Frustration Mounts in Texas as Primary Carriers Struggle with How to Deal with Recalcitrant Co-Primary Carriers

Posted on March 16, 2008 by Chris Martin

A Federal District Court Judge from the Southern District of Texas’ Galveston Division recently granted summary judgment against an insurer seeking to enforce identical pro rata sharing provisions contained in multiple primary insurance policies.  In doing so, the court highlighted the lack of options primary carriers now face in Texas when co-primary carriers don't contribute to defense or indemnity benefits to the common insured.  In Nautilus Ins. Co. v. Pacific Employers Ins. Co., No. G-04-619 (S.D. Tex.  February 25, 2008), several insurers were called on to defend and indemnify a seismic testing company which allegedly damaged over 200 buildings in Galveston County while conducting seismic testing.  All of the insurers except Pacific Employers contributed to the settlement and Nautilus Insurance then sought to recover the amounts it overpaid to fund the settlement from Pacific by way of subrogation and enforcement of the policies respective pro rata "other insurance" sharing provisions.  The suit among the co-primary carriers resulted in summary judgment motions being filed on the issue of whether a settling co-primary carrier in Texas can sue a recalcitrant co-primary carrier for not paying it's fair share of the defense costs or the settlement.  Relying on the Texas Supreme Court’s recent decision in Mid-Continent Insurance Co. v. Liberty Mutual Insurance Co., 236 S.W.3d 756 (Tex. 2007), the District Court held last week that because the insured had been fully indemnified, the settling insurer had no claim under Texas law against the non-settling insurer because “there is nothing to which Plaintiff can be subrogated.”  This harsh result is the inevitable consequence of the Texas Supreme Court's decision from February in Mid-Continent v. Liberty Mutual. 

Because of the proliferation of suits involving construction defects, intellectual property violations, toxic torts, premise liability and other significant torts, it is now extremely common for insured defendants to have two or more primary liability carriers whom they turn to for defense and indemnity benefits.  The unwillingness of the Texas Supreme Court to allow one carrier to sue another for reimbursement, contribution or subrogation puts Texas in an extreme minority on this issue and forces carriers in that state to become very creative when settling liability suits when one or more other primary carriers have not or will not contribute to defense or settlement costs.  Carriers in such a situation must consider formal assignments from insureds and other creative alternatives before allowing the underlying liability to be settled and dismissed.   Otherwise, they will find themselves in the same position as Nautilus having overpaid a claim they did not fully owe with no avenues for reimbursement against the carrier who refused to pay timely.  

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Fourth Circuit Upholds "True" Excess Policies In Dispute Over Priority of Coverages

Posted on January 30, 2008 by Mike Aylward

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.

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