Do You Need an Excess Insurer at a Mediation?

In Doe Run Resources Corp. v. Fidelity & Casualty Co., Cal.App. 2016, a policyholder notified both its primary and excess insurers of a substantial environmental class action. The primary insurer defended, and the excess insurer was kept apprised of the status. When mediation was scheduled, the policyholder notified the excess insurer that there was going to be a mediation, noted that it was unclear if the policy would be exhausted by a settlement, but that if a settlement exhausted the primary layer the policyholder would look to the excess carrier for coverage. The letter did not, however, invite the excess carrier to the mediation, and the excess carrier did not attend. The case settled at the mediation for an amount in excess of the primary layer, but the excess carrier denied coverage because the policy required consent of the excess carrier before a settlement was reached as a condition of coverage.

The policyholder argued that it was the excess carrier’s fault that it was not at the mediation because it had been notified that the parties were going to mediate and that excess coverage would be involved if the primary layer was exhausted. The court rejected this argument, noting that: (1) the letter did not assess the likely outcome of the litigation, (2) it did not assess the probability that a settlement would exhaust the primary layer, and most critically, (3) it did not state where the mediation would take place and precisely when it would commence. The excess carrier, therefore, owed no coverage.

While the law relating to consent clauses varies from state to state, this case is a good warning to make sure all necessary carriers are invited to attend a mediation.