In the underlying case, former employees sued the insured asserting claims relating to their stock option plans. The insured sought coverage for the suit from its insurers. Both its primary and excess insurers disputed coverage. Following a mediation between the insured and its insurers, the insured settled its coverage dispute with its primary insurer for $16 million, $4 million less than the $20 million policy limits. The insured then determined that it would pay $4 million itself to fill in the gap and seek the remaining $9 million in unreimbursed expenses from its excess insurer.
The excess insurer, however, refused to pay on the ground that coverage under the excess policy had not been triggered because the insured failed to meet two conditions precedent to coverage under the excess policy: (1) the insured was required to refrain from “compromising” the underlying primary policy; and (2) the underlying primary policy limits had not been exhausted because the primary insurer had not paid its full $20 million policy limits or been “held liable” to pay that amount. The excess policy at issue stated that coverage was triggered only “after the insurers under each of the Underlying Policies have paid or have been held liable to pay the full amount of the Underlying Limit of Liability.” In addition, one condition precedent to coverage under the excess policy included maintenance of an underlying policy.
The Court of Appeals affirmed the trial court’s holding that the insured could not meet the excess policy’s condition precedent of maintaining a primary policy with $20 million in limits, but did not comment on the trial court’s reasoning behind its decision. In addition, in interpreting the excess policy wording in its ordinary and popular sense, the Court of Appeals held that the only reasonable interpretation of the policy wording requiring payment of the full amount of the $20 million underlying limits required actual payment of no less than the full $20 million underlying limit by the primary insurer. As to whether the primary insurer could be said to have been “held liable” to pay the $20 million underlying limit, the court noted that the insured’s complaint did not indicate that the primary insurer was required to accept responsibility or liability for the full $20 million limit in the parties’ settlement. As coverage under the excess policy was never triggered, the excess insurer therefore had no obligation to the insured under the excess policy.