New Hampshire Supreme Court Rules that Excess Insurer’s Duty to Defend Was Triggered Only When Primary Insurer’s Coverage Was Exhausted

In response to questions certified by the U.S. Court of Appeals for the First Circuit, the New Hampshire Supreme Court ruled that an excess insurer’s duty to defend under New Hampshire law was triggered only when the primary insurer’s coverage was exhausted.

The Case

Old Republic Insurance Company and Stratford Insurance Company each provided insurance coverage for a tractor-trailer that collided with a passenger vehicle. The owner of the tractor, Ryder Truck Rentals, had purchased an insurance policy from Old Republic. DAM Express, a for-hire motor company, had leased the tractor from Ryder. Although, pursuant to the lease agreement, Ryder was responsible for obtaining liability insurance for the tractor, DAM also purchased a separate insurance policy from Stratford. When the collision occurred, the driver of the tractor-trailer was employed by DAM, and the trailer was owned by Coca-Cola.

The persons injured in the collision with the tractor-trailer sued the driver, DAM, Ryder, and Coca-Cola. Old Republic began providing a defense for Ryder, DAM, and the other defendants. It asked Stratford to help pay the defense costs.

Stratford refused, stating that it had “no obligation to share in the cost of defending or indemnifying its insureds” because any coverage provided by Stratford “to either DAM or [the driver]” was “excess to the coverage provided by … Old Republic.”

Old Republic sued Stratford, seeking a declaratory judgment that Stratford had an obligation, as a co-primary insurer, to provide coverage and pay a portion of the defense costs. Stratford filed a counterclaim, seeking a declaratory judgment that Old Republic was the primary carrier and that Stratford provided only excess coverage.

The U.S. District Court for the District of New Hampshire ruled that Old Republic provided primary coverage and Stratford provided excess coverage. It also concluded that under New Hampshire law, “the duty of an insurer to defend is the same whether its potential liability is either as a primary or as an excess carrier.” Therefore, Stratford, as the excess insurer, was “obligated to share equally in the costs of defending its insureds in the underlying action.”

The dispute reached the First Circuit, which upheld the district court’s conclusion that Old Republic provided primary coverage and Stratford provided excess coverage. As to Stratford’s defense obligations, the First Circuit stated that the question of when an excess insurer’s duty to defend was triggered was an “important and unsettled question of New Hampshire law,” and, therefore, it asked the New Hampshire Supreme Court to determine when an excess insurer’s duty to defend was triggered.

The New Hampshire Supreme Court’s Decision

The court decided that New Hampshire follows the majority rule that an excess insurer’s duty to defend was triggered only when the primary insurer’s coverage was exhausted.

In its decision, the court explained that that rule reflected how the insurance system operated, how companies managed risk, and how insurers marketed and priced their policies. It noted that the primary insurer, given its obligation to defend, controlled the defense of a claim and its costs. Until an excess insurer had indemnity exposure, the court added, there was no reason it should have a role in making strategic decisions regarding the defense of an insured, “nor should it be required to pay a share of the defense costs.”

Moreover, the court added, because it was principally the obligation of the primary insurer to defend lawsuits against the insured and, in most cases, the excess insurer did not undertake the insured’s defense, excess policies were priced to reflect the reduced expenditures that excess insurers were likely to incur.

The court stated that requiring an excess insurer to share defense costs equally with a primary insurer – regardless of whether the excess insurer’s indemnity obligations had been triggered – would undermine this pricing structure. It concluded that an excess insurer had no duty to defend a claim until the primary insurer’s coverage was exhausted.

The case is Old Republic Ins. Co. v. Stratford Ins. Co., No. 2015-0123 (N.H. Jan. 26, 2016).