The Interplay Between Primary and Excess Insurance Policies in New York Coverage Cases

In many insurance coverage disputes, one of the more nuanced and consequential issues is the relationship between primary policies and excess (or “true excess,” umbrella, or layered) policies. For policyholders, insurers, and insured entities in New York, understanding how and when excess policies are triggered, the standards for exhaustion of primary coverage, and how allocation among multiple policies works can be the difference between full recovery and a costly gap. In this post, we explore key legal principles, recent case law, and strategic takeaways for handling the interplay between primary and excess insurance. For legal advice and representation regarding an insurance coverage dispute in New York, contact the Law Offices of Richard A. Fogel, P.C., to speak with an experienced New York insurance coverage litigation attorney.

Legal Doctrines Governing Triggering of Excess Coverage

At the heart of primary vs. excess policy issues is “exhaustion.” This principle determines when the primary policy’s limits must be paid or otherwise extinguished before the excess/in excess layers come into effect. In New York, courts often require actual payment of underlying policy limits (not merely accrual of liability) before excess insurers are obligated to pay. For example, in Ali v. Federal Insurance Co., involving directors and officers liability, the Second Circuit (applying New York law) held that the excess policies were not triggered by mere accrual of liability; actual payments under underlying policies were required.

Another related doctrine is “vertical” vs. “horizontal exhaustion.” Vertical exhaustion means that an excess policy is triggered once the limits of the underlying policy(ies) for the same policy period are exhausted. Under horizontal exhaustion, an insured must exhaust all applicable primary and lower excess policies in a layer before moving up to the next excess layer, even if some are in different policy periods. New York’s Court of Appeals has made key rulings about these doctrines, particularly in Viking Pump, Inc. v. TIG Insurance Co., where it held that under the relevant policy language, all sums allocation and vertical exhaustion governed the excess insurers’ obligations.

Key Case Law: What New York Courts Have Decided

Viking Pump, Inc. (2016) is one of the most significant recent rulings. In Viking Pump, the New York Court of Appeals addressed whether losses for long-tail claims (like asbestos injury claims) should be allocated on an all sums basis or a pro rata basis, and whether exhaustion of excess policies should operate horizontally or vertically. The court held that:

• All sums allocation was appropriate given policy provisions like non-cumulation and “prior insurance” clauses.

• Vertical exhaustion applied: an insured could access excess policies once the immediately underlying policies for the same year were exhausted, without needing to exhaust all layers across all years.

Another illustrative case is Jiang v. Ping An Insurance Co. In Jiang, an insured settled with its primary insurer for an amount less than the policy limit and then attempted to access excess coverage above that limit. The court refused to trigger excess coverage because the primary limits had not been fully paid or exhausted. In other words, settling for less did not automatically exhaust the primary policy unless the “gap” between settlement and the policy limits was absorbed by the insured.

There’s also been recent developments in New York Appellate cases dealing with “other insurance” clauses, additional insured status, and contractual obligations determining whether coverage is primary or excess. For example, in Mazo v DCBE Contracting, Inc., the court dealt with whether additional insured coverage was primary or excess under various contracts.

Finally, a more recent ruling from the Fourth Department in Kolli v Kaleida Health (July 2024) addressed how multiple excess coverage policies covering the same risk interact when each purports to be excess to the other. The court held that where multiple excess policies cover the same risk and “each generally purports to be excess to the other,” those excess coverage clauses cancel out each other and the insurers should contribute proportionally based on policy limits, unless the policy language clearly insists otherwise.

Practical Issues & Policy Language

The actual policy language is often decisive. Some common features that determine how the excess/primary relationship plays out include:

• Exhaustion clauses — whether the policy states that the underlying policy must be “exhausted by payment of losses” vs. merely “liability” or “satisfaction” of demands.

• Other-insurance clauses — how the excess policy construes its relationship to other valid and collectible insurance. Some policies explicitly say they’re “true excess” and require underlying policy limits to be paid first, while others are less so.

• Non-cumulation / prior insurance provisions — these speak to whether multiple successive policy years or layers can be used to cover the same injury/loss, and how losses are allocated among policies.

• Policy period alignment — does the excess policy refer to underlying policies for the same period? If not aligned, exhaustion may require more than just one layer.

• Contractual requirements — sometimes agreements (e.g., between general contractors and owners) require primary insurance or additional insured status, which affects whether an excess insurer is triggered or whether a primary policy covers an additional insured first.

Strategic Implications: What to Watch Out For

Because the primary-excess interplay can make or break coverage, parties need to be attentive:

• Before purchasing policies, negotiate or review the wording of excess and umbrella policies to ensure consistent exhaustion requirements and clear attachment points.

• When a claim arises, keep careful track of which coverage layers are in play, what the policy periods are, and whether the insured has done everything needed to exhaust underlying coverage.

• Settlement strategy matters: as in Jiang, settling with a primary insurer for less than the policy limit can leave a gap that might prevent excess policies from being reached unless the insured “absorbs” the gap. It might make sense in some circumstances to insist on settlements that fully exhaust underlying policies or to document that any remaining gap has been absorbed.

• Disclosure obligations: In recent years, New York has imposed disclosure rules requiring parties to produce primary, umbrella, and excess polices early in litigation (e.g., the Comprehensive Insurance Disclosure Act) so that all layers are known to all sides. Not having full visibility can lead to surprises later.

• Where policies purport to be mutually excess or where there are multiple excess layers, analyze whether the excess clauses cancel each other out (as in Kolli v Kaleida Health) or whether language requires one to be primary over the other.

Maximizing Coverage & Minimizing Risk

In New York, primary and excess insurance policies do not operate in isolation. The interplay between them is governed by doctrines of exhaustion (vertical vs. horizontal), allocation rules (all sums vs. pro rata), the precise policy language, and enforcement through case law. For policyholders, failing to satisfy exhaustion requirements can block access to large sums in excess coverage. For insurers, small wording distinctions and contractual obligations can control whether and when they owe anything.

At the Law Offices of Richard A. Fogel, P.C., we practice extensively in insurance coverage litigation and can advise clients on structuring, interpreting, and enforcing layered insurance coverage, whether you are seeking to trigger an excess policy or defending one. If you face a coverage dispute involving multiple layers of insurance, a potential gap, or ambiguous exhaustion language, let’s talk about your strategy to ensure you capture all available coverage. Contact us today.