Zeig v. Massachusetts Bonding & Insurance Co.

Issue Discussed: Exhaustion of Underlying Policy Limits

Submitted by Cecilia Froelich Moss, Karen C. Baswell

Date Promulgated: January 9, 1928


Zeig v. Massachusetts Bonding & Insurance Co., 23 F.2d 665 (2d Cir. 1928)

Court: United States Court of Appeals for the Second Circuit

Issues Decided: Whether the insured was required to collect the full amount of underlying insurance policies limit in order to “exhaust” those policies, such that an excess policy would respond to the loss?


Defendant issued a policy of burglary insurance to Plaintiff which contained an endorsement stating the policy would “apply and cover only after all other insurance herein referred to shall have been exhausted in the payment of claims to the full amount of the expressed limits of such other insurance.”  At the time of the alleged burglary, plaintiff had other (underlying) insurance policies amounting to $15,000.  Plaintiff settled claims on those other underlying policies for $6,000, and brought suit to recover under the policy issued by Defendant.

The District Court dismissed the complaint and directed judgment for the Defendant on the grounds that Plaintiff’s settlement of claims for less than the face amount on the underlying policies had not “exhausted” those policies.  Plaintiff appealed.

Key Holdings

The Second Circuit reversed the District Court, finding the language of the contract did not require “collection” of the full amount of the underlying insurance policies, and holding that settlement and discharge of claims against the underlying policies was sufficient to “exhaust” those policies.

In its analysis, the Second Circuit noted that the parties could have included language in the policy to restrict or specify how underlying policies could be exhausted.  However, in the absence of such language, the Court refused to interpret the policy as imposing any stringent requirements.  Finally, while the Court found that the underlying policies were exhausted by settlement, it also held that the excess policy would only cover the portion of the loss that exceeded the full underlying policy limits.

Key Takeaways

  • The language of the policy at issue will determine how an underlying policy must or may be exhausted. Absent specific language to the contrary, underlying policies may be deemed exhausted by settlement or other means of compromise.
  • In order to trigger an excess policy, the insured’s actual loss must exceed the full underlying policy limits, even if those policies are exhausted by settlement for less than full limits.


* 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.