26CO64, 25SA265 A.R. Wilfey & Sons v. National Union Fire

OCR transcription for search; preserved printed pages are authoritative

The opinion summaries are not part of the Colorado Supreme
Court's opinion. They have been prepared solely for the reader's
convenience. As such, they may not be cited or relied upon. If
there is any discrepancy between the language in the summary
and the opinion, the language in the opinion controls.

ADVANCE SHEET HEADNOTE
September 21, 2026

# 2026 CO 64

No. 25SA265, A.R. Wilfley & Sons, Inc. v. Nat'l Union Fire Ins. Co. of Pittsburgh,
PA-Insurance-Contract Interpretation-Scope of Coverage-
Umbrella/Excess Carriers-Deisch & Marion, P.C. v. Int'l Ins. Co., 771 P.2d 19
(Colo. App. 1989).

The parties' dispute in this insurance case centers on the umbrella/excess
carrier's obligation to defend against any occurrence "not covered" by the
insured's primary policies. The carrier and the insured offer competing
interpretations of "not covered," each yielding a different outcome. One reading
construes "not covered" to mean the primary policies do not insure against the
occurrence at all. The other reads "not covered" more broadly to include
situations where the primary policies do insure against the occurrence but cannot
pay because the primary carrier is insolvent.

Under the first reading, the umbrella/excess policies remain dormant
because the occurrence is covered by the primary policies and their limits have not
been reached due to the primary carrier's insolvency. Under the second, the
umbrella/excess policies are triggered because payment cannot be collected from

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the primary carrier even though the occurrence is otherwise covered. The choice
between these interpretations is dispositive.

The certified question from the federal district court asks whether the
primary carrier's insolvency places a covered occurrence in the "not covered"
category, thereby requiring the umbrella/ excess carrier to drop down and provide
first-dollar indemnity and defense costs. Put differently, does "not covered"
include a covered occurrence when the primary carrier cannot pay? Based on the
unambiguous language in the umbrella/excess policies, the supreme court
answers "no." "Not covered," as used in those policies, addresses the scope of
coverage, not the collectibility of payment.

The policies distinguish coverage from collectability, making collectibility
relevant only when the primary policies are not scheduled - and here, the primary
policies are scheduled. Because the umbrella/ excess policies do not insure against
the financial misfortune of a scheduled primary carrier selected by the insured,
they do not drop down due to the primary carrier's insolvency. A covered
occurrence remains covered even when the primary carrier is insolvent.

The division's decision in Deisch & Marion, P.C. v. Int'l Ins. Co., 771 P.2d 19
(Colo. App. 1989), does not alter this conclusion. That case is distinguishable and
its most relevant passage is dictum. In any event, to the extent Deisch is
incompatible with today's decision, it is overruled.

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# The Supreme Court of the State of Colorado 2 East 14th Avenue . Denver, Colorado 80203

2026 CO 64

Supreme Court Case No. 25SA265
Certification of Question of Law
United States District Court for the District of Colorado Case
No. 1:23-cv-02198-NRN

Plaintiff:

A.R. Wilfley & Sons, Inc.,

V.

Defendants:
National Union Fire Insurance Company of Pittsburgh, PA; Federal Insurance
Company; and United States Fire Insurance Company.

Certified Question Answered
en banc
September 21, 2026

Attorneys for Plaintiff:
Levin Sitcoff PC
Bradley A. Levin
Kerri J. Anderson
Robyn Levin
Denver, Colorado

Western Slope Law
Nelson A. Waneka
Glenwood Springs, Colorado

Attorneys for Defendant Federal Insurance Company:
Nicolaides Fink Thorpe Michaelides Sullivan LLP

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Greta A. Matzen
Samuel B. Thornton
Denver, Colorado

O'Melveny & Myers LLP
Jonathan D. Hacker
Washington, District of Columbia

Attorneys for Amicus Curiae Complex Insurance Claims Litigation
Association:
Deisch Marion & Klaus, P.C.
Gregory K. Falls
Denver, Colorado

No appearance on behalf of: National Union Fire Insurance Company of
Pittsburgh, PA and United States Fire Insurance Company.

JUSTICE SAMOUR delivered the Opinion of the Court, in which CHIEF
JUSTICE MÁRQUEZ, JUSTICE BOATRIGHT, JUSTICE HOOD, JUSTICE
GABRIEL, JUSTICE BERKENKOTTER, and JUSTICE BLANCO joined.

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JUSTICE SAMOUR delivered the Opinion of the Court.

[1 Jorge Luis Borges imagined a "garden of forking paths," where the meaning
of a text branches and carries the reader to different endings depending on which
interpretive offshoot is taken. See Jorge Luis Borges, The Garden of Forking Paths, in
Collected Fictions 119, 123 (Andrew Hurley trans., Penguin Books 1999) (1941). In
the context of insurance policies, litigants frequently chart divergent interpretive
paths. So it is here, in this certified-question case. But as we demonstrate, the
policy language at issue does not branch: it is subject to only one meaning. And
that meaning, in turn, dictates the answer to the certified question.

