Citigroup Inc. v. Federal Ins. Co.

Issue Discussed: Exhaustion of Underlying Policy Limits

Submitted by Cecilia Froelich Moss, Karen C. Baswell

Date Promulgated: August 5, 2011


Citigroup Inc. v. Federal Ins. Co., 649 F.3d 367 (5th Cir. 2011)

Court: United States Court of Appeals for the Fifth Circuit

Issues Decided: Whether settlement with a primary insurance carrier for less than the policy’s full limit of liability was sufficient to “exhaust” the primary policy and thus trigger coverage under excess policies?


The insured, Citigroup, settled two actions against it for $240 million plus an additional $23 million in fees and costs, and sought coverage from its insurance carriers.  Citigroup had a total of $200 million in coverage.  The primary policy provided $50 million in coverage, but Citigroup settled with its primary carrier for $15 million.  The excess insurers denied coverage, and Citigroup filed suit.

The district court granted the excess insurers’ motion for summary judgment, holding that the excess policies did not attach because the primary carrier did not pay its full limit of liability.  Citigroup appealed.

Key Holdings

Citigroup argued that the excess policies were ambiguous in their requirements for exhaustion of underlying limits, and that the court should construe the policies in favor of the insured.  Citigroup further argued that the Court should apply the rule from Zeig v. Masschusetts Bonding & Ins. Co., 23 F.2d 665 (2d Cir. 1928), and find that the settlement with the primary carrier “exhausted” the primary policy limits.

The Fifth Circuit reviewed the relevant language of each of the excess policies at issue, and found that the policies were not ambiguous:

Federal:  Coverage attaches after “(a) all Underlying Insurance carriers have paid in cash the full amount of their respective liabilities, (b) the full amount of the Underlying Insurance policies have been collected by the plaintiffs, the Insureds or the Insureds’ counsel, and (c) all Underlying Insurance has been exhausted.”

St. Paul:  Coverage attaches only after “the total amount of the Underlying Limit of Liability has been paid in legal currency by the insurers of the Underlying Insurance as covered loss thereunder.”

SR:  Coverage attaches “only after any Insurer subscribing to any Underlying Policy shall have agreed to pay or have been held liable to pay the full amount of its respective limits of liability . . . .”

Steadfast:  Coverage attaches “[i]n the event of the exhaustion of all of the limit(s) of liability of such ‘Underlying Insurance’ solely as a result of payment of loss thereunder.”

The Court held that each of the policies required the underlying insurance carriers to pay the full amount of their policy limits before the excess coverage was triggered.  Because Citigroup’s settlement with the primary carrier resulted in the primary carrier paying less than its full policy limits, the Court held that the exhaustion requirement had not been satisfied, and thus no coverage was triggered under the excess policies.

Key Takeaways

  • The specific language of the policy at issue will determine whether settlement with an underlying carrier for less than full policy limits will be deemed to exhaust the underlying policy. When the language of the excess policy requires the underlying carrier to pay its full limits, a below-limits settlement is unlikely to trigger coverage under the excess policy.


* Cecilia Froelich Moss is a founding partner of Chaffetz Lindsey LLP, where her practice focuses on representing major insurance companies in reinsurance disputes and in coverage litigation.  Ms. Moss also handles large scale commercial disputes in court and in international arbitration.

* Karen C. Baswell is an associate of Chaffetz Lindsey LLP, focusing on insurance and reinsurance dispute resolution.