Excess Insurer's Duty to Defend is Triggered Only When Primary Coverage is Exhausted

In a unanimous Decision, the New Hampshire Supreme Court adopted the majority rule that an excess insurer’s duty to defend is triggered only when the primary coverage is exhausted. The ruling came in response to a question certified to the Court by the First Circuit Court of Appeals. The issue arose out of an accident involving a tractor trailer and a passenger car. The owner of the tractor trailer had leased the truck to the operator. Pursuant to its obligations under the terms of the lease, the owner obtained coverage from Old Republic.  The operator had obtained a separate policy from Stratford. Old Republic initiated a declaratory judgment seeking a ruling that Stratford was a “co-primary” insurer with obligations to provide coverage and defense. The U.S. District Court for New Hampshire ruled that Old Republic was primary and Stratford was excess.  However, it relied on Universal Underwriters Insurance Company v. Allstate Insurance Co., 134 NH 315 (1991) and concluded that the primary and excess carriers were obligated to share equally in the cost of defending the underlying action.

Both parties appealed the decision to the First Circuit. That Court upheld the District Court’s conclusion that Old Republic provided primary coverage and Stratford was excess. However, it said that the trigger of an excess insurer’s duty to defend was an “important and unsettled question of New Hampshire law” and certified the question to the New Hampshire Supreme Court. In adopting the majority rule, the New Hampshire Supreme Court stated that the rule reflects how the insurance industry operates, manages risks and prices their policies.

The Court noted that a primary insurance carrier controls the defense of the case as well as defense costs. There is no reason for an excess carrier to have a role in making strategic decisions regarding the defense or to pay any share of the costs until the primary coverage has been exhausted and the excess carrier has indemnity exposure. The Court noted that excess insurance policies are priced to reflect the reduced expenditures that excess insurers are likely to incur.

In its ruling, the Court distinguished the Universal Underwriters decision that had been relied on by the District Court. It noted that the earlier case was actually a dispute between two primary insurers and not between a primary and an excess insurer. Thus, the language in Universal Underwriters stating that New Hampshire was a “jurisdiction which divides defense costs equally between primary and excess insurers” was dicta and not controlling.