Given the language in their policies’ “Other Insurance” clauses, the insurers for a vacation rental website and a homeowner should share the cost of defending and indemnifying the homeowner in a suit filed by a guest seriously injured in a slip-and-fall, a federal judge has ruled.
Under the respective “Other Insurance” clauses, both policies purported to be excess insurance, meaning their coverage would kick in only after coverage under other policies was exhausted.
Under Massachusetts law established by the Supreme Judicial Court’s 1988 decision in Mission Ins. Co. v. U.S. Fire Ins. Co., and affirmed in the court’s 2017 decision in Great Divide Ins. Co. v. Lexington Ins. Co., when excess “Other Insurance” clauses conflict, they are deemed “mutually repugnant,” and both insurers must contribute to the loss regardless of other language in the policies, U.S. District Court Judge Timothy S. Hillman explained.
“To hold otherwise and allow both insurers to negate coverage would deny the insured the benefit of his bargain twice over,” Hillman wrote.
The Mission decision established that two excess insurers must contribute in equal amounts unless there is controlling language in the insurance contracts. Unlike in Mission, one of the policies in the case at bar — the website’s — explicitly allocated contribution costs.
The website’s policy provided that the defense costs should be divided equally. As for indemnity costs, the policy provided two possible allocation methods, the first of which was inapplicable because the competing insurance policy did not permit contribution by equal shares.
The remaining method was to base each insurer’s share of indemnity costs on the ratio of its applicable limits of insurance to the total applicable limits of insurance of both insurers.
Hillman endorsed that method, noting that insurance contracts should be interpreted “according to the fair and reasonable meaning of the words in which the agreement of the party is expressed.”
That potentially put the homeowner’s insurer on the hook for paying 37.5 percent of any indemnity costs up to its $600,000 policy limit, with the website’s insurer responsible for 62.5 percent of any indemnity costs up to its $1 million policy limit.
The 14-page decision is Generali-U.S. Branch v. The Commerce Insurance Company, Lawyers Weekly No. 02-161-21. The full text of the ruling can be found here.
Coming ‘gig economy’ wave?
It is surprisingly common for two insurers’ policies to apply to the same claim, Boston attorney Kurt B. Fliegauf noted.
While the insurers often work out an agreement without the need for litigation, sometimes a carrier tries to avoid its obligations and push the cost of defense and any indemnity payment to the other insurer, he said.
What makes Generali unusual among allocation disputes in that it involves a commercial general liability carrier and a homeowner’s insurer, Boston lawyer Michael F. Aylward said.
But because the gig economy has brought so many private individuals into commerce — either renting properties online or driving for companies such as Uber, Lyft or DoorDash — Generali may be on the leading edge of a cresting wave of priority-of-coverage disputes between commercial insurers and personal lines carriers, Aylward suggested.
To resolve such disputes, judges look to the “other insurance” provisions in the policies, which set forth the “basic rules of the road,” as supplemented by case law, as Hillman did here, Fliegauf said.
Boston attorney Thomas M. Elcock, co-counsel for the plaintiff in the Great Divide case, agreed that the primary rule in Massachusetts is to give effect to the words used; thus, Generali will have precedential value only insofar as similar or identical language is used in the dueling “other insurance” clauses, he said.
For attorneys representing insurers, Generali highlights the importance of inquiring whether there may be other insurers that cover the same risk, Fliegauf said.
The insured will not necessarily volunteer the information, especially once one insurer agrees to provide coverage. Just because your client’s policy applies to a claim does not necessarily mean that it should pay 100 percent of the costs.
Here, attorneys for the website’s insurer may have saved their client 50 percent of the defense costs and 37.5 percent of indemnity costs by asking whether other insurance also might apply, Fliegauf noted.
While Aylward agreed that Hillman’s analysis accurately followed the path for resolving priority-of-coverage disputes that the SJC had mapped out in Great Divide, he said Hillman may have gone astray with his determination that both policies in Generali have “excess” language.
“The ‘Other Insurance’ endorsement that he relies on doesn’t say that it is excess when there is other insurance available for ‘covered premises,’ as the opinion states,” Aylward said.
“A correct reading of the [website’s] policy would have made it primary, consistent with the homeowner’s intent in buying this extra insurance for the express purpose of insuring liabilities associated with renting her home through [the website],” Aylward said.
“Because the gig economy has brought so many private individuals into commerce, Generali may be on the leading edge of a cresting wave of priority-of-coverage disputes between commercial insurers and personal lines carriers,” said Michael F. Aylward of Boston.
