhaustion of the primary coverage limits would improperly “reallocat[e] risks that the
parties had freely agreed to and had been compensated to assume.” Id. at *6 (quoting
U.S. Fid. & Guar. Co. v. Federated Rural Elec. Ins. Corp., 37 P.3d 828, 833 (Okla.
2001)). As the Fifth Circuit explained in rejecting the same “drop down” argument that
Wilfley makes here, Wilfley’s “proposed rule would require insurance companies to
scrutinize one another’s financial wellbeing before issuing secondary policies. The
insurance world is complex enough; to impose this additional burden on companies
such as [the umbrella carrier] would only further our legal system’s lamentable trend of
complicating commercial relationships and transactions.” Cont’l Marble & Granite, 785
F.2d at 1259; see also Montello, 632 Fed. App’x at 453 (explaining that “[it] is common
for courts to hold that excess insurers have no obligation to drop down, even when the
contract does not expressly prohibit it”).
In contrast to the great weight of authority cited by Federal supporting the view
that insolvency of the primary insurer should not require an excess insurer to cover the
insolvent primary’s obligations, Wilfley, in its briefing, cited little to no authority
explaining why a contrary rule should prevail. Instead, Wilfley’s argument relies almost
exclusively on a strained interpretation of the language of the policy and the holding in
Deisch, neither of which are persuasive.
c. 	Wilfley’s Estoppel Claim
Wilfley argues that Federal should be estopped from denying coverage based on
representations that Federal and Brandywine previously made and on which Wilfley
relied.
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The general rule in Colorado is that estoppel cannot create coverage for risks
falling outside an insurance policy. See Evanston Ins. Co. v. L. Off. of Michael P.
Medved, P.C., 890 F.3d 1195, 1200 (10th Cir. 2018). As the Colorado Supreme Court
has held: “The rule is well established that the doctrines of implied waiver and of
estoppel, based upon the conduct or action of the insurer, are not available to bring
within the coverage of a policy risks not covered by its terms, or risks expressly
excluded therefrom . . . .” Hartford Live Stock Ins. Co. v. Phillips, 372 P.2d 740, 742
(Colo. 1962) (citation omitted).
There are certain important limitations upon the extent of the applicability of
the doctrines of waiver and estoppel as against an insurer, and as far as the
doctrines are based upon the conduct or action of the insurer, as a rule they
are not available to bring within the coverage of a policy risks not covered
by its terms or risks expressly excluded therefrom.
44A Am. Jur. 2d Insurance § 1508. In Evanston, the Tenth Circuit explained that a
narrow exception to this limitation on estoppel exists when the following three criteria
are met: “(1) the insurer knew of the noncoverage; (2) the insurer assumed defense of
the action without a reservation of rights; and (3) the insured relied to its detriment on
the insurer’s defense.” Evanston, 890 F.3d at 1200–01 (citing Mgmt. Specialists, Inc. v.
Northfield Ins. Co., 117 P.3d 32, 37–38 (Colo. App. 2004)).
Here, Federal argues that because it agreed to defend under a reservation of
rights, there can be no estoppel as a matter of law. According to Federal, the
fundamental principle of Colorado law is that “estoppel, based upon the conduct or
action of the insurer, [is] not available to bring within coverage of a policy risks not
covered by its terms.” McGowan v. State Farm Fire & Cas. Co., 100 P.3d 521, 526
(Colo. App. 2004); see also Empire Cas. Co. v. St. Paul Fire & Marine Ins. Co., 764
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P.2d 1191, 1198 (Colo. 1988) (holding that estoppel “cannot have created liability where
none existed under the policy”). In Federal’s view, by seeking to have Federal “drop
down” and provide a defense and/or indemnity before it would otherwise be required to
under the policy, Wilfley is improperly seeking to use the doctrine of estoppel to create
“liability where none existed under the policy.”
Wilfley, for its part, argues that estoppel should apply in these circumstances and
that the Evanston reasoning is inapplicable. See ECF No. 76 at 15. Wilfley argues that
the issue is not whether Federal issued a reservation of rights letter, but whether
Federal, long before, had made statements to Wilfley about how it was interpreting the
Federal Umbrella Policies as providing coverage upon the exhaustion of the Great
Northern Primary Policies. Based on these statements, Wilfley says it made business
investments when it otherwise would have saved the money in anticipation of having to
defend the Underlying Actions. In Wilfley’s view, “[s]uch affirmative action [by Federal] is
fundamentally different than the inaction of an insurer which fails to advise the insured
of the policy provisions upon which it believes it can question coverage – the predicate
conduct for the Evanston decision and the cases it cites, as well as its progeny.” Id.
Wilfley insists that (1) the facts alleged must be read in the light most favorable to
Wilfley and (2) it has alleged that Federal knew all the necessary facts (including about
the insolvency of certain scheduled underlying insurers) when it stated to Wilfley that
the Federal excess policies would kick in once the Great Northern Primary Policies were
exhausted—making estoppel (or waiver) appropriate here.
In support for its position, Wilfley relies on dicta from a footnote in a 1992
decision by the Colorado Supreme Court, United States Fidelity & Guaranty Co. v.
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Budget Rent-A-Car Systems, Inc., 842 P.2d 208 n.3 (Colo. 1992). That case involved a
fight between two insurers about which one was the primary insurer after an accident.
