The Colorado Supreme Court recently delivered a significant ruling in the case of A.R. Wilfley & Sons, Inc. v. National Union Fire Insurance Company of Pittsburgh, PA; Federal Insurance Company; and United States Fire Insurance Company, docket number 25SA265. The court's decision, issued on September 21, 2026, clarifies the obligations of umbrella and excess insurance policies when a primary insurer becomes insolvent. This ruling affects companies relying on layered insurance coverage, particularly in industries with long-term liability claims, such as manufacturing and construction.
A.R. Wilfley & Sons, Inc., a manufacturer of pumps, has faced numerous lawsuits over the years due to claims of bodily injury related to asbestos exposure from its products. The company has historically relied on insurance coverage from various primary insurers, including Great Northern Insurance Company and Reliance Insurance Company. However, both insurers eventually became unable to fulfill their obligations due to insolvency or exhaustion of their policy limits.
In this case, Wilfley sought coverage from Federal Insurance Company, which had issued umbrella and excess insurance policies to the company. Wilfley argued that because Reliance was insolvent, Federal was required to provide coverage for claims that would have been covered under Reliance's policies. The dispute centered on the interpretation of the term "not covered" in Federal's policies and whether it included claims that were covered by a primary insurer but uncollectible due to insolvency.
The Colorado Supreme Court's ruling focused on the interpretation of the insurance policy language. The court determined that the phrase "not covered" refers specifically to occurrences that are outside the scope of coverage provided by the underlying policies, not to the financial ability of the primary insurer to pay claims. The court stated, "we agree with the umbrella/excess insurer and conclude that 'not covered,' as used in its policies, addresses the scope of coverage, not the collectibility of payment for a covered occurrence." This ruling indicates that the insolvency of a primary insurer does not change the nature of coverage provided by umbrella or excess policies.
The court emphasized that the Federal Policies clearly distinguish between coverage and collectibility. The umbrella/excess policies are designed to provide coverage only when the underlying primary policies do not apply, not when the primary insurer is unable to pay. The ruling effectively means that Wilfley cannot rely on Federal's policies to cover claims that are otherwise covered by Reliance's policies, despite Reliance's insolvency.
The impact of this ruling is significant for businesses that utilize layered insurance coverage. It reinforces the principle that an umbrella or excess insurer is not responsible for claims simply because a primary insurer becomes insolvent. Companies must ensure they maintain adequate and solvent primary insurance coverage to avoid gaps in protection. This ruling may also serve as a precedent for similar cases in Colorado and potentially influence how courts interpret insurance policies in other jurisdictions.
Moving forward, companies in similar situations may need to reevaluate their insurance strategies to ensure they are adequately protected against liability claims. The ruling clarifies the responsibilities of umbrella and excess insurers, potentially reducing disputes over coverage in cases of primary insurer insolvency. However, it also highlights the importance of selecting reliable primary insurers to avoid situations where coverage becomes uncollectible.
While the Colorado Supreme Court's ruling is final, there may still be related cases pending in lower courts or other jurisdictions that could further explore the nuances of insurance coverage in the context of insolvency. Companies affected by this ruling should stay informed about ongoing legal developments in the insurance industry.