In 2012, the Barnard Elementary School Building (“Barnard Building”) in Tulsa, Oklahoma sustained approximately $6 million in fire damage in 2012. There were two insurance policies covering the same policy period: (1) a policy issued by Philadelphia Indemnity Insurance Company (“Philadelphia”) to the Tulsa School of Arts and Sciences for coverage of the building it leased from the Tulsa County School District; and (2) a policy issued by Lexington Insurance Company (“Lexington”) that covered 100 Tulsa County School District facilities, including the Barnard Building.

Both policies covered fire damage, so the question became, what insurer owed for the damage and in what amounts?

The policies contained identical “other insurance” provisions:

  1. You may have other insurance subject to the same plan, termsconditions and provisions as the insurance under this Coverage Part.If you do, we will pay our share of the covered loss or damage. Our share is the proportion that the applicable Limit of Insurance under this Coverage Part bears to the Limits of Insurance of all insurance covering on the same basis.,
  1. If there is other insurance covering the same loss or damage, otherthan that described in 1 above, we will pay only for the amount of covered loss or damage in excess of the amount due from that other insurance, whether you can collect on it or not. But we will not pay more than the applicable Limit of Insurance.

In December 2015, an Oklahoma federal judge ruled these provisions cancelled each other out and the insurers would owe a portion based on their policy limits (“Philadelphia and Lexington shall share coverage of the loss ‘on a pro rata basis according to the ratio each respective policy limit bears to the cumulative limit of all concurrent policies.’”). Philadelphia’s policy limit was $7 million. Lexington’s policy covered many buildings and had a total coverage limit of $100 million per occurrence. The district court determined that Philadelphia owed 54% ($3.2 million) and Lexington owed 46% ($2.8 million).

The ruling was appealed to the Tenth Circuit Court of Appeals, and on January 19, 2017, the Tenth Circuit affirmed the district court’s judgment that Philadelphia and Lexington must split coverage in the pro rata allocation determined by the district court.1

The appellate court’s 41-page opinion relied on the Oklahoma Supreme Court case, Equity Mutual Insurance Company v. Spring Valley Wholesale Nursery, Inc.:2

Equity Mutual instructs that, after ‘disregard[ing]’ the conflicting clauses, the insurers must share the loss ‘on a pro rata basis,’ unless, that is, the policies contain ‘concurring provisions for apportionment’ that provide otherwise, in which case, we follow the parties’ preferred method. The policies here have concurring clauses for apportionment—the first clauses in each policy’s ‘other insurance’ provision. We therefore give effect to the parties’ preference expressed in their identical first clauses for pro rata apportionment, which, as previously explained, tracks the default rule.

The Tenth Circuit also considered persuasive support from Southern Insurance Co. v. Affiliated FM Insurance Co., 830 F.3d 337, 350-351 (5th Cir. 2016), in which the Fifth Circuit, applying Mississippi law to facts similar to those in this case, held two “other insurance” clauses were mutually repugnant and ordered a pro rata distribution.

While this decision addressed a dispute between two insurers, it is still important for policyholders to be mindful of multiple property insurance policies that may provide coverage for a loss, and therefore another reminder to periodically review your policies.
1 Philadelphia Indemnity Ins. Co. v. Lexington Ins. Co., case numbers 16-5008 and 16-5010, (10th Cir. Jan. 19, 2017).
2 Id. at 36; Equity Mutual Ins. Co. v. Spring Valley Wholesale Nursery, Inc., 747 P.2d 947 (Okla. 1987).