On August 2, 2007, the Supreme Judicial Court of Massachusetts explained that, even though an excess insurer agrees to follow the wording of a primary insurer, this does not necessarily mean the excess insurer is bound by the primary’s interpretation of that wording.

In Allmerica Financial Corporation v. Certain Underwriters at Lloyd’s, London, 449 Mass. 621, 871 N.E.2d 418 (2007), Allmerica settled a class action lawsuit alleging improper practices in the sale of its life insurance policies. Its primary insurer had participated in the settlement negotiations and agreed to pay its policy limit into the settlement fund.

Certain London insurers issued a follow form excess policy which provided that it was subject to the “same conditions, limitations and other terms” as contained in the primary policy. The insured sought payment under the excess policy, arguing that it was bound by the coverage determination made by the primary insurer.

The Massachusetts Supreme Court rejected the insured’s argument. It held:

An excess carrier’s intent to incorporate the same words used in a separate agreement between the primary insurer and the insured does not imply an intent by the excess carrier to accept decisions made by the primary carrier about the extent of its obligations under its own agreement. By adopting the form of words used by Columbia Casualty, the underwriters did not also cede to it the right to make decisions about the underwriters’ obligation to perform in various circumstances. To conclude otherwise would undermine the distinct and separate nature of each insurer’s contract with Allmerica.
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In sum, absent an explicit contractual commitment to do so, an insurer is not bound by the settlement another insurer makes for the same claim, even if the language of the nonsettling policy follows the form of the settling policy. The underwriters were entitled to make a determination concerning the merits of the Bussie class action settlement and coverage under its policy independent of that made by Columbia Casualty.

449 Mass at 633-34. Thus, the excess insurer was free to challenge coverage based on certain exclusions in the primary policy, upon which the primary insurer itself did not rely.