This case is a diversity action involving a dispute as to coverage available under two separate insurance policies. The citation for this case is Great American Assurance Company v. American Casualty Company of Reading, PA, 2011 U.S. Dist. LEXIS 114630 (E.D. Ky. 2011).
Great American issued a general liability policy to the Redwood School & Rehabilitation Center for the period January 1, 2008 to January 1, 2009; Redwood is a licensed day care center that provides services for medically fragile children. The policy excludes coverage for "damages that are covered by other insurance in any other insurance policy whether collectible or not". American Casualty issued healthcare providers professional liability policies to Roell and Rich for the periods October 9, 2007 to October 9, 2008 and September 1, 2007 to September 1, 2008, respectively; Roell and Rich were nurses at the Redwood facility. The American Casualty policies contained the following provision: it is the intent of this policy to apply only to the amounts covered under this policy that exceed the available limit of all deductibles, limits of liability or self-insured amounts of other insurance, whether primary, contributory, excess, contingent, or otherwise.
A lawsuit was filed against Redwood, Rich, and Roell alleging that Collins died while in the custody or care of Redwood and the named individuals. Great American defended Redwood and American Casualty defended Roell and Rich, although the insurer did demand that Great American defend these individuals. Great American settled the claims against Redwood and then filed this action alleging claims for contribution, breach of contract, and unjust enrichment. Great American alleged that American Casualty owed it more than $75,000 in contribution towards the settlement. American Casualty counterclaimed that Great American was the primary insurer for the nurses and its policy was excess.
The court noted that both insurers agreed that the claims against Roell and Rich fall within the coverage grant of the American Casualty policies. One of the first questions to be answered then was whether the claims also fell within the coverage of the Great American policy. The court said that that policy applied to any employee while occupying a position shown in the declarations, but only with respect to their duties while acting within the scope of employment. Therefore, said the court, on the face of the Great American policy, Roell and Rich are covered against claims asserted against them in the Collins lawsuit.
The next question facing the court was whether any provision in the policies issued by Great American and American Casualty excluded coverage or rendered one policy excess to the other. Great American argued that the exclusion for damages covered by other insurance applied. The court disagreed. This provision did not operate to restrict and shape the coverage otherwise afforded; the court said that the clause purports to exclude coverage solely on the basis of the existence of other insurance. The court ruled that the provision is not a true exclusion and that it functions as an other insurance escape clause.
So, the final question facing the court was which clause—the escape clause or the excess clause of American Casualty—shall be given effect. In Kentucky , the answer depends on whether the escape clause is a standard one or a non-standard clause. If the Great American escape clause is a standard one, said the court, the excess clause in the American Casualty policy will prevail; if the escape clause is non-standard, it will prevail.
The district court said that the standard escape clause creates a general disclaimer of risk solely due to the presence of other insurance, and such clauses are viewed as contrary to public policy. In contrast, a non-standard escape clause is more specific in that it specifically contemplates the existence of other insurance coverage. In this instance, the court found that there was no question that the Great American escape clause creates a general disclaimer of coverage due to the existence of any other insurance, it was a standard clause, and it must yield to the excess clause in the American Casualty policy.
The court concluded that Great American owed Roell and Rich a primary duty of defense and indemnification in the Collins lawsuit, and American Casualty's coverage was triggered only if and when the Great American policy was exhausted. The motion of Great American was denied.
Editor's Note: The U.S. District Court noted the difference between a standard escape clause and a non-standard escape clause. The court then followed Kentucky precedents that held where two insurance companies are contesting primary liability, and one policy contains a non-standard escape clause while the other contains an excess clause, the escape clause prevails over the excess clause. In contrast, the Great American policy here contained a standard escape clause and so, it yielded to the excess clause.
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