Canal Insurance Company was the excess and umbrella insurer of Montello, Inc., a manufacturer of oilfield drilling equipment that contained asbestos. Montello had been sued by individuals claiming injuries as a result of exposure to asbestos in connection with its equipment. In 2003, Montello’s primary insurer, The Home Insurance Company, was declared insolvent by a New Hampshire court without having paid out any claims for bodily injury on Montello’s behalf.
Thereafter, Canal filed suit for declaratory judgment that it had no duty to defend Montello following the insolvency of its primary insurer, Home. Applying Oklahoma law, the Fifth Circuit held that Canal’s excess policy did not drop down and that Canal had no duty to defend, even though the New Hampshire court had cancelled Home’s contracts.