The Supreme Judicial Court in Massachusetts (SJC) has answered a question regarding the priority of coverage for two automobile insurance policies covering a single motor vehicle accident.
In its ruling, the SJC decided both excess policies cover the accident equally to the extent of their respective policy limits after exhaustion of the underlying primary policy.
The question came from the District Court in Massachusetts concerning a dispute that centered on whether the primary policy issued, which contains an “other insurance” clause, must be exhausted before the “true excess” policy is triggered, or whether both policies apply equally for the loss in excess of the primary insurance policy limits, the SJC court document stated.
This decision comes after an employee for a refuse company that was driving a garbage truck owned by another company struck and killed a bicyclist.
On April 3, 2014, an employee of EZ Disposal Service Inc. (EZ), was driving a garbage truck leased by Capitol Waste Services Inc. (Capitol) and owned by Atlantic Refuse Leasing Equipment LLC (Atlantic), when he struck and killed a bicyclist. The bicyclist’s wife and brother brought a wrongful death action in the Superior Court against EZ, Capitol and Atlantic.
The loss was covered by three insurance policies. The first policy was issued by Commerce Insurance Company (Commerce) and provided Capitol with primary insurance up to a limit of $1 million.
The second policy, issued by Lexington Insurance Company (Lexington), provided Capitol with excess insurance and contained a limit of $10 million.
The third policy, issued by Great Divide Insurance Company (Great Divide), provided EZ with primary insurance for a number of different risks including accidents involving automobiles owned by EZ, up to a limit of $1 million.
Great Divide’s policy also contained an “other insurance” clause, which stated that for any covered auto not owned by the insured, the insurance provided is excess over any other collectible insurance, according to the SJC court document.
In October 2015, Great Divide filed a complaint against Lexington in the Superior Court, seeking a declaration that its policy and Lexington’s policy were both excess policies covering the same level of loss.
Lexington removed the case to the United States District Court for the District of Massachusetts on diversity grounds. The Federal District Court judge then certified the question to the SJC.
The insurance policies were issued respectively by the plaintiff and defendant insurers to the employer of the driver and the company that owned the truck. A portion of the loss was covered by a primary policy from Commerce, who was not a party to the lawsuit. The two remaining policies were triggered after the primary policy was exhausted.
Although the language of the policies is different, each policy says that it provides excess coverage and also contains an “other insurance” clause. One of the two policies is a hybrid policy that provides primary coverage for an incident in which its insured is driving a vehicle owned by the insured and excess coverage for an accident in which its insured is the driver, but the vehicle is owned by someone else. The other policy is an umbrella policy that only provides excess coverage where other coverage has been exhausted, the SJC court document stated.
Both parties agreed the policy issued by Capitol’s primary insurer, Commerce, provides the primary coverage for the first layer of the loss. They also agreed that both the Lexington policy and the Great Divide policy covered the loss beyond the Commerce limits as excess policies, the SJC court document stated.
However, Great Divide argued that while it provides primary coverage for automobiles owned by EZ, its policy covers the same level of risk for EZ drivers operating automobiles that EZ doesn’t own, just like Lexington’s umbrella policy. This is because the language of the “other insurance” clause states that for automobiles not owned by EZ, the policy is excess over any other collectible insurance, the SJC court document said.
On the other hand, Lexington argued that the “other insurance” language in the Great Divide policy does not change the primary nature of that policy, which does not cover the same level of risk as Lexington’s excess policy. This means that Great Divide’s policy must be exhausted before Lexington’s policy is triggered, the SJC court document stated.
In its argument, Lexington pointed out that in nearly every other instance, the Great Divide policy functions as primary insurance for EZ. It argued that the Great Divide policy is a primary policy by nature because it covers mostly primary risk, it has high premiums and a low coverage limit, and it is not clearly labeled as an excess policy, while Lexington’s policy is labeled a “Commercial Umbrella Liability Policy.”
The SJC stated in its decision that the majority of courts in other states have held that a primary policy with an “other insurance” clause is essentially a primary policy, and therefore must be exhausted before a “true excess” policy is triggered.
In Massachusetts, however, one part of an insurance contract cannot be given emphasis over another, the SJC stated.
“While we must read the language of an insurance policy as a whole, that does not mean giving effect to some policy provisions at the expense of another provision,” the document said. “Here, that means giving full effect to the “other insurance” clause with respect to vehicles not owned by EZ.”
The SJC stated that the risk a policy covers does not depend on how the insurer chose to label the policy. To determine whether two policies insure the same level of risk, the difference between the names of the policies will not settle the issue, it added, stating that it is important to look at the terms of the policy instead.
“While, in cases of ambiguity, the name of a policy may be informative, it is by no means determinative,” the SJC stated. “Here, despite the fact that the Lexington policy is labeled an “umbrella policy” and the Great Divide policy is not, the terms of the Great Divide policy clearly state that it covers the same level of excess risk for “non-owned vehicles” as does the “excess” provision in the Lexington policy.”
With this in mind, the court concluded that both policies cover the loss as excess insurers, and neither has priority over the other.
The case is Great Divide Insurance Company vs. Lexington Insurance Company. Adam R. Doherty, with Thomas M. Elcock also present, represented the plaintiff. Kimberly A. Hartman represented the defendant.
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