Today on “Don’t Take No For An Answer,” host Lynda A. Bennett is joined by Alexander B. Corson for a discussion about
priority of coverage, or who pays what when there are numerous
claims, parties, and policies at play. As always, Lowenstein’s
Insurance Recovery lawyers reinforce the bedrock insurance
principle that the words matter when determining the scope of
coverage responsibilities. Through that lens, Lynda and Alex
discuss the variations of “other insurance” clauses and
how courts interpret those clauses. Along the way, the pair also
debunk a few myths about priority of coverage issues, including
insurer overuse of such clauses and how to push back in the face of
that situation/how to avoid it altogether.
Speakers:
Lynda A. Bennett, Partner and
Chair, Insurance Recovery
Alexander B. Corson,
Associate, Insurance Recovery
READ THE TRANSCRIPT
Lynda Bennett: Welcome to Don’t Take No For
An Answer. I’m your host, Lynda Bennett, Chair of the Insurance
Recovery practice at Lowenstein Sandler, and today I’m very
pleased to be joined by my associate and partner-in-crime, Alex
Corson. So, welcome to the show, Alex.
Alex Corson: Glad to be here. Thank you.
Lynda Bennett: So every now and again on
Don’t Take No For An Answer, we like to pause to take a moment
and talk about some higher-level themes, as opposed to specific
cases or specific coverage grants, and Alex and I were chatting the
other day about an issue that seems to come up an awful lot, and
has a lot of myths associated with it, and that relates to priority
of coverage. And so, I want to just set the table for this topic by
talking about a prototypical example of what might happen.
So, our client is involved in a construction project, and
let’s just say they’re the general contractor for the
construction project and the building, and a couple of years later,
the claim comes. And the property damage claim is that the building
leaks like a sieve, and our general contractor has brought a number
of different subcontractors to actually build the building.
We’re more of the clipboard holder. Right, Alex? So, we’ve
seen this movie once or twice before.
Alex Corson: Yeah. Yes, a few times.
Lynda Bennett: So, the complaint gets filed,
and there are allegations and finger pointing all over the place,
and our client has come to us and said, well, I have my own general
liability policy, and then I was really excellent when I was hiring
all of these subs. I required all of them to get their own
insurance policies, and oh, by the way, I might even actually have
opted into a broader OCIP policy, which is an owner-controlled
insurance program policy, and so, here are all these policy
documents. Do what you do, and geek out. So, what’s one of the
first things, Alex, when you get that mass of documents, what’s
one of the first things that you’re going to be looking at to
try to sort through who has to pay what?
Alex Corson: Yeah. So, first, we need to
identify the additional insured language or, specifically, named
additional insured language that shows that our client is actually
insured by that policy. And then of course, we would do the normal
walkthrough of the coverage grant and make sure there’s no
exclusions. But assuming that our client is an insured under the
policy and that the policy responds to the loss or some portion of
the loss, we would then go to what we call other insurance
language. We’d look for other insurance clauses.
Lynda Bennett: Well, we certainly wouldn’t
do that. We just know that’s the playbook that the carriers do,
right?
Alex Corson: Yes.
Lynda Bennett: So, if you’re preemptively
looking because, in my hypothetical here, you know the very first
thing that’s going to happen is our client’s carrier’s
going to say, hey, if there’s other insurance available, go
talk to them. We’re going to go and assert our additional
insured rights under the sub-policies, and that carrier’s going
to say, hey, if there’s additional insurance available, go talk
to them. We’re going to go to the OCIP carrier and say, hey, by
the way, we think we’re in this program, and the first thing
they’re going to say to us is: is there other insurance? Go
talk to them. Right?
Alex Corson: Right.
Lynda Bennett: So, if a high-level overview,
and I should note, that virtually every insurance policy, if not
everyone I’ve looked at in the last 20 years, every policy has
that other insurance clause. So, give us an overview, Alex, of what
does that other insurance clause that’s “standard” in
every policy, what does it say?
Alex Corson: Sure. Yeah, so the other insurance
language is usually found in the terms and conditions section of
most policies, and what it essentially says is it’s purporting
to say who goes first and whether this policy’s going to
respond together with other insurance or whether it’s going to
go after that other insurance. There are a couple of different
types.
Lynda Bennett: But fortunately, they’re all
exactly the same, right? So it’s really easy to sort through
who goes first, right?
