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Umbrella Insurance is Only Obligated After Underlying Insurance is  Exhausted 

Anthony DeSmet appealed from the summary judgment granted to Scottsdale  Insurance Company on his claim alleging that Scottsdale had acted in bad  faith in refusing to fulfill its responsibilities under the excess  uninsured-motorist coverage in its umbrella policy.  In Anthony Clarence Desmet v. Scottsdale Insurance Company, No. 21-6143,  (D.C. No. 5:20-CV-00330-J) (W.D. Okla.), United States Court of  Appeals, Tenth Circuit (June 24, 2022) the Tenth Circuit was called Upon  to Determine if an Umbrella Policy that provided excess uninsured  motorist coverage was auto insurance.  

Scottsdale, in its motion for summary judgment, invoked a provision in  its policy that excused it from liability until DeSmet exhausted his  uninsured-motorist coverage under his primary motor-vehicle liability  policies. The USDC for the Western District of Oklahoma held that the  exhaustion provision in Scottsdale\'s policy was valid and enforceable  and that even if it was not, Scottsdale\'s reliance on the provision was  not in bad faith.  BACKGROUND  On March 5, 2018, DeSmet suffered severe bodily injuries when his  vehicle was rear-ended by a vehicle driven by William Akehurst.  Akehurst\'s only automobile-liability coverage was a policy issued by  State Farm Mutual Automobile Insurance Company, which promptly paid its  $50,000 policy limit. This was insufficient to fully cover DeSmet\'s  damages.  If the liability limits of a motor vehicle are less than the amount of  the injured insured\'s claim, that vehicle is classified as uninsured.  

Such tortfeasor drivers are commonly referred to as underinsured  motorists.  At the time of the accident, DeSmet had three separate motor-vehicle  liability policies covering several motor vehicles. Each policy provided  $500,000 in uninsured/underinsured motorist coverage.  In addition, DeSmet had an umbrella policy with Scottsdale. An umbrella  policy is a type of "excess insurance policy." Excess coverage is  provided when, under the terms of the policy, the insurer is liable for a  loss only after any primary coverage-other insurance-has been  exhausted. The Scottsdale policy provided $2 million in excess liability  coverage to supplement coverage provided in DeSmet\'s  automobile-liability and home-owner\'s policies. An endorsement in the  policy stated:  It is expressly agreed that liability shall attach to [Scottsdale] only  after the insurers of the "underlying insurance" have paid or have been  held liable to pay (whether collectible or not) the full amount of their  respective uninsured motorists and/or underinsured motorists  liability[.]

The term underlying insurance referred to existing motor vehicle  liability policies carried by DeSmet that were listed in the Scottsdale  policy\'s Declarations.  Unhappy with the handling of his claim by one of his motor-vehicle  liability insurers, DeSmet requested that Scottsdale "step down" and pay  the claim itself. Scottsdale responded that per the terms of the  policy, Scottsdale would pay only after the underlying insurance limits wexhausted.  DeSmet filed a petition in Oklahoma state court on March 3, 2020,  alleging that Scottsdale\'s conduct surrounding its refusal to pay  amounted to a breach of its implied duty of good faith and fair dealing.  The suit DeSmet filed included the following statement:  At the time he sued DeSmet had received no payment on the  uninsured/underinsured-motorist provisions of any of its three  automobile-liability policies.