12 The policies at the heart of the parties' dispute require the umbrella/ excess
carrier to defend against any occurrence "not covered" by the insured's primary
policies.1 The umbrella/excess carrier and the insured offer competing
interpretations of "not covered," each yielding a different outcome.

13 One interpretive path reads "not covered" to mean that the primary policies
do not insure against the occurrence in question. The other reads "not covered"
more broadly to include situations where the primary policies do insure against

1 Umbrella coverage and excess coverage are markedly different concepts in the
insurance context. The former extends the protection afforded by an underlying
primary policy, whereas the latter applies only after the limits of an underlying
policy have been exhausted. Below, we describe the differences between these two
forms of coverage in more detail.

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the relevant occurrence but cannot pay because the primary carrier is insolvent.
Under the first path, the umbrella/excess policies remain dormant because the
occurrence is covered by the primary policies and their underlying limits have yet
to be reached due to the primary carrier's insolvency. Under the second, the
umbrella/excess policies are triggered because payment cannot be collected from
the primary carrier-even though the occurrence is otherwise covered by that
carrier's policies. And the choice between these two paths is dispositive.

14 These dueling interpretations of "not covered" frame the certified question
from the federal district court: whether the primary insurer's insolvency places a
covered occurrence in the "not covered" category, thereby requiring the
umbrella/excess carrier to drop down and provide first-dollar indemnity and
defense costs to the insured. Put differently, does "not covered" include a covered
occurrence when the primary carrier cannot pay? Based on the unambiguous
language in the umbrella/excess policies, we answer "no." We agree with the
umbrella/excess insurer and conclude that "not covered," as used in its policies,
addresses the scope of coverage, not the collectibility of payment for a covered
occurrence.

15 The umbrella/excess policies distinguish coverage from collectibility,
making collectibility relevant only when the primary policies are not

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scheduled -and here, the underlying policies are scheduled.2 Because the
umbrella/excess policies do not provide protection against the financial
misfortune of a scheduled primary insurer selected by the insured, they cannot
assume the role the insured urges them to take. The upshot is this: the primary
carrier's insolvency does not transform a covered occurrence for which payment
cannot be collected into an occurrence that is "not covered" and that triggers the
umbrella/excess policies. A covered occurrence remains covered when the
primary carrier is insolvent. The umbrella/excess policies here are therefore not
triggered.

## I. Facts and Procedural History

### A. The Coverage Tower

16
For more than a century, A.R. Wilfley & Sons, Inc. ("Wilfley") has
manufactured pumps for use in mining and industrial operations. Since the 1980s,
Wilfley has been embroiled in a steady stream of lawsuits brought by individuals
alleging bodily injury from exposure to asbestos in its products ("Underlying
Actions"). These actions continue to wind their way through courts across the
country, with no imminent conclusion on the horizon.

2 A scheduled policy in this context refers to an underlying primary policy listed
in an excess or umbrella policy's schedule that must remain in effect for the excess
or umbrella policy to operate as intended.

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In more recent years, coverage for the Underlying Actions was largely
17
supplied by Great Northern Insurance Company ("Great Northern"), one of
Wilfley's primary insurers. But Great Northern's general liability policies
eventually ran dry - their limits exhausted through settlements and the payment
of claims.

18 Like Great Northern, Reliance Insurance Company ("Reliance") issued
primary general-liability policies to Wilfley. But Reliance's policies became
uncollectible due to its insolvency.

19
That is where Federal Insurance Company ("Federal") enters the picture.
Federal issued at least three umbrella/excess policies to Wilfley, covering the
following policy periods: (1) January 1, 1981, to January 1, 1982; (2) January 1, 1982,
to January 1, 1983; and (3) January 1, 1985, to January 1, 1986 (the "Federal
Policies"). The insuring agreement in each of the Federal Policies states:

In consideration of the payment of the required premium, the
Company hereby agrees, subject to all of the terms of this policy, to
pay on behalf of the insured all sums, as more fully defined by the
term ultimate net loss, for which the insured shall become obligated
to pay by reason of liability

(a) imposed upon the insured by law or

(b) assumed under contract or agreement by the insured,

arising out of personal injury, property damage or advertising
liability caused by an occurrence.

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110 In this multilayered coverage tower, the Federal Policies form the capstone,
sitting above various underlying primary policies-including, as relevant here,
scheduled primary policies issued by Reliance. The difficulty is that Reliance is no
longer a functioning insurer due to its insolvency. Thus, like Great Northern, it is
no longer able to shoulder its share of Wilfley's asbestos-related liability.

