Paying Attention to “Other Insurance” Clauses is More Important Than Some Realize
It’s always been a bugaboo to policyholders. An irritant. A pain in the binder—and other parts too. The infamous “Other Insurance” clause. Brokers and risk managers, including careful ones, tend to rush right past them without comment or notice. Simple boilerplate. As usual as night following day. Nettlesome but unavoidable. In the category of “Let’s just hope it never comes up!”
But the Other Insurance terms of your policies deserve more attention and—for policyholders—real concern. Especially insofar as they may relate to your status as an additional insured under another’s policy.
Back in the day…The original intent of “Other Insurance” clauses
In 35 years of reading commercial insurance policies, I don’t think I have ever seen one without a clause that, to one extent or another, attempts to defray the issuing insurer’s obligations to pay if “other insurance applies to loss that also applies under this policy”. Something there is that makes an insurer loathe to pay a loss that is also contemplated under different insurance.
And from the insurer’s point of view, the rationale for “Other Insurance” provisions is not unreasonable. The idea of “double recovery” a/k/a “double dipping” is plainly unseemly to many, including most courts that have not permitted it in the conceptually related area of subrogation recovery, where insured’s on occasion try to recover from their own first-party insurer and then again from the wrongdoer that caused the damage. Usually, the damaged party is required to offset its recovered insurance proceeds from the judgment subsequently obtained against the wrongdoer. The feeling just is that recovering twice for the same loss is somehow unfair, a windfall.
Maybe so. But the pendulum can swing way too far in the other direction too. Recently, we have begun to see some global liability carriers expand the reach of “Other Insurance” that will negate their own obligations to insurance under which the policyholder has been named an additional insured. This strikes us as patently over the top and inappropriate because it penalizes a company for doing what solid risk management advises: through reliable processes, make sure that additional insured status is obtained and properly documented from vendors, contractors, joint-venture partners and—in some rare cases—even customers.
These new provisions typically extend the “Other Insurance” benefit to the carrier by providing an expanded definition of what constitutes the valid and collectible other insurance that will, as a matter of contract, be deemed the first to respond to your loss. You guessed it: the new definition puts your status as an additional insured under a completely unrelated contract into that category.
Be especially wary of this new hook in your primary general liability policy. Since excess policies sitting atop the primary are “follow form” contracts entitled to rely upon and enforce the terms and conditions of the scheduled underlying coverage, this extension of “Other Insurance” refuge for the primary insurer will also provide safety to the excess layers above. And if you have worked to resolve a large claim penetrating one or several excess layers, you will likely agree with us that an energetic excess claims adjuster will optimize any provision below that is available.
You and your broker can address this. Just say no.
(If you are interested in reading more about the importance of additional insured status, and how to build a process for getting it regularly, see our September 2014 blog.)