A recent decision by the California Supreme Court provides an interesting answer.The case involved Fox Paine & Company, an investment firm whose founders became involved in a long-running legal dispute. The litigation generated substantial legal costs, leading the parties to seek coverage under a US$50 million insurance program, made up of a primary policy and several excess layers.
The dispute became complicated when insurers paid US$10 million under the primary policy and later paid another US$9 million to the Paine Parties. Fox Paine alleged that it had incurred more than US$43 million in covered litigation costs, but had received nothing under the excess policies.The insurers argued that Fox Paine could not bring claims against the higher excess insurers because the insurance layers below them had not yet been fully used.
The case reached the California Supreme Court. On July 27, 2026, the Court rejected the idea that an insured must always wait for every lower insurance layer to be exhausted before approaching an excess insurer. However, the insured still has to show that its losses are likely to be large enough for the excess policy to apply. Importantly, the Court did not order the insurers to pay US$43 million. It sent the case back to the lower court for further proceedings.
The decision implies that an insured may be able to challenge an excess insurer before the underlying policies are fully exhausted, if there is a reasonable likelihood that the excess coverage will be needed.
Professional indemnity insurance protects consultants against liability arising from their professional services. But coverage disputes can become complicated when a large underlying claim is reduced through arbitration while interest continues to accumulate. CDM Smith India was an engineering consultancy working on the Kerala State Transport Project, a World Bank-funded road development program. It maintained a Professional Indemnity policy with National Insurance, with the sum insured eventually increasing to approximately $9.67 million.
In 2016, KSTP alleged deficiencies in CDM Smith’s engineering work and initiated arbitration. The original claim was approximately $38.04 million, plus interest. The arbitrator rejected most of the claim. On 20 February 2020, CDM Smith was ultimately ordered to pay approximately $2.93 million, with 9% interest from 31 March 2017.
CDM Smith then sought indemnification from National Insurance. The insurer rejected the claim, citing limitation and policy exclusions.
The dispute then followed this sequence:
The case demonstrates that an insurer’s eventual exposure can differ significantly from the original professional liability claim. Even when arbitration substantially reduces the underlying damages, accumulated interest and coverage disputes can create a significant financial obligation. Clear policy wording and timely claims management are therefore critical.
Market Pulse
Global insurers paid an estimated US$107 billion in insured natural-catastrophe losses in 2025, making it the sixth consecutive year that insured catastrophe losses exceeded US$100 billion.
