Overlapping insurance is a troublesome issue in the adjustment of
property claims. It occurs when two or more insurance policies provide
coverage to an insured for the same loss. This situation can occur in
different ways, including:
- Overlapping dates between two policies.
- Two or more parties, such as an owner and a general
contractor, purchase separate coverage on a single project.
- A project-specific policy (such as builders risk) and a
general floater policy (such as transit coverage or an
installation floater) both apply.
While it is well settled that an insured may not be indemnified for an
amount greater than the actual loss it sustains, insurers stand to gain or
lose depending on the manner and order in which their policies apply. As a
result, insurers have developed policy clauses that attempt to address the
ramifications of overlapping or duplicate insurance. Such provisions are
commonly referred to as "other insurance," "contributing insurance,"
"contribution from other insurance," or "insurance under more than one
policy" (referred to collectively as "other insurance"). These clauses are
located in the conditions section of policies or special endorsements.
History of the "Other Insurance" Condition
Dealing with overlapping insurance is not a new issue. Cases addressing
this go back more than 250 years. In Godin v. London
Exch. Assur. Co., (1758) 97 Eng. Rep. 419 (K.B.), there was a
duplication of insurance with respect to cargo that was damaged. Lord
Mansfield justified his position of proportional sharing of liability
between the affected insurers: "If the insured is to receive but one
satisfaction, a natural justice says that the several insurers shall all of
them contribute pro rata, to satisfy that loss against which they have all
insured." As to the concept of contribution, he stated, "If the whole should
be one, he ought to stand in the place of the insured, to receive
contribution from the others, who were equally liable to pay the whole."
During the 1800s, fire insurance policies in the United States did not
allow for other insurance. A sample clause:
This entire policy, unless otherwise provided by agreement
endorsed hereon or added hereto, shall be void if the insured now has or
shall here make or procure any other contract of insurance whether valued or
not on property covered in whole or part by this policy.
Underwriters wanted to avoid the situation where an insured overinsured a
property, thereby potentially creating a moral hazard. There was another
practical reason as well. Underwriters wanted to make sure that any other
insurance was concurrent with the terms of their policy. In a guide issued
in 1877,1 if an insurance agent were unable to obtain and review
copies of other policies on the risk, he or she was instructed to decline
the risk or insert the following form of permit for other insurance.
$....... other insurance permitted, it being agreed that the
whole amount thereof shall, so far as this policy is concerned, be
considered as written concurrently therewith.
The 1943 New York Standard Fire Policy addressed "other insurance"
beginning on line 25.
Other insurance may be prohibited by or the amount of insurance
may be limited by endorsement attached thereon.
This was a departure from the wording noted above in that this policy
could prohibit other insurance through issuance of an endorsement. The 1943
policy also contained a "pro rata liability" provision beginning on line 86.
This company shall not be liable for a greater proportion of any
loss than the amount hereby insured shall bear to the whole insurance
covering the property against the peril involved, whether collectible or
Fast-forward to more modern versions of other insurance conditions. These
often state that if the insured has other insurance, the insurer
will pay its share of the covered loss or damage in the proportion that the
insurance limit applicable to the coverage part bears to the limits of all
applicable insurance policies covering the same loss. Many go on to state
that the insurer will pay only for the amount of covered loss or damage in
excess of the amount due from that other insurance, whether collectible or
not. In these policies, all qualifying insurance will be treated as
contributing insurance and adjusted accordingly. However, if two or more
policies have different terms, conditions, or other provisions, the "other
insurance" is primary, and this policy is excess (even if the "other
insurance" is not collectible). Said another way, if the other insurance
would apply in the absence of this policy, this policy will apply after such
The foregoing paragraphs focus on the evolution of "other insurance"
clauses in property insurance. A discussion of other insurance in inland
marine policies is also very important, as most builders risk insurance
today utilizes these forms. Early inland marine forms departed from the
standard practice of American ocean marine policies. Ocean marine policies
provided that the first policy written was the primary policy. Early inland
marine policies largely consisted of "floaters." It was not uncommon for
property to be insured under multiple policies secured by two or more
parties, such as a property owner, bailee, and carrier. As a result, inland
marine underwriters inserted clauses in their policies to avoid paying a
claim if other insurance existed. A common clause used in the 1930s reads:
It is expressly agreed that this insurance shall not cover to
the extent of any other insurance whether prior or subsequent hereto in
date, and by whomever effected, directly or indirectly covering the same
property, and this Company shall be liable for loss or damage only for the
excess value beyond the amount of such other insurance.
