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69 Def. Counsel J. 315 (2002)
Excess-Primary Insurer Obligations and the Rights of the Insured

handle is hein.journals/defcon69 and id is 317 raw text is: Excess-Primary Insurer Obligations and the Rights of the Insured One area that needs clarification is the tension between the principle of horizontal exhaustion and the doctrine of targeted tender By Thomas M. Hamilton and Troy A. Stark T HE relationship between excess and primary insurers is based on well- established principles of contract law. The obligations excess insurers, primary in- surers and insureds owe to one another generally are founded on the language of the insurance policy and case law interpret- ing policies. One area in which courts are creating new obligations, however, relates to the duty of the insured to tender the de- fense of a claim or suit to the appropriate insurers. In fact, a number of U.S. states have even held an insurer has no duty to defend a suit absent a specific request by the insured. Recent decisions regarding the act of tender, however, have thrown into question the relationships among primary insurers, excess insurers and insureds. Defense counsel should be aware of these changing obligations and analyze how the new theory of targeted tender impacts the relationships. One must begin by examining common policy provisions used to establish the respective duties of primary insurers, excess insurers and insureds. After that, an analysis should turn to the threshold decision by the California Court of Appeal, Transit Casualty Co. v. Spink Co.,' which first set forth the exist- ence of reciprocal duties between excess and primary insurers. Next, one should ex- amine the law as it has developed since Transit Casualty, including the law of hori- zontal exhaustion and the impact of the in- creased use of targeted tenders on the ex- cess-primary relationship. Finally, this article will suggest a possible resolution to the inherent tension between the duties ex- cess and primary insurers owe to one an- IADC member Thomas M. Hamilton is a partner in Chicago-based Hinshaw & Culbertson. He oversees the firm's Insur- ance Service Group and concentrates his practice in coverage litigation, reinsur- ance and bad faith. He is a graduate of Indiana University (B.A. 1966, J.D. 1969). Troy A. Stark is an associate in the same office, where he is a member of the Business Litigation Group and also works with the Insurance Services Group. He is a graduate of Concordia College (B.A. 1997) and Loyola University of Chicago School of Law (J.D. 2000). other and the concepts of horizontal ex- haustion and targeted tenders. TYPICAL EXCESS-PRIMARY RELATIONSHIP In a typical excess-primary relationship, both the excess and primary carrier con- tract independently with the policyholder to perform the obligations of their insuring agreements. In so doing, the insured usu- ally sets up layers of primary and excess insurance coverage for a particular time pe- riod or business risk. With respect to the primary carrier, the insuring agreement typically provides: We will pay those sums the insured be- comes legally obligated to pay as damages because of bodily injury or property damage to which this insurance applies. We will have the right and duty to defend 1. 156 Cal.Rptr. 360 (Cal.App. 1979), vacating 144 Cal.Rptr. 488 (Cal.App. 1978), questioned in Commercial Union Assurance Cos. v. Safeway Stores Inc. 610 P.2d 1038 (Cal. 1980), vacating 158 Cal.Rptr. 97 (Cal.App. 1979).

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