Self-Insurance Policy Considered Primary Insurance Due to Pro Rata Other Insurance Clause

A North Carolina intermediate appellate court has held that a university’s self-insurance policy was considered primary insurance due to the policy’s pro rata other insurance clause.  Cinoman v. Univ. of N.C., 2014 WL 2937050 (N.C. Ct. App. July 1, 2014).  Under North Carolina law, the court concluded that the insured could therefore maintain a declaratory judgment action before the conclusion of the underlying action with respect to the self-insurer’s duty to indemnify.

A physician was treating a patient at a university; the physician was not employed by the university.  The patient sued the physician for alleged medical malpractice.  The physician was an insured under an E&O insurance policy.  In addition, the physician and the university disputed whether the physician was an insured under a policy issued by a university self-insurance trust.  The physician brought a declaratory judgment action against the university self-insurance trust.  The self-insurer argued that its policy should be treated as an excess policy and that the declaratory judgment action should be stayed with respect to its duty to indemnify until the underlying action was resolved.

The court determined that the policy was a primary insurance policy and that a justiciable controversy existed for purposes of determining the insurer’s duty to indemnify.  According to the court, under North Carolina law, a justiciable controversy exists when a primary insurer seeks a declaration that it has no duty to indemnify and that another insurer instead owes coverage, even if the underlying action has not been resolved.   If an excess insurer seeks such a declaration, however, the insurer must wait for the underlying action to be resolved in order to pursue a declaratory judgment action.  Finally, under North Carolina law, self-insurance policies generally are not treated as primary insurance unless the policy so provides.

In determining that the policy provided primary coverage, the court focused on the policy’s other insurance clause, which provided that the insurer shared liability with other collectible insurance according to the respective limits of the various policies.  The policy did not indicate that it was excess of any other insurance.  Thus, the policy provided primary coverage and a justiciable controversy existed.