The Fourth Circuit Affirms Virginia District Court’s Adoption Of “True Excess Is Always Excess Rule”

The U.S. Fourth Circuit Court of Appeals affirmed a district court’s prediction that Virginia would adopt the “true excess” rule in which courts are to determine the nature of an insurance policy’s coverage before analyzing any “other insurance” provisions. Mut. Assur. Soc’y of Va. v. Fed. Ins. Co., No. 20-1149, 2022 U.S. App. LEXIS 975 (4th Cir. Jan. 12, 2022).  

Two insurers asserted that their respective policy’s “other insurance” clauses meant that their policy provided coverage on an excess basis. The district court granted summary judgment to one insurer, rejecting the argument that the two clauses were “mutually repugnant.” The district court found that the proper way to determine the question is to evaluate the effect of each policy on coverage before comparing the “other insurance” provisions. A “true” excess policy would be dependent upon the exhaustion of underlying policy limits while a “coincidental” excess policy would primarily operate as one type of insurance, while operating as excess solely due to the “other insurance” clause. Thus, as between the “true” excess insurer and a “coincidental” excess insurer, the true excess insurer prevails, and the limits of the coincidental excess insurer must be exhausted before the true excess insurer’s coverage attaches.

The Fourth Circuit affirmed that the district court properly examined the policies’ wordings to find one policy was a coincidental excess policy and the other a true excess. The court found that the district court did not err by looking to the policies’ respective levels of coverage, premiums, and “other insurance” titles as part of its analysis, and that the analysis did not make any policy wording meaningless.