In Motor Vehicle Accident, Insurer of Vehicle Owner Owes Primary Coverage Despite “Other Insurance” Provisions

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In October 2008, Jayme Lynn Jones, an employee of Hook & Anchor (H&A) was involved in a collision with Alexander Kosaka while Jones was driving a truck owned by Chemical Weed Control, Inc. (Chemical Weed).  American States Insurance Company (American) insured H&A. ACE American Insurance Company (ACE) insured Chemical Weed. American tendered the defense of H&A in the ensuing litigation to ACE, which ACE denied.

American defended H&A, and subsequently commenced this declaratory judgment action seeking defense costs and attorneys’ fees and a declaration that its coverage obligation to H&A was excess to ACE’s coverage in the underlying litigation.

The district court found that the “other insurance” clauses in the American and ACE policies were in conflict and held that liability should be shared pro rata because from the perspective of H&A, the ACE Policy would provide coverage for H&A in the underlying action if the American policy did not exist, and the American policy would provide full coverage for H&A in the underlying action if the ACE Policy did not exist. American and ACE appealed.

The Court of Appeals for the Fifth Circuit vacated the district court’s judgment, finding that it erred in imposing pro rata liability. The court found that the existence of primary coverage under each of the “other insurance” clauses in the insurance policies turned on vehicle ownership, and not on the availability of other insurance. The court found that “when two policies have ‘other insurance’ clauses which state that the policy provides only excess insurance with respect to non-owned automobiles, but provide for prorated coverage with respect to the owned automobile.if the vehicle involved in the accident was an ‘owned automobile’ within the meaning of one insurer’s policy, then that insurer’s coverage is primary and the other insurer’s ‘non-owned’ coverage is excess within the meaning of both policies” (internal citations omitted)

The court held that because the “other insurance” clauses did not limit liability or coverage based on the existence of other available insurance, the policies did not conflict, and, under the terms of the “other insurance” clauses, ACE was obligated to provide primary coverage to H&A and was liable for the entirety of H&A’s defense.