A contractor purchases primary liability insurance and an umbrella policy. Years later, a construction defect lawsuit arrives, but the primary insurer has become insolvent. Must the umbrella carrier “drop down” and provide the first-dollar defense and indemnity the primary insurer can no longer supply?
The Colorado Supreme Court recently addressed that question in A.R. Wilfley & Sons, Inc. v. National Union Fire Insurance Company of Pittsburgh, PA, 2026 CO 64. Under the policy language before the Court, the answer was no.
Although Wilfley involved asbestos claims against a pump manufacturer, its lesson is relevant to Colorado construction businesses: an umbrella policy does not necessarily protect against the insolvency of an underlying insurer. The language governing when each layer responds matters as much as the limits purchased.
How the Underlying Insurance Became Unavailable
A.R. Wilfley & Sons manufactured pumps for mining and industrial operations. Since the 1980s, it has faced lawsuits alleging bodily injury from exposure to asbestos in its products.
Over time, its primary insurance became unavailable. Great Northern’s limits were exhausted. Reliance, another primary insurer, became insolvent. Other underlying insurance fell away through exhaustion, exclusion, or settlement.
Wilfley sought coverage from Federal Insurance Company, which issued umbrella/excess policies above scheduled underlying insurance, including Reliance’s policies. Federal initially defended under a reservation of rights but ultimately denied coverage. Wilfley sued, and the United States District Court certified the insolvency question to the Colorado Supreme Court.
Wilfley’s argument was understandable: because Reliance’s coverage was uncollectible, the claims were “not covered” by the underlying insurance. Federal therefore had to drop down.
The Supreme Court concluded that Federal’s policies did not equate coverage with collectability.
What Not Covered Meant Under These Policies
Federal’s defense provisions addressed occurrences “not covered” by scheduled underlying policies, or other collectible underlying insurance, but covered by Federal’s policies.
Wilfley read that language to include claims for which its primary insurer could no longer pay. The Court read it to address whether an occurrence fell within the primary policy’s scope of coverage. Wilfley, ¶¶ 39–46.
That distinction controlled the outcome. Insolvency did not change the risks Reliance’s policies insured. It changed the availability of payment.
For purposes of the certified question, the Court assumed that the claims fell within Reliance’s coverage and that its limits remained unexhausted. Id., ¶ 36 n.3. Reliance’s inability to pay did not transform those covered occurrences into occurrences outside its coverage.
Consequently, Federal had no obligation under the provisions at issue to drop down and replace Reliance’s first-dollar defense and indemnity.
Why the Underlying Insurance Schedule Mattered
The Court’s analysis extended beyond two words. It examined how Federal’s policies distinguished scheduled underlying insurance from other underlying insurance.
Scheduled policies were those specifically listed in Federal’s schedule of underlying insurance. Reliance’s policies were listed there.
Across the defense, underlying-limit, and other-insurance provisions, collectability language applied to other, unscheduled insurance. The policies did not similarly condition their treatment of scheduled insurance on whether payment could be collected. Id., ¶¶ 42–46.
Reading collectability into both categories would erase a distinction the policies repeatedly made.
The maintenance-of-underlying-insurance condition reinforced that allocation of risk. Federal agreed to provide coverage above specified underlying insurance. It did not agree to guarantee the scheduled insurers’ financial performance. Id., ¶¶ 47–49.
For anyone tempted to skip directly from the declarations page to the exclusions, the schedule deserves a second look.
Umbrella Coverage and Excess Coverage Have Different Jobs
The Court also explained why “umbrella” and “excess” are not interchangeable, even when one policy provides both forms of coverage.
Excess coverage generally adds limits above underlying coverage after the underlying limits are exhausted. Umbrella coverage may also cover certain occurrences outside the underlying policy’s scope, subject to its own terms and applicable retention. Id., ¶¶ 35–37.
That broader scope can create a contractual basis for drop-down coverage. But the existence of umbrella coverage does not mean the insurer must fill every gap in the insured’s program.
In Wilfley, the assumed problem was that Reliance could not pay for covered occurrences. Its insolvency did not create the kind of gap in coverage that triggered Federal’s umbrella obligations.
The Court Clarifies Deisch and Marion
Wilfley relied on Deisch & Marion, P.C. v. International Insurance Co., 771 P.2d 19 (Colo. App. 1989), which involved unpaid defense fees after a primary insurer became insolvent.
There, a law firm recovered from an umbrella/excess insurer on an equitable theory. The Colorado Court of Appeals also interpreted the policy to impose a defense obligation following the primary insurer’s insolvency.
The Supreme Court distinguished that equitable fee-recovery dispute and characterized its policy interpretation as dictum. It overruled Deisch to the extent inconsistent with Wilfley. Wilfley, ¶¶ 55–60.
The qualification matters: the Court did not announce that every aspect of Deisch was overruled. It eliminated the conflicting policy interpretation on which Wilfley relied.
What This Means for Colorado Construction Businesses
Consider the hypothetical contractor facing a construction defect claim after its historical primary insurer becomes insolvent. An umbrella policy may remain available, but the contractor cannot assume that it supplies a substitute primary defense.
Several practical steps follow.
First, review how the policies work together. Examine the underlying-insurance schedule, attachment requirements, defense provisions, maintenance conditions, and any express insolvency language. Total limits alone do not establish which insurer must respond or when.
Second, analyze defense and indemnity separately. A lawsuit creates immediate defense expenses even when the amount of any eventual settlement or judgment remains uncertain. The provisions governing those obligations deserve separate attention.
Finally, discuss insurer financial strength and insolvency risk with your broker before purchasing or renewing coverage. Ask how the proposed program would respond if a scheduled underlying insurer became unavailable.
Wilfley does not establish that umbrella carriers can never be required to drop down. It establishes that, under the language before the Court, insolvency alone did not trigger that obligation. For Colorado construction businesses, the question is whether the policies purchased actually address the gap the business expects them to fill.