Which Insurance Policy Must Pay First in a Commercial Vehicle Accident?
Insurance companies don’t like to pay on claims. Why would they? If they can take the premiums, deny the claims, and then keep the money, they’re profitable. Sometimes, if they have to pay the claim, they try and get other carriers to pay before they do.
The Underlying Lawsuits
This was a lawsuit to determine the priority of coverage between two insurers regarding settlement payments made as a result of a serious motor vehicle accident. The underlying accident occurred in May 2015, when a Georgia Freightways employee fell asleep at the wheel of his tractor-trailer while driving along Interstate-16 in Pooler, Georgia and crashed into several vehicles. The collision killed five people and seriously injured a sixth.
Six lawsuits were filed in the State Court of Chatham County on behalf of those killed or injured in the accident. The Underlying Lawsuits initially included as defendants the truck driver; Georgia Freightways; and Great West Casualty Company (“Great West”), the insurer for Georgia Freightways.
The Underlying Lawsuits settled at mediation for $6,000,000 (the “Settlement”), with Great West paying the first $1,000,000. TT Club and Travelers agreed to fund the remaining $5,000,000 in equal shares while reserving their respective rights to seek contribution from the other. That’s because of course, neither of the insurance companies wanted to be stuck paying the larger amount.
The Court’s Analysis
United States District Judge William T. Moore, Jr. wrote that in Georgia, insurance is a matter of contract, and the parties to an insurance policy are bound by its plain and unambiguous terms. Under Georgia law, an insurance contract is governed by the ordinary rules of construction and should be construed to ascertain the intention of the parties. In discovering the intent of the parties, the whole instrument should be considered together, along with the surrounding circumstances.
Insurance contracts are often categorized as providing one of two levels of coverage: primary or excess. Primary insurance covers an initial level of liability. Excess insurance—also known as “umbrella insurance”—covers losses that exceed an initial level of liability. In many instances, insurance policies will be written with the intention of providing primary coverage but will include “other insurance” provisions which seek to avoid or limit liability if the insured is covered by another policy. Other insurance clauses come in three forms: ‘excess’ clauses, ‘pro-rata’ clauses, and ‘escape’ clauses.
- Excess clauses allow a primary policy to avoid double payment when the insured has other insurance. They don’t make the policy an excess policy, but merely provide that an insurer will pay a loss only after other available primary insurance is exhausted.
- Pro rata clauses allow insurers to lessen their liabilities when the insured has other insurance. This clause provides that the insurer will pay its share of the loss in the proportion its policy limits relates to the aggregate liability coverage available.
- Escape clauses let insurers to totally avoid liability. They say that an insurer is absolved of all liability where other coverage is available.
In contrast to primary policies, even ones containing “other insurance” clauses, Judge Moore explained that a “true excess” or “umbrella” policy is not intended to provide primary coverage and ‘expressly provides nothing but excess coverage over and above certain primary coverage. Therefore, umbrella policies are regarded as true excess over and above any type of primary coverage, excess provisions arising in regular policies in any manner, or escape clauses.
In this case, the judge said it was undisputed that the Great West policy provided the first level of primary coverage to CMA for the underlying lawsuits. Since the that policy had been fully exhausted, the question was which of the parties’ policies was first obligated to pay the remainder of the settlement. To answer this question, the judge looked at the language of the policies to determine what level of coverage each policy provides and whether the policies contain “other insurance” clauses that affect this priority dispute.
Reconciling the Competing Policies
When a party is covered by two primary policies for the same occurrence, Judge Moore said that Georgia courts will use a number of tools to determine which policy must be exhausted first. Some of these methods of analysis weren’t relevant to facts of this case.
The principles of equity under Georgia law favor pro-rata sharing of losses among primary insurers, and the judge found this approach appropriate here because it wasn’t clear that the policies differed widely in terms of the coverage they were intended to provide under the relevant endorsements. Thus, when two insurance policies covering the same risk both contain “other insurance” clauses that cannot be reconciled, those clauses cancel each other out and the insurers share in liability pro-rata. The judge found that the “excess clause” in the one insurer’s policy and the “escape clause” in the other to be “mutually repugnant,” Both clauses seek to shift primary liability to the ‘the insurance, that is, the other policy. Judge Moore said he couldn’t enforce the meaning of one policy without distorting the meaning of the other. As a Result, he found the excess and escape clauses were irreconcilable and that the two policies were to be treated as co-primary insurers who should share liability towards the settlement amount. Travelers Prop. Cas. Co. of Am. v. TT Club Mut. Ins. Ltd., 2022 U.S. Dist. LEXIS 60232 (S.D. Ga. March 31, 2022).
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