Texas federal district court Erie-guesses that Texas would apply vertical as opposed to horizontal exhaustion rule

In LSG Technologies, Inc. v. U.S. Fire Ins. Co., No. 2:07-CV-399-DF (E.D. Tex. Sept. 2, 2010), the insured was a defendant in numerous asbestos and mixed dust cases that sought damages for bodily injury occuring over several years during which it had primary policies issued by Trinity and excess policies issued by US Fire.  After Trinity notified the insured that a primary policy had exhausted, the insured demanded that US Fire particpate in settlement.  US Fire refused on that basis that its policies required that all available primary coverage be exhausted first – “horizontal exhaustion.”  The insured filed suit and the federal district trial court, applying Texas law, granted the insured’s motion for summary judgment on this issue.  The court Erie-guessed that the Supreme Court of Texas would adopt a vertical as opposed to horizontal exhaustion rule and hold that,  once a primary policy is exhausted, the excess policy directly above it is obligated to respond, despite language in the excess policy stating it was excess to all available other insurance, not just the scheduled underlying primary policy.