“Other insurance” clauses are found in first-party and third-party liability policies and establish how loss is to be apportioned among insurance companies when more than one policy covers the same loss. Policyholders should be aware of rules governing the application of “other insurance” clauses because an insurance company may incorrectly assert that the “other insurance” clause in its policy permits it to delay in paying or refusing to pay a claim. Such a position directly contradicts the well-settled rule that “other insurance” clauses should only affect rights among insurance companies, and do not impact the policyholder’s access to coverage under an insurance policy.
For example, a claim for coverage of a construction dispute may trigger both E&O coverage and commercial liability coverage because it involves allegations of both professional liability and property damage. Or, a claim involving coverage for a government investigation could trigger both D&O coverage and representations and warranties insurance coverage because the investigation involves alleged wrongdoing prior to the sale of a company and implicates a breach of the representation in the purchase agreement concerning compliance with laws. In these circumstances, which insurance policy pays first is determined by the policies’ “other insurance" clauses and applicable law. Policyholders should be aware of the legal principals governing the application of "other insurance” because insurance companies may attempt to rely upon a policy’s other insurance clause to delay in paying a claim or to deny coverage altogether.
An “other insurance” provision purports to describe when an insurance policy is triggered where another insurance policy covers the same loss. Generally, as the Third Circuit held in Pacific Indemnity Co. v. Linn, “other...insurance exists only where there are two or more insurance policies covering the same interest, the same subject matter and [insuring] against the same risk.” In Linn, the court found that an E&O policy was not “other insurance” with respect to a commercial general liability insurance policy.
Where two policies covering the same interest, subject matter and risk apply to a claim, it is necessary to review the policies’ “other insurance” clauses to determine which policy pays on a primary basis. If both policies’ “other insurance” clauses state that they are excess, the clauses may cancel each other out such that both policies apply on a primary basis and share the loss on a dollar-for-dollar basis until the policyholder’s loss has been paid or the policies’ limits have been exhausted. A New York appeals court held in Federal Insurance Co. v. Empire Mutual Insurance Co. that a trucker’s policy and a business auto policy provided concurrent coverage such that the excess insurance clauses in those policies cancelled each other out. This rendered each policy primary and required both insurance companies to cover the cover the loss on a pro rata basis.
The policyholder and the insurance company may dispute whether other insurance is “valid and collectible.” According to the legal treatise Couch on Insurance, “Such a provision is meant to exclude invalid or illegal insurance, such as insurance that is voidable for misrepresentation, and uncollectible insurance, such as insurance of an insolvent company, from the effect of the other insurance clause.” Courts have held that self-insurance is not “other collectible insurance” because, as a District Court of Appeals in Florida ruled in State Farm Mutual Automobile Insurance Co. v. Universal Atlas Cement Co., it is not “a contract whereby one party indemnifies another against loss from certain specified contingencies or perils.”
More broadly, state and federal courts have held consistently that an insurance company cannot rely on an “other insurance” provision to deny coverage for a claim when the existence of other insurance is in dispute.
It is well-settled that “‘other insurance’ clause disputes should affect only the rights among insurance companies,” states Couch on Insurance. “‘Other insurance’ clauses govern the relationship between insurers, they do not affect the right of the insured to recover under each concurrent policy.” As a Federal District Court in Kansas ruled in 2020 in Bedivere Insurance Co. v. Blue Cross and Blue Shield of Kansas, “[W]hile other insurance clauses often are used to apportion liability among insurers, they generally have ‘no bearing upon insurance companies’ respective obligations to the policyholder…an ‘other insurance’ clause should not place an insured in a worse position than if it had no other insurance.”
In short, a policyholder should not be denied recourse to its insurance company simply because an “other insurance” clause may be triggered. Instead, the insurance company must pay the policyholder’s claim and then seek contribution from the “other insurance” company on the risk.