Finding “Other Insurance” Clauses Mutually Repugnant, Tenth Circuit Applies Pro Rata Allocation
02.27.17
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(Article from Insurance Law Alert, February 2017)
For more information, please visit the Insurance Law Alert Resource Center. The Tenth Circuit ruled that “other insurance” clauses in two policies cancel each other out and that losses should be apportioned on a pro rata basis. Philadelphia Indem. Ins. Co. v. Lexington Ins. Co., 845 F.3d 1330 (10th Cir. 2017).
A school building that suffered fire damage was insured by both Philadelphia Indemnity and Lexington. Philadelphia issued a policy to a charter school that was leasing the building, and Lexington issued a policy to the school district, the lessor. The insurers disputed their respective responsibilities to indemnify the loss. An Oklahoma federal district court ruled that the identical “other insurance” provisions in the policies were “mutually defeating” and that the loss should be apportioned on a pro rata basis according to policy limits. The Tenth Circuit affirmed.
The Tenth Circuit ruled that under Oklahoma law, “their respective excess-coverage clauses cancel each other out and that their identical pro rata clauses require the two insurers [to] share the loss.” Lexington argued that the clause-cancellation rule does not apply because each insurer covered a different named insured. The court disagreed, explaining that both policies protect the same building against the same risk of fire damage. The court also rejected Lexington’s argument that the lease agreement between the charter school and the district (which required the school to procure property insurance) makes Philadelphia the primary insurer. The court reasoned that it is the insurance policies, not the lease, that control loss apportionment. Finally, the court dismissed Lexington’s assertion that Philadelphia is the primary insurer because its policy is “more specific to the risk.” Lexington noted that Philadelphia’s policy covered only the damaged building, whereas Lexington’s “blanket” policy covered more than 100 sites owned by the district. Noting a lack of Oklahoma authority for this argument, the court deemed this fact irrelevant to the allocation analysis governed by the “other insurance” clauses.