Insurance Fundamentals: “Other Insurance” Clauses

The Eleventh Circuit recently confirmed the rule that “other insurance” clauses should not be used to disadvantage policyholders. Nat’l Cas. Co. v. Georgia Sch. Bd. Ass’n – Risk Mgmt. Fund, No. 22-13779, 2023 WL 5977299, at *1 (11th Cir. Sept. 14, 2023). In a dispute between an insurance company and a public risk management fund, both insurance policies included “other insurance” clauses stating that each insurer would only provide excess insurance coverage where the policyholder is covered by other insurance. The district court found that the clauses were irreconcilable because both insurance policies could not provide only excess insurance coverage—at least one policy would need to provide primary coverage. Because of the conflict, the Georgia federal district court applied Georgia’s irreconcilable-clauses rule and held that each policy must provide coverage to the policyholder on a pro rata basis. The Eleventh Circuit affirmed the district court’s application of Georgia’s irreconcilable-clauses rule.

The district court’s ruling was based on application of Georgia’s irreconcilable-clauses rule, which provides that insurers must share defense and indemnity costs on a pro rata basis when conflicting “other insurance” clauses are irreconcilable in insurance policies covering the same risk. The district court even certified to the Georgia Supreme Court the question of whether Georgia’s irreconcilable-clauses rule applied to public risk management funds. The Supreme Court answered yes.

“Other insurance” clauses are included in policies to avoid multiple insurers paying for the same loss by making one policy excess to another policy where they cover the same risk. The clauses apply only among insurers; they are not intended to apply to policyholders and thus should not disadvantage them. Georgia’s irreconcilable-clauses rule ensures that policyholders are not disadvantaged when a conflict arises between insurers relating to “other insurance” clauses.

Fundamental principles relating to “other insurance” clauses include the following:

Escape: “Other insurance” clauses may provide that an insurer sometimes can avoid its duties to defend or indemnify if other insurance covers the loss. 

Excess: “Other insurance” clauses may provide that an insurer can limit its liability for defense costs and covered loss to only the amount exceeding what is covered by other applicable insurance policies.  

Pro Rata: “Other insurance” clauses may provide that an insurer can pay its pro rata share of defense costs and covered loss if other insurance exists. 

Mutual Repugnancy: Where the “other insurance” clauses are identical in two or more policies, the clauses are not given effect. The insurers share the defense costs and covered loss on a pro rata basis. Georgia’s irreconcilable-clauses rule addresses this concept.

Specific versus General: When a dispute arises between two insurers over competing “other insurance” clauses, insurers sometimes contend that a more specific clause should govern over a more general clause. Most courts have rejected this argument. 

Although “other insurance” clauses are intended to apply only among insurers, being familiar with the clauses can help policyholders protect themselves.