“OTHER INSURANCE” PROVISIONS TO LIMIT INSURER’S RISK

Insurance policies often contain an “Other Insurance” provision to limit or control an insurer’s risk if another insurer covers the same risk / loss.  See Pavarini Construction Co. (Se) Inc. v. Ace American Ins. Co., 161 F.Supp.3d 1227, 1234 (S.D.Fla. 2015) (“Other Insurance” provisions apply “when two or more insurance policies are on the same subject matter, risk, and interest.”).  This is an important provision to insurers and may be modified by an endorsement to your insurance policy.  It is designed to determine whether the policy, as discussed below, should serve as a primary policy or excess policy.  It is important to understand this “Other Insurance” provision and its application because it will come up, particularly in a multi-party construction defect dispute.

An example of an “Other Insurance” provision in a commercial general liability (CGL), subject to any modification through an endorsement to the policy, may provide something to the effect:

 

 

 

 

4. Other Insurance

If other valid and collectible insurance is available to the insured for a loss we cover under Coverages A or B of this Coverage Part, our obligations are limited as follows:

a. Primary Insurance

This insurance is primary except when b. below applies.  If this insurance is primary, our obligations are not affected unless any of the other insurance is also primary.  Then we will share with all that other insurance by the method described in c. below.

b. Excess Insurance

This insurance is excess over:

1. Any of the other insurance, whether primary excess, contingent, or on any other basis:

(a) That is Fire, Extended Coverage, Builder’s Risk, Installation Risk or similar coverage for “your work”;

2. Any other primary insurance available to you covering liability for damages arising out of the premises or operations for which you have been added as an additional insured by attachment of an endorsement.

c. Method of Sharing

If all of the other insurance permits contribution by equal shares we will follow this method also.  Under this approach, each insurer contributes equal amounts until it has paid its applicable limit of insurance or none of the loss remains, whichever comes first.

If any of the insurance does not permit contribution by equal shares, we will contribute by limits.  Under this method, each insurer’s share is based on the ratio of its applicable limit of insurance to the total applicable limits of insurance of all insurers.

If a policy is deemed as excess coverage, than “liability attaches only after a predetermined amount of primary coverage has been exhausted.”  Tudor Ins. Co. v. American Casualty Co. of Reading Pennsylvania, 274 F.Supp.3d 1278, 1283 (N.D.Fla. 2017) (quotation and citation omitted).  Hence, the “Other Insurance” provision allows an insurer to limit or control its risk by turning the policy into an excess policyId. (when excess provision applies than limits of the primary policy need to first be exhausted).

When deciding the priority of coverage among multiple insurers, Florida courts generally rely on the language of the several policies, with careful attention to the other insurance clauses.  Where two insurance policies contain conflicting excess other insurance clauses, those clauses cancel one another out….  [W]here a court must allocate between two policies at the same level that contain incompatible excess clauses, the majority rule is that the two excess clauses cancel each other out, and the loss is pro-rated between the two policies. The proper method of allocation is to disregard the other insurance clauses, treat the two excess insurers as co-excess insurers, and pro-rate the loss between the two policies.

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Florida law recognizes an exception to the rule governing competing “Other Insurance” provisions where a right of indemnification exists between the parties insured under the respective policies of insurance, especially where … one of the policies happens to cover the indemnity obligation. In this circumstance, a clear majority of jurisdictions give controlling effect to the indemnity obligation of one insured to the other insured over the ‘other insurance’ or similar clauses in the policies of insurance.  Florida cases have consistently recognized that where a loss is covered by two or more primary policies of insurance, the operation of an indemnification agreement between the common insureds has the result of shifting responsibility for the entire loss to the carrier for the indemnitor. [U]nder Florida law an indemnity agreement control[s] all the rights and obligations of the parties and their privies (the insurers), and the fact that the parties carried insurance did not ‘detract from or modify’ their indemnity agreement.

Amerisure Ins. Co. v. Auchter Company, 2017 WL 3601387, *24 (M.D.  2017) (internal quotations and citations omitted).   See also Pavarini Construction Co. (Se) Inc., 161 F.Supp.3d at 1235 (“Courts disregard “Other Insurance” provisions where…there is a contractual right or indemnification.”).

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

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