Reinsurance Law Blog : Oklahoma Insurance Lawyer & Attorney : Stauffer & Nathan Law Firm

Ohio Casualty, Ins. Co. v. Cloud Nine (10^th Circuit, applying Utah law)

Edizone sued the insureds after the insureds continued to use Edizone’s patent to create and sell products after the insureds’ licensing agreement with Edizone ended. During the relevant time frame (about 4 ½ years) the insureds had policies from Ohio Casualty and Unigard. There was a six month gap in insurance coverage between the two insurers’ policies. 

The insureds asked Ohio Casualty and Unigard to defend them in the Edizone action. Ohio Casualty declined and filed a declaratory judgment action. Unigard agreed to defend under a reservation of rights and then intervened in the dec action. Unigard got partial summary judgment, which required Ohio Casualty to share the defense costs equally with Unigard. Ohio Casualty appealed, and the Tenth Circuit certified the following question to the Utah state courts:

Should the defense costs in the Edizone case be allocated between Ohio Casualty and Unigard under the “equal shares” method set forth in the “other insurance clause” of Ohio Casualty’s policy, or, in the alternative, because the policies were issued for successive periods, should those defense costs be allocated using the time-on-risk method described in Sharon Steel Corp. v. Aetna Casualty & Surety Co., 931 P.2d 127, 140 (Utah 1997)?

Ohio Cas. Ins. Co. v. Unigard Ins. Co., 564 F.3d 1192, 1194 (10th Cir. 2009).

In Sharon Steel, the court added up all the limits for all the years and apportioned defense costs accordingly. If there were uninsured periods, the insured would be allocated part of the defense costs. In this case, however, the Utah court said apportion defense costs as in Sharon Steel, but don’t make the insured pay since the insurers get to control the defense. The “other insurance clause” simply does not apply to successive risk insurers, but only to concurrent risk insurers. 

One wonders if either Ohio Casualty or Unigard feel like they won this one. . . .

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In American Farmers & Ranchers v. Shelter, American's insured was driving a car owned by Shelter's insured when he had an accident.  American claimed that the "other insurance" clause in Shelter's policy violated Oklahoma's Compulsory Insurance law and should be disregarded such that Shelter should be required to pay its limits before American was required to pay anything.  The trial court disagreed.  The trial court found that since both policies had mutually exclusive other insurance clauses, the clauses would be disregarded and each policy would pay a prorated amount.  The Oklahoma Court of Civil Appeals agreed with the trial court and affirmed. 

The Court cites Equity Mut. Ins. Co. v. Spring Valley Wholesale Nursery, Inc., 1987 OK 121, 747 P.2d 947 as follows: 

When concurrent policies have such "other insurance" clauses which cancel each other, we hold that they are mutually repugnant and are to be disregarded, with the loss shared by the insurers on a pro rata basis. Where the insurers have designated in their policies the same method of apportionment, the contracts will control. Absent concurring provisions for apportionment, coverage of the loss is to be shared on a pro rata basis according to the ratio each respective policy limit bears to the cumulative limit of all concurrent policies. ...
...
Oklahoma's compulsory liability insurance laws do not dictate the determination of primary coverage.... Statutory policy is implicated only when insurers deny liability, not when they are in dispute as to which will provide primary coverage.

Even if the last part of the opinion was dicta, the Court found it persuasive and found that both insurers should pay their pro rata amounts to the injured party.  The court concludes that Oklahoma's Compulsory Insurance Law "does not constrain an insurer from declaring its coverage as excess when there is other insurance which covers its insured's liability with respect to a claim also covered by its policy. The statutory policy of the [compulsory insurance law] is implicated only if the insurer denies liability. It does not control a dispute between insurers as to which provides primary coverage. Such a dispute is a matter of contract. "

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