Although the obligations of a primary insurer to an excess insurer have been the subject of extensive litigation over the past two decades, far less often explored has been the issue of what duties (if any) are owed by one excess insurer to another excess insurer in a complex, multi-layered program. In this Expert Commentary, insurance coverage and bad faith specialist John T. Harding, a partner in the Boston office of Morrison Mahoney LLP, examines the implications of the recent decision by the Illinois Court of Appeals in Central Illinois Public Service Co. v. Agricultural Insurance Co., 378 Ill.App.3d 728, 880 N.E.2d 1172, 2008 Ill. App. LEXIS 8 (Ill.App. 5th Dist. 2008).

In this commentary, Mr. Harding explains why the decision in CIPS is likely to have significant implications for the relationship between layers of excess insurers with respect to the settlement of claims, as well as how the decision may be read to significantly expand the nature of the excess/excess relationship. As Harding notes, “while the ruling did not dispose of the case but instead remanded the matter for trial, the CIPS decision represents a significant expansion of the duties that can be owed by one excess insurer to another in a complex, multi-tiered program.”

The article provides practitioners and in-house claims professionals with insight into how to approach the issue of settlement when they are acting on behalf of an insurer who does not have a traditional duty to defend, but may nevertheless be called upon to control settlement decisions. In particular, Mr. Harding’s commentary addresses how CIPS essentially imposes an obligation on an excess insurer to protect the interests of excess insurers in the layers above it even though it has no contractual relationship with those other insurers.

The author offers practical suggestions and tips for how to approach such claim situations as the CIPS decision strongly suggests “that in certain situations the upper layer excess insurer’s obligations may be greater than those of the primary insurer who agreed to provide first dollar coverage and a defense.”

Lexis.com subscribers may access the full text of this Expert Commentary by clicking here.