District Ct. Finds Co-Primary Coverage For Settlement of Underlying Accident

This declaratory judgment action derives from an underlying boat accident where a pontoon boat driven by Matt Higgins, collided with Jeremy Wood’s boat, seriously injuring Wood. The owner of the boat was insured by Owners Insurance Company (OIC). The driver of the boat was insured, through his homeowners’ carrier, State Auto Property and Casualty Company (State Auto).  The resulting civil suit settled for $300,000. OIC paid $259,000, while the rest of the co-defendants contributed $41,000 collectively. OIC now seeks reimbursement from State Auto for one-half of the $259,000 settlement paid in the underlying action. State Auto argues that it has no duty to reimburse because OIC’s policy is primary. 

The district court noted that Kentucky follows the rule of mutual repugnancy, whereby competing insurance policies with conflicting “other insurance” clauses or “excessive coverage” clauses, cancel each other out, and each policy shares the loss on a co-primary basis by providing pro rata coverage 

In predicting that Kentucky’s highest courts would apply the mutual repugnancy rule in this case, the District Court refused to extend the holding of Kentucky Farm Bureau Mutual Insurance Co. v. Shelter Mutual Insurance Co., 326 S.W.3d 803 (Ky. 2010) which called into question the application of the rule in a motor vehicle accident.  The court found instructive, the Shelter court’s statement regarding the policy behind the Kentucky Motor Vehicle Reparations Act: “We glean from the legislative intent underlying the MVRA that the General Assembly intended, that in instances where both the vehicle owner and non-owner driver are separately insured, the vehicle owner’s insurance shall be primary.” The court found that the decision in Shelter represented an exception to the general approach, compelled by the policy behind the Kentucky MVRA and not an outright rejection of the rule.