The Colorado Supreme Court has held that an umbrella insurer does not become an insured’s stopgap when a primary insurer becomes insolvent. In A.R. Wilfley & Sons, Inc. v. National Union Fire, et al., 2026 CO 64, the Court answered the following certified question: Where the “Insuring Agreement” and “Defense Provisions” language of an excess umbrella insurance policy includes the following: 

With respect to any occurrence not covered by the underlying policies listed in the schedule of underling insurance, or any other underlying insurance collectible by the insured, but covered by the terms and condition of this policy the Company shall in addition to the amount of ultimate net loss payable; … defend any suit against the insured seeking damages on account of personal injury…

and the underlying insurer or insurers have become insolvent, is the excess umbrella carrier obligated to “step into the shoes” of the insolvent carrier by providing first-dollar indemnity and defense costs to the insured that otherwise would have been paid by the insolvent carrier?

The Colorado Supreme Court answered “no.” 

In Wilfley, the insured manufactured pumps for mining and industrial operations and faced a long series of lawsuits alleging bodily injury from asbestos exposure tied to those pumps. When the insured’s last remaining primary insurer became insolvent, the insured turned to its umbrella carrier for defense and indemnity. The insured argued that because its primary insurer could no longer pay for occurrences within the scope of its policies, those claims were no longer covered by the primary policy, which required the umbrella carrier to drop down. The Supreme Court rejected that argument.

In coming to its conclusion, the Supreme Court distinguished between two different interpretations of the term “covered” and relied upon the parties’ intent in contracting and the language of the policy in concluding that “covered” as outlined in the umbrella language does not encompass collectability. The Supreme Court found an umbrella carrier’s obligations are only triggered when an occurrence falls outside the scope of coverage afforded by the underlying policy, not by a primary carrier’s inability to pay. 

Notably, the Supreme Court held that the policy language was unambiguous. The Supreme Court concluded that to hold an umbrella carrier responsible for a primary insurer’s obligations would impose on an umbrella carrier duties and responsibilities outside of its contract with the insured. This holding is consistent with both federal and state courts across the country, which the Supreme Court considered in support of its decision. 

Conclusion
While Colorado is often known as a policyholder-friendly jurisdiction, the Colorado Supreme Court followed the majority rule and upheld the policy language and intent of the umbrella/excess policies. 

This ruling confirms what was already thought to be the law: an umbrella carrier has no obligation to assume a primary insurer’s responsibilities when that insurer is unable to pay. A primary insurer’s insolvency does not render a covered occurrence “not covered” and, therefore, an umbrella carrier’s responsibility. The ruling is a win for umbrella carriers in Colorado because it leaves the risk of a primary insurer's insolvency with the insured rather than shifting it to the umbrella carrier.