Insurers Beware of the Broad Duty to Defend
The Superior Court ultimately determined that an excess insurer's duty to defend was not triggered by the exhaustion of the primary coverage, but rather by the actual payment of the relevant primary insurance. Accordingly, the Charter Oak policy was the only relevant primary insurance because it was directly related to the North River excess policy. As a result, the exhaustion of the Hartford policy was unnecessary, and North River's duty to defend CMX arose upon payment by Charter Oak.
In summary, where an excess policy is retained to supplement a particular primary insurance policy, and a third party is named as an additional insured, the third party's own primary insurance coverage is of no consequence. In fact, should a claim arise, the only relevant insurance policy is the primary insurance policy that the excess insurer was retained to supplement. Once the relevant primary insurer exhausts its coverage payment, the excess insurer has a duty to defend all insured, even if one of those insured has its own unexhausted coverage.
The Lexington decision makes it clear that an insurer's duty to contribute to a policyholder's defense is broad and may attach, irrespective to the exhaustion of additional policies.
Dave Dambreville is a law clerk with the Pennsylvania Court of Common Pleas. He intends to concentrate his practice on insurance litigation and business-related torts.