California Supreme Court Allows Excess Insurer Claims Without Exhausting Underlying Policies
California policyholders with layered excess insurance coverage and their counsel may now bring declaratory relief and bad faith claims against excess insurers without first exhausting all underlying lower-layer policies, removing the prior mandate to file serial lawsuits up the coverage tower.
The California Supreme Court unanimously ruled in Fox Paine & Co. v. Twin City Fire Insurance Co. that exhaustion of underlying insurance policies is not a categorical bar to insureds pursuing claims against excess insurers. The Court held policyholders may seek declaratory relief by alleging a covered loss that reasonably likely reaches the excess policy’s attachment point, and may bring bad faith claims by showing the excess insurer’s misconduct impaired their recovery, even before lower layers are exhausted. Insureds with layered California insurance policies can now consolidate coverage disputes across all tiers in a single action, rather than filing sequential lawsuits for each coverage layer.