Suing Excess Insurers Before Exhaustion: The Whole-Tower Action After Fox Paine

By Marc Mayerson | November 3, 2026

Policyholders with large losses usually face a tower of liability insurance: a primary policy at the bottom and one or more excess layers stacked above it. The conventional sequence is bottom-up. Each excess insurer's duty to pay matures only when the coverage beneath it is exhausted, and exhaustion is an element of the policyholder's breach-of-contract case. Read rigidly, that sequence would require the policyholder to litigate against one layer at a time, waiting years to learn whether the upper layers will respond.

Several decisions from 2025 and 2026 together answer when a policyholder may sue the whole tower at once, before the underlying layers are exhausted, and what limits apply. The California Supreme Court's decision in Fox Paine & Co., LLC v. Twin City Fire Insurance Co. (Cal. July 27, 2026) is the centerpiece, but it is only one piece. The Minnesota Supreme Court's decision in CVC Investments LLP v. State Farm Fire & Casualty Co. (Minn. Aug. 5, 2026), two 2025 federal circuit decisions, and the Texas Supreme Court's appraisal decision supply the rest of the framework. This post, adapted from a CLE presentation given today, puts those pieces together.

Breach of Contract Versus Declaratory Relief

An insurance policy is a contract, and the elements of the policyholder's claim are the familiar ones: a valid contract, the policyholder's performance or excuse (notice, premium, cooperation), the insurer's breach of a matured duty, and resulting damages. For an excess policy, the duty to pay matures only upon exhaustion of the applicable underlying coverage. Before exhaustion, there is no breach, only a potential future breach.

Declaratory relief fills that gap. As Edwin Borchard observed in 1939, declaratory adjudication does not require any breach; one of its functions is to clarify disputed relations so as to make breach unnecessary. The Second Circuit has described insurance-coverage disputes as a paradigm for declaratory jurisdiction, even when coverage depends on future contingencies. E.R. Squibb & Sons, Inc. v. Lloyd's & Cos., 241 F.3d 154, 177 (2d Cir. 2001). Insurers have long used the device offensively, filing first for a declaration of no coverage to choose the forum and frame the question. The policyholder's anticipatory action is the mirror image: a suit against the excess layers before exhaustion, seeking a declaration of what each insurer will owe when its layer is reached.

Fox Paine: The "Reasonable Likelihood" Standard

In Fox Paine, the California Supreme Court held that "[a]n insured may state a viable cause of action for declaratory relief regarding coverage and liability under an excess insurance policy even if all of the underlying insurance coverage has not yet been exhausted." The court explained that a dispute can be ripe, and a court can issue sufficiently clear and directive declarations under multiple excess policies, even though coverage under those policies is contingent on exhaustion of all underlying insurance.

The test is whether it is "practically or reasonably likely" that the loss will reach the excess layer. That standard requires neither certainty nor mere possibility, and the court disclaimed any precise formula or line of demarcation. Courts assess the practical likelihood that the contingencies will occur, considering the totality of circumstances.

The court also identified the outer limit. When the policyholder's allegedly covered losses are fully known yet fall short of the underlying limits, the excess policy will not attach, and declaratory relief is properly rejected at the pleading stage.

In practice, applying Fox Paine involves four steps:

• Map the tower: every layer, limit, and attachment point, and total exposure against total available limits.

• Compare known and estimated losses to the underlying limits, layer by layer.

• Count the contingencies that must occur before a given layer attaches (a liability finding, the amount of damages, exhaustion below), recognizing that each one adds remoteness.

• Plead that it is practically or reasonably likely that the loss will reach each excess layer named, with supporting loss estimates and claims history.

CVC Investments: The Controversy Must Be Bilateral

Fox Paine addresses how likely the loss must be to reach a layer. CVC Investments addresses a different question: whether the parties actually disagree. The Minnesota Supreme Court held that an actual controversy is bilateral. The policyholder's own prediction that a dispute will arise is not enough; the insurer must have had a genuine opportunity to respond and dispute coverage.