Elcock said another noteworthy aspect of Generali is that the defendant was deemed to have forfeited its right to contest an operative fact based on its answer to the first amended complaint.
“I think it’s a cautionary tale for any lawyer answering a complaint to never admit a fact unless you are absolutely sure it can be properly admitted,” he said.
The defendant’s attorney, John P. Donohue of Worcester, declined to comment on Hillman’s decision, citing the pendency of the litigation.
Plaintiff’s counsel, Howard N. Wollitz of Los Angeles, had not responded to a request for comment as of Lawyers Weekly’s deadline.
Rental gone awry
In December 2017, Susannah Gale rented her West Stockbridge property to Laura and Paul Kampa through Homeway.com, a vacation rental website popularly known as Vrbo.
On or about Dec. 2, Laura Kampa slipped and fell on a stairway she alleges was defective or dangerous, sustaining serious injuries, including traumatic brain injury.
She and her husband sued Gale in Berkshire County Superior Court for negligence and loss of consortium, seeking to recover at least $627,000 in medical expenses attributed to the accident. The case is scheduled for trial this fall.
Two insurance policies are potentially available to cover Gale’s legal expenses and potential indemnification costs in the Kampa case.
As an owner who rented her property on Homeaway.com, Gale is covered by HomeAway Holding’s Commercial General Liability Policy, issued by plaintiff Generali Insurance Company of Trieste & Venice. That policy has a limit per occurrence of $1 million.
Gale is also covered by her personal homeowner’s insurance policy, issued by the Commerce Insurance Co., which has a $600,000 limit per occurrence.
Gale timely reported the Kampas’ lawsuit to both insurers, and Generali appointed counsel to defend her.
By April 8, 2020, when it filed suit against Commerce, Generali had already incurred more than $34,000 in legal expenses.
Commerce refused to contribute to Gale’s defense costs, taking the position that Generali is the primary insurer, and it is the excess insurer with respect to the Kampa lawsuit.
Generali sought a declaratory judgment that it and Commerce are co-primary insurers as to the Kampa lawsuit. Generali also asked the judge to rule that the two companies must contribute equally to Gale’s defense, and that Commerce must reimburse Generali for its share of the defense costs Generali already incurred.
Commerce opposed Generali’s motion and sought a declaratory judgment that the Generali policy was primary and that the Commerce policy was excess insurance as to the Kampa suit.
At the parties’ request, the case between the two insurers is proceeding in two stages.
Now that Hillman has determined the respective priority of coverage between Generali’s commercial general liability policy and Commerce’s homeowner’s insurance policy, the case will move to the second stage: determining whether there is coverage available to Gale for the Kampa action through the Commerce policy, the Generali policy, or both.
Before reaching his priority-of-coverage determination, Hillman first had to resolve a dispute between the parties over whether Generali had sufficiently established that it had modified its “Other Insurance” clause prior to the accrual of the Kampas’ cause of action by issuing an “Amend Other Insurance Clause” endorsement.
Commerce argued that Generali had not made such a showing, and that Hillman should apply Generali’s policy’s original language only to determine priority of coverage between the insurers.
Hillman wrote that he would have been inclined to agree that Generali had not substantially authenticated the OI endorsement, if not for the fact that Commerce had made a judicial admission that the Generali policy included the OI endorsement in its answer to the first amended complaint.
The only evidence that the OI endorsement had been issued and made part of the Generali policy was a bare affidavit from a company official, who had no personal knowledge and had only reviewed unspecified company records, Hillman noted.
Moreover, a separate endorsement Generali had issued for the same HomeAway policy contained the effective date of change, a policy number, and the insured’s name, which the OI endorsement lacked.
But after Generali alleged that its policy included the OI endorsement in the first amended complaint, Commerce admitted that the Generali policy contained that language in its answer.
Generali was now bound to the “deliberate voluntary waiver” of its right to challenge the truth of that fact, Hillman ruled.
Judges do enjoy “broad discretion” to excuse judicial admissions when appropriate, Hillman said. But use of that discretion was not warranted here, he decided.
“If Commerce was unsure whether the OI Endorsement had been timely made part of the Generali Policy, it could have denied the corresponding allegation in the First Amended Complaint or answered that it lacked adequate knowledge to respond, or it could have sought to amend its answer before summary judgment,” Hillman wrote, adding that allowing Commerce to retreat from its admission would break with 1st U.S. Circuit Court of Appeals precedent.Share with your network: