“Other Insurance” Clauses in Insurance Contracts

“Other Insurance” Clauses in Insurance Contracts cover

Placing “other insurance” clauses in insurance contracts is one of many ways that insurers look to limit their liability. These clauses apply to situations where the policyholder has coverage for the same risks under two or more policies. When disputes arise over claims that are potentially covered under more than one policy, courts determine the insurers’ obligations by applying laws that have been developed to resolve such disputes and make the insured whole.

How Insurer Obligations Are Determined

In cases of overlapping coverage, insurers’ obligations to the insured are determined principally on the contracts’ specific language. When a dispute arises over “other insurance” provisions, courts typically attempt to enforce contractual language as written. As such, non-conflicting “other insurance” clauses are generally held to be enforceable unless they are counter to state statutes or public policy.

In cases where two or more policies provide primary coverage, an “other insurance” clause may convert one of the primary policies into an excess policy, depending on the language. But when one policy was purchased as primary insurance and the other policy or policies were specifically purchased to provide secondary coverage, the primary policy must be exhausted before the policies purchased as secondary coverage kick in, regardless of the “other insurance” clause language.1

“Other Insurance” Clause Types

There are various kinds of “other insurance” clauses. Most of these clauses can be classified into three categories: pro rata clauses, excess clauses, and escape clauses. A pro rata clause typically provides that if other insurance exists, the insurer will pay its pro rata share of the loss, usually in the proportion that its policy limit bears to the aggregate limit of all other valid and collectible insurance. Excess clauses generally state that the policy will only cover liability in excess of the coverage amount provided by all other valid and collectible policies, up to the limits of the policy containing the excess clause. Finally, an escape clause generally provides that the insurer is not liable for losses that are covered by other valid and collectible insurance policies. Certain other clauses are highly customized and/or combine elements from these three main types and do not fit neatly into any of these categories.

When Neither Policy Contains an “Other Insurance” Clause

When two policies cover the same risks, conflicts can arise under several scenarios. In some cases, a risk is covered under two primary policies, and neither one contains an “other insurance” provision. In such cases, most courts will hold that “each insurer is responsible for the proportion of the total loss which the amount of its policy bears to the whole amount insured,” up to their respective limits.2

When Both Policies Have Similar “Other Insurance” Clauses

Similarly, when two policies contain pro rata “other insurance” clauses, courts usually assign insurer liability based on the proportion of the loss that each policy’s face amount bears to the “total amount of collectible and valid insurance."3 When two policies contain excess clauses, the majority of courts will hold that the provisions cancel each other out and the insurers must share the liability. Similarly, in the case of competing escape clauses, most courts will find the insurers are co-insurers who are obligated to make pro rata contributions to cover the claim.

Other Scenarios

When one of the policies contains an “other insurance” clause and the other does not, courts will typically enforce the “other insurance” clause, unless doing so goes against a statute or public policy.4 When two policies contain dissimilar clauses, most courts examine the language of the clauses to determine, if possible, whether one of the insurers intended to be primarily liable and one intended to be liable only on an excess basis. When one policy has a pro rata clause and the other has an excess clause, courts generally find that the policy with the pro rata clause must be exhausted first and that the policy with the excess clause will provide secondary coverage. Similarly, when a pro rata clause comes up against an escape clause, courts most often find the policy with the pro rata clause to be primarily liable.

When one policy contains an excess clause and the other contains an escape clause, courts typically find that the policy with the escape clause is primarily liable for the loss and the policy containing the excess clause is only on the hook for excess coverage. This majority finding is based on an analysis of the typical language in these provisions. An escape clause generally states that the insurer is not liable for losses that are covered by other valid and collectible insurance policies. But since an excess clause states that the coverage is excess to other insurance, most courts have found that it is not “valid and collectible insurance” within the meaning of the escape clause.5

If you are involved in a dispute with your business insurance company, contact Schwartz, Conroy & Hack. We have the expertise, experience and tenacity to make insurance companies keep their promises to you and your business.

1 Mutual Assurance Society of Virginia v. Federal Ins. Co., 2020 WL 239587 (E.D. Va. Jan. 15, 2020)

2 Brown & Krueger, Inc. v. Firemen’s Ins. Co., 6 A.D.2d 780, 175 N.Y.S.2d 86 (1st Dep't 1958)

3 W9/PHC Real Estate LP v. Farm Family Cas. Ins. Co., 407 N.J. Super. 177, 199, 970 A.2d 382, 396 (App. Div. 2009)

4 Adams v. Unione Mediterranea Di Sicurta, 364 F.3d 646, 654-55 (5th Cir. 2004)

5 Michigan Alkali Co. v. Bankers Indemnity Insurance Co., 103 F.2d 345 (2d Cir. 1939)