111 But Great Northern and Reliance are not the only missing supports beneath
Federal's coverage: Every source of Wilfley's underlying primary insurance has
fallen away, whether through insolvency, exhaustion, exclusion, or settlement.
Reliance was Wilfley's last-standing underlying primary insurer. Wilfley now
contends that the Federal Policies require Federal to step in to defend and
indemnify it. Federal disagrees. Because this dispute is what steered the certified
question to our front steps, we turn next to the terms of the Federal Policies.

## B. The Coverage Tower's Upper Layer: The Federal Policies

112 The Federal Policies provide coverage for occurrences that are not covered
by scheduled underlying policies, such as Reliance's primary policies, as well as
for claims that exceed the underlying limits of the scheduled underlying policies.
But what do the Federal Policies actually say? We examine their most relevant
provisions.

113 The "Underlying Limit- Retained Limit" provision in the Federal Policies
states:

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The Company shall be liable only for the ultimate net loss the excess
of the greater of the insured's underlying limit or retained limit
defined as:

(a)
Underlying limit-an amount equal to the limits of
liability indicated beside the underlying insurance listed
in the schedule of underlying insurance, plus the
applicable limits of any other underlying insurance
collectible by the insured;

(b)
Retained limit - The amount specified . .. as the result of
all occurrences not covered by said underlying insurance
. ...

[14 The Federal Policies' defense obligations are similarly limited. They arise
only when an occurrence is "not covered" by any underlying insurance but is
covered under the terms of the Federal Policies:

(b)
With respect to any occurrence not covered by the
underlying policies listed in the schedule of underlying
insurance, or any other underlying insurance collectible
by the insured, but covered by the terms and conditions
of this policy the Company shall, in addition to the
amount of ultimate net loss payable;

(1) defend any suit against the insured . . .;

(2) pay all expenses incurred by the Company, all
costs taxed against the insured in any such suit and
all interest on the entire amount of any judgment
therein which accrues after entry of the
judgment .. ..

115 The "Maintenance of Underlying Insurance" condition in the Federal
Policies underscores this structure. It requires Wilfley to maintain the underlying
primary insurance in full force and states that Federal's obligations do not come

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into play until the applicable underlying limits have been paid-whether by
Wilfley or by one of its underlying insurers:

The policy or policies referred to in the attached schedule . . . shall be
maintained in full effect during the currency of this
policy .... Failure of the insured to comply with the foregoing shall
not invalidate this policy but in the event of such failure, the
Company shall only be liable to the same extent as if the insured had
complied with this condition.

116 Having set out the policy terms that establish Federal's coverage
obligations, we turn to the litigation that gave rise to the certified question.

## C. The Dispute's Passage Through the Federal District Court and the Certified Question It Delivered

117 After exhausting the limits of the Great Northern primary policies-and
confirming that no refuge lay in any of the other scheduled underlying policies,
including Reliance's insolvent policies - Wilfley tendered the Underlying Actions
to Federal. Federal agreed to defend, but only while holding tight to a full
reservation of rights. That reservation functioned as a legal placeholder,
preserving Federal's ability to later deny coverage and seek repayment of defense
costs.

[18 When Federal ultimately closed the door on coverage, Wilfley filed suit in
the United States District Court for the District of Colorado, alleging breach of
contract, seeking declaratory relief, invoking estoppel, and pursuing a claim of
common law insurance bad faith. As relevant here, Wilfley sought both defense

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and indemnity for claims that would have fallen within the four corners of
Reliance's scheduled primary policies had that carrier remained solvent.

119 Wilfley's theory was, on its face, simple and direct. Because the benefits
available under Reliance's scheduled underlying policies had become
uncollectible following that carrier's insolvency, Wilfley maintained that its claims
were "not covered" by those policies-as "not covered" is used in the Federal
Policies. Noting that Reliance was out of the picture, Wilfley urged that Federal
was required to "drop down" and supply the primary coverage Reliance could no
longer furnish. In Wilfley's view, insolvency created a kind of coverage eclipse:
once Reliance disappeared into financial darkness, Federal was obliged to shine in
its stead.

120 Federal responded with equal clarity. After counterclaiming for declaratory
relief and monetary damages, it moved for judgment on the pleadings, contending
that the Federal Policies did not allow a primary insurer's insolvency to redraw
the coverage map and pull an umbrella/excess insurer from the pinnacle of the
coverage tower down to the first line of defense.

121 The Federal Policies, argued Federal, did not convert an excess insurer into
a stand-in for an insolvent primary carrier simply because the primary carrier
could no longer bear the load its policies assigned to it. Instead, Federal
maintained, the phrase "not covered" spoke to whether the occurrence fell within

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the scope of the underlying policies-not whether the primary insurer was
financially capable of satisfying its obligations. In Federal's framing, collectibility
was a practical concern, not a coverage trigger.

