In National Casualty Company v. Georgia School Board Association – Risk Management Fund1, the Eleventh Circuit recently affirmed a Georgia rule under which irreconcilable “other insurance” clauses will not be enforced. The Eleventh Circuit found that, under Georgia law, when insurance policies’ “other insurance” clauses are “functionally the same” and cover the same risk, they are irreconcilable, requiring the insurers to provide coverage on a pro rata basis. “Other insurance” clauses are generally written with stock language, and this case affirms the principle that insurers may not escape coverage on the basis that competing clauses leave the insured without a primary policy. When an insured has multiple policies covering the same risk, either one insurer must take the position as primary, or all insurers will be forced to share the obligation on a pro rata basis.
In this case, both National Casualty Company (“National”) and the Georgia School Board Association – Risk Management Fund (“the Fund”) insured public school employees in Georgia. While National provided policies to the Professional Association of Georgia Educators, the Fund enabled multiple boards of education to share liability risk. When several of these insured educators were sued, they sought insurance coverage from both insurers. National denied coverage and sued for declaratory judgment, contending that the Fund, as the primary insurer, was first in line to defend and indemnify the educators. The Fund counterclaimed, arguing that National had at least partial responsibility for the claim.
Both policies contained clauses stating that when an educator is covered by “other insurance,” the insurer will only provide “excess” coverage.
National’s “other insurance” clause stated: “This policy is specifically excess if the insured has other insurance of any kind whatsoever, whether primary or excess, or if the insured is entitled to defense or indemnification from any other source whatsoever… [Liability Coverage] is specifically excess over coverage provided by any EDUCATIONAL UNIT'S or school board's errors and omissions or general liability policies.”
Meanwhile, the Fund’s clause concisely stated: “If valid and collectible insurance is available to the Member for a loss covered by [the Fund] under any coverage parts within this Coverage Document, the obligations of [the Fund] are excess over the available and collectible insurance.”
The district court concluded that the policies’ “other insurance” clauses were functionally the same, cover the same risk, and therefore, pursuant to Georgia law, the insurers were required to share defense and indemnity costs on a pro rata basis. National appealed.
The Court of Appeals affirmed, finding no error as to the district court’s determination that the clause’s function – not its literal wording – is not the controlling inquiry as to which policy is primary versus excess.
Georgia courts have long held that when multiple insurers attempt to limit their liability to excess coverage “if there is other insurance,” those clauses are irreconcilable, and must be resolved by equal division of liability. National argued that the Fund’s “other insurance” clause applied only to “valid and collectible” insurance, and National’s policy was not “available” nor “collectible” because its “other insurance” clause was more specific than the Fund’s clause. As such, National argued that its insurance should be deemed “super excess.”
The Eleventh Circuit Court expressly rejected this argument as contrary to precedent in State Farm Fire & Casualty Company v. Holton, where the Georgia Court of Appeals recognized that while “other insurance” clauses may vary in length and detail, if they are functionally the same, they remain irreconcilable and neither policy may take a backseat to coverage. Further, the Holton court asserted that any other view runs contrary to Georgia law, and indeed the law of most states.2 As most courts refuse to impose an arbitrary rule that defines the primary insurer based on which party’s “other insurance” clause is more general, the Eleventh Circuit found the district court did not err in rejecting the application of National and the Fund’s respective provisions.
Moreover, even if National’s policy were excess, it would still be deemed “collectible” because any liability above what “other insurance” covered would be National’s responsibility. Notably, due to National and the Fund’s clashing “other insurance” clauses, National was also obligated to share in defense obligations, on a pro rata basis.3
Insureds should feel empowered knowing that insurers may not escape coverage simply by virtue of competing stock “other insurance” provisions in multiple policies insuring the same risk. A literal construction of such clauses would leave the insured without primary coverage –typically the very reason why the insured sought coverage in the first place. When there are competing priority of coverage clauses, courts should turn to the only fair solution: pro rata allocation.
For more information on this case, contact Sarah Markham at SMarkham@sdvlaw.com.
Thank you to Michelle Grieco for contributing to this case alert.
1No. 22-13779, 2023 WL 5977299 (11th Cir. 2023).
2See id. at 874-75.
3See id. at 875.