## Facts

- Comerica, Inc. faced multiple securities class actions alleging false and misleading statements about its financial condition; the actions were consolidated and settled for $21 million.
- Comerica maintained a layered D&O insurance program, including a $20 million primary policy issued by Federal Insurance Company and a “following form” excess policy issued by Zurich American Insurance Company providing $25 million excess of the primary.
- The Zurich excess policy conditioned attachment on the underlying insurance being “reduced or exhausted by payments for losses.”
- Federal disputed coverage but agreed to contribute $14 million toward the settlement, leaving Comerica to fund the remaining $7 million.
- Comerica sought payment from Zurich for amounts it contended were above the primary layer (and for related defense costs), asserting that the underlying limit was effectively exhausted because the combined payments by Federal and Comerica reached the $20 million primary limit.
- Zurich denied coverage, contending that its policy did not attach because the primary policy limits were not exhausted by the primary insurer’s actual payment up to the full $20 million limit.

## Issues

1. Whether the Zurich excess policy’s requirement that underlying insurance be “reduced or exhausted by payments for losses” is satisfied when the insured pays the portion of the primary limit that the primary insurer did not pay.
2. Whether Zurich’s position on non-attachment constituted anticipatory repudiation excusing compliance with the exhaustion condition.
3. Whether enforcing a strict primary-exhaustion requirement violates public policy favoring settlement of underlying litigation.
4. Whether alleged § 11 Securities Act liabilities constituted covered “loss” under the D&O program (to the extent necessary to resolve the coverage dispute).

## Decision

- The court granted Zurich’s motion for summary judgment and denied Comerica’s motions for partial summary judgment.
- The court held the Zurich excess policy unambiguously required exhaustion of the primary policy limits by actual payment of losses by the primary insurer before the excess policy could attach.
- Because the primary insurer paid only $14 million of its $20 million limit, the underlying limits were not exhausted and Zurich owed no indemnity or defense-cost coverage under its excess policy.
- The court rejected Comerica’s anticipatory repudiation theory, concluding Zurich’s position was a dispute about a condition precedent, not an unequivocal refusal to perform.
- The court found no public-policy basis to rewrite the policy’s exhaustion condition.
- The court did not reach the requested declaration regarding § 11 “loss” because the non-attachment ruling disposed of the claim against Zurich.

## Legal Principles

- Under Michigan law, an unambiguous insurance contract is enforced according to its plain terms; courts do not rewrite policy language absent a public-policy violation.
- When an excess policy conditions attachment on underlying insurance being exhausted “by payments for losses,” the exhaustion requirement is satisfied only by actual payment of covered loss by the underlying insurer(s), not by the insured’s payment to fill a gap left by a below-limits underlying contribution.
- An excess insurer’s assertion that a condition precedent to coverage has not occurred is not anticipatory repudiation unless it is an unequivocal refusal to perform and causes or substantially contributes to nonoccurrence of the condition.
- Public policy favoring settlement does not, without controlling authority, invalidate a bargained-for exhaustion condition in an excess liability policy.

## Conclusion

The court enforced the excess policy’s exhaustion condition as written, holding that Zurich’s excess D&O coverage did not attach because the primary insurer did not actually pay its full limits, and the insured’s gap payment could not substitute for underlying insurer exhaustion.


Comerica, Inc. v. Zurich Am. Ins. Co., 498 F. Supp. 2d 1019 (E.D. Mich. 2007)