Western World Ins. Co. v. Markel American Ins. Co. 10th Cir. (Okla.) May 8, 2012
In what may be the most fun the Tenth Circuit has had authoring an Opinion on a coverage matter, an insurer was stripped of its victory and held responsible for its share of the defense costs of the underlying action. In a must-read Opinion fraught with puns, the Court decided that an escape clause added to a commercial liability policy by an endorsement was unclear and therefore the reasonable expectations of the insured governed.
The clause at issue stated:
This insurance shall not apply to any entity that is already an insured under any other insurance provided by any company or that would be an insured but for the exhaustion of its limits of insurance.
Under the Oklahoma doctrine of equitable contribution, where two insurers cover the same risk, the loss will be apportioned so that each insurer pays its fair share of a common obligation. The co-insurer argued that the policy’s “escape clause” allowed it to escape liability in this case. The Court found that the clause was not clear in that its broad language did not clarify what “this insurance” or “any entity” refer to.
The Court also cited to the policy provision titled “Other Insurance” finding that this provision stated that the insurance policy provides primary coverage and that if another insurance policy also provides primary coverage, the two carriers will share the cost of coverage. Reading the escape clause as the insurer urged would make the “Other Insurance” provision a dead letter.
The Court found that the provision was unclear and awarded the tie to the insured using the “reasonable expectations” test. The Court stated that “Applying the reasonable expectations doctrine to this case, we have no doubt a reasonable insured in Brewer Entertainment’s shoes would have expected coverage from Markel.” After making this statement the Court acknowledged that this action involved only two co-insurers, both sophisticated parties, but stated that Oklahoma law does not currently have an exception to the “reasonable expectations” test that would allow a different standard to be applied here.
The Court reversed the grant of summary judgment to the co-insurer finding that “there is no escape for either of them” and remanded the case to determine the share of the costs that are attributable to the co-insurer.
For a copy of the decision click here