(Article from Insurance Law Alert, January 2025)
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Holding
The Kentucky Supreme Court ruled that excess clauses in two insurance policies were mutually repugnant and that losses should be apportioned equally between the two insurers. Motorists Mutual Ins. Co. v. First Specialty Ins. Co., 2024 Ky. LEXIS 394 (Ky. Dec. 19, 2024).
Background
The dispute arose from an automobile accident that resulted in the death of a child. The car was driven by an employee of Alltrade while driving at an apartment complex owned by Whispering Brook Acquisitions. Whispering Brook had retained Alltrade to perform work on site and the parties had entered into a service agreement that required Whispering Brook to indemnify and hold harmless Alltrade for all liability related to property management.
Alltrade was insured under a commercial liability policy issued by Motorists while Whispering Brook was insured under a commercial liability policy issued by First Specialty. Both policies contained “other insurance” clauses. Motorists’s “other insurance” clause provided, in relevant part, “[f]or any covered ‘auto’ you don’t own, the insurance provided by this Coverage Form is excess over any other collectible insurance.” First Specialty’s clause stated that “[t]his insurance is excess over: [a]ny other insurance, whether primary, excess, contingent or any other basis.”
When the decedent’s family sued Alltrade and Whispering Brook, Motorists intervened to determine the priority of coverage between the two insurers. A trial court held that the two “other insurance” provisions were mutually repugnant excess clauses and therefore that the insurers were required to contribute equally to the underlying liability. An intermediate appellate court reversed, ruling that First Specialty’s provision was a nonstandard escape clause under Empire Fire & Marine Insurance Co. v. Haddix, 927 S.W.2d 843 (Ky. App. 1996). The appellate court therefore held that Motorists was required to provide primary coverage and First Specialty’s policy was excess to the Motorists policy.
Decision
The Kentucky Supreme Court reversed. The court explained that the test for mutual repugnancy is whether the two clauses are “indistinguishable in meaning and intent.” Finding that the “other insurance” provisions here met this standard, the court emphasized that both clauses seek to accomplish the exact same thing—to limit coverage in light of other available insurance by making its own coverage excess to other valid and collectible insurance. The court rejected First Specialty’s designation of its “other insurance” clause as a nonstandard escape clause, noting that it did not deny coverage altogether when other insurance covered the same risk.
Having determined the two clauses mutually repugnant, the court ruled that the loss should be apportioned equally between the two insurers. The court acknowledged that in other cases, courts have apportioned losses on a pro rata basis in light of particular circumstances, but held that equal shares was warranted here based on the co-primary status of the two insurers for both policyholders as well as the identical limits of liability.
Comments
The Kentucky Supreme Court expressly overruled Haddix, in which a Kentucky appellate court ruled that the phrase “whether primary, excess, contingent, or any other basis” in an “other insurance” provision renders it a nonstandard escape clause. Instead, the Kentucky Supreme Court held that courts must examine the specific language of each “other insurance” clause at issue in order to determine priority, and that even absent identical language, two clauses may be deemed mutually repugnant if their intent and meaning are the same.