Other insurance clauses in inland marine policies evolved over the years
but are by no means standardized. Examples of "other insurance" wordings in
modern builders risk policies generally fall into two categories:
contribution or excess. Samples of wording taken from builders risk policies
- Proportional Share—"You" may have another policy subject
to the same "terms" as this policy. If "you" do, "we" will
pay "our" share of the covered loss. "Our" share is the
proportion that the applicable "limit" under this policy
bears to the "limit" of all policies covering on the same
- If at the time any claim is made under this policy of
insurance there is any other insurance covering the same
loss, damage or liability, the insurer shall not be liable
to pay more than the ratable proportion of any claim for
such loss, damage or liability.
The intent of each of these clauses is to prorate a loss between multiple
insurers based on the proportion the individual policy limits bear to the
total insured limits. However, a prerequisite to such sharing is that each
of the policies must be subject to the same terms, conditions, and other
- Excess Amount—If there is another policy covering the
same loss, other than that described above, "we" pay only
for the amount of covered loss in excess of the amount due
from that other policy whether "you" can collect on it or
not. But "we" do not pay more than the applicable "limit."
- If you have any other insurance covering the same loss
or damage as is insured against by this policy, we will only
pay for the amount of loss or damage which is insured
against by this policy in excess of the amount due from such
other insurance, whether you can collect on such other
insurance or not.
- Excepting Contributing and Excess Insurance, if there is
other collectible insurance, this policy will cover as
excess insurance and will not contribute with such other
- If the Named Insured or anyone else claiming under the
Policy has other insurance covering the same loss or damage
that is also covered by this policy, then the Policy shall
apply only as excess insurance over and above such other
insurance, and then only after such other insurance has been
exhausted whether or not such other insurance is
collectible. In no event will this Policy apply as
contributing insurance if other insurance applies.
- If there is other collectible insurance, this policy
will cover as excess insurance and will not contribute with
such other insurance to the extent that proceeds are
The excess clauses treat the other insurance as primary insurance. The
main difference between the clauses is the addition of the "whether
collectible or not" provision. Also, the excess clauses in the "other
examples" above are not always accompanied by a "contribution clause."
Resolving "Other Insurance" Disputes
Contribution clauses will generally be enforced where all insurers are
equally liable for the discharge of a common obligation (when the policies
in question cover the same property, interests, and risks and are payable to
the same parties). Various courts have developed criteria tests for
recognizing contribution from insurers. For instance, Arizona deems that a
four-part test must be satisfied: The policies must cover (1) the same
parties, (2) in the same interest, (3) in the same property, and (4) against
the same casualty (see Western Agricultural Ins. Co.
v. Industrial Indem. Ins. Co., 838 P.22d 1353, 172 Ariz. 592 (Ariz.
App. Div. 1, Aug. 25, 1992)).
When insurers utilize excess clauses, they are attempting to treat the
other insurance as primary and their policy as excess. When multiple
policies have "other insurance" clauses, conflicts and sometimes litigation
result. The insurance industry has attempted to deal with this "outside of
the policies" through the promulgation of industry claims handling
guidelines. Adherence to such guidelines by many insurers has resulted in
custom and practice for much of the industry, but acceptance is not
Conflicts between insureds and insurers were so prevalent in the 1920s
and 1930s that the National Board of Fire Underwriters approved rules to
deal with apportionment. As fire insurance increasingly overlapped with
inland marine and casualty policies, the National Board of Fire
Underwriters, the Inland Marine Underwriters Association, and the
Association of Casualty and Surety Companies entered into a number of
agreements with each other that outlined how losses involving overlapping
coverages would be handled. The majority of stock fire, marine, and casualty
companies and some mutual companies subscribed to these "Agreements of
Eventually, new overlapping situations evolved, particularly with
multiline policies, and it was determined that the Guiding Principles were
inadequate. Various industry groups began work in 1959 to create a new set
of guidelines. The "Guiding Principles for Overlapping Insurance Coverages"
was created. By resolution, it was agreed that the Association of Casualty
and Surety Companies, Inland Marine Underwriters Association, National
Automobile Underwriters Association, National Board of Fire Underwriters,
National Bureau of Casualty Underwriters, and Surety Association of America
recommend to their members and
subscribers their concurrence in adopting the Guiding Principles effective
as to losses occurring after November 1, 1963. These principles called for
"other insurance" clauses to be set aside and inoperative to the extent they
conflict with the Guiding Principles.
