MICHIGAN—Excess Insurance/Exhaustion Of Underlying Insurance
The U.S. Court of Appeals for the Sixth Circuit has ruled in Federal-Mogul U.S. Asbestos Personal Injury Trust v. Continental Cas. Co. (6th Cir. July 8, 2011) that an umbrella carrier had no obligation to provide a defense to underlying asbestos claims following the exhaustion of the specific CGL policy listed in its schedule of underlying insurance where other primary insurers were still defending. The court took note of a requirement in CNA's policy, stating that the insurer's obligation to defend only arose "when an occurrence is not covered by the underlying insurance listed in the underlying insurance schedule or any other underlying insurance collectible by the insured, but covered by the terms of this policy. . . ." Further, the Court refused to find that Continental's defense obligation was triggered by Condition 3 to the umbrella policy which required the umbrella carrier to "continue as underlying insurance" following the exhaustion of all underlying policies. While acknowledging that the reference to "underlying policies" might be found ambiguous if taken out of context, the Court held that in this case, the policy was clearly referencing prior language in Condition 3 that referred to Continental's liability as being for the ultimate net loss in excess of "the underlying limits of liability of the underlying insurance policies as stated and described in the Declarations and those of any underlying insurance collectible by the insured." The Sixth Circuit held, therefore, that under Michigan law, the umbrella carrier's obligation to defend did not arise until such time as all primary insurance had become exhausted. Further, the Court rejected the Trust's argument that it should be entitled to discovery on the parties' intent with respect to such concerns, holding that Michigan does not allow extrinsic evidence to determine intent when the words in question are clear and unambiguous and have a definite meaning.