What happens when you have two insurance policies that cover the same risk, do you get to collect twice for the same injury? Most property insurance policies include a provision known as the “Other Insurance” clause. An example reads like this:

Other Insurance
If a loss covered by this policy is also covered by other insurance, we will pay only the proportion of the loss that the Limit of Liability that applies under this policy bears to the total amount of insurance covering the loss.

In practice, it limits the amount the policy will pay to a proportion of total coverage. As an example, assume a homeowner has two insurance policies that specifically cover fire losses. Policy A has a limit of $100,000, and Policy B has a limit of $300,000. If the homeowner suffers a fire loss in the amount of $100,000, Policy A will pay ¼ of the loss ($25,000) and Policy B will pay ¾ of the loss ($75,000).

How would this provision apply to a hurricane loss, which may have components of both wind and flood damage, if the policyholder has both a wind and flood insurance policy? The Florida First District Court of Appeal issued its opinion last week in a case where the trial court inappropriately applied this clause to determine how much the wind insurer was liable for. Citizens Property Ins. Corp. v. Ashe, No. 1D09-1546, 2010 WL 4628915 (Fla. 1st DCA Nov. 17, 2010).

In Ashe, the policyholder had purchased both a flood insurance policy and a wind only policy. The wind only policy, while it provided for coverage from hurricane losses, specifically excluded coverage from storm surge, wave wash, and flood. The wind only policy also had an Other Insurance clause in it, identical to the one above. The insured suffered a total loss to his property and was paid policy limits by the flood insurer. At trial on the wind policy damages, the trial court judge erroneously applied the other insurance clause, despite the facts that neither party had argued for its application and both parties objected to its use.

Regarding the other insurance clause, the First District Court of Appeal said,

“other insurance” exclusions “are applicable when two or more insurance policies are on the same subject matter, risk and interest. The reason for said exclusionary clauses is to avoid double collection, and thereby discourage fraud.” (Citations omitted.) We agree with the parties that the purpose of Citizens’ “Other Insurance” provision is to address the situation where an insured has multiple polices that insure the same risk; for example, a wind policy of $200,000 with one carrier and a second $200,000 wind policy with another carrier. It is not applicable when the insured has a wind policy and a flood policy, each covering a different peril.

The appellate court reversed the trial court’s application of the other insurance clause to the facts in this case. The appeal, however, was not limited to the issue of the other insurance clause. The court discussed several other important issues, such as the Total Loss Recovery Rule, the relevance of evidence of other insurance payments for the same loss, and the Collateral Source Rule. We will follow up with analysis of those topics in upcoming posts.