Colorado Supreme Court: An Umbrella Policy Does Not Back Up an Insolvent Primary Insurer
Many Colorado businesses carry an umbrella or excess liability policy on top of their primary general liability coverage, on the assumption that the umbrella is a backstop for whatever the primary policy does not pay. A recent Colorado Supreme Court decision shows where that assumption can fail.
What the court decided
On September 21, 2026, the Colorado Supreme Court decided A.R. Wilfley & Sons, Inc. v. National Union Fire Insurance Co. of Pittsburgh, PA, 2026 CO 64. The case reached the court as a certified question from the U.S. District Court for the District of Colorado. Wilfley, a pump manufacturer, has faced asbestos bodily-injury suits since the 1980s. One of its primary insurers became insolvent, leaving those primary policies uncollectible. Wilfley asked its umbrella insurer to step into the insolvent carrier's place and provide defense and indemnity from the first dollar.
The umbrella policies applied to any occurrence “not covered by the underlying policies listed in the schedule of underlying insurance.” Wilfley argued that an occurrence is “not covered” when the primary insurer cannot pay. The court disagreed. It held that the phrase addresses “the scope of coverage, not the collectibility of payment,” and that “[a] covered occurrence remains covered when the primary carrier is insolvent.” (¶¶ 4–5.)
The court pointed out that the policies used the word “collectible” only for unscheduled underlying insurance, and reasoned that reading collectibility into “not covered” would make the umbrella insurer a guarantor of the scheduled primary carriers, a risk the insurer “neither agreed to assume nor charged a premium to cover.” (¶¶ 42–48.) The court also overruled, to the extent it conflicts, the Court of Appeals' 1989 decision in Deisch & Marion, P.C. v. International Insurance Co., 771 P.2d 19, which policyholders had relied on for the opposite result. (¶ 60.)
Who this affects
The decision turns on the language of Wilfley's policies, and other umbrella and excess policies may be worded differently. If your policy ties coverage to a schedule of underlying insurance in similar terms, the court's reasoning places the risk of a primary insurer's insolvency on you, not the umbrella carrier. The court described the policyholder as responsible for maintaining underlying coverage “through a solvent carrier of its own choosing.” (¶ 48.)
That risk matters most for businesses exposed to long-tail claims, such as product liability, construction defect, and environmental or exposure claims, where a policy written years ago may be called on long after it was issued and the carrier that issued it may no longer be standing. It also matters to buyers of businesses, who often look to a target's historical occurrence policies to respond to pre-closing liabilities.
What to consider doing
Review the insuring agreement and the schedule of underlying insurance in your umbrella or excess policy, and ask your broker whether the policy addresses the insolvency of an underlying insurer. Policy forms vary.
Weigh the financial strength of your primary carrier, not only price, when placing or renewing coverage.
Keep complete records of historical occurrence policies, including each layer and the issuing carrier, because an older policy may be the one that responds to a claim filed today.
In an acquisition, address historical insurance in diligence and in the purchase agreement, including access to the seller's occurrence policies and how losses tied to an uncollectible policy will be allocated.
If a claim is tendered and a carrier is insolvent or declines to defend, get advice on the remaining coverage before making decisions about defense or settlement.
Questions
If you have questions about how this decision may affect your business's insurance program or a pending transaction, please contact LMB Partners.
This post is general information, not legal advice. Reading it does not create an attorney-client relationship with LMB Partners, PLLC. Consult a lawyer about your specific situation.
Comments