Excess Carrier Owes $13.8M Despite Contractor Settlement, Court Rules

A federal appellate ruling is reshaping how excess carriers must evaluate additional insured claims when settlements remove the named insured from the underlying litigation. In a January 22 decision, the United States Court of Appeals for the Seventh Circuit held that Navigators owed $13.8 million in coverage to Atlanta Gas Light Company, despite the fact that the contractor whose acts triggered coverage had already settled and been released.

The dispute arose from a 2018 gas explosion in Homerville, Georgia, where a failure to mark an underground gas line contributed to severe injuries at a cafe. The contractor, United States Infrastructure Corporation, exhausted its primary limits through a settlement. When claims against the gas utility continued, AGL sought coverage under the contractor’s excess policy issued by Navigators Insurance Company.

Navigators denied coverage, arguing that AGL was not an additional insured because the lawsuits alleged only AGL’s own negligence and did not name the contractor. The carrier also argued that the contractor’s settlement eliminated any causal role for coverage purposes. The court rejected both positions.

For adjusters, the court’s reasoning reinforces several practical points. First, under Indiana law, insurers evaluating the duty to defend must look beyond the four corners of the complaint and consider facts uncovered through reasonable investigation. Second, ‘in whole or in part’ means partial causation is enough. The named insured does not need to remain exposed in the underlying litigation, and the complaint does not need to plead the contractor’s negligence explicitly.

The ruling also limits arguments sometimes raised by excess carriers once primary limits are exhausted. The court made clear that the same causation language governs at the excess level, and settlement mechanics do not rewrite the policy. If the facts show that the named insured’s acts contributed to the loss, additional insured coverage can still attach.

While the court rejected AGL’s bad faith and mediation-related claims, the core coverage holding sends a clear message. Adjusters should expect closer scrutiny of causation facts, especially where contractors settle early and additional insureds remain in the case.