Policy Stated to be Excess Over Listed Other Insurance Is Truly Excess
Michael Darnell Wise suffered injuries while operating a forklift at work. While Mr. Wise was moving auto parts, the forklift fishtailed and fell from a loading dock or the ramp leading up to it, leaving Mr. Wise pinned beneath the forklift. At the time of the accident, Mr. Wise was working for Central Coast Distribution, LLC d/b/a Mighty Auto Parts. He was severely injured and eventually settled with defendants for $3.5 million paid by various insurers. Then, in St. Paul Fire And Marine Insurance Company v. Pennsylvania National Mutual Casualty Insurance Company, Case No. 2:19-cv-05471-JDW, United States District Court For The Eastern District Of Pennsylvania (March 8, 2021) St. Paul, as an excess insurer, attempted to be reimbursed for what it paid Mr. Wise from other insurers who were alleged to be primary to St. Paul’s excess insurance.
Read carefully, the words that the parties used when they entered into various contracts, including insurance contracts, clear away the tangle of arguments made by the parties and revealed a single path forward.
Pursuant to a Standard Form Industrial Building Lease (the “Lease”), Central Coast leased a warehouse from First Industrial, L.P. to conduct its business, in Harrisburg, Pennsylvania. The Lease gave Central Coast a leasehold over a specific portion of the warehouse and gave it access to common areas of the property, including “loading areas.” The Lease required both Central Coast and First Industrial to maintain insurance and included a waiver of subrogation provision that provided that each party shall cause its respective insurance policy(ies) to be endorsed to evidence compliance with a waiver of subrogation.
Central Coast’s Insurance Policies
Central Coast purchased two insurance policies from Penn National that are at issue. The first is a businessowner’s liability coverage policy, policy that has a liability limit of $1,000,000 per occurrence. Central Coast also purchased a commercial umbrella liability policy from Penn National, policy with a liability limit of $2,000,000 per occurrence (the “Penn National Umbrella Policy”).
First Industrial’s Insurance Policies
First Industrial also purchased two insurance policies that relate to the present dispute. It purchased a general liability policy from Federal Insurance Company (“FIC”) with a liability limit of $1,000,000 per occurrence. It also purchased a special commercial umbrella liability policy from St. Paul, (the “St. Paul Policy”). St. Paul agreed to pay on behalf of First Industrial “all sums in excess of the Retained Limit that [First Industrial] becomes legally obligated to pay as damages by reason of liability imposed by law … because of: Bodily Injury … that occurs during the Policy Period and is caused by an Occurrence[.]”
The St. Paul Policy has an “Other Insurance” provision that provides: “If Other Insurance applies to damages that are also covered by this policy, this policy will apply excess of, and shall not contribute with, that Other Insurance, whether it is primary, excess, contingent or on any other basis. However, this provision will not apply if the Other Insurance is specifically written to be excess of this policy.
The Underlying Personal Injury Action
At mediation, St. Paul and FIC reached a $3.5 million settlement of all of the claims that Mr. Wise asserted against First Industrial. St. Paul contributed $2.5 million towards that settlement, and FIC contributed $1 million.
The Present Action
On November 21, 2019, St. Paul brought this case against Penn National, seeking a declaratory judgment that Penn National had to indemnify First Industrial pursuant to the Penn National Policies and an award of all sums that St. Paul had paid to settle Mr. Wise’s claims against First Industrial.
Under Pennsylvania law, which the parties agree applies, the interpretation of an insurance policy is a question of law. Because First Industrial is an insured under the Penn National Primary Policy, it also qualifies as an insured under the Penn National Umbrella Policy, which lists the Penn National Primary Policy on its Schedule of Underlying Insurance.
Priority Of Coverage
Both the Penn National Umbrella Policy and the St. Paul Policy cover First Industrial for losses suffered as a result of bodily injury. And both include “other insurance” provisions that purport to make the policies excess of any other applicable insurance. Because both clauses are excess clauses that apply here, the Court must determine whether it can reconcile those provisions or whether they are mutually exclusive.
Courts must reconcile competing other insurance clauses when it is possible to do so. A court can reconcile policy provisions if it can give effect to both provisions at once. Excess clauses are mutually repugnant where following the express dictates of one policy would be in direct conflict with the dictates of the other. If the policies are repugnant, the Court must disregard the excess clauses, deem them stricken, and order the insurers to share the loss.
The Court can reconcile the “other insurance” clauses in the two policies here, so they are not mutually repugnant. Each policy provides that the “other insurance” provision “will not apply” to insurance that is “specifically written as excess over” the policy in question. The St. Paul Policy obligates it to pay losses in excess of any scheduled insurance or “Other Insurance,” and “Other Insurance is “any insurance providing coverage for damages covered in whole or in part by this policy.” The St. Paul Policy was, therefore, specifically written in excess of both the FIC Policy, which is on a schedule of underlying insurance, and the two Penn National Policies, which fall within the St. Paul Policy’s definition of “Other Insurance.” This difference allows the Court to reconcile the “other insurance” provisions in the two policies without placing them in direct conflict. The result is that the Penn National Primary Policy and the Penn National Umbrella Policy apply before the St. Paul Policy applies.
Amount Of Penn National’s Obligation
FIC paid $1 million of First Industrial’s settlement with Mr. Wise, and that amount is not at issue here. That leaves $2.5 million that St. Paul paid at issue. The Penn National Primary Policy applies to First Industrial’s settlement with Mr. Wise because Mr. Wise’s claim against First Industrial was obligated to pay damages to Mr. Wise as a result of bodily injury. It offers $1 million in coverage. The Penn National Umbrella Policy applies for the same reason. It offers an additional $2 million in coverage, which is enough to cover the remaining $1.5 million. As a result, Penn National must reimburse St. Paul the full $2.5 million that St. Paul contributed to the settlement.
Penn National had a duty to defend and indemnify its insured, First Industrial. It did not do so, but St. Paul did. Now, St. Paul is entitled to summary judgment and to recoup the amounts it paid on behalf of Penn National’s insured. An appropriate Order follows.
Other insurance clauses often, as they did in this case, cause disputes that must be resolved by litigation. Since St. Paul’s policy was clearly excess over Penn National’s direct presentation of primary coverage, it was obligated to spend up to its available limits to resolve the case against its insured. It did nothing, offered nothing, and let St. Paul and FIC to fund the settlement to protect the insured. Once the insured was protected St. Paul sued and appropriately recovered its payment from the responsible insurer. Justice was done because the insured was protected and the only dispute was which insurer owed what to whom.
© 2021 – Barry Zalma
Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 52 years in the insurance business. He is available at http://www.zalma.com and firstname.lastname@example.org.
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