DO BOTH POLICIES APPLY?
We cannot definitively answer this questions, dear Readers, without analyzing both policies in order to determine whether the polices insure:
1. The same entities;
2. The same interest in the same property; and
3. The same risk.
See, American Family Mut. Ins. v. Regent Ins. Co., 288 Neb. 25, 41 (Neb. S. Ct. May 2, 2014).
It is not necessary that the policies provide identical coverage in all respects. As long as the particular risk involved in the claim is covered by the language of both policies, the coverage is then considered concurrent. Id. Contribution – or sharing – is then allowed. The policy owner does not get paid twice for the same loss.
We insurance wonks know that a perfect commonality of obligation does not exist in the real world. Also these situations are governed by equity. Equity is the law’s way of applying principles of fairness to difficult decisions. As a result, there can sometimes be a lack of uniformity – making interpretation of a singular rule on how to handle overlapping insurance difficult.
But fear not, dear Readers, because we can handle this concept and make sense of it for you. As those of you who read this column regularly know, we can look at case law situations where duplication or overlap occurred. How did the courts handle it? Who had to pay what to whom? From there we can glean some general rules that will guide us when this situation arises with our customers or clients. Let’s start by looking at just when duplication or overlap would occur.
WHEN WOULD OVERLAP OR DUPLICATION EVEN OCCUR?
Case law generally presents five scenarios when a policyholder finds himself with potentially duplicate insurance coverage for a loss. This can occur when:
- An Additional Insured has been added by endorsement to another’s policy, and the Additional Insured also has his own CGL or Property coverage for the same loss;
- The Insured owns two policies that were issued with overlapping coverage dates;
- The Insured owns two polices that cover the same risk – one specific and one general – such as a builders risk policy and a general floater policy;
- The Insured is sued on a claim that potentially involves two different policies without overlap, but the duty to defend is trigged on both; or
- Two Insureds purchase separate coverage for the same property or project, such as an owner and a general contractor, and the separate policies will cover the same loss.
When overlapping coverage does exist, double recovery is not allowed. However the policyholder can demand full coverage from just one insurance company. The insurer who pays can then, in turn, demand contribution from the second insurance company. Courts will share the costs between the two. How that contribution is shared – or apportioned – is the subject of much litigation. The general rule is that the risk is shared in proportion to the extent of the risk borne. Therein lies the problem. And the reason for such protracted litigation on the general rule.
Next blog, we will review the case law. We will summarize some common rules to apply in concurrent coverage situations. I know you cannot wait!!!
BOTTOM LINE FOR TODAY:
Concurrent coverage rules apply when two different polices insure:
- the same entities,
- the same interest in the same property, and
- and the same risk.