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HNRK Coverage Corner

Priority of Coverage Determined By “Other Insurance” Clauses of Applicable Policies

On February 20, 2019, Justice Lebovits of the New York County Supreme Court issued a decision in Flintlock Constr. Servs. LLC v. Technology Ins. Co., 2019 NY Slip Op 30392(U), examining the “other insurance” clauses of two applicable insurance policies to determine the priority of coverage.

In some cases, more than one insurance policy may provide coverage for a given loss.  It is therefore necessary to determine the “priority of coverage” – i.e., whether one policy is "primary", and therefore, must be exhausted before another "excess" policy kicks in, or whether coverage will be apportioned among co-primary policies.  This determination is governed by a standard policy provision, known as the “other insurance” clause.

Justice Lebovits explained how such “other insurance” clauses are interpreted:

Where several policies cover the same risk, each of which was sold to provide the same level of coverage, as here, the priority of coverage between the policies is determined by comparison of their "other insurance" clauses. Such clauses limit an insurer's liability where other insurance may cover the same loss. This may be accomplished by providing that the insurance provided by the policy is excess to the insurance provided by other policies, in which case the “other insurance” clause is known as an excess clause. On the other hand, an “other insurance” clause may limit the insurer's liability by providing that, if other insurance is available, all insurers will be responsible for a stated portion of the loss; an “other insurance” clause of this kind is known as a pro rata clause.

In this case, the applicable "other insurance" clause of the Liberty Policy is an excess clause, because it provides that the insurance was "excess of such [other valid and collectible] insurance" and that Liberty had no duty to defend. The "other insurance" clause in the Technology Policy is a pro rata clause, because it provides that where other primary insurance is available, "we will share with all that other insurance," either by equal shares or in proportion to policy limits.

The First Department has held that where one of two concurrently applicable insurance policies contains an excess “other insurance” clause and the other contains a pro rata “other insurance” clause, the excess clause is given effect, meaning that the coverage under the policy containing the excess clause does not come into play, and the carrier's duty to defend is not triggered, until the coverage under the policy containing the pro rata clause has been exhausted.

On the other hand, where both policies contain excess "other insurance" clauses, so that if both excess clauses are given effect the result would leave the insured without any coverage, then the clauses are deemed to cancel each other out, and the insurers must cover the loss on a pro rata basis, as co-primary insurers. Therefore, giving effect to the Liberty Policy's excess "other insurance" clause, Flintlock's coverage as a named insured under the Liberty Policy is excess to Flintlock's additional insured coverage under the Technology Policy. Thus, it is declared that Liberty's obligation to defend Flintlock in the Underlying Action from this point forward will not be triggered until Flintlock's coverage under the Technology Policy has been exhausted.

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