Fourth Circuit Upholds "True" Excess Policies In Dispute Over Priority of Coverages
Controversy has often arisen in conflicts between primary liability insurance policies that contain “excess” other insurance wordings and “true” excess policies (i.e., umbrella or higher layer excess policies). In such cases, does one policy pay before the other or, as is often the case with conflicting “other insurance” terms, do both policies pay concurrently?
In the latest such case, the Fourth Circuit has held in a dispute between a school board’s umbrella liability insurer and the primary insurer of a high school principal concerning the priority of “excess” coverage for the cost of settling sexual abuse claims against school officials, the a “coincidental” excess policy (a primary policy with an “excess” other insurance clause) should pay before a “true” excess policy.
The Fourth Circuit ruled in Horace Mann Ins. Co. v. General Star National Ins. Co., No. 06-2156 (4th Cir. January 23, 2008) that because the General Star umbrella policy was a “true excess” policy, whereas the Horace Mann policy merely contained an “other insurance” clause purporting to make it excess of all other available insurance, a West Virginia district court erred in holding that Horace Mann had no obligation to contribute to the settlement.
Whereas the District Court had found that the two “excess” clauses were not in conflict since the General Star policy stated that it was excess to all other insurance “other than insurance that is in excess of the insurance afforded by this policy,” the Fourth Circuit ruled that these principles did not apply in a conflict between a primary policy and a true excess policy. Despite the fact that Horace Mann had developed this particular policy for school principals who typically would be entitled to coverage under other policies, the court rejected Horace Mann’s contention that this was, in fact, an excess policy holding that it was clearly designed to be a primary liability policy that might operate as excess insurance depending on the circumstances. While the excess other insurance clause in the Horace Mann policy might reduce the insurer’s exposure in most cases, the court held that it did not transform the policy into a true excess policy.
Writing in dissent, Judge Niemeyer argued that the district court had correctly undertaken a common sense reading of the respective wordings to reconcile their effect and that the Horace Mann policy therefore was excess of the General Star umbrella policy. The dissent also argued that this interpretation was consistent with the intent of the parties in structuring this insurance program for principals and educators.