The Guiding Principles were designed to provide guidance to insurers when
overlapping coverage existed. They were not intended to interpret coverage
or create any coverage where none existed. The Guiding Principles are about
40 pages long and contain many examples. While the Guiding Principles have
been helpful to adjusters for almost 50 years, they are not part of the
insurance policy, and claims adjusters or insurers are not required to
follow them. Some courts have considered the Guiding Principles in arriving
at their decisions; others ignore the Guiding Principles because only the
actual provisions contained in an insurance policy can determine coverage.
Sampling of Cases Involving Builders Risk Policies
Coverage cases involving builders risk policies and other forms of
insurance are varied. These may involve commercial property, blanket
property, homeowners, inland marine floaters, liability, and other forms of
insurance. To address all the issues and nuances surrounding such litigation
is well beyond the purview of this article. However, a few cases have been
singled out to illustrate the types of conflicts that result when there is
duplicate or overlapping insurance.
Builders Risk versus Blanket Property Policies
In Holden v. Connex-Metalna Mgmt. Consulting BMBH,
302 F.3d 358 (5th Cir. 2002), the court dealt with overlapping insurance
between a project-specific builders risk policy (issued by Reliance
Insurance Co.) and blanket property policies (issued by Lexington Insurance
Co. and others). The blanket property policies covered all real and personal
property in the United States held by Illinois Central Corp. and its
subsidiaries, including IC RailMarine Terminal Co. ("owner").
The owner was constructing a bulk cargo terminal in 1998 and hired
Connex-Metalna to design, build, and install a gantry crane that could load
and unload cargo ships. The crane fell into the Mississippi River during
pre-acceptance testing. The builders risk and property insurance policies
maintained by the owner covered the loss. The district court apportioned the
loss to the insurers based on the amount the limits of their respective
policies bore to the total insured limits. On appeal, the insurers argued
about whose policy should be primary and excess. Both the builders risk and
property policies contained other insurance provisions that purported to
make each policy an excess policy where another insurer provided concurrent
coverage. Reliance argued that the property insurers (along with Reliance
itself) were obligated to provide primary coverage because they all agreed
to insure the same property and the same risk.
The appeals court held that the builders risk policy provided the primary
coverage and the blanket property policies applied as excess. The court
reasoned that when a policy is specifically purchased for a well-defined
project (i.e., builders risk policy), the blanket policies provide coverage
only for losses in excess of the limits of the project-specific policy. This
ruling is in contrast with the majority view, which holds that policies that
cover the same risks with respect to the damaged property must be treated as
concurrent insurance. Instead, this ruling follows the "Pennsylvania Rule,"
whereby a specific policy and a blanket policy do not constitute concurrent
insurance because they do not cover the same range of property.
Builders Risk versus Builders Risk Policies
Sometimes claims for damage to construction projects involve more than
one builders risk policy. One such case is Reliance
Ins. Co. v. Liberty Mut. Fire Ins. Co., 13 F.3d 982 (6th Cir. 1994).
There, Jewish Federation Apartments ("owner") engaged Demaria Building
Company ("contractor") to build an apartment complex. The construction
contract required that the owner would purchase "an all risk policy and
would insure against the perils of fire." Despite this requirement, the
owner and contractor each purchased builders risk policies, neither of which
named the other as an additional insured. A fire destroyed the apartment
complex. Reliance paid the owner the full amount of the loss. The contractor
informed its builders risk insurer (Liberty) that it was not pursuing its
claim. Reliance sued Liberty for contribution. The court ruled that there is
no right to contribution because Reliance's policy covered the owner's
interest only. Contribution between insurers is available when all insurers
are equally liable for the discharge of a common obligation, which was not
the situation here.
Another case with a different result is Aetna Cas.
& Sur. Co. v. Continental Ins. Co. & Bryant Elec. Co., Inc., 110 N.C.
App. 278, 429 S.E.2d 406 (N.C. App. 1993). The court concluded that the two
builders risk insurers must share payment of an insured fire loss on a pro
rata basis. In October 1986, J.A. Jones Construction Co. ("contractor")
entered into a construction contract with First Union National Bank
("owner") for construction work on a bank property. The contractor entered
into a subcontract agreement with Bryant Electric Company, Inc.
