Other Insurance Clause and Primary Coverage

 

March 11, 2013

 

This case involves two insurers arguing over primary versus excess coverage for a claim against an entity that was insured under policies issued by both insurers. This case is Everest National Insurance Company v. Evanston Insurance Company, 2011 WL 534007.

 

Evanston Insurance Company and Everest National Insurance Company both filed summary judgment motions over coverage for a slip and fall claim that occurred at the La Villa Apartments. Evanston insured La Villa Apartments and Everest National insured Triangle Landscape & Maintenance, with La Villa named as an additional insured under the Everest policy.

 

The Evanston policy, under the Other Insurance provision, provided that if any other primary insurance is available to the La Villa Apartments, it is excess insurance and not primary insurance. There is a similar provision in the Everest policy, but the Evanston policy does not name Triangle Landscape as an additional insured, but does name as a blanket additional insured, “all Nevada operations”.

 

The dispute began with a slip and fall on ice that had formed on the sidewalk from sprinklers at the La Villa apartments. The victim sued both La Villa apartments and Triangle Landscape. Triangle had an agreement with La Villa that included checking irrigation clocks one day per week and checking sprinklers 5 days per week. Apparently, because the accident occurred due to ice on the sidewalks presumably from water from the sprinklers, Evanston, the La Villa insurer, tendered the defense to Everest, Triangle's insurer. Everest accepted the tender with a reservation of rights. Subsequently, Everest demanded that Evanston defend La Villa and Evanston refused.

 

Ultimately, the parties agreed to submit the matter to arbitration. The arbitrators found the La Villa apartments solely responsible and awarded damages in the amount of $300,000, plus interest in the amount of $98,556. Everest paid the judgment. Everest expended $86,260 in attorney fees defending the action and then sought to recover that amount from Evanston as the insurer of La Villa apartment. Evanston seeks a declaration that Everest is solely responsible for the coverage and that it, Evanston, is only responsible for amounts in excess of Everest's policy.

 

The U.S. District Court in Nevada noted that the question before it was who has coverage and is obligated to pay the judgment and attorney fees.

 

The substance of Everest's argument is that the language of Evanston's policy, which purports to relegate Evanston's policy to an excess position, requires the liability arise out of Triangle Landscaping's operations; that is, if La Villa apartments are sued because of Triangle's negligence, Evanston would then only be in an excess position. Therefore, because La Villa, not the landscaper, was found to be liable, Everest argues that the excess provision does not apply and Evanston is still the primary insurer of La Villa. Everest contended that, as a general rule, an insured's loss should be equitably distributed among those that share liability for it in direct ratio to the portion each insurer's coverage bears to the total coverage provided by all the insurance policies.

 

The court found that Evanston did not have sole liability coverage for La Villa; rather, it shared that coverage with Everest. The Other Insurance provisions of both policies come into play then, and the coverage is prorated based upon the total coverage of each policy. The judgment and defense costs are to be shared equally.

 

The court said that Evanston hangs its hat on its excess provision and the claim that the provision permits Evanston to escape its obligations as the primary carrier for La Villa. The court ruled that the language on which Evanston relies is ambiguous and cannot be applied to permit Evanston to escape its responsibilities as the primary carrier. Evanston was not to be allowed to ignore its obligations. The excess clause in the Evanston policy is not to be honored.

 

The court ordered Evanston to contribute equally by paying Everest one-half of the judgment and interest and one-half of the attorney fees and costs.

 

Editor's Note: The U.S. District Court ruled that the Other Insurance clause in the two policies would apply. The provision in both policies provided that where there is more than one policy that provides coverage for any liability, the policies will each contribute equal amounts until the limits have been exhausted. The excess wording in the Evanston policy was looked upon by the court as an escape clause where the insurer appears to offer coverage that in fact evaporates in the presence of other insurance. This was not reasonable to the court and was not permitted by the court.

 

(Note that this decision by the U.S. District Court for equitable contribution was affirmed by the Ninth Circuit Court of Appeals in October 2012.)