“Other Insurance” Clause Enforced Where Competing Clause Was Ambiguous

In St. Paul Fire and Marine Insurance Company v. Insurance Company of the State of Pennsylvania (N. D. Cal. March 7, 2017), 2017 WL 897437, the district court recently compared “other insurance” clauses in insurers’ excess policies and enforced a clear “excess” clause over a clause in another policy that conflicted with other language in that policy.

A settling insurer sued other insurers for greater contributions to a settlement of a construction defect suit. The Court determined that two policies were specific excess policies that must pay upon exhaustion of the specific underlying insurance limits and that the underlying limits had been exhausted. Thus, the Court decided that the two excess policies were insuring the same risk at the same level of coverage. The Court observed that, once that issue has been decided, California courts next determine whether the “other insurance” clauses conflict, and if they do, split the excess payments between the insurers on a pro rata basis.

The ICSOP policy did not contain a standard “other insurance” clause, but defined “ultimate net loss” as “the amount payable in settlement of the liability for the insured after making deductions for all recoveries for other valid and collectible insurance, excepting however the policy(ies) of the primary insurers.” The American Guarantee policy had a more standard “other insurance” clause, stating that “[i]f other insurance applies to damages that are also covered by this policy, this policy will apply excess to the other insurance.” The Court concluded that the ICSOP policy language could be read not to include the American Guarantee excess policy and was therefore ambiguous. On the other hand, the Court found that the American Guarantee clause clearly stated it was excess to the ICSOP policy. Therefore, the Court determined that the clauses were not irreconcilable, the American Guarantee policy was excess to the ICSOP policy, and thus ICSOP was required to pay up to its policy limits before American Guarantee was required to pay.

This decision demonstrates that courts are more inclined to enforce “other insurance” language if it is clear and simple.