Colorado Supreme Court Holds Primary Insurer’s Insolvency Does Not Trigger Umbrella/Excess Coverage

The Supreme Court of Colorado, applying Colorado law, has held that a primary insurer’s insolvency does not obligate an umbrella/excess insurer to drop down and provide first-dollar coverage that otherwise would have been afforded by the primary policy. A.R. Wilfley & Sons, Inc. v. Nat’l Union Fire Ins. Co. of Pittsburgh, PA, 596 P.3d 689 (Colo. 2026).

An insured pump manufacturer was named in numerous lawsuits alleging exposure to asbestos. One of the company’s primary insurers had issued several policies that afforded coverage for the suits, but those policies became uncollectible due to the insurer’s insolvency. The company then sought coverage under its umbrella/excess policies for the relevant policy years. The umbrella/excess policies stated that, “[w]ith 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 . . . defend any suit against the insured.” In the ensuing coverage litigation, the Colorado Supreme Court accepted the following certified question: where “the underlying insurer or insurers have become insolvent, is the excess umbrella carrier obligated to ‘step into the shoes’ of the insolvent carrier by providing first-dollar indemnity and defense costs to the insured that otherwise would have been paid by the insolvent carrier?”

The court answered “no” and found that the umbrella/excess policies were not triggered. The court rejected the insured’s argument that “covered” encompasses collectibility. The court reasoned that the policy language draws “a purposeful distinction between the existence of coverage through a scheduled underlying insurer . . . and the collectibility of coverage from an unscheduled insurer.” The court stated that “[c]ollectibility bears on coverage only in one narrow context—when the underlying insurance is issued by an unscheduled insurer,” which was not the case here. The court further reasoned that the insured’s interpretation would disrupt the policies’ allocation of risk because “any coverage provided by a scheduled underlying policy would become meaningless the moment that coverage became uncollectible, effectively dragging [the umbrella/excess insurer] from its position atop the coverage tower down to the dirt.”