You Get What You Pay For...Or Do You?
Kevin LaCroix over at The D&O Diary has a great post today about a recent decision out of California related to excess D&O insurance and the inability to oftentimes actually access those insurance monies to pay claims. I would encourage you to go check it out. While I am new to the blogosphere myself, I have been following Kevin's blog for some time now (I think since he started it) and it is one of the most thorough, well written and timely blogs out there on issues related to director and officer liability. It is highly recommended reading. Hopefully, this blog will someday achieve that kind of success.
Kevin's blog post highlights a problem that I have recently run into with excess insurance carriers -- namely, their unwillingness to even discuss settlement or claims resolution until the primary carriers have fully paid out all monies under their policy. I have even had an excess carrier request an invitation to a mediation, attend by telephone, drop off the phone and the settlement conference (apparently intentionally when it became clear the mid-level carrier may not exhaust to resolve the claim) and then later claim during extensive settlement negotiations that they were not invited to that mediation and it did not matter because the underlying insurance policies had not paid out all monies. Thus, their argument was that their attendance was neither required or needed. Perplexing behavior to say the least. At the end of the day we were able to secure a settlement that involved the excess carrier, but only after extensive negotiations, threats of additional litigation and the ability to finally achieve a truly global resolution of the dispute. Kevin's idea that global claims resolutions will likely be the only way to secure excess carriers' participation is, in my experience, spot on.
The million dollar question, however, is how to get the excess carriers to even engage in a global discussion in the first place. Many of the policies with strict exhaustion trigger language provide an easy out for excess carriers to simply refuse to play ball with the policyholder during settlement negotiations. Questions of defense cost burn rate on the underlying policies, true damage exposure, absence of coverage defenses and reasonableness of the particular excess carrier involved will all have a drastic impact on whether the premiums paid for excess insurance have actual value at the end of the day.
