Chapter Eight

• Jurisdiction: New York

Chapter Eight

Apportioning Coverage Among Insurers

Michael Pilarz, Esq.

I. Introduction

Insurers sell insurance to customers aware that the risk may at some point simultaneously be insured by another insurer. If an insured obtains multiple policies the result is concurrent insurance—that is, each insurer provides coverage for the same interest and against the same risk.¹⁰⁰⁶ In the event of a covered loss the question becomes which policy pays? Insurance policy language is written and poised for such a question, with each insurer typically trying to place the onus of payment on the other. A court’s burden is to apportion coverage among concurrent insurers. This has been characterized as “a court’s nightmare . . . filled with circumlocution.”¹⁰⁰⁷

Indeed, insurers have even contested the existence of concurrent coverage among policies. They have joined battle over the meaning of language concerning which of two policies was more “specific” in describing a risk, with one insurer seeking to make the more specific policy primary and the less specific one excess. Courts, however, have been cautious when faced with such semantic analysis. In such a situation, one court, eschewing judgments on a policy’s degree of specificity in describing a risk, simply identified whether an identical risk was covered and then applied established rules of interpretation and apportionment to policies that cover the same risk.¹⁰⁰⁸ Those rules follow.

II. Multiple Insurance Policies Covering the Same Risk—Generally

As a general rule, two or more insurers are co-insurers for a loss where they bind themselves to the same risk. If one insurer pays the whole loss, the paying insurer has a right of action against its co-insurers for a ratable portion of the amount paid.¹⁰⁰⁹ Typically, insurance policies employ the rubric of “other insurance” in referring to policies issued by different insurance companies to insure the same risk. Insurance policies specifically contain “other insurance” clauses in order to create a framework for apportioning coverage. These clauses can be divided into three categories: excess, pro rata and escape or no-liability.

A pro rata clause is typically written as follows: “The company shall not be liable under this policy for a greater proportion of such loss than the applicable limit of liability stated in the declaration bears to the total applicable limit of liability of all valid and collectible insurance against such loss.” Similar to the rule for mutually canceled excess clauses, the existence of two pro rata clauses dictates that the insurers contribute in proportion to the aggregate coverage.

To understand pro rata contribution, assume, for example, that an insured is liable for a $50,000 loss and has concurrent insurance through policy A and policy B. Policy A has a $100,000 limit and policy B has a $300,000 limit. Each policy contains an excess coverage clause (or a pro rata clause). As a result, the clauses are mutually canceled and the policies contribute according to the ratio each policy limit bears to the combined total of their limits. The ratio of policy A’s coverage to the total coverage is .25; policy B’s is .75. Policy A, therefore, owes $12,500 and policy B owes $37,500:

Policy A: $100,000 Ratio: .25 Obligation: $12,500 (.25 x $50,000)

$400,000

Policy B: $300,000 Ratio: .75 Obligation: $37,500 (.75 x $50,000)

$400,000

The rule of cancellation does not apply, however, where it effectively would deny and distort the plain meaning of policy terms.¹⁰¹⁰ “Whether there will be such distortion turns on consideration of the purpose each policy was intended to serve as evidenced by both its stated coverage and the premium paid.”¹⁰¹¹ “Whether ratable contribution was bargained for must be shown by the presence of plain language in the policy.”¹⁰¹² In Lumbermens, for example, the court analyzed excess coverage policy language to determine the relative obligations of coverage among a primary policy, a non-owned automobile policy, an executive policy and a catastrophe policy. Certain of these policies, the court held, were clearly excess to others.¹⁰¹³

An example of an excess clause is as follows: “If other collectible insurance with any other insurer is available to the Insured covering a loss also covered hereunder, insurance hereunder shall be in excess of, and shall not contribute with, such other insurance.”

