Colorado's highest court has ruled that when a primary insurer goes broke, the excess carrier above it doesn't have to pick up the tab. 

The Supreme Court of Colorado answered a certified question from federal court on September 21, ruling unanimously that "not covered" in umbrella/excess policies refers to coverage scope - not whether the primary insurer can actually pay. 

The case involved A.R. Wilfley & Sons, a Colorado pump manufacturer facing decades of asbestos bodily-injury lawsuits. Wilfley's insurance was stacked in layers. At the base sat primary policies from Reliance Insurance Company. Above them, Federal Insurance Company - part of the Chubb group - had issued umbrella/excess policies. 

When Reliance became insolvent, Wilfley lost access to primary-layer payments, but the policies themselves still technically covered the claims. Wilfley argued this meant the claims were "not covered" under the Federal policies - language that would force Federal to drop down and provide first-dollar defense and indemnity, meaning it would pay from the first dollar of loss. 

Federal disagreed. "Not covered" meant the claim fell outside the underlying policy's scope, not that the insurer behind it was insolvent. 

The court agreed. It walked through three provisions in the Federal policies, each using "collectible" only in connection with unscheduled insurers - carriers not listed in the policy schedule. For scheduled insurers like Reliance, the policies used "covered," and covered meant within scope. Treating the two words as interchangeable would make the collectibility language meaningless and convert Federal into a financial guarantor of every primary insurer Wilfley had chosen - a risk it never priced and never accepted. 

Wilfley had leaned on a 1989 Colorado Court of Appeals decision where an excess carrier was held liable for defense costs after a primary insurer became insolvent. The Supreme Court found that earlier ruling was grounded in equity, not contract. Its brief discussion of the policy language was unnecessary to the outcome - legal reasoning that doesn't drive the result, known as obiter dictum, and not binding. The court overruled Deisch to the extent it conflicted. 

The ruling aligns Colorado with federal appellate courts in the Fifth, Tenth, and Eleventh Circuits, plus a California appellate decision, all reaching the same conclusion.