Overlapping Insurance and Other Insurance Clauses—The Guiding Principles
This morning’s post, “What Is an “Other Insurance” Clause and Why Do They Exist In Property Insurance Policies?” raises the question: “How do I deal with ‘other insurance’ clauses?”
Steve Figlin wrote a comment 14 years ago to the referenced post, The Other Insurance Clause, which referenced The Guiding Principles:
Possibly the ‘Agreement of the Guiding Principles’ should be looked at more closely to assist in making the proper apportionment of the loss. These types of situations are addressed in the ‘Agreement’
What are The Guiding Principles? In an excellent article written by insurance author and noted risk manager Steven Coombs, Builders Risk Insurance: The “Other Insurance” Condition, The Guiding Principles are explained as follows:
When insurers utilize excess clauses, they are attempting to treat the other insurance as primary and their policy as excess. When multiple policies have ‘other insurance’ clauses, conflicts and sometimes litigation result. The insurance industry has attempted to deal with this ‘outside of the policies’ through the promulgation of industry claims handling guidelines. Adherence to such guidelines by many insurers has resulted in custom and practice for much of the industry, but acceptance is not universal.
Conflicts between insureds and insurers were so prevalent in the 1920s and 1930s that the National Board of Fire Underwriters approved rules to deal with apportionment. As fire insurance increasingly overlapped with inland marine and casualty policies, the National Board of Fire Underwriters, the Inland Marine Underwriters Association, and the Association of Casualty and Surety Companies entered into a number of agreements with each other that outlined how losses involving overlapping coverages would be handled. The majority of stock fire, marine, and casualty companies and some mutual companies subscribed to these ‘Agreements of Guiding Principles.’
Eventually, new overlapping situations evolved, particularly with multiline policies, and it was determined that the Guiding Principles were inadequate. Various industry groups began work in 1959 to create a new set of guidelines. The ‘Guiding Principles for Overlapping Insurance Coverages’ was created. By resolution, it was agreed that the Association of Casualty and Surety Companies, Inland Marine Underwriters Association, National Automobile Underwriters Association, National Board of Fire Underwriters, National Bureau of Casualty Underwriters, and Surety Association of America recommend to their members and subscribers their concurrence in adopting the Guiding Principles effective as to losses occurring after November 1, 1963. These principles called for ‘other insurance’ clauses to be set aside and inoperative to the extent they conflict with the Guiding Principles.
The Guiding Principles were designed to provide guidance to insurers when overlapping coverage existed. They were not intended to interpret coverage or create any coverage where none existed. The Guiding Principles are about 40 pages long and contain many examples. While the Guiding Principles have been helpful to adjusters for almost 50 years, they are not part of the insurance policy, and claims adjusters or insurers are not required to follow them. Some courts have considered the Guiding Principles in arriving at their decisions; others ignore the Guiding Principles because only the actual provisions contained in an insurance policy can determine coverage.
I have attached a copy of The Guiding Principles. The introductory portion reiterates the purpose of this work:
The following pages contain the text of ‘The Guiding Principles’ – detailed procedures for working out the degree of participation on the part of various insurers when a particular loss involves two or more different types of policies. A property policy covering a building includes coverage of an attached neon sign. An inland marine sign policy insures the same sign. If there is a loss under circumstances involving both insurers, which company pays? Or, if both pay, do they pro rate? On what basis? Suppose boiler & machinery insurance is involved also?
It was in order to provide an alternative to acrimonious debate, if not litigation, each time such a problem would arise that an all-industry committee undertook the task of establishing these ‘principles’ – more aptly, perhaps, ‘recommended procedures’ – to be followed whenever an overlap exists between fire, inland marine, or first-party casualty policies. The Guiding Principles are not binding on any insurance. company, though many have voluntarily agreed to abide by their precepts.
The text reproduced on General Gp-2 through 42 is the work of the aforementioned committee, as promulgated on November 1, 1963 and unchanged since that date.
Its use is rare today because many property adjusters have never received training about its existence nor how it can resolve adjustment disputes involving “other insurance” by using the standards within it.
Thought For The Day
Every conflict we face in life is rich with positive and negative potential. It can be a source of inspiration, enlightenment, learning, transformation, and growth-or rage, fear, shame, entrapment, and resistance. The choice is not up to our opponents, but to us, and our willingness to face and work through them.
—Kenneth Cloke
