Hybrid Policy and True Umbrella Policy Interpreted to Cover the Same Risk

 

November 20, 2017

 

At the beginning of November, the Supreme Judicial Court of Massachusetts decided that competing excess insurance policies apply equally to provide excess coverage, even if one policy is a true excess policy and the other is a hybrid policy providing either primary or excess coverage—depending on the policy trigger. The case is Great Divide Ins. Co. v. Lexington Ins. Co., 2017 WL 4969942 (Mass. Nov. 1, 2017).

 

An employee of EZ Disposal Service, Inc. was driving a garbage truck leased by Capitol Waste Service, Inc. and owned by Atlantic Refuse Leasing Equipment, LLC. That employee struck and killed a bicyclist while driving the garbage truck. The bicyclist's family brought a wrongful death action against EZ, Capitol Waste, and Atlantic Refuse. Capitol had a primary insurance policy through Commerce Insurance Company with a limit of $1 million and an excess insurance policy through Lexington with a $10 million limit. Great Divide Insurance Company provided EZ with primary insurance for many risks, including accidents involving cars owned by EZ, with a limit of $1 million. The policy included a clause that provided "other insurance" for any covered "auto" you don't own; the insurance provided by this form is excess over any other collectible insurance. Commerce defended all of the insureds in the underlying tort action. Great Divide went to court seeking a declaration that its policy and Lexington's policy were both excess policies covering the same loss.

 

The U.S. District Court for the District of Massachusetts certified this question to the Supreme Judicial Court of Massachusetts. "Where there is a motor vehicle accident and the primary commercial automobile liability insurance policy issued to the owner of the vehicle involved in the accident is exhausted, what is the priority of coverage between (1) a second primary commercial automobile liability insurance policy insuring the driver of the vehicle, which contains an other insurance/nonowned vehicle clause providing (a) that, with respect to motor vehicles the insured owns, this insurance is primary, (b) that, with respect to motor vehicles the insured does not own, this policy is excess and (c) that "when this coverage form and any other coverage form or policy covers on the same basis, either excess or primary, we will pay only our share"[;] and (2) a true excess liability insurance policy insuring the owner of the vehicle that contains an other insurance clause providing that "if other valid and collectible insurance applies to damages that are also covered by this policy, this policy will apply excess of the "other insurance"?"

 

Great Divide argued that although it provided primary coverage for cars owned by EZ, its policy covered the same level of risk for EZ drivers driving automobiles that EZ did not own as the Lexington umbrella policy did, because the unambiguous "other insurance" clause in the policy stated that for automobiles not owned by EZ, the policy was "excess over any other collectible insurance". Alternatively, Lexington argued that the "other insurance" clause in the other did not change the primary nature of the policy, did not cover the same level of risk as Lexington's "true excess" policy, and had to be exhausted before Lexington's policy was triggered for coverage.

 

The Massachusetts court held that both policies provided excess coverage at the same level because the plain language of the hybrid policy's other insurance provision triggered excess coverage at the same level of the umbrella policy.

 

Editor's Note:

Courts across the nation have been conflicting on this issue. A Federal District Court in Texas recently made the opposite ruling, holding that a true excess policy sits above a hybrid policy in the insurance policy hierarchy and would not be triggered until the hybrid policy is exhausted. Massachusetts law applied the policies equally while the Texas court considered the hybrid policy as coincidentally excess, and on a lower tier than a true excess policy. That case is N. Am. Capacity Ins. Co. v. Colony Specialty Ins. Co., No. H-16-3371, 2017 U.S. Dist. LEXIS 130717 (S.D. Tex. Aug. 7, 2017).