Alex Corson: Yeah, the standard language comes
in basically two varieties, where it’s either saying we’re
primary, we’ll go first alongside anybody else that’s
primary, or we’re excess, we’re not paying unless all the
other available insurance that exists has gone and has paid out in
full, where we are excess to that. And some policies include these
types of escape clauses where they purport to say we’re not
going to pay anything, if there even is other insurance. Although,
those types of clauses are disfavored by courts generally. So,
yeah. The policy either is saying we’re going to be primary;
we’re going to pay alongside the others, or it’s saying
we’re going to go second. And that language varies slightly but
looks very much the same in just about every policy that exists
over the last 20 years, like you said.
Lynda Bennett: Yeah, if you’ve got the off
the shelf policy, right?
Alexander Corson: Right.
Lynda Bennett: We sometimes have clients that
have manuscripted policies, where we’ve seen some pretty funky
stuff from time to time on these other insurance clauses. And so,
one of the things that we harp on all the time on our podcast here
is that the precise words always matter, and when we look at those
precise words, then we pivot to, what’s a court going to do
with this? So, generally Alex, what is the approach that the court
will take when you essentially have, and again, returning back to
my example, you have three insurance carriers all pointing the
finger saying, go ask somebody else to pay first?
Alex Corson: Yeah.
Lynda Bennett: What does a court do when
they’re presented with the talk to the other guy defense from
the carrier?
Alex Corson: Yeah. So, when the three carriers
all have a policy that purports to be excess to all other
insurance, courts are generally going to take the approach that
when all policies purport to be the same thing, i.e., excess, they
have to share at the same level. And if there is no other policies
that say they’re primary, then all those “excess”
other insurance policies are going to be the primary. They’re
going to go first, and they’re going to share. And there’s
two general approaches to how they will share.
They will either share sort of in equal parts, if that’s
what the language says and/or if that what’s the court, that
jurisdiction’s preferred approach is, or sometimes they’ll
share on a pro-rata basis, which basically means they’ll pay in
proportion to their relative limits. So, if one has a one million
policy limit, the next one has a five, and the other one has a
three, they’re going to pay one, well, I should have picked
better numbers. One, five, and four, one’s going to pay 10%,
the next one’s going to pay 50%, and the next one’s going
to pay 40% of the costs.
Lynda Bennett: Right, so one twist that
I’ve seen carriers press, and sometimes with success, returning
back to my example, and I was intentional in bringing up my
example. So, the general liability policy that’s issued to our
client as the general contractor and the subcontractors’
general liability policy, they’re going to be pretty much the
same. The OCIP policy may be the same, may not be.
And now, I’m going to add another type of policy that could
be in play in a construction case. Maybe there’s a pollution
legal liability policy and some element of the claim involves
pollution claim. What you’ll see with these “specialty
policies” is they’ll take the position that well, gee, the
general policy should go first, even if we have uniformly canceling
out other insurance clauses. Generally, the approach should be that
a general policy should pay before a specific policy, and in a
surprise to no one, the general liability carriers will say, nah,
we should all pay around the same time. So, that’s one other
twist that I’ve seen carriers argue, and sometimes with success
in front of particular courts.
And so, again, I’ll bring up another bedrock principle here
on Don’t Take No For An Answer, which is whenever you get
presented with a claim like this, choice of law, and what law is
going to apply to interpret these other insurance clauses is
super-duper important.
Alex Corson: Yeah.
Lynda Bennett: Alex, I want to deliver on our
promise in today’s episode that we’re going to also debunk
the myths associated with priority of coverage disputes and/or
other insurance clauses. And so, what is one of the biggest myths
that we experience all the time with respect to other
insurance?
Alex Corson: Well, I have two for you, and
I’ll start with the idea that other insurance clauses are a
total defense to coverage, and that because I have the right to
seek contribution from another insurance company, I don’t have
to pay you anything or do anything until I’ve run that down to
ground. Sometimes the carriers will try to say, let’s issue a
laundry list of information requests aimed at understanding what
other insurance you might have, and say we’re not taking a
coverage position until you give us that information. And generally
speaking, that is not correct. Another insurance clause, almost
every case that I’ve looked at least, has taken the position
that other insurance is a problem for the insurance companies to
sort out between themselves. You have to make your insurance
benefits available to the policyholder upfront, and then you have
an equitable right as an insurance company to go after the other
carriers that should have been contributing upfront, if they choose
to hold back that benefit. So, that’s one of the bigger myths I
think, is that we can hold back our insurance coverage based on the
available other insurance.
