Excess Insurer Cannot Challenge Payments by Underlying Carriers

A North Carolina federal court, applying North Carolina law, has held that an excess insurer may not challenge payments made by underlying carriers. Duke Univ. v. Endurance Risk Sols. Assurance Co., 2022 WL 3636601 (E.D.N.C. Aug. 23, 2022).

The insured university faced separate lawsuits by two faculty members alleging that a “no-poach” agreement between Duke University and the University of North Carolina suppressed faculty wages and mobility. The first lawsuit settled at the excess carrier’s attachment point and was funded by underlying carriers. The second suit settled in the excess carrier’s layer. The excess carrier argued that the two suits were not related; that defense costs and the settlement for the first suit were excessive and/or not covered; and a retroactive date in its policy precluded coverage for both suits. On motions to dismiss, the court held that the two suits were related. The parties then moved for summary judgment on the remaining issues.    

The court first held that the excess insurer could not challenge underlying exhaustion by contesting the decision of underlying insurers to pay their limits. The court cited AXIS Reinsurance Co. v. Northrop Grumman Corp., 975 F.3d 840 (9th Cir. 2020), and held that the excess carrier had not shown bad faith or fraud by the underlying carriers. The court also found relevant that the excess carrier had not objected when the first action was in the process of being settled.  

The court also held the retroactive date exclusion did not bar coverage for the suits. The exclusion applied to “any Loss resulting from a Wrongful Act which occurs before the Retroactive Date [January 1, 2015].” Because some acts occurred before the retroactive date and some acts occurred after the date, the court held that the exclusion did not bar coverage for the suits in their entirety. Although the exclusion applied to “Loss” rather than “Claims,” the court opined that the “retroactive date exclusion does not suggest or contemplate the allocation of claims.”

The court also denied the excess insurer’s motion for summary judgment on bad faith, opining that the record did not preclude a finding that the insurer had acted with reckless disregard for the insured’s rights.

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