The California Supreme Court has ruled that insured parties can pursue claims for declaratory relief and breach of the implied covenant of good faith and fair dealing against excess insurers, even if they have not exhausted all underlying insurance coverage. This decision, made on July 27, 2026, affects how insurance claims are handled in the state, particularly in complex cases involving multiple layers of insurance.
The case, Fox Paine & Co, LLC v. Twin City Fire Insurance Co (S287404), emerged from a dispute involving Fox Paine & Company, LLC and its former colleagues at an investment firm. The ruling clarifies the legal standards for insured parties seeking to hold excess insurers accountable when underlying insurance policies have not been fully utilized.
In this case, the plaintiffs included Saul Fox and several related entities, who were embroiled in a legal battle with former colleagues over business disputes. After extensive litigation, they sought compensation from their excess insurers for expenses incurred during the legal proceedings. However, the insurers argued that the plaintiffs could not claim benefits under their policies until all underlying insurance was exhausted.
The lawsuit began after a series of legal conflicts between Fox and Dexter Paine, cofounders of Fox Paine & Company. The disputes led to claims under various insurance policies, including a primary policy and multiple excess policies. The plaintiffs alleged that the excess insurers improperly favored the rival faction in the litigation and failed to indemnify them for their expenses.
The trial court initially allowed some claims to proceed but dismissed others based on a lack of exhaustion of the excess policies. The Court of Appeal upheld this decision, leading the plaintiffs to appeal to the California Supreme Court.
The Supreme Court ruled that an insured party can indeed state a valid claim for declaratory relief and breach of the implied covenant of good faith and fair dealing against excess insurers without having to demonstrate that all underlying insurance policies have been exhausted. Chief Justice Guerrero stated, “The absence of exhaustion is not fatal to these claims.” This ruling allows insured parties to seek judicial declarations regarding their coverage rights and to hold insurers accountable for alleged bad faith conduct.
The court emphasized that while insured parties must adequately plead their covered losses, they do not need to show that all underlying coverage has been exhausted to pursue their claims. The ruling reverses the Court of Appeal's dismissal of the plaintiffs' claims against the excess insurers and sends the case back for further proceedings.
This decision is significant for insured parties in California, as it clarifies that they can pursue claims against excess insurers without first exhausting all underlying coverage. It sets a precedent that may influence future disputes involving multiple layers of insurance, particularly in complex litigation scenarios.
Moving forward, this ruling could lead to more insured parties feeling empowered to challenge their insurers when claims are denied, especially in situations where there are disputes over coverage and the handling of claims. It also raises questions about how insurers will adjust their practices in light of this clarification.
As for what’s next, the plaintiffs’ claims against Twin City Fire Insurance Company, St. Paul Mercury Insurance Company, and Liberty Mutual Insurance Company will now proceed in accordance with the Supreme Court's ruling. The case has the potential to reshape the landscape of excess insurance claims in California, particularly in how courts interpret the need for exhaustion of underlying policies.
Details about whether the ruling can be appealed or if there are related cases pending were not available in the court filing.