Seventh Circuit Holds Excess Insurer has Right but Not Duty to Attend Mediation Before Primary Coverage is Exhausted

The U.S. Court of Appeals for the Seventh Circuit, applying Indiana law, held that an excess liability insurer did not breach any duty where it refused to defend an insured or attend mediation on behalf of an insured where the insured had not exhausted its primary insurance. Atlanta Gas Light Co. v. Navigators Ins. Co., 2026 WL 172717 (7th Cir. Jan. 22, 2026). The court also held that the excess insurer’s actions leading up to the mediation could not support the insured’s claim for bad faith.

An energy company hired a contractor to mark its gas lines. The contract required the contractor to include the energy company as an additional insured under its insurance policy. Later, a boring company struck an unmarked line, injuring three people. Before attending mediation, the energy company requested the excess carrier represent it at the mediation; however, the excess carrier declined to participate because the primary policy had not been exhausted. A settlement reached with the contractor at the mediation exhausted the primary policy’s limit, so the energy company tendered the claim to the excess carrier, which disclaimed coverage under the policy on the basis that the energy company did not qualify as an additional insured. The energy company then sued the excess carrier for breach of contract, breach of fiduciary duty, and breach of the covenant of good faith and fair dealing, alleging as the basis the excess insurer’s failure to attend the mediation and provide coverage.

As to claims regarding the failure to attend mediation, the Seventh Circuit focused on the excess policy’s language that “the Umbrella Policy is triggered only after the limits of the Primary Policy are exhausted” and that the company had “the right, but not the duty, to participate in the investigation or settlement of any claim” if the primary layer has not been exhausted. The court concluded that this language was “plain and unambiguous” and that it did not create contractual duties. The court also rejected an argument that Indiana law preempted the policy language and established the insurer’s duty of care as soon as it was on notice that the primary policy would be exhausted.

While the court determined that the excess carrier breached the contract by failing to later defend the energy company as an additional insured, it held there was no basis for the plaintiff’s breach of fiduciary duty and bad faith claims based on the excess carrier’s pre- or post-mediation actions.