A problem arises when policies providing concurrent insurance contain identical excess insurance clauses. The general rule is that where multiple policies cover the same risk and each generally purports to be excess to the other, excess coverage clauses cancel each other and each insurer contributes in proportion to its amount of available insurance. This is the rule of “ratable” or “pro rata” contribution,¹⁰¹⁴ founded upon the principle that a right to contribution exists among concurrent insurers in the absence of a policy provision for apportionment.¹⁰¹⁵

Typically, the presence of an “excess” clause in one policy will negate a “pro rata” clause in another. For example, in American Transit Insurance Co. v. Continental Casualty Insurance Co.,¹⁰¹⁶ American Transit’s “other insurance” clause specifically provided that its insurance was excess over any other collectible insurance, whether primary, excess or contingent. The court held that the clause negated contribution, intending that the insurance be excess over any other insurance policy. Therefore, the other policy with the pro rata clause had to be exhausted first.¹⁰¹⁷

Another type of clause is the escape or no-liability clause. Typically, such a clause negates coverage in the policy where there is “other valid and collectible insurance.”¹⁰¹⁸ That language is sometimes exceeded in a super-escape clause, which negates coverage where there is “other insurance whether on a primary, excess, or contingent basis.”¹⁰¹⁹ New York courts enforce these types of clauses.¹⁰²⁰

In cases in which one insurance policy has a no-liability clause and the other insurance policy has an excess clause, the general rule is that the no-liability clause is not given effect. “An exception to the general rule arises when the no-liability clause expressly provides that ‘other available insurance’ includes both primary and excess insurance coverage. In that case, the no-liability clause is given effect and the excess insurance carrier is the primary carrier.” ¹⁰²¹

III. Multiple Insurance Policies Covering the Same Risk—Automobile Insurance

Title 11 of the N.Y. Comp. Codes, R. & Regs. § 60-1.1(g) (N.Y.C.R.R.) establishes mandatory “other insurance” provisions for policies of automobile liability issued in New York State. The regulation implicitly recognizes the possibility that an owner may have more than one policy covering a risk and requires that the automobile insurance policy contain one of the following two provisions:

(1) The insurer shall not be liable for a greater proportion of the loss than the applicable limit of liability of the policy bears to the total applicable limit of liability of all other valid and collectible insurance covering the insured against such loss; provided, however, with respect to [a nonowned] automobile . . . the insurance shall be excess insurance over any other valid and collectible insurance.

(2) The insurance afforded by this policy is primary insurance, except when stated to apply in excess of or contingent upon the absence of other insurance. When this insurance is primary and the insured has other insurance which is stated to be applicable to the loss on an excess or contingent basis, the amount of the company’s liability under this policy shall not be reduced by the existence of such other insurance. When both this insurance and other insurance apply to the loss on the same basis, whether primary, excess or contingent, the company shall not be liable under this policy for a greater proportion of the loss than that stated in the applicable contribution provision below:

(i) Contribution by equal shares. If all of such other valid and collectible insurance provides contribution by equal shares, the company shall not be liable for a greater proportion of such loss than would be payable if each insurer contributes an equal share until the share of each insurer equals the lowest applicable limit of liability under any one policy or the full amount of the loss is paid, and with respect to any amount of loss not so paid the remaining insurers then continue to contribute equal shares of the remaining amount of the loss until each such insurer has paid its limit in full or the full amount of the loss is paid.

(ii) Contribution by limits. If any of such other insurance does not provide for contribution by equal shares, the company shall not be liable for a greater proportion of such loss than the applicable limit of liability under this policy for such loss bears to the total applicable limit of liability of all valid and collectible insurance against such loss.

Found in most of today’s plain language policies, the first option of 11 N.Y.C.R.R. § 60-1.1(g), which embodies that rule of ratable contribution, reads as follows:

If there is other applicable liability insurance we will pay only our share of the loss. Our share is the proportion that our limit of liability bears to the total of all applicable limits. However, any insurance we provide for a vehicle you do not own shall be excess over any other collectible insurance.

The operation of the second option of § 60-1.1(g) depends on the language contained in the other insurance policy. If the other policy provides for contribution by equal shares, then that method is operative. If the other policy does not provide for contribution by equal shares, the rule of ratable contribution applies.

Subpart (i) of 11 N.Y.C.R.R. § 60-1.1(g)(2) states the rule of contribution by equal shares. Each policy matches the other dollar-for-dollar until exhaustion of the limits or the loss...