FIFTH CIRCUIT DETERMINES WHICH INSURER IS THE PRIMARY AND EXCESS CARRIERS DESPITE CONFLICTING “OTHER INSURANCE” CLAUSES

This past week in Am. States Ins. Co. v. ACE Am. Ins. Co., 12-20783, 2013 WL 6069431 (5th Cir. Nov. 19, 2013) the Fifth Circuit reversed and vacated in part a district court’s determination that two insurers were required to split the defense costs in a commercial automobile accident lawsuit.  The district court previously granted summary judgment in favor of ACE Insurance Company (ACE) on American States’ Insurance Companies claims that its obligation to provide coverage to an insured under a commercial auto policy is excess of ACE’s coverage in the underlying suit.  Instead, the district court ordered the insurers to split the cost of defense.

American States provided coverage to Hook & Anchor under a commercial auto policy, and ACE provided coverage to Chemical Weed Control under a business auto policy.  Both policies contained identical “other insurance” clauses providing for primary coverage for “covered autos” owned by the policyholder and excess coverage for “covered autos” not owned by the policyholder. 

In 2008, an employee of Hook & Anchor was involved in a collision while driving a truck owned by Chemical Weed.  Hook & Anchor was sued and its insurer American States tendered defense to ACE because the truck was owned by Chemical Weed Control.  ACE rejected coverage and offered to share defense costs with American States.  American States, again tendered defense to ACE, and ACE refused.  American States eventually undertook the defense of Hook & Anchor in full and commenced an action seeking defense costs and attorneys’ fees and a declaration that ACE had the sold duty to defend Hook & Anchor in the underlying suit. 

Both insurers moved for summary judgment, and the district court determined that ACE had a duty to defend Hook & Anchor, but that American States’ coverage obligation was not excess to that of ACE and liability should be prorated amongst the insurers.  The district court concluded that ACE’s offer to share defense costs was in line with its obligation, and that ACE did not breach its contract with Hook & Anchor, and American Steel was not entitled to attorney’s fees and ACE was ordered to pay its prorated share of American States’ defense of Hook & Anchor. 

On appeal, the Fifth Circuit relied on the rule announced by the Supreme Court of Texas in Snyder v.  Allstate Insurance Co.  where the court declined impose a pro rata share to the non-vehicle owner’s insurer despite the conflicting “other insurance clauses”.  The Fifth Circuit noted that if the vehicle involved in the accident was an “owned vehicle” within the meaning of one insurer’s policy, then that insurer’s coverage is primary and the other insurer’s ‘non-owned’ coverage is excess within the meaning of both policies. 

Because the “other insurance” clauses did not limit liability or coverage based on the existence of the other available insurance, coverage was based on vehicle ownership, the court held the policies do not conflict.  As such, ACE was obligated to provide primary coverage to Hook & Anchor and was liable for the entirety of Hook & Anchor’s defense.  As such, the court reversed the district court’s decision that the insurers should pay pro rata portions for the defense of Hook & Anchor.