Insurer With Excess “Other Insurance” Clause Owes No Defense Obligations
The United States District Court for the Southern District of New York, applying New York law, has held that an E&O insurer had no obligation to contribute toward the defense of an underlying matter in light of its policy’s excess “other insurance” clause. Berkley Assurance Co. v. MacDonald-Miller Facility Solutions, 2023 WL 2574133 (S.D.N.Y. Mar. 20, 2023).
The insured tendered an underlying matter, which included claims involving both property damage and professional liability, to its GL insurer and its E&O insurer. The GL insurer alone initially defended the insured in the underlying action, though the E&O insurer later provided additional counsel for the insured under a reservation of rights. The underlying lawsuit ultimately settled, with both carriers splitting the settlement equally. Thereafter, the GL insurer demanded that the E&O insurer reimburse the GL insurer for a portion of the defense costs it had incurred in the underlying action. The E&O insurer refused on the grounds that its policy included an “other insurance” clause that caused it to be excess over the GL insurer’s policy and that extinguished its duty to defend when any other insurance had a duty to defend a claim. By contrast, the GL insurer’s policy stated it provided primary coverage.
In granting the E&O insurer’s motion for summary judgment, the court concluded that the E&O insurer had no duty to defend—and therefore no duty to share the costs of the defense with the GL insurer—because of the specific language in its “other insurance” clause. The GL insurer had argued that New York law imposed a bright-line rule that “other insurance” clauses are triggered only when the different policies cover the same risk. Because the underlying action separately triggered each of the policies, such that there was no concurrent coverage, the GL insurer contended that the policies’ “other insurance” clauses were not implicated and both insurers had a duty to defend. The court, however, rejected this argument and instead applied the unambiguous language of the two contracts.
The court found that the E&O insurer’s “other insurance” language specifically defined its excess obligations in connection with claims against the insured when other carriers have a duty to defend those claims, and it was not limited to indemnification of losses. The court further noted that, while the GL insurer did not cover a loss that overlapped with the E&O’s coverage, its duty to defend encompassed the entire suit and thus overlapped with the E&O insurer. As such, the court determined that the GL insurer’s duty to defend triggered the terms of the E&O insurer’s “other insurance” clause, meaning that the GL insurer had a duty to defend the underlying action without contribution from the E&O insurer.
Finally, the court ruled that neither waiver nor estoppel prevented the E&O insurer from asserting its “other insurance” defense. The court concluded that the E&O insurer had not waived the “other insurance” defense by providing its own defense counsel in the underlying action because it participated in a limited fashion pursuant to a clear reservation of rights that preserved its coverage defense against the GL insurer. The court further determined that the E&O insurer was not estopped from asserting the defense because the GL insurer had failed to demonstrate that the E&O insurer’s limited participation in the underlying action under a specific reservation of rights caused the GL insurer to change its position to its detriment.