And then the other one you alluded to, we talked a little bit
about with the OCIP policy. What do the policies actually cover?
Like, are they the same risk or are they overlapping, where one
policy is broader than the other? Or are they entirely separate
risks? Because as you said, it’s a myth to suggest that because
there is other insurance that responds to some of the loss, that
you don’t have to go first. Even if that other policy was a
primary, if the primary only covers, you know, says that it’s
going to be primary. If it only covers a portion of the claims or
some of the claims, then that other policy that purports to be
excess has to come down and be primary as to the balance of that
claim, right? Because they are not actually covering the same
risks. So, that’s the other big myth that we see, is when
carriers purport to say well, I’m excess, and that policy over
there is primary, it’s got to go first, when that policy is
much narrower in scope. So those are the two big ones that came to
mind.
Lynda Bennett: Yeah, and I think the overuse of
citing the other insurance clause has become more and more
prominent as we deal with complex claims, but what I would say to
our listeners is just because there may be two or more policies
triggered by the claim, you cannot accept the position that an
insurer is going to take 11 out of 10 times in their coverage
position letter, which is well, I’m excess, see my other
insurance clause. So, the first question you really need to ask
yourself when that claim comes in is do these policies actually
overlap? Are they providing the same type of coverage for the same
time period of coverage? Because I would say at least 50% of the
time, that’s not true. The policyholder really needs to know to
push back on that.
Alex Corson: Absolutely.
Lynda Bennett: Alex, what are some of the
things that clients can do, policyholders can do, on the front end
to avoid this messy other insurance finger pointing game that
we’ve been talking about?
Alex Corson: Yeah. The number one thing that
policyholders can do on the front end is they can negotiate
specific language. There are off-the-shelf versions or language
that states that it will be primary and/or contributory, right,
using the primary language. That, oftentimes, can be negotiated in
our clients’ own policies. But then also, you can impose
requirements on vendors, contractors, subcontractors, like in the
example, that the additional insurance that they provide to you
also contain such primary contributory type of language, making
clear that, so that you don’t get a mess of different policies,
some saying they’re going to go first, some that they’re
saying they’re going to go excess, and covering different
losses. So, getting the other insurance language consistent across
the policies that are going to be available to you for a particular
line or risk is one of the things that you can do to avoid this
sort of messy analysis that results in a lot of delay, and
sometimes expense.
Lynda Bennett: Yeah. I want to drive that point
home a bit further, because probably about six, eight months ago, I
was reviewing a policy for a client, and it had a very bizarre
other insurance clause in it that said: “And as long as
there’s other insurance available, whether or not that other
insurance pays, we don’t pay.” I mean, it was pretty
shocking.
Alex Corson: Super escape clause, right?
Lynda Bennett: Pretty shocking. Yeah, exactly.
It was an escape clause on steroids. But that got me thinking,
particularly for corporate policyholders who have the ability to
negotiate terms and conditions, one of the ways to push back and
put greater clarity around this on the front end is actually to
inject language that says the other insurance clause can only be
invoked if in fact other insurance pays.
Alex Corson: Yeah.
Lynda Bennett: So, that might be something that
is worthy for corporate policyholders to discuss with their
brokers, at least to start the conversation, and perhaps at least
level the playing field to avoid these finger pointing games later.
So, to recap, I think the big takeaway is read the policy language,
understand whether you’ve got a primary v. excess or always
excess or an excess with the attempted escape hatch. Read that
policy language. If you, ideally, do it before your policy’s
placed, get rid of anything that allows an escape hatch. Once a
claim comes in, don’t necessarily immediately assume that the
insurer’s invocation of the other insurance clause is even
proper for the claim, because if there is not an overlap in the
coverage provided by the two or more policies in play here, the
easy pushback is the other insurance clause is irrelevant, and it
doesn’t let you off the hook at all. And of course, if a
carrier tries to deny or avoid their immediate coverage obligation
on this basis, don’t take no for an answer. Right, Alex?
Alex Corson: That’s right.
Lynda Bennett: Words to live by. All right.
Well, thank you for joining me today, Alex, and we look forward to
getting together again to further educate our listeners in the
future, so thanks for coming.
Alex Corson: Glad to be here.
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