122 Recognizing that our court had not previously addressed whether the
insolvency of a scheduled underlying insurer can trigger an umbrella/excess
policy, the district court canvassed authorities nationwide, including published
opinions from our court of appeals. A.R. Wilfley & Sons, Inc. v. Fed. Ins. Co., No.
23-cv-02198-NRN, 2025 WL 1158355, *8-11 (D. Colo. Apr. 21, 2025) ("Wilfley I").
Those sources collectively pointed the court in an unmistakable direction: the
insolvency of a scheduled primary insurer does not alter an umbrella/ excess
insurer's obligations. Id. The court therefore concluded that Federal had neither
defense nor indemnity responsibilities "until the underlying limits have been
exhausted" -or, as expressly contemplated by the Federal Policies, until those
limits have been "paid by Wilfley." Id. at *9.

123 In rejecting Wilfley's attempt to equate coverage with collectibility, the court
focused on the Federal Policies' use of the two concepts in separate contexts. Id. at
*10. It observed that the policies distinguished between whether an occurrence
fell within the scope of the underlying policies and whether the insurer
underwriting those policies was financially able to perform. Id. The court
reasoned that an occurrence did not become "uncovered" merely because such an

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insurer could not, or would not, pay. Id. Accordingly, the court held that Federal
had no obligation to provide either a defense or first-dollar coverage to Wilfley.
Id. at *14.

124 Wilfley sought reconsideration or, alternatively, certification of the
dispositive question to this court. The district court withdrew its earlier order
(Wilfley I) and granted the request for certification. See A.R. Wilfley & Sons, Inc. v.
Nat'l Union Fire Ins. Co. of Pittsburgh, PA, No. 23-cv-02198-NRN, 2025 WL 4109052,
*7 (D. Colo. Sep. 3, 2025) ("Wilfley II"). It flagged two reasons for doing so. First,
it pointed to a court of appeals decision dating back to the late 1980s-Deisch &
Marion, P.C. v. International Insurance Co., 771 P.2d 19, 20 (Colo. App. 1989) - that
arguably cut against the grain, appearing to require an umbrella/ excess insurer to
defend when the benefits under the primary insurance became uncollectible.
Wilfley II, at *7. Second, it noted that the issue was poised to land before the Tenth
Circuit and that guidance from this court on an unsettled point of Colorado law
would be valuable. Id.

125 We accepted the certified question, which reads as follows:

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 underlying insurance, or any
other underlying insurance collectible by the insured, but covered
by the terms and conditions of this policy the Company shall, in
addition to the amount of ultimate net loss payable; .. . defend any

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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?

126 With the contours of the dispute now fully drawn-and the certified
question squarely before us - we turn to the analysis.

## II. Analysis

127 Before surveying the coverage tower, we pause to address several issues
that form the foundation of our analysis: the source of our jurisdiction, the
standard of review, and the principles governing contract interpretation. With this
bedrock laid down, we briefly digress to explain the differences between umbrella
coverage and excess coverage. Our focus then shifts to Federal's coverage, and we
proceed to give effect to the unambiguous policy language, informed where
appropriate by decisions from other jurisdictions. We ultimately conclude that an
umbrella/excess insurer does not become the primary insurer's stopgap-or
inherit its obligations-simply because the primary insurer becomes insolvent.
Therefore, an occurrence covered by Reliance's scheduled underlying policies
remains covered even though Reliance has become insolvent. And because, as
pertinent here, the Federal Policies can be triggered only by occurrences that are

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"not covered" by Reliance's policies or when the underlying limits have been
exhausted, we answer the certified question in the negative.

### A. The Analytical Groundwork: Jurisdiction, Standard of Review, and Contract-Interpretation Principles

128 First, our jurisdiction. C.A.R. 21.1(a) allows us to answer questions of
Colorado law certified by a federal court that "may be determinative of the cause
then pending in the certifying court" and for which there is "no controlling
precedent" from our court. Hamilton v. Amazon.com Servs. LLC, 2024 CO 60, 1 21,
555 P.3d 620, 625-26 (citing In re Phillips, 139 P.3d 639, 643 (Colo. 2006)). Whether
to accept a certified question lies within our sound discretion. Id., 555 P.3d at 626.
We accepted jurisdiction here because the certified question presents an issue on
which we have not yet spoken, and our answer will determine whether Wilfley
may tap the excess-coverage portion of the Federal Policies.

129 Second, our standard of review. The certified question before us involves
the interpretation of insurance policies, which we review de novo. Bailey v. Lincoln
Gen. Ins. Co., 255 P.3d 1039, 1050 (Colo. 2011). When a certified question presents
a novel issue, decisions from other jurisdictions may furnish persuasive guidance.
People v. Weiss, 133 P.3d 1180, 1187 (Colo. 2006); see also Furlong v. Gardner, 956 P.2d
545, 551-52 (Colo. 1998) (collecting federal cases to resolve a matter of first
impression).

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130 Third, the principles of contract interpretation. Because insurance policies
are construed according to standard principles of contract interpretation, our
primary objective is to effectuate the parties' intent as expressed in the policy
language. Cotter Corp. v. Am. Empire Surplus Lines Ins. Co., 90 P.3d 814, 819 (Colo.
2004). We give policy terms their plain and ordinary meaning unless those terms
demonstrate a contrary intent. Cyprus Amax Mins. Co. v. Lexington Ins. Co., 74 P.3d
294, 299 (Colo. 2003). Further, we do not rewrite the parties' agreement by adding
or deleting provisions to expand or restrict coverage. Id. And although
ambiguous terms in an insurance contract are generally construed in favor of the
insured, we enforce unambiguous terms as written, giving them their "plain and
generally accepted meaning." Heller v. Fire Ins. Exch., a Div. of Farmers Ins. Grp.,
800 P.2d 1006, 1009 (Colo. 1990).

131 With this root system in place, we analyze the coverage tower. Our first step
is to take a bird's-eye view of the tower's architecture to orient ourselves to the
insurance arrangement before us.

### B. A Guided Tour of the Coverage Tower

[32 The insurance framework in this case is tiered: Wilfley did not purchase a
single, monolithic policy; it built a coverage tower composed of primary, umbrella,
and excess liability layers. Each layer has a distinct function, attaches at a different
point, and reflects a different allocation of risk between insurer and insured.

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Understanding those layers is essential because the certified question turns on the
role Federal agreed to play within this stratified tower.

133 Reliance's primary policies are situated at the base of the coverage tower.
As Wilfley's last primary carrier, Reliance contracted to supply the first layer of
defense and indemnity through primary liability policies that respond to claims
arising from covered occurrences.

134 Federal occupies an entirely different position in the coverage tower-it
resides at the tower's apex. It issued Wilfley a policy containing both umbrella
and excess liability coverage. We take a short detour here to unpack the
differences between these two types of coverage.

## C. The Two Distinct Forms of Coverage Under the Federal Policies - Umbrella and Excess

135 Generally, excess coverage and umbrella coverage are both triggered only
when "liability exceeds the available primary coverage." Apodaca v. Allstate Ins.
Co., 255 P.3d 1099, 1103 (Colo. 2011) (quoting 15 Lee R. Russ & Thomas F. Segalla,
Couch on Insurance § 220:32 (3d ed. 2010)). But that's where the similarities end.
Although the two forms of coverage are often offered under the same policy, they
perform distinct functions.

136 Umbrella coverage runs horizontally: It extends the scope of coverage
afforded by a primary policy. Id. In effect, it provides primary coverage in
situations where the primary insurance provides no coverage at all. See Com.

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Union Ins. Co. v. Walbrook Ins. Co., 7 F.3d 1047, 1053 (1st Cir. 1993). True to its
namesake, an umbrella policy broadens the scope of protection under which an
insured may seek shelter by offering "first dollar liability coverage" where the
underlying primary insurance affords none. Apodaca, 255 P.3d at 1103 (quoting 1
New Appleman on Insurance Law Library Edition § 1.06[7] (Jeffrey E. Thomas &
Francis J. Mootz, III eds., 2010)). Here, for purposes of the certified question, we
assume that the occurrence in question falls within the scope of Reliance's primary
policies, leaving no gap for the umbrella coverage to bridge.3

137 Excess liability coverage, by contrast, extends the coverage vertically,
adding successive levels of protection that attach only after the limits of the
underlying primary coverage have been exhausted. Id. (citing 1 New Appleman on

3 Wilfley asserts that the terms and conditions of Reliance's primary
policies are not included in the record before us and that, as a result, we should
not assume the Underlying Actions fall within the scope of those policies. But that
contention raises a matter beyond the purview of the certified question. Besides,
if the Underlying Actions were deemed to fall outside the scope of Reliance's
primary policies, Reliance's insolvency would be irrelevant. In that event, the
Federal Policies' umbrella coverage presumably would have been triggered
irrespective of Reliance's insolvency. Thus, for present purposes, we must assume
that the Underlying Actions fall within the coverage afforded by Reliance's
primary policies, as the issue we've been asked to address is not whether the
Underlying Actions fall within the scope of Reliance's primary policies in the first
instance, but whether those covered actions are rendered "not covered" by
Reliance's insolvency. Similarly, we assume that Federal's excess obligations have
not been triggered by the exhaustion of Reliance's policy limits. Otherwise, the
question of Reliance's insolvency would presumably be neither here nor there.

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Insurance Law Library Edition § 1.06[7]). Unlike primary or umbrella coverage,
excess coverage constitutes no part of the foundational layer of coverage-it rests
atop that foundation. Accordingly, an excess insurer assumes a narrower and less
frequently triggered risk, a distinction reflected in the lower premiums typically
charged for excess coverage. Id. Put simply, an excess carrier bargains to insure
against occurrences that are covered by an underlying primary policy and result
in losses that exceed the limits of that policy. Id .; 1 Jordan R. Plitt et al., Couch on
Insurance § 1:4, Westlaw (3d ed. database updated June 2026) (defining an "[e]xcess
insurer" as "an insurer whose coverage of a given loss is activated only after the
magnitude of the loss exceeds the limits of applicable 'primary' insurance").

138 With the structure of the coverage tower in view, and with the distinctions
between umbrella and excess coverage now clarified, we return to the
circumstances that hoisted the certified question before us. Reliance, a scheduled
primary insurer, is insolvent and unable to fulfill its obligations with respect to the
Underlying Actions, which are covered by its policies. That insolvency, in turn,
has left a crack at the base of the coverage tower. But must Federal's
umbrella/excess coverage now drop down and take on the weight Reliance can
no longer bear? To answer, we fix our gaze on the tower's uppermost tier, where
the Federal Policies sit.

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## D. The Unambiguous Terms of the Federal Policies Do Not Require Federal to Step into the Shoes of an Insolvent, Scheduled Underlying Insurer

T39
Our Polaris is the language of the Federal Policies. And that language is
clear as a Colorado cloudless noon, allowing for only one reasonable reading:

With respect to any occurrence not covered by the underlying policies
listed in the schedule of underlying insurance ... , but covered by the
terms and conditions of this policy[,] the Company shall, in addition
to the amount of the ultimate net loss payable ... defend any suit
against the insured seeking damages on account of personal injury,
property damage or advertising liability . . . .

(Emphasis added.)

140 Thus, Federal, in its role as an umbrella/excess carrier, did not agree to
defend Wilfley against claims for which a scheduled underlying insurer provided
coverage. Nor did Federal agree to indemnify Wilfley before the underlying
coverage had been exhausted.

141 Wilfley, however, interprets "covered" to encompass
collectibility -meaning that when a claim is "not collectible," it is also "not
covered." Building on this reading, Wilfley maintains that because Reliance can
no longer pay claims for any occurrences within the scope of its policies, those
claims are "not covered" under its policies.

142 But that interpretation veers away from the intent the parties expressed in
the Federal Policies. Those policies draw a purposeful distinction between the
existence of coverage through a scheduled underlying insurer such as Reliance and

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the collectibility of coverage from an unscheduled insurer. Collectibility bears on
coverage only in one narrow context - when the underlying insurance is issued by
an unscheduled insurer - and that context is not in play here.

143 Three provisions confirm that "collectible" modifies Federal's obligations
solely with respect to unscheduled underlying insurance and has no role in
delineating Federal's obligations regarding scheduled underlying insurance.
First, the "Defense Provisions" paragraph plainly distinguishes between claims
covered by scheduled underlying insurance and insurance collectible from
unscheduled insurers. Federal's duty to defend Wilfley is limited to occurrences
giving rise to claims "not covered by the underlying policies listed in the schedule of
underlying insurance, or any other underlying insurance collectible by the insured,
but covered by the terms and conditions of this policy." (Emphases added.)

144 Second, the "Underlying Limit" provision differentiates between scheduled
and unscheduled coverage and connects collectibility exclusively to the latter.
This provision defines the insured's underlying limit as "an amount equal to the
limits of liability indicated beside the underlying insurance listed in the schedule of
underlying insurance, plus the applicable limits of any other underlying insurance
collectible by the insured." (Emphases added.)

145 Third, the "Other Insurance" condition ties collectibility only to insurance
available from unscheduled underlying carriers. Beyond the coverage afforded

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by the scheduled insurance policies, Federal's indemnification obligations are in
excess of all "other valid and collectible insurance with any other
insurer ... available to the insured covering a loss also covered by [the Federal
Policies]." (Emphases added.)

146 The consistency of these three provisions reveals deliberate drafting choices.
The Federal Policies repeatedly use "covered" to describe occurrences falling
within the scope of the scheduled underlying insurance and "collectible" to
describe insurance available from unscheduled insurers. Each term carries its own
weight. If, as Wilfley urges, "covered" and "collectible" shared a single heartbeat,
the repeated references to collectibility would be reduced to surplusage. More
troubling, such a reading would erase the distinctions the parties carefully wove
between scheduled and unscheduled insurers, effectively reading the term
"collectible" out of the Federal Policies altogether.

147 Notably, the "Maintenance of Underlying Insurance" condition underscores
the parties' intent for Wilfley to maintain the scheduled underlying insurance "in
full effect during the currency of [the Federal Policies]." That portion of the
Federal Policies warns that if Wilfley fails to do so, Federal "shall only be liable to
the same extent as if the insured had complied with this condition."

