California Top Court Lets Bad Faith Claims Proceed Against Excess Insurers Early
Policyholders with excess coverage in California can now pursue declaratory and bad faith actions against excess carriers before underlying limits are exhausted.
In Fox Paine & Company, LLC, the California Supreme Court ruled on July 27, 2026, that policyholders are not required to exhaust all underlying insurance before seeking declaratory relief or asserting bad faith claims against excess insurers. The decision departs from the traditional exhaustion rule and recognizes that excess carriers have distinct duties that can be triggered independently. For policyholders, this expands leverage in negotiating with excess carriers and creates an earlier pathway to resolve coverage disputes. For insurers, it raises exposure to bad faith liability before underlying limits are paid and may accelerate settlement pressure. In-house counsel should review excess tower structures, reservation-of-rights communications, and current coverage disputes to assess whether early declaratory or bad faith actions are now viable.