What happens when two policies cover the same dwelling?(Editor's note: This will be the final "Down to Cases" column from Don Renau, who died in April. Starting with next month's issue, attorney Barry Zalma, a claims expert and frequent contributor to insurance publications, will begin writing the column.)

On June 18, 2001, a tornado destroyed a Wisconsin couple's home. At the time of the loss, two insurance companies insured the house. One's policy had a $151,000 limit and an escalator clause that increased the policy limits to the replacement cost if a loss exceeded the stated policy limits. The other carrier's policy, which took effect five days before the tornado struck, had a $213,000 limit and an escalator clause. Both policies contained other-insurance provisions, providing pro rata coverage if any other insurance covered the dwelling at the time of a loss.After the second policy took effect, the couple called the first insurer and tried to cancel its policy. They were told, however, that they needed to cancel the policy in writing. They failed to do so before the tornado destroyed their house, however, so both policies were in effect at the time of the loss.A claims adjuster for the first insurer gave the couple $10,000 for living expenses. The same day, the husband met with an adjuster for the other insurer. He agreed to have that company take the lead in dealing with the coverage issues. The two insurers subsequently agreed that the second insurer would pay all the couple's claims, and the two carriers would then prorate the loss after it was fully adjusted.The second insurer eventually paid the couple its $213,000 policy limit. The husband, however, believed the loss was greater and therefore triggered the escalator clause. He hired a building contractor to prepare an estimate. Based on the contractor's estimate, the second insurer issued another check for $53,375. Based on the contractor's estimate and the second insurer's payment to the couple, the first insurer concluded the insureds were fully compensated for their loss and declined to pay the couple more.The couple filed a complaint with the state insurance commissioner and retained a public adjuster, who concluded that the state's valued policy law required both insurers to pay their policy limits. The first insurer disagreed.Eventually, the couple filed suit against the first insurer. In moving for summary judgment, they alleged: (1) Wisconsin's valued policy law required both insurers to pay their policy limits and (2) their actual loss exceeded the payments they so far had received, meaning the first insurer owed the couple money, regardless of the valued policy law.The first insurer also moved for summary judgment, arguing that Wisconsin's pro rata statute qualified the valued policy law, relieving it of the responsibility to pay the couple for their loss, since the second insurer already had. The second insurer, meanwhile, filed claims for contribution and subrogation against both the first insurer and the couple.A court denied the couple's motion for summary judgment and granted partial summary judgment to the first insurer. The court limited the couple's payment to their actual loss, which was to be prorated between the two carriers.The court conducted a trial to determine the couple's actual loss. It found that the value of the dwelling on the day of the loss was $307,075. The court prorated the policies and determined the first insurer's share of the loss was $164,285.13, of which it owed $40,200 to the couple and the balance to the second insurer.After the first insurer paid the couple $40,200, the couple appealed the court's decision to award the balance of the insurer's payment to the second carrier. The couple argued that the state's valued policy law applies when a homeowner has purchased more than one insurance policy on his or her dwelling and that the pro rata statute does not override it.The appeals court, however, disagreed. It said the pro rata statute qualifies the valued policy law when two or more policies cover a dwelling but the insurers involved have not consented to the arrangement.The valued policy law states as follows: "Whenever any policy insures real property that is owned and occupied by the insured primarily as a dwelling and the property is wholly destroyed, without criminal fault on the part of the insured or the insured's assigns, the amount of the loss shall be taken conclusively to be the policy limits of the policy insuring the property."The pro rata statute, which is applicable when two or more policies indemnify against the same loss, bars insurers from interpreting their "other insurance" provisions in such a way that would reduce an insured's aggregate protection below the lesser of the actual loss suffered or the total indemnification promised by the policies. "The policies may by their terms define the extent to which each is primary and each excess, but if the policies contain inconsistent terms on that point, the insurers shall be jointly and severally liable to the insured on any coverage where the terms are inconsistent, each to the full amount of coverage it provided."The appeals court noted that the state supreme court had held that multiple coverages can exist only where there is consent of the insurance companies. It cited a federal court case upholding that position as well. The appeals court said the valued policy law only dictates the amount of coverage that insurance companies are required to provide when a dwelling is totally destroyed. It said its plain language does not provide, as the couple contended, that the insured is entitled to the limits of all policies insuring a dwelling. Instead, the court said, the pro rata statute specifically governs situations where two or more policies indemnify against the same loss. "If we were to interpret the pro rata statute as not modifying the valued policy law, we would create a loophole to the pro rata statute allowing double recovery for the same loss," the court said, adding that that was not intended by the legislature.Absent the insurers' consent to dual coverage, the plaintiffs were entitled only to the full amount of their loss, the court said–not to the full amount of both policies if the combined limits exceed the actual loss.The record revealed that neither company consented to dual coverage. The first insurer was informed about the second insurer's policy on the day after the tornado, when its claims adjuster met with the insureds. On the same day, the second insurer learned the first insurer was still on the risk. Given that the two insurers did not consent to dual coverage, the pro rata statute barred the couple from recovering twice for the same loss, the appeals court said. It held that since the second insurer had paid more than its fair share of the loss, it had a legal claim to the remaining $12,085.15 of the first insurer's payment.Wegner v. West Bend Mutual Insurance Co., No. 2005AP3193 (Wis.App. 12/19/2006) 2006.WI.0001284 (www.versuslaw.com).