California Federal Court Finds No Conflict with Allegedly Competing Other Insurance Clauses

A California federal court recently issued a summary judgment ruling after interpreting two “other insurance” clauses in California State Automobile Inter-Insurance Bureau v. Progressive Casualty Insurance Company, 2012 U.S. Dist. LEXIS 57996 (N.D. Cal, April 25, 2012). One insurer argued that the “other insurance” clauses conflicted with each other, but the Court disagreed and found no conflict where one other insurance clause specifically provided for excess coverage in certain circumstances.

The policyholder had a homeowner’s insurance policy with California State Automobile Inter-Insurance Bureau (“AAA”) and a watercraft policy with Progressive Casualty Insurance Company (“Progressive”). Both issued liability limits of $500,000.

In a paddleboat accident involving a claim against their mutual insured, both carriers agreed to defend and indemnify under various reservation of rights. Upon settlement, AAA contributed $500,000 to the settlement and Progressive offered $300,000, for a total of $800,000. AAA contended that both carriers were co-primary insurers and should have evenly split the $800,000 settlement payment. However, Progressive contended that its policy was not even triggered until AAA first paid its policy limit of $500,000 as the primary insurer.

To determine whether Progressive was the excess insurer, the Court looked to the “other insurance” clauses of both policies. AAA’s other insurance clause provided that:

This insurance is excess over any other valid and collectible insurance except insurance written specifically to cover as excess over the limits of liability that apply in this policy.

Progressive’s other insurance clause stated:

If there is other applicable liability insurance or bond, we will pay only our share of the damages. Our share is the proportion that our Limit of Liability bears to the total applicable limits. However, any insurance we provide for the ownership, maintenance or use of a watercraft, other than a covered watercraft, shall be excess over any other collectible insurance, self-insurance, or bond.

AAA relied on Fireman’s Fund Insurance Company v. Maryland Casualty Company, 65 Cal.App.4th 1279, 1305 (1998) that where two other insurance clauses directly conflict with each other, the insurers would share expenses on a pro rata basis.

The Court sided with Progressive and found that there was no actual conflict between these two other insurance clauses. According to the Court, the Progressive policy provided pro rata coverage with any other primary policy, but carved out a specific exception when liability arose out of the use of a watercraft, other than a covered watercraft. In such cases of liability involving watercrafts, the policy would act as excess coverage to any other collectibile insurance. Since the Court found the paddleboat to be a watercraft and that AAA had not alleged that the paddleboat was a “covered” watercraft, Progressive’s policy was excess to AAA’s policy.

AAA also argued that Progressive assumed it was a co-primary insurer with AAA for the duration of the underlying litigation, that Progressive did not specifically ever point out that it was an excess insurer during the underlying ligation, and that Progressive never reserved its rights regarding its relationship with AAA. However, the Court granted summary judgment anyway in favor of Progressive as Progressive issued a reservation of rights to the insured and there was no authority cited for the proposition that an insurer must reserve its rights with another insurer.