Some members of the Colorado Supreme Court appeared skeptical last week that an insurance policy that reaches beyond the limits and coverage of a company’s other policies must “step down into the shoes” of those policies after they become insolvent.

The case reached the Supreme Court in an unusual way, after a federal judge asked the justices to interpret a key question of state law in an insurance dispute.

Commerce City-based A.R. Wilfley & Sons, Inc. manufactured asbestos-containing products and, as a result, has been sued numerous times for asbestos exposure. Wilfley received primary insurance coverage to defend against those claims until they reached their payment limits or the insurers became insolvent.

Federal Insurance Company issued Wilfley an “umbrella” policy that obligated it to defend the company on claims “not covered by the underlying policies.” Federal argued it was not required to act as the primary insurer under the circumstances, where Wilfley did have coverage through underlying — insolvent — policies.

Last year, U.S. Magistrate Judge N. Reid Neureiter, who is handling Wilfley’s federal lawsuit against Federal, agreed with the insurance company.

No “ordinary insured could reasonably read the Federal Umbrella Policies to mean that, in the event of the insolvency of the scheduled underlying insurers, Federal would be required to drop down and step into the shoes of the insolvent insurers, both in providing a defense and paying first-dollar indemnity,” he wrote in April 2025.

Wilfley asked Neureiter to reconsider, and requested that he send the question to the Colorado Supreme Court for review. Initially, Neureiter declined.

But after further reflection, Neureiter withdrew his previous order and agreed to transmit the question to the state’s highest court.

“The issue of an excess insurer’s obligations to its insured when the underlying carrier becomes insolvent is an important question of state insurance law that impacts not only the litigants in this case but also how Colorado insurers and excess insurers may behave in the future,” he wrote in September. “Moreover, this is a complex insurance issue which may not ever reach the Colorado Supreme Court for a decision. The reality is that most Colorado insurance disputes end up in federal court.”

During the June 23 oral arguments to the Supreme Court, Wilfley’s attorney said that “one of Colorado’s oldest companies” would not survive if Federal could not defend it against the ongoing asbestos injury claims.

“We readily acknowledge certain courts have said that ‘not covered’ means the scope of coverage of the underlying policies or whether it’s covered by the terms and conditions of the underlying policies,” said attorney Nelson A. Waneka. But from Wilfley’s perspective, the “underlying policies provide no coverage whatsoever. So there’s, first, this really visceral reality-based argument that there is no coverage here.”

“I guess I’m having trouble seeing how ‘not covered’ is ambiguous. To me, not covered, just plain language, would mean what’s in the scope of coverage,” responded Justice Richard L. Gabriel. “Your position would make an excess insurer a guarantor of the financial health of the underlying insurers that your client selected.”

He also cautioned that there is a distinction between claims that are not covered under a policy and claims that cannot be collected upon, in Wilfley’s case, because of insolvency.

“You agree that the policy covered against this risk, it’s just that there’s nothing there to collect,” said Justice Carlos A. Samour Jr.

“We absolutely dispute that,” countered Waneka.

The Complex Insurance Claims Litigation Association wrote in support of Federal, echoing the view that Federal’s umbrella policy could not bail out Wilfley from a problem with its underlying policies.

“Here, the claims at issue are within the scope of underlying policies issued by insolvent carriers. Because the claims were within the scheduled underlying policies’ coverage, Federal’s policy is excess with respect to those liabilities,” the trade group wrote.

Still, Wilfley “got insurance. It got excess insurance. And so why should Wilfley be the one stuck with the bad result here?” wondered Samour.

“Nobody’s thinking they’re morally culpable or should have done something differently,” said attorney Jon Hacker for Federal. “But what they did is enter into a policy that this court and every court we’re aware of says has to be enforced by its terms.”

The case is A.R. Wilfley & Sons, Inc. v. National Union Fire Insurance Company of Pittsburgh, PA.