An actual controversy can arise from an express denial of coverage, a failure to respond after a reasonable opportunity, a clear repudiation of the contractual obligation, or a genuine dispute about the scope of an appraisal. It does not arise from two to four days of insurer silence when the insurer had no duty yet to respond, from a placeholder filing made to beat a limitations period, or from one side's demand for appraisal without a dispute over its scope. The Eleventh Circuit reached a similar result decades ago, treating a suit filed the day after notice was mailed, before the insurer received it, as an improper anticipatory maneuver rather than a genuine controversy. Atlanta Gas Light Co. v. Aetna Casualty & Surety Co., 68 F.3d 409 (11th Cir. 1995).

CVC Investments also restates the separate doctrine of anticipatory breach, which arises when a party, before performance is due, expressly renounces the obligation and gives notice that it will not perform. Anticipatory breach "does not arise simply from a plaintiff's doubt about the defendant's ability to perform." An express repudiation may be treated as a present breach, but the non-breaching party may instead wait for the performance date, and the limitations period generally runs from the actual breach rather than the repudiation. See Franconia Associates v. United States, 536 U.S. 129 (2002); Mammoth Lakes Land Acquisition, LLC v. Town of Mammoth Lakes, 191 Cal. App. 4th 435 (2010). Anticipatory repudiation and anticipatory declaratory relief are different things, and pleadings should not blur them.

Defense Versus Indemnity: Different Ripeness Bars

Ripeness is easier to establish for the duty to defend than for the duty to indemnify. A defense dispute typically depends on one contingency: that a third party has sued or will sue. An indemnity dispute depends on two: that the third party sues and that it prevails. In the Fourth Circuit's words, "[s]uits about the duty to indemnify . . . would ordinarily be advisory when the insured's liability remains undetermined." Trustgard Insurance Co. v. Collins, 942 F.3d 195, 200 (4th Cir. 2019). The Second Circuit has applied the practical-likelihood test to both duties while showing a greater willingness to dismiss pre-exhaustion indemnity claims. Admiral Insurance Co. v. Niagara Transformer Corp., 57 F.4th 85, 93 (2d Cir. 2023). Courts may also sever and stay indemnity disputes while the underlying facts are litigated. See Montrose Chemical Corp. v. Superior Court, 6 Cal. 4th 287 (1993).

Procedural Consequences of the Anticipatory Posture

Suing before breach has consequences beyond ripeness:

• Statute of limitations. Because no duty to pay has matured, the limitations period on the breach claim has not begun to run. See, e.g., Vigilant Insurance Co. v. Luppino, 723 A.2d 14 (Md. 1999). The anticipatory action is not a device for avoiding the limitations period; it is the correct vehicle for the pre-exhaustion claim.

• Preclusion. Collateral estoppel applies to matters actually determined in the declaratory action, but general claim preclusion, which bars claims that could have been raised, does not. See Allan Block Corp. v. County Materials Corp., 512 F.3d 912 (7th Cir. 2008) (Posner, J.); Boca Park Marketplace Syndications Group, LLC v. Higco, Inc., 407 P.3d 761 (Nev. 2017).

• Jury trial. The declaratory label does not determine the jury right. Courts look to the nature of the underlying claim, and a breach-of-contract claim carries its jury right into the declaratory action. See Simler v. Conner, 372 U.S. 221 (1963).

• Discretion. Even with jurisdiction, a court may decline to proceed in a purely anticipatory posture, considering parallel proceedings, the maturity of the dispute, the availability of other relief, and whether a declaration would serve a useful purpose. See Wilton v. Seven Falls Co., 515 U.S. 277 (1995); Brillhart v. Excess Insurance Co. of America, 316 U.S. 491 (1942).

Federal Court: Discretion Ends When Breach Matures

The federal Declaratory Judgment Act, 28 U.S.C. § 2201, permits but does not require a court to hear a declaratory claim, and Article III jurisdiction does not compel its exercise. Federal courts may therefore be more ready than Fox Paine's California courts to decline a purely anticipatory coverage suit. Fox Paine itself recognizes some trial-court latitude, but holds that discretion is not a license to deny a well-pleaded anticipatory claim.

The Sixth Circuit has drawn the line at breach. Once a breach of contract has occurred, a federal court must accept jurisdiction; Wilton/Brillhart discretion does not reach a mature damages action. Fire-Dex, LLC v. Admiral Insurance Co., 139 F.4th 519 (6th Cir. 2025); see also Government Employees Insurance Co. v. Dizol, 133 F.3d 1220, 1226 n.6 (9th Cir. 1998) (en banc). Pairing a mature claim against the lower layers with anticipatory claims against the upper layers can therefore affect whether a federal court keeps the whole case.

