Third Circuit Holds that Insured Must Satisfy All Conditions Precedent in Excess Policy to Trigger Coverage

The United States Court of Appeals for the Third Circuit, applying New Jersey law, has affirmed that an excess policy did not provide coverage when an insured could not satisfy an express condition precedent to coverage contained in the excess policy. Pharmacia Corp. n/k/a Pfizer, Inc. v. Arch Spec. Ins. Co., No. 22-2586, 2024 WL 208146 (3d Cir. Jan. 19, 2024).

The insured sought insurance coverage for defense costs and settlement of a putative class action under a tower of directors and officers liability insurance. One of the excess carriers denied coverage on the basis that the insured had not satisfied all conditions precedent to coverage under the excess policy at issue, which provided that “liability for any loss shall attach … only after the Primary and Underlying Excess Insurers shall have [(1)] duly admitted liability and [(2)] ... paid the full amount of their respective liability.”

The insured sued the excess insurer for coverage, and the parties moved for summary judgment. The trial court granted summary judgment in the excess insurer’s favor, finding that the plain language of the excess policy at issue required the underlying insurers to admit liability as a condition precedent for coverage to attach. Because six of the underlying insurers had disclaimed liability, the insured could not satisfy at least one of the conditions precedent for coverage.

Affirming the lower court’s ruling, the Third Circuit held that in order for coverage to attach, the excess policy at issue unambiguously imposed two distinct conditions precedent and that failure to satisfy either condition precluded coverage. The insured failed to show that the underlying insurers admitted liability (the first condition precedent), and therefore was not entitled to coverage under the excess policy. Because the insured could not satisfy the first condition precedent, the Third Circuit found that it did not need to consider the second condition precedent—whether the underlying insurers paid their policy limits.