CGL Policy is Considered “Excess by Coincidence” by Texas Court
October 2, 2017
In August, the United States District Court for the Southern District of Texas decided that a true excess policy was properly applied as excess over a CGL policy that itself was excess due to the circumstances of the underlying action. The case was N. Am. Capacity Ins. Co. v. Colony Specialty Ins. Co., No. H-16-3317, 2017 U.S. Dist (S.D. Tex. Aug 7, 2017).
Dolce Living Rosenberg, LLC (Dolce) owns apartment complexes in Texas. Pace Realty Corporation (Pace) manages properties for Dolce. In 2015 a prospective tenant, Burdick, fell off of a golf cart that was operated by a Pace employee while touring the apartment facilities. Burdick later died from his injuries.
The agreement between Dolce and Pace provided that Dolce agreed that their insurance was primary without the right of subrogation against Pace and Pace's insurance. Dolce had a general liability policy from Certain Underwriters of Lloyds Syndicate (Lloyds) with a $1 million policy limit. Lloyds provided a defense in the Burdick suit and paid its policy limits for that settlement. Dolce also had a Commercial Liability Umbrella Policy issued by Colony with a $10 million policy limit. Pace is insured under both of the above policies. The Colony Umbrella Policy contained an “other insurance” provision that stated:
“This insurance is excess over, and shall not contribute with any of the other insurance, whether primary, excess, contingent, or on any other basis. This condition will not apply to insurance specifically written as excess over this Coverage Part.”
Pace had its own Commercial General Liability policy from NAC with a $1 million policy limit that included a provision that stated
“With respect to your liability arising out of your management of property for which you are acting as real estate manager this insurance is excess over any other valid and collectible insurance available to you.”
NAC paid funds as part of the Burdick settlement and then filed this lawsuit against Colony, arguing that its insurance is excess and Colony provides primary coverage for the balance of the Burdick settlement amount after Lloyds paid its policy limits. NAC also argues that it and Colony share coverage on a pro rata basis. Under either theory Colony should reimburse NAC for some or all of the funds paid out for the Burdick lawsuit. Colony argues that its insurance is excess and NAC has to provide primary coverage.
The court stated that an umbrella policy is a true excess policy that is designed to cover situations in which all primary insurance is exhausted, and that because Pace's CGL policy states that it is excess over any other “valid and collectible insurance for liability arising out of your management of property for which you are acting as a real estate manager” Pace's CGL policy is excess to Dolce's CGL policy.
The court found that the Pace CGL policy is actually a primary policy that is “excess by coincidence” while the umbrella policy that was in place is a true excess policy, and that although the two policies were not of the same character, they were both to be considered excess policies in the situation at hand. The court also said that the Pace CGL policy must be exhausted before the umbrella excess coverage is triggered.
Editor's Note:
Different policies necessitate different considerations in the underwriting process. An excess policy is put into place in order to ensure that coverage is present when the limits of the primary policy are met. Even though the CGL policy in place was not an excess policy in this case, it acts like an excess policy because of the language included in the policy itself. The finding by the USDC for the Southern District of Texas followed other decisions by different courts in Texas.