In a US decision as to which of two insurers was the primary insurer with a duty to defend the policyholder, the ‘other insurance’ clauses in each policy were different. The ‘other insurance’ provision in the Secura policy provide that “if other valid and collectable insurance is available to the insured for a loss” coverages were limited and insurance would be excess over any other insurance whether primary, excess, contingent or on any other basis, and in excess over insurance “that is fire coverage for work performed”. The Westchester policy on the other hand provided that there was other insurance “if other valid and collective insurance is available to the insured for a loss we cover under this policy” in which case the obligations were limited.

The insurance claim arose for the costs of defending a suit over carbon monoxide poisoning claims based on an allegation that a faulty furnace repair by the insured under both policies caused the event. Seeing the Westchester policy was not a fire, extended coverage, builder’s risk, or installation risk policy, it did not provide similar coverage for the work covered by the Secura policy. The phrase “similar coverage” was not narrowed by reference to the enumerated types of cover because that would render the word “similar” meaningless. The Westchester pollution liability coverage was not similar to coverage for the events insured under the Secura policy. Therefore the Secura insurance coverage was primary. When two insurance policies cover the same risks the courts in Michigan look to the plain language of the policies to determine which insurer is primarily responsible for covering the insured.

The court also mentioned that ‘other insurance’ clauses fall within two to three general categories:

  1. A pro-rata clause, which purports to limit the insurer’s liability to a proportionate percentage of all insurance covering the event;
  2. An escape or no-liability clause which provides that there will be no liability if the risk is coverage by other insurance;
  3. An excess clause which limits the insurer’s liability to the amount of loss in excess of the coverage provided by the other insurance.

A similar result on the wording of the two policies would follow in South African law. In South Africa, if there are two policies each with a no-liability clause the courts do not excuse both insurers but treat it as a contribution provision requiring part indemnity by each insurer depending on the nature and extent of their cover.

[Motor City Healing & Cooling Inc. v Secura Supreme Insurance Co and Westchester Surplus Lines Insurance Co, case no’s 358031 and 358629 in the State of Michigan Court of Appeals]