148 Thus, the Federal Policies reflect a calculated allocation of risk from the
outset: Wilfley agreed to maintain scheduled underlying insurance, and Federal

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agreed to sit above the scheduled underlying insurers to cover umbrella/excess
claims. Wilfley's interpretation would disrupt that allocation of risk. Under its
theory, any coverage provided by a scheduled underlying policy would become
meaningless the moment that coverage became uncollectible, effectively dragging
Federal from its position atop the coverage tower down to the dirt. This, in turn,
would at once convert Federal into a financial guarantor of every scheduled
underlying insurer-a risk Federal neither agreed to assume nor charged a
premium to cover - and relieve Wilfley of its responsibility to maintain underlying
coverage through a solvent carrier of its own choosing.

149 Because an "insurance policy is merely a contract that courts . . . interpret in
line with well-settled principles of contract interpretation," it is our task to
ascertain and give effect to the parties' intent by reading the policy as a whole and
harmonizing its provisions so none will be rendered meaningless. Cyprus Amax
Mins. Co., 74 P.3d at 299, 307; see also Pub. Serv. Co. of Colo. v. Wallis & Cos., 986 P.2d
924, 933 (Colo. 1999) (applying principles of contract interpretation to give effect
to the parties' chosen language and to avoid rendering a term superfluous); Rocky
Mountain Prestress, LLC v. Liberty Mut. Fire Ins. Co., 960 F.3d 1255, 1262 (10th Cir.
2020) (applying Colorado law to give effect to the term "defective workmanship"
in an insurance policy while avoiding an interpretation that would strip the phrase
of its meaning). Here, the parties intended for the Federal Policies to trigger first-

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dollar obligations only when an occurrence is not covered by a scheduled
underlying policy-i.e., only when an occurrence falls outside the scope of
coverage afforded by a scheduled underlying policy. And nothing in the Federal
Policies indicates that the parties intended insolvency to transform a covered
occurrence into an uncovered one.

150 We observe that we are beating a drum many others have beat before.
Federal and state courts alike have recognized that the phrase "not covered"
addresses occurrences falling outside an underlying policy's scope of
coverage-not an underlying insurer's inability to pay a claim grounded in a
covered occurrence. See, e.g., Mission Nat'l Ins. Co. v. Duke Transp. Co., 792 F.2d 550,
553 (5th Cir. 1986) ("[W]hen an excess insurer uses the term 'covered' or 'not
covered,' it is agreeing to drop down only in the event that the terms of the
underlying policy do not provide coverage for the occurrence or occurrences in
question."); Garmany v. Mission Ins. Co., 785 F.2d 941, 947 (11th Cir. 1986) ("'Not
covered by said underlying insurances,' as that phrase is understood in normal
usage, speaks only to the fact of coverage under the underlying policy, not to the
extent of coverage under that policy."); Wells Fargo Bank, N.A. v. Cal. Ins. Guarantee
Ass'n, 45 Cal. Ct. Rptr. 2d 537, 544-45 (Cal. App. 1995) (rejecting the insured's
interpretation that "covered" meant the insurer must pay for the loss and
explaining that a "layperson would understand that a claim is 'covered by

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underlying insurance' if it falls within the scope of coverage of that insurance"
(emphasis added)).

151 Closer to home, in Scott's Liquid Gold, Inc. v. Lexington Insurance Co., 293 F.3d
1180 (10th Cir. 2002), the Tenth Circuit gave the cold shoulder to the very
interpretation Wilfley champions. The umbrella policy there referred to
occurrences "not covered under the underlying insurance ... or under any other
underlying insurance collectible by the Insured." Id. at 1186 (omission in original).
The insured argued that once the underlying policies were exhausted, an
occurrence that fell within their scope could no longer be deemed covered. Id.

152 Predicting how Colorado would resolve the question, the Tenth Circuit
declined that overbroad interpretation as unsupported by the text of the umbrella
policy. Instead, it explained that the purpose of the "not covered" clause was to
"provide for risks not insured'" by the underlying policies. Id. (emphasis added)
(quoting Unigard Mut. Ins. Co. v. Mission Ins. Co., 907 P.2d 94, 99 (Colo. App. 1994).
Thus, the court concluded that "not covered" plainly referred to "an event which
does not meet the definition of a covered event in the underlying policies." Id. at
1187. The court reasoned that, if the parties had intended to obligate the umbrella
insurer to reimburse defense costs once the underlying policies were exhausted,
they could have expressly said so. Id. In the absence of such language, the court

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was unwilling to embrace "a strained interpretation" that ran counter to the
parties' obvious intentions. Id.

153 Wilfley's argument hinges on a similar leap: treating an insured's inability
to collect benefits for an occurrence covered under an underlying policy as though
no coverage ever existed, thereby triggering a policy that applies only to
occurrences "not covered" by that underlying policy. Like the Tenth Circuit, we
decline to go down this primrose path.

