Fifth Circuit Addresses Order Of Priority Between Two Excess Insurers

The U.S. Fifth Circuit Court of Appeals resolved an order of priority and “other insurance” dispute between two umbrella insurers by referring to the respective definitions of the term “retained limit” in each policy. Great Am. Ins. Co. v. Emplrs. Mut. Cas. Co., 18 F. 4th 486 (5th Cir. 2021)

The underlying lawsuit arose from an automobile accident involving multiple parties and claimants, after which a global settlement was reached. However, two umbrella insurers could not agree on how each should respond after exhaustion of primary limits. One insurer (Great American) contended that its policy was excess the limits of the other’s (EMC) policy and should respond only after payment of those limits; EMC argued that each policy had a mutually repugnant “other insurance” clause that required pro rata payment. Great American paid the entirety of the balance of the settlement and sought declaratory relief from EMC.

The Fifth Circuit noted that the district court had not decided the order of priority and only assumed that the Great American policy was excess (before deciding in favor of EMC on another issue), but concluded that the district court was correct in its assumption. It noted that both policies provided coverage in excess of a “retained limit,” but that that term was defined differently in each policy. The EMC policy defined the term as “the available limits of all ‘underlying insurance.’” “Underlying insurance,” in turn, was limited to (1) any policies listed under the schedule of underlying insurance and (2) any other insurance available to the insured, but only when such other insurance ‘provides the same type of coverage’ provided in the policies listed in the schedule of ‘underlying insurance.’” The court concluded that the only such insurance was a scheduled primary policy and that because the Great American policy was not a primary policy, it did not fall within the “other insurance available to the insured” provision of  the EMC policy. It noted that in contrast to the EMC definition of “retained limit,” the Great American policy defined the term “retained limit” to include “the applicable limits of any other insurance providing coverage to the ‘Insured’ during the Policy Period,” which it took to mean that the Great American policy provided coverage only after all other insurance was exhausted, whether primary or excess. It thus held based on the plain terms of the policies that the Great American policy was the true excess policy over all other policies, including the EMC policy.