On September 21, 2026, the Colorado Supreme Court issued its opinion in A.R. Wilfley & Sons, Inc. v. National Union Fire Insurance Company of Pittsburgh, PA, 2026 CO 64, answering a certified question from the United States District Court for the District of Colorado concerning whether insolvency by the primary insurer shifts an otherwise covered occurrence in the “Not covered” category, thereby requiring the umbrella/excess carrier to step into the shoes of the insolvent insurer and provide first-dollar indemnity and defense costs. The Court answered that question no, determining instead that “Not covered,” as used in those policies, speaks to the scope of coverage, not collectability of payment.
Background
A.R. Wilfley & Sons, Inc. (“Wilfley”) has manufactured pumps for mining and industrial operations for over a century. Since the 1980s, Wilfley has faced a steady stream of lawsuits concerning asbestos exposure in its products (the “Underlying Actions”). Coverage for the Underlying Actions was largely supplied by two primary insurers—Great Northern Insurance Company (“Great Northern”) and Reliance Insurance Company (“Reliance”). But eventually, Great Northern’s policy limits were depleted, and Reliance became insolvent, leaving Wilfley without any functioning source of primary coverage.
Back in the 1980s, Federal Insurance Company (“Federal”) issued at least three umbrella/excess policies (the “Federal Policies”) to Wilfley. The Federal Policies sat atop the coverage tower, above various underlying primary policies—including scheduled primary policies issued by Reliance. Under these policies, Federal was required to pay on behalf of Wilfley for covered occurrences but defend only 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.”
After all underlying primary insurance fell away, Wilfley tendered the Underlying Actions to Federal. Federal agreed to defend under a full reservation of rights but ultimately denied coverage. Wilfley then filed suit in federal court, alleging breach of contract, seeking declaratory relief, and pursuing a claim of common law insurance bad faith. Wilfley argued that because Reliance’s coverage had become uncollectible due to insolvency, the Underlying Actions were “not covered” by Reliance’s policies, and Federal was required to drop down and supply primary coverage.
The district court initially ruled in Federal’s favor, concluding that the Federal Policies did not require Federal to step into the shoes of an insolvent primary insurer. The district court later withdrew its order and certified the dispositive question to the Colorado Supreme Court, noting both the absence of controlling precedent and the potential tension with the Colorado Court of Appeals’ decision in Deisch & Marion, P.C. v. International Insurance Co., 771 P.2d 19 (Colo. App. 1989).
The Court’s Analysis
As noted above, the Court answered the certified question no, holding that the phrase “not covered” in the Federal Policies addresses the scope of coverage—not the collectability of payment for a covered occurrence. Three provisions in the Federal Policies, as found by the Court, confirmed this distinction between “covered” (addressing whether an occurrence falls within the scope of a scheduled underlying policy) and “collectible” (addressing whether insurance is available from an unscheduled insurer):
- Defense Provisions: Federal’s duty to defend was limited to occurrences “not covered by the underlying policies listed in the schedule of underlying insurance, or any other underlying insurance collectible by the insured.” The use of “covered” for scheduled policies and “collectible” for unscheduled policies demonstrated a deliberate distinction.
- Underlying Limit Provision: The insured’s underlying limit was defined 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.” Again, collectability applied only to unscheduled insurance.
- Other Insurance Condition: Federal’s indemnification obligations were in excess of all “other valid and collectible insurance with any other insurer . . . available to the insured.” Collectability was tied exclusively to insurance from unscheduled carriers.
The Court reasoned that if “covered” and “collectible” were synonymous—as Wilfley urged—the distinction between scheduled and unscheduled insurers would be erased. The Court further noted that the “Maintenance of Underlying Insurance” condition required Wilfley to maintain its scheduled underlying insurance in full effect, underscoring a deliberate allocation of risk: Wilfley selected and was responsible for maintaining solvent primary carriers, whereas Federal did not bargain to be a financial guarantor of those carriers.
The Court found further support in federal and state decisions from other jurisdictions, including the Tenth Circuit’s decision in Scott’s Liquid Gold, Inc. v. Lexington Insurance Co., 293 F.3d 1180 (10th Cir. 2002), which rejected an identical argument under Colorado law and held that “not covered” plainly referred to “an event which does not meet the definition of a covered event in the underlying policies.”
Finally, the Court addressed the Colorado Court of Appeals’ decision in Deisch & Marion, P.C. v. International Insurance Co., 771 P.2d 19 (Colo. App. 1989), on which Wilfley relied upon heavily. The court distinguished Deisch on multiple grounds: Deisch involved a different type of claimant (the insured’s defense counsel, not the insured itself), arose in a different procedural posture, and was resolved on an equitable implied-contract theory—not on contractual interpretation of the umbrella/excess policy. The Court concluded that the division’s brief discussion of the policy language was dictum and, to the extent Deisch is incompatible with this opinion, expressly overruled it.
Implications
This decision resolves an open question of Colorado law and provides guidance on the interplay between umbrella/excess policies and the insolvency of scheduled primary insurers. The Court’s holding aligns Colorado with the majority of federal and state courts that have addressed this issue, confirming that the phrase “not covered” in an umbrella/excess policy speaks to the scope of coverage under the underlying policy—not the financial ability of the underlying insurer to pay.
Because umbrella/excess carriers are not obligated to drop down in the event of a scheduled primary insurer’s insolvency, policyholders may bear the risk of maintaining solvent primary carriers and may need to explore other avenues—such as state guaranty funds or direct pursuit of insolvent carriers’ receivership estates—to fill the gap left by an insolvent primary insurer.
The decision also suggests that reliance on Deisch as authority for requiring umbrella/excess carriers to assume defense obligations when a primary insurer becomes insolvent is no longer permissible.
For questions about this legal alert, please contact a member of the Davis Graham Appellate Group.