In the June 2011 edition of this column,1 we discussed the U.S. Court of Appeals for the Second Circuit’s seminal decision in Zeig v. Massachusetts Bonding & Ins. Co., a widely followed decision from 1928 that addressed issues concerning the trigger of excess insurance.2 The Zeig court held that an excess policy can be triggered as a result of a settlement between the insured and its primary carriers, even where the settlement payment is less than the full limits of the primary insurance, as long as the insured’s loss exceeds the primary limits. In such circumstances, the excess policy does not drop down below the attachment point, but it does cover loss incurred above the underlying limits.
We observed that courts in certain other jurisdictions had recently begun to call the Zeig decision into question, but we noted that New York courts continued to follow Zeig. Specifically, we reviewed the Southern District’s decision in Pereira v. Nat’l Union Fire Ins. Co. of Pitt, PA, which followed Zeig, holding that an excess policy would be triggered with regard to loss that exceeded the underlying limits where the underlying carrier was insolvent, and therefore would never actually pay out the underlying limits.3
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