When there are multiple insurance policies in play, the operation of other insurance clauses can have unexpected consequences.
"Other insurance" clauses in insurance policies are designed to "vary or limit the insurer's liability when additional insurance coverage can be established to cover the same loss." 1 Where two or more insurance companies "provide concurrent coverage for the same risk at the same level," courts rely on other insurance clauses to determine if, and how, the insurance companies will share in coverage.
There are three primary forms of other insurance clauses: "Pro rata clauses provide that multiple policies contribute to a loss on a shared basis, such as by limits of the respective policies or by equal shares; excess clauses render a policy excess to other insurance; and escape clauses render a policy inapplicable if other insurance exists." 2 Generally, if other insurance clauses are in conflict, the court will deem them to be mutually repugnant and require the insurance companies to share in coverage, based on rules that vary by jurisdiction.
The operation of other insurance clauses under Mississippi law led to a $3 million difference in liability in a recent Fifth Circuit Court of Appeals decision, Southern Ins. Co. v. Affiliated FM Ins. Co., 830 F.3d 337 (5th Cir. Miss. July 21, 2016). In Southern Ins. Co., two insurance companies provided coverage for a house owned by the University of Southern Mississippi and leased to the University's Alumni Association. The house was covered by the University's policy issued by Affiliated FM Insurance Company. Consistent with the lease's requirement that the Alumni Association obtain property damage coverage, the house was also insured under the Alumni Association's Southern Insurance Company policy.
In February 2013, the house was damaged by a tornado. Southern and Affiliated disagreed about which insurer owed primary coverage. Southern denied coverage and filed a declaratory judgment action seeking a court ruling that either the Affiliated policy was primary or that Southern owed only its pro rata share of the loss (less than 1 percent). The University and the Alumni Association were both joined in the suit and were required to defend. It was not until a year after the loss that Affiliated began to pay the loss, a process that was not complete until some 20 months after the loss.
Each insurance policy included an "other insurance" provision. The Southern policy provided as follows.
The Affiliated policy contained the following other insurance clause.
