California Supreme Court: Policyholders Can Sue Excess Insurers Before Exhaustion

The California Supreme Court ruled in Fox Paine & Co. v. Twin City Fire Insurance Co. that insureds may seek declaratory relief and tortious bad faith claims against excess insurers before underlying coverage is exhausted. The court said an actual controversy can exist under California law even when excess coverage is contingent on exhaustion of lower layers. It also held that the implied covenant of good faith and fair dealing applies from the inception of the policy.