154 Before parking this discussion, one final matter warrants consideration.
Recall that the district court certified the question in part because of the division's
decision in Deisch-a case that appeared to take the exit ramp everyone else
passed. Unsurprisingly, Wilfley saddles up Deisch and rides it as far down the
trail as it will go. We turn to that decision next.

## E. Deisch: A Square Peg, Faulty Dictum, and Now Overruled Where It Conflicts with Our Decision

155 Wilfley asks us to cram a square peg into a round hole by attempting to fit
a four-decade-old court of appeals decision into an analytical framework for which
it was never designed. By Wilfley's telling, though, Deisch supplies the missing
piece to the certified-question puzzle: an umbrella/excess insurer must defend
whenever a primary insurer's coverage is uncollectible due to insolvency. In other
words, Wilfley views Deisch as this case's twin. But what may appear, at first
glance, to be two equal coins turns out, upon closer inspection, to belong to two

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entirely different currencies. Deisch was brought by a different type of claimant,
arose in a different procedural posture, and involved a different theory of liability.
Different claimant, different posture, different theory. In a word, different. Trying
to apply Deisch's holding here would require us to stretch it well past its breaking
point.

156 In Deisch, Ideal Mutual Insurance Company ("Ideal") and International
Insurance Company ("International") each provided insurance coverage to Speed
King Manufacturing Company, Inc. ("Speed King")-the former in the form of a
primary policy, and the latter in the form of an umbrella/ excess policy. 771 P.2d
at 19. When a products liability action was brought against Speed King, Ideal
hired Deisch and Marion, P.C. ("Deisch") to represent its insured. Id. During the
litigation, Ideal became insolvent and went into receivership. Id. After Ideal failed
to pay the legal fees incurred in defending Speed King, Deisch sued
International - the umbrella/excess carrier -for those fees. Id. at 20. In doing so,
Deisch pursued an implied-contract equitable theory of liability. Id.

157 Analyzing whether International was responsible for Speed King's defense
costs through an equitable-relief lens, the division concluded-in strikingly
cursory fashion - that International was on the hook for those fees. Id. It reasoned
that (1) the firm had conferred legal services in a suit that could affect
International's potential exposure; (2) International had benefitted from those

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services because they had limited its potential exposure; and (3) it would have
been "inequitable for International to retain the benefit of the law firm's work
product without paying for it," just as it would have been inequitable for the firm
to perform those services without compensation from anyone. Id.

158 The division could have stopped there. It didn't. Instead, with a similar
wave of the hand, it briefly turned to the language of the International policy. Id.
Much like the policies before us, that policy required the umbrella/excess carrier
to defend claims arising from "any occurrence not covered, as agreed, by the
underlying policies listed in [the schedule] . .. or not covered by any other
underlying insurance collectible by the insured, but covered by the terms and
conditions of the [International policy]." Id. Although the division acknowledged
that the Ideal policy was a scheduled underlying policy that covered the products-
liability claims, it nevertheless concluded that Ideal's insolvency-and the
resulting non-collectibility of its coverage-triggered International's duty to
defend. Id. The division offered no justification for allowing non-collectibility to
transform an occurrence covered by a scheduled underlying policy into one "not
covered" by that policy. Id. What's more, it appears to have welded coverage and
collectibility into a single concept.

159 But because this contractual detour was unnecessary to the division's
holding, which was grounded in equity, it is dictum with all the dials turned to

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eleven. The district court here suggested as much before granting Wilfley's
request to certify the question before us. See Wilfley I, at *9 (noting that Deisch's
contractual interpretation arguably constitutes dictum because "the decision was,
at base, an unjust-enrichment/quasi-contract case where the court ultimately
found 'it would be inequitable to permit [the excess insurer] to have the benefit of
the defense provided by [the law firm] without paying for it'" (alterations in
original) (quoting Deisch, 771 P.2d at 20).

160 In any event, we are, of course, not bound by Deisch. To the extent it is
incompatible with this opinion, it is now overruled.

## III. Conclusion

161 The certified question was delivered to us framed by the divergent
interpretive paths the parties charted. Only one of those paths accords with the
intent reflected unambiguously in the Federal Policies' language, and that is the
path we take.

162 We answer "no" to the certified question. Under the terms of the Federal
Policies, Federal is not required to step into the shoes of a scheduled, insolvent
underlying carrier and provide Wilfley with first-dollar indemnity or defense
costs for the Underlying Actions. The Underlying Actions are covered by
Reliance's scheduled underlying policies, and Reliance's insolvency does not
transform them into "not covered" occurrences. The Federal Policies' coverage is

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therefore not triggered. Having answered the certified question, we return the
case to the federal district court to resume proceedings consistent with this
opinion.