Most policies contain an “Other Insurance” condition, which usually reads along these lines: “If a loss covered by this policy is also covered by other insurance, we will pay only the portion of the loss that the limit of liability that applies under this policy bears to the total amount of insurance covering the loss.” Let’s discuss the appropriate application of this condition by way of hypothetical:
Hypothetical No. 1
- Your home has $500,000.00 worth of wind coverage. Alpha Insurance Company provides $300,000.00 of that coverage and Beta Insurance Company provides the other $200,000.00.
- Your home sustains $100,000.00 in wind damage, triggering the Alpha and Beta policies.
- Who pays what? Well, 60% (or $300,000.00 / $500,000.00) of your coverage is with Alpha and 40% (or $200,000.00 / $500,000.00) of your coverage is with Beta. So, in theory, Alpha would pay out $60,000.00 on your $100,000.00 loss and Beta would pay $40,000.00.
Hypothetical No. 2
- Your home has $500,000.00 worth of coverage. Alpha Insurance Company provides $300,000.00 in wind coverage and Beta Insurance Company provides $200,000.00 in flood coverage.
- Your home sustains $100,000.00 in wind damage, triggering the Alpha policy.
- Does Alpha somehow get to pay a pro rata share of your $100,000.00 loss? In other words, does Alpha somehow only have to pay out $60,000.00 on your $100,000.00 wind loss? No, the “Other Insurance” condition only applies where “two or more policies are on the same subject matter, risk and interest.”1 Put differently, the “Other Insurance” condition does not apply “when the insured has a wind policy and a flood policy, each covering a different peril.”2 This is an important distinction, especially in states (like Florida) with valued policy laws on the books.3
To read previous posts in my series on insurance policy conditions, click here.
1 Citizens Prop. Ins. Corp. v. Ashe, 50 So. 3d 645, 650 (Fla. 1st DCA 2010) (internal citation omitted).
3 See Ashe and Section 627.702 of the Florida Statutes.