Court Interprets Two Competing “Other Insurance” Clauses to Determine Primacy of Coverages

Often there are two different insurance policies that may cover a defendant for a claim. To determine which policy is primary and which policy is excess or if the policies would be co-primary, the court must review and interpret the “other insurance” clause in both policies. In Foerster v. Meckel Enters., LLC, 2016 N.J. Super. Unpub. LEXIS 2238 (App. Div. Oct. 12, 2016), the court faced this issue in determining the primacy of coverages between 2 different policies.

The underlying claim involved a slip and fall on water by the plaintiff Glenn Foerster on the bathroom floor of the commercial space of Robert S. Foerster Optician, Inc. (RFO) rented from defendants Meckel Enterprises, LLC and Ann Arbor Associates Inc. (collectively “Meckel”). Plaintiff sued Meckel, “alleging that he informed Meckel that water was leaking from the ceiling in the bathroom, and Meckel’s failure to properly repair the leak created an unreasonably dangerous condition.”

The lease between RFO and Meckel required RFO as the tenant to purchase general liability insurance in an amount not less than $1 million and to name Meckel as an additional insured. RFO complied with these requirements by buying an insurance policy with the third party defendant Penn National Insurance (“Penn National”) and listing Meckel as an additional insured.

Meckel, however, had its own insurance policy with Citizens Insurance Company of America (“Citizens”). Both the Penn National and the Citizens policies contained “Other Insurance” provisions which addressed coverage for a claim if other insurance coverage was available for the same loss.

On the trial court level, Meckel moved for summary judgment, arguing that the Citizens policy was excess over the Penn National policy. Penn National cross-moved for summary judgment, arguing that its excess other insurance clause invalidated Citizens pro-rata other insurance clause. The trial court agreed with Penn National and granted its cross-motion for summary judgment. This appeal ensued in which Meckel contended that the trial court was mistaken in its coverage ruling.

The Appellate Division noted that both parties were in agreement that Meckel’s claim for liability coverage was covered under both the Penn National and the Citizens policies. Under well settled New Jersey law, when 2 policies providing coverage both have a clause that declares the policy to be excess over another, then both are “mutually repugnant” and are disregarded. The end result would be that the policies would become co-primary policies, with each sharing in the liability equally until the limit of the smaller policy is exhausted.

However, a further inquiry needs to be made to determine whether the “other insurance” clause contains language as to the contribution each party should make. That language could affect the coverage determination.

There are generally 3 types of “other insurance clauses”: pro rata, excess, and escape clauses. The “other insurance” clause of the Citizens policy calls for a pro rata allocation of insurance obligations when there is other primary insurance available for the claim. The policy also defines the method of sharing as a pro rata share based upon a comparison of the respective policy limits of the two policies.

On the other hand, the Penn National policy does not establish a sharing of obligations. Rather, it states that its policy would be excess insurance should another primary policy be available to cover the loss. That provision makes the Penn National policy “excess” insurance over another primary policy.

Because the Citizens policy contained language permitting pro rata sharing and the Penn National policy contained excess language only, the Appellate Division ruled that the Penn National policy was excess to the Citizens policy. The Penn National policy would only come into effect when the Citizens policy limits were exhausted. Hence, the Appellate Division upheld the trial court’s grant of summary judgment in favor of Penn National.

Tags: general liability insurance, insurance policy