Mutually Repugnant Other Insurance Clauses

It's Hard to Escape Coverage by Policy Wording but Insurers Keep Trying

Post 4956

Frequently, an incident occurs which may be covered by policies issued by separate insurance companies. In such a situation, each company, through its policy, may attempt to make the other company primarily responsible for insuring the incident with its own coverage being secondarily responsible, i.e., excess insurance. In this case, the issue involves interpreting the conflicting "other insurance" provisions between Motorists Mutual Insurance Company ("Motorists") and First Specialty Insurance Corporation ("First Specialty").

In Motorists Mutual Insurance Company v. First Specialty Insurance Corp., No. 2023-SC-0239-DG, Supreme Court of Kentucky (December 19, 2024) the Supreme Court of Kentucky interpreted the application of two other insurance clauses.

FACTS

Although the "other insurance" provisions differ somewhat, the Supreme Court concluded that they are indistinguishable in meaning and intent. If the clauses being mutually repugnant and therefore of no effect and since these provisions are mutually repugnant excess clauses.

FACTUAL BACKGROUND

The underlying dispute between the parties arose from the tragic death of a five-year-old child after he was struck by an Alltrade employee, Tanzilla, as Tanzilla was driving his vehicle at an apartment complex owned by Whispering Brook Acquisitions LLC.

Alltrade was party to a Service Agreement with Whispering Brook in which Whispering Brook retained Alltrade to perform work around the apartment complex. That Service Agreement called for Whispering Brook to indemnify and hold harmless Alltrade for all liability on account of the management of the property.

Alltrade was insured under a commercial general liability policy with Motorists and Whispering Brook was insured under a commercial general liability policy with First Specialty. Both insurance contracts contained "other insurance" provisions.

Following the accident, the child's family brought a wrongful death suit against Whispering Brook and Alltrade.

The trial court first determined that Alltrade and its employees were insureds under First Specialty's policy.  The court then held that Motorists' and First Specialty's "other insurance" provisions were mutually repugnant excess clauses. The trial court granted summary judgment for Motorists ruling that the companies share primary liability for the loss and were required to contribute equal shares.

Ultimately, the underlying case was settled with the plaintiffs. The Court of Appeals reversed the trial court and held that First Specialty's "other insurance" provision was a nonstandard escape clause because the language was virtually identical to the nonstandard escape clause identified in Empire Fire &Marine Insurance Co. v. Haddix, 927 S.W.2d 843 (Ky. App. 1996).

ANALYSIS

The dispute between the parties at the trial court involved two primary issues: 1) whether Alltrade and its employees were covered under First Specialty's policy; and 2) if so, what were the respective liabilities of the insurance companies. First Specialty's coverage for the Service Agreement and the liability for bodily injury were subject to the same "other insurance" provision at issue in this case.

The Supreme Court concluded that both Motorists' and First Specialty's policies provide for excess coverage and are mutually repugnant. The Trial Court rightly determined the First Specialty policy does not include an escape clause. Accordingly, First Specialty shares equal liability to defend and indemnify Alltrade, Tanzilla and Key.

Excess Clauses v. Escape Clauses.

Excess clauses and escape clauses have different purposes. An excess clause limits liability and provides that the insurer will pay for a loss but only after any primary coverage available from another insurer has been exhausted. A standard escape clause denies liability if other valid and collectible insurance is available to the insured. A nonstandard escape clause is different from an escape clause because it denies liability if other insurance is available but also specifies that this other insurance may be either primary or excess.

When both policies have mutually repugnant excess clauses, neither one of them takes effect and the two insurers share the costs to defend and indemnify their insureds.

Motorists' and First Specialty's "other insurance" provisions are virtually the same.

Since Motorists' and First Specialty's "other insurance" provisions are mutually repugnant excess clauses, the loss between the insurers must be apportioned. Given the identical limits of liability and the co-primary coverage for both parties, the best apportionment method is for Motorists and First Specialty to contribute equal shares to defend and indemnify Alltrade, Tanzilla, and Key.

In conclusion, the Supreme Court reversed the Court of Appeals' opinion holding that First Specialty's "other insurance" provision was a nonstandard escape clause and hold First Specialty's and Motorists' "other insurance" provisions are mutually repugnant excess clauses. Motorists and First Specialty are to contribute equal shares to defend and indemnify Alltrade, Tanzilla, and Key.

ZALMA OPINION

Another case proving that insurers, as professional litigators, should never litigate with other insurers but should, by negotiation, mediation, or discussion among equals, to avoid litigation, trial, appeal to the Courts of Appeal and the Supreme Court. Instead of all the time, labor, expense and argument to three different courts, it would have been less expensive and in the best interest of the insureds, to agree to defending those insured and resolve the plaintiff's suit for wrongful death. Only the lawyers for the insurers profited from this litigation.

(c) 2024 Barry Zalma & ClaimSchool, Inc.

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