The Colorado Supreme Court noted in its footnote that “[a]n insurer should raise (or at
least reserve) all defenses within a reasonable time after learning of such defenses, or
those defenses may be deemed waived or the insurer may be estopped from raising
them.” Id. But this articulated rule is not inconsistent with the rule in Evanston. And it
provides no succor for Wilfley. Even accepting the truth of Wilfley’s allegations, the
general principle is that estoppel cannot extend the breadth of coverage in a policy.
Here, as soon as the Federal Umbrella Policies were to have kicked in (under Wilfley’s
theory), Federal provided a defense via the Reservation of Rights letter. To base an
estoppel claim on the the fact that before its coverage obligations arguably became ripe,
some of Federal/Brandywine’s communications suggested that Federal would provide
coverage once the Great Northern Primary Policies were exhausted, runs counter to the
rule in Colorado that estoppel cannot extend coverage not provided for in a policy.
Wilfley’s briefing provides no authority for the proposition that, in Colorado, the doctrine
of estoppel can be used to expand coverage not specifically contemplated in the policy
where there has been a reservation of rights. Because Federal provided a defense
subject to a reservation of rights, Wilfley’s estoppel claim fails.
IV. 	CONCLUSION
Based on the above analysis, I conclude the following with respect to Wilfley’s
claims against Federal (Claims 5 through 8) and Federal’s counterclaims against Wilfley
(Counterclaims 1 through 3).
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a. 	Wilfley’s Breach of Contract Claim Against Federal (Claim 5)
Judgment should enter against Wilfley and in favor of Federal. Federal has not
breached the Federal Umbrella Policies because the conditions necessary to trigger the
Federal Umbrella Policies have not occurred.
b. Wilfley’s Declaratory Relief Claim Against Federal (Claim 6)
Judgment should enter against Wilfley and in favor of Federal. Contrary to
Wilfley’s assertions, Federal is not obligated to provide coverage for future Underlying
Actions under the Federal Umbrella Policies (absent additional conditions being met),
and Federal will be entitled to recoup from Wilfley the fees and costs that Federal has
paid in the Underlying Actions.
c. 	Wilfley’s Estoppel Claim Against Federal (Claim 7)
Judgment should enter against Wilfley and in favor of Federal. The general rule
is that estoppel cannot be used to extend coverage under an insurance policy and the
limited exception to this rule does not apply.
d. Wilfley’s Common Law Insurance Bad Faith Claim Against Federal
(Claim 8)
Judgment should enter against Wilfley and in favor of Federal. There was no
underlying breach of contract and, as of now, Federal has no obligation to defend or pay
indemnity to Wilfley. As a result, there can be no bad faith as a matter of law.
e. 	Federal’s Counterclaim 1 Against Wilfley (Declaratory Relief – “No
Defense Obligation Is Owed as a Result of an Underlying Insurer Being
Insolvent”)
Judgment should enter against Wilfley and in favor of Federal on Federal’s
request for a declaratory judgment that Federal owes no defense obligation to Wilfley in
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connection with the Underlying Actions as a result of the underlying insurer(s) being
insolvent.
f. 	Federal’s Counterclaim 2 Against Wilfley (Declaratory Relief – “No
Indemnity Obligation Is Owed Under the Federal [Umbrella] Policies
Because the Underlying Limit or Retained Limit Has Not Been
Exhausted”)
Judgment should enter against Wilfley and in favor of Federal on Federal’s
request for a declaratory judgment that Federal, to date, has no indemnity obligation to
Wilfley merely as a result of the underlying insurer(s)’ insolvency. The Court concludes
that Federal may have an indemnity obligation to Wilfley in the event that Wilfley itself
pays the limits of liability listed in the schedule of underlying insurance. In other words,
the insolvency of the underlying insurer does not completely relieve Federal of all
indemnity liability for all time. The Federal Umbrella Policies specifically provide that
Federal “shall be liable only for the ultimate net loss the excess of the greater of the
insured’s underlying limit or retained limit.” ECF No. 34-3 at 2.
Federal may be liable for indemnity consistent with the language of the
“Maintenance of Underlying Insurance” condition, which provides that the failure to
maintain underlying insurance does not invalidate the excess policy, “but in the event of
such failure, [Federal] shall only be liable to the same extent as if the insured had
complied with this condition.” ECF No. 34-3 at 4. To hold otherwise would give Federal
a windfall and the ability to avoid any indemnity obligation based on the insolvency of
the underlying carriers. But because there is no allegation in the Amended Complaint
that Wilfley itself has paid the underlying limit described in the Ultimate Net Loss section
of the Federal Umbrella Policies, Federal has, to date, no indemnity obligation to
Wilfley.
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g. Federal’s Counterclaim 3 Against Wilfley (Monetary Damages – “Federal
Is Entitled to Recoup from Wilfley Amounts Expended on Their Behalf in
Connection with Uncovered Claims”)
As to Wilfley’s liability to Federal for defense costs and indemnity paid to date,
the Court agrees that, consistent with the Reservation of Rights Letter, Federal should
be entitled to recoup its defense costs and any indemnity payments made to date.
However, because there has been no evidence presented (and no allegations in the
pleadings) as to the amount of money Federal has paid for defense costs or indemnity,
the Court is not prepared to enter judgment on this claim at this time.
Dated at Denver, Colorado this 21st day of April, 2025
_______________________
N. Reid Neureiter
United States Magistrate Judge
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