("subcontractor") for electrical work. Aetna issued a builders risk policy
to the contractor for $11.6 million. Continental issued a builders risk
policy with a $5 million limit to the subcontractor.
A fire occurred, and Aetna paid more than $400,000 to settle the claim.
It then filed a complaint seeking a declaratory judgment as to which
builders risk policy applied first. Both policies contained dissimilar
"other insurance" clauses, but both clauses made their respective policies
excess if other insurance applied. The court concluded that the other
insurance clauses were mutually repugnant and determined that each insurer
should share payment of the claims pro rata, based on the insured limits of
their respective policies.
Builders Risk versus Liability Policies
Occasionally, an insurer will try to stretch the meaning of "other
insurance" in builders risk policies to include liability insurance. This is
the case in Chubb Ins. Co. v. Brian DeChambers &
Prairie Material Sales, Inc., 349 Ill. App. 3d 56, 808 N.E.2d 37, 283
Ill. Dec. 487 (Ill. App. Dist. 1. Mar. 24, 2004). On October 27, 1998, Mr.
DeChambers operated a cement truck owned by Prairie. While making a delivery
to a construction site, Mr. DeChambers backed into a support column, causing
the collapse of a completed roof of a building. Chubb had issued a builders
risk policy under which the defendants were additional insureds. Chubb paid
the loss and attempted to subrogate against the defendants.
The Chubb policy contained an "other insurance" clause:
If at the time of loss or damage there is other insurance,
whether such other insurance be in the name of the Insured or any third
party, which would apply in the absence of this policy, the insurance under
this policy shall only apply as excess insurance over such other insurance.
Chubb argued that its builders risk policy should be secondary to the
defendants' liability insurance. The court ruled against Chubb. It reasoned
that there was a conflict of interest because the other insurance clause
gave Chubb the incentive to pursue against its own insured for a risk
covered by the policy and for which Prairie had paid a premium (albeit
Time To Eliminate "Other Insurance" in Builders Risk Policies?
Builders risk policies have evolved significantly over time. These
policies increasingly are project specific
in nature and cover multiple insureds. Having an "other insurance" condition
in the policy applicable to the intended beneficiaries of the insurance
defeats one of the goals of builders risk insurance: a single policy that
reduces litigation between the stakeholders and that provides funds to
repair/rebuild damaged property on a timely basis.
Another argument for eliminating other insurance clauses is supported by
the builders risk insurance requirements contained in construction
contracts. Standardized contracts produced by the leading providers—The
American Institute of Architects, ConsensusDOCS LLC, Engineers Joint
Contract Documents Committee, and Design-Build Institute of America—require
the owner or contractor to provide the insurance. These requirements do not
allow such insurance to be "excess insurance." The required insurance is to
be primary for those parties intended to be protected by the policy (i.e.,
the owner, general contractor, and subcontractors). Otherwise, why have
insurance requirements at all? For an insurer to impose an "other insurance"
clause on an insured party under a builders risk policy would most likely
put the sponsor of the policy in breach of its obligations in the
construction contract. This includes coverage on goods in transit and while
stored off the project site (when such insurance is required in the
The other insurance condition is so ingrained in property and inland
marine policies, underwriters often do not know how to respond to or deal
with requests to eliminate or modify their respective clause(s). Slowly, the
industry is beginning to recognize the conflicts and potential problems.
Some insurance brokers are paying attention and, particularly on large
projects, are negotiating special provisions. An example:
If any claim under this Policy is also covered in whole or part
by any other existing insurance, the Insurer agrees to waive all rights of
contribution from such other insurance…
It is understandable that insurers do not want to be solely responsible
for paying claims if other insurance exists. In the opinion of this writer,
excess clauses have no place in project-specific builders risk policies.
Hopefully, insurers will take it upon themselves to modify their standard
policies accordingly. This will provide contract certainty and reduce
disputes. On the other hand, it would be helpful for underwriters to know up
front what the contract documents call for in terms of the builders risk
insurance requirements. Even if underwriters don't request these documents,
an insured's agent/broker should make these available. The insurance
protection anticipated by the beneficiaries of builders risk insurance,
based on the construction documents, should not be taken lightly. Insureds
and others simply can't rely on insurers following Guiding Principles that
are not a part of the builders risk policies. The stakes are simply too high.
Fires: Causes, Prevention and Extinction, A
Guide to Agents. New York: The Continental
Insurance Company, 1877. P. 110.