An automobile insurance policy may have a provision for “other insurance.” When more than one insurance policy provides coverage for a loss, the “other insurance” clause can limit an insurance company’s liability by defining the priority in which the policy should pay an insured’s claim. There are three types of “other insurance” clauses: (1) pro rata; (2) excess; and (3) escape.
Pro rata clauses are the most common. They direct that the insurance policy will pay the claim equally or in proportion to the other policy’s limits of coverage. An excess clause states that the policy will not pay on the claim until the other policy’s limits are exhausted. An escape clause, also called a void clause, states that the policy will pay nothing on the claim if any other applicable insurance exists. This clause is not favored because its application may result in denying an insured the benefit of the coverage he or she has purchased.
If there is no “other insurance” clause in either insurance policy, then both are usually treated as primary. The loss is paid pro rata according to the policy limits. However, the majority of insurance policies include “other insurance” clauses of one type or another. When both policies have “other insurance” clauses, a minority of courts will hold the clauses mutually repugnant and require the proration of liability. Some courts will not enforce escape clauses because they violate state statute or public policy.
The majority of courts examine the insurance policies and the clauses to determine which policy is primary. For example, if one policy contains a pro rata clause and the other an excess clause, the policy with the pro rata clause will be deemed primary. If one policy has a pro rata clause and the other an escape clause, the escape clause would be deemed unenforceable and each insurance policy would be liable for its proportionate share of the loss. Some courts will allocate liability to the insurance policy that is closest to the risk without regard to the types of “other insurance” clauses in conflict.