PRIORITY OF INSURANCE COVERAGE: WHO HOLDS THE TRUMP CARD?
One of the issues which can confound parties, particularly when the time is ripe to explore settlement, is the priority of competing insurance coverage when multiple Commercial General Liability policies have been implicated by a claim.
By: Richard P. Byrne, Esq.
The starting point in addressing the question is a review of the applicable policies. As the Court of Appeals noted in B.P. Air Conditioning Corp. v. One Beacon Ins. Corp., 8 N.Y.3d 708 (2007), in order to determine the priority of different coverages, all relevant policies must be reviewed and considered.
The key provisions to assess are the “Other Insurance” clauses in the respective policies. When dealing with competing primary policies, these clauses provide the mechanism for the inter-relationship between the coverages. For example, a common Other Insurance clause found in a primary policy may provide:
If other valid and collectible insurance is available to the insured for a loss we cover under Coverages A or B of this Coverage Part, our obligations are limited as follows:
a. Primary Insurance
This insurance is primary except when Paragraph b. below applies. If this insurance is primary, our obligations are not affected unless any of the other insurance is also primary. Then, we will share with all that other insurance by the method described in Paragraph c. below.
b. Excess Insurance
(1) This insurance is excess over:
(a) Any of the other insurance, whether primary, excess, contingent or on any other basis:
(i) That is Fire, Extended Coverage, Builder’s Risk, Installation Risk or similar coverage for “your work”;
(ii) That is Fire insurance for premises rented to you or temporarily occupied by you with permission of the owner;
(iii) That is insurance purchased by you to cover your liability as a tenant for “property damage” to premises rented to you or temporarily occupied by you with permission of the owner; or
(iv) If the loss arises out of the maintenance or use of aircraft, “autos” or watercraft to the extent not subject to Exclusion g. of Section I – Coverage A – Bodily Injury and Property Damage Liability.
(b) Any other primary insurance available to you covering liability for damages arising out of the premises or operations, or the products and competed operations, for which you have been added as an additional insured by attachment of an endorsement.
An Other Insurance clause in another primary policy, however, may look to trump that language and, by doing so, place itself in the excess position to avoid a sharing of obligations. For example:
The insurance provided under this Coverage Part is excess over, and shall not contribute with, any other valid and collectible insurance or insurance equivalent or self-insurance available to the Insured, whether stated to be primary, contributory, excess, contingent or otherwise, unless such insurance or insurance equivalent or self-insurance is specifically written to be excess over this Coverage Part.
In the situation, though, where both primary policies’ Other Insurance clauses compete to trump the other, and each take the excess position, the clauses are deemed to cancel each other out and the insurers share ratably based on their policy limits. See, Nat’l Union Fire Ins. Co. of Pittsburgh, Pa. v. Hartford Ins. Co. of Midwest, 248 A.D.2d 78, 86 (N.Y. App. Div. 1st Dep’t 1998), aff’d, 93 N.Y.2d 983 (1999); cf. Sport Rock Int’l, Inc. v. Am. Cas. Co. of Reading, PA, 65 A.D.3d 12, 18-20 (N.Y. App. Div. 1st Dep’t 2009), appeal withdrawn, 14 N.Y.3d 796 (2010).
It is also possible that a policy’s language may seek to exclude an exposure in its entirety if covered under another policy. For example, a contractor’s policy may carry an exclusion relative to operations covered by a consolidated insurance program on a project, sometimes referred to as a “wrap-up” policy. For example:
This insurance does not apply to “bodily injury” or “property damage” arising out of either your ongoing operations or operations included within the “products-completed operations hazard” at the location described in the Schedule of this endorsement, as a consolidated (wrap-up) insurance program has been provided by the prime contractor/project manager or owner of the construction project in which you are involved.
This exclusion applies whether or not the consolidated (wrap-up) insurance program:
(1) Provides coverage identical to that provided by this Coverage Part;
(2) Has limits adequate to cover all claims; or
(3) Remains in effect.
In the context of competing primary vs. excess/umbrella coverage, the issues can become more complex because, generally, in this scenario, a practitioner is dealing with a situation where the named insured’s primary carrier is seeking to trump the coverage of an excess/umbrella policy upon which its policy holder has status as an additional insured.
By way of example, in Bovis Lend Lease LMB, Inc. v. Great American Ins. Co., 53 A.D.3d 140 (N.Y. App. Div. 1st Dep’t 2008), the Court held, with respect to the priority of coverage in a wrongful death action, that the coverage afforded the construction manager and owner by the umbrella liability policy of the subcontractor that employed the decedent was excess to the construction manager’s and owner’s own primary insurance. The First Department reached these conclusions notwithstanding the terms of the underlying subcontract, which required the subcontractor to make all of the insurance it provided to the construction manager and owner applicable on a primary basis, without contribution by the construction manager’s and owner’s own insurance. The First Department reasoned that an umbrella or excess liability policy “should be treated as just that,” and not as “a second layer of primary coverage, unless the policy’s own terms plainly provide for a different result. To hold otherwise would, we believe, merely sow uncertainty in the insurance market.” See also, Tishman Const. Corp. of New York v. Great Am. Ins. Co., 53 A.D.3d 416 (N.Y. App. Div. 1st Dep’t July 8, 2008) (The Court held that the umbrella policy issued to a subcontractor-employer provided a final tier or coverage, and could not be invoked on behalf of the general contractor prior to exhaustion of its own Commercial General Liability policy, even though the general contractor was an additional insured under the subcontractor-employer’s primary liability policy.)
The bottom line is that a practitioner needs to ensure that they have all potentially applicable policies in hand for review as early on in the litigation as possible. All relevant provisions from each of the policies need to be identified and on the table so that the inter-relationships and prioritization of the coverages can be analyzed. While an immediate agreement may not be achieved as to which insurers must pay, the dialogue cannot even begin until this exercise is undertaken. Once begun, though, it often evolves beyond its initial boundaries and leads to the development of mechanics for settlement of the litigation. Thus, confronting, addressing and agreeing on the priority of insurance coverage will result in a much higher likelihood of success at a settlement conference or Mediation.
Richard P. Byrne, Esq., is a member of NAM’s (National Arbitration and Mediation) Hearing Officer Panel and is available to arbitrate and mediate cases in the NY Metro area and throughout the United States. He was named one of the Top 3 Mediators in the U.S. by the 2015 Best of the National Law Journal Annual Reader Rankings Survey, and was voted a Top Ten Mediator in New York State by the New York Law Journal Reader Rankings Survey in 2014 and 2015. Mr. Byrne is Co-Managing Partner of L’Abbate, Balkan, Colavita & Contini, LLP.,in Garden City, N.Y.
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