Appraisal as a Special Barrier

Appraisal changes the ripeness analysis. The Ninth Circuit held that while the parties are in appraisal and dispute only the amount of loss, "[a]ny alleged injury before appraisal is too speculative to create an actionable claim"; after appraisal, any remaining dispute would be ripe. 50 Exchange Terrace LLC v. Mount Vernon Specialty Insurance Co., 129 F.4th 1186 (9th Cir. 2025). The Texas Supreme Court has stated that "[a]ppraisal is intended to take place before suit is filed." In re Ace American Insurance Co., 734 S.W.3d 887 (Tex. 2026). And under CVC Investments, a unilateral appraisal demand does not itself create a justiciable dispute, although a disagreement over the scope of the appraisal may. Policyholders should watch the limitations period and any one- or two-year suit-limitation clause while appraisal runs its course.

Pleading the Whole-Tower Case

For mature claims, plead the breach: past unreimbursed costs, damages, and prejudgment interest, along with exhaustion of the underlying coverage, which must be alleged and proved as part of the prima facie case. See U-Haul International, Inc. v. Lumbermens Mutual Casualty Co., 576 F.3d 1040 (9th Cir. 2009); St. Paul Fire & Marine Insurance Co. v. American International Specialty Lines Insurance Co., 365 F.3d 263 (4th Cir. 2004); Keystone Shipping Co. v. Home Insurance Co., 840 F.2d 181 (3d Cir. 1988); Drake v. Ryan, 514 N.W.2d 785 (Minn. 1994). Unlike the declaratory claims, those claims carry a running limitations period, which starts for an overlying layer when the layer beneath it is exhausted. Costs likely to be incurred in the future belong in the declaratory claim. See generally New York Life Insurance Co. v. Viglas, 297 U.S. 672 (1936) (Cardozo, J.).

The complaint should also state, at least implicitly, a theory of how the loss flows through the tower: horizontal exhaustion, vertical exhaustion, or the effect of non-cumulation provisions. More than one allocation model may be pleadable, and each has strategic consequences.

For the anticipatory declaratory claims, the complaint should:

• Identify every primary and excess policy, with limits, attachment points, and conditions, and name every carrier as a defendant. See Fed. R. Civ. P. 20(a)(2); Cal. Civ. Proc. Code § 379(a).

• Allege an actual, non-hypothetical controversy, such as a denial, a reservation of rights, or unreasonable delay, rather than a few days of silence or a placeholder filing (CVC Investments).

• Allege that it is practically or reasonably likely that the loss will reach each excess layer claimed, pleading the loss estimate and not merely the amounts paid so far (Fox Paine).

• Allege that, upon exhaustion, each excess insurer will be obligated to pay and threatens to refuse.

• Seek concrete relief that identifies the specific rights and duties to be declared for each layer. Under the Advisory Committee Note to Fed. R. Civ. P. 57, the demand for relief should state with precision the declaratory judgment desired.

Takeaways

• Fox Paine confirms that pre-exhaustion declaratory relief against excess insurers is viable.

• The standard is whether the loss is "practically or reasonably likely" to reach the layer, which is a fact-specific showing that requires neither certainty nor mere possibility.

• The controversy must be bilateral. The insurer must have had a genuine opportunity to respond before suit is filed.

• The anticipatory posture means the limitations period on the breach claim has not started, and only issues actually decided are precluded.

• Federal courts may decline a purely anticipatory suit, but once a breach has occurred they generally must hear the case.

• Align each claim with the correct cause of action, breach or declaratory relief, and plead the exhaustion theory from the outset.

The slides from the November 3, 2026 presentation (PDF) are also listed on the Publications page.

This post is adapted from a continuing legal education presentation given on November 3, 2026. It provides general information about insurance law and is not legal advice or a comprehensive survey of the law in any jurisdiction.

Related: Insurance Coverage · Marc Mayerson's biography

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Topics: Excess Insurance · Exhaustion · Declaratory Judgments · Ripeness · Appraisal

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