Court Weighs Excess Coverage, ‘Other Insurance’ Provisions

By Don R. Sampen, published, Chicago Daily Law Bulletin, March 19, 2024

The U.S. District Court for the Northern District of Illinois recently resolved competing “other insurance” issues between two insurers. It found that a real estate management company’s insurance for a slip-and-fall claim was excess over a tenant’s coverage.

The case is Travelers Property Casualty Co. of America v. Benchmark Insurance Co., No. 22-cv-2308, 2024 U.S. Dist. Lexis 31265 (N.D. Ill., Feb. 23). The real estate management insurer, Travelers, was represented by Amundsen Davis LLC of Chicago. Goldberg Segalla LLP of Chicago represented the tenant’s insurer, Benchmark.

The underlying plaintiff, Brian Haro, was an employee of Helget Gas products Inc., a tenant in a building in Elk Grove Village managed by Arthur J. Rogers & Co. (AJR). Haro alleged he slipped and fell on ice in the course of his employment in 2019 and brought suit against AJR along with the building owner who was not involved in the insurance dispute.

The lease between Helget and AJR as agent for the owner required that Helget maintain liability insurance for itself and AJR. It further required that Helget indemnify AJR for claims arising out of Helget’s use of the premises, except for claims arising from AJR’s negligence.

Benchmark issued liability coverage to Helget. Its policy contained an endorsement identifying AJR as an additional insured. The policy’s “other insurance” clause stated that the coverage would be primary except in certain instances. Those instances, as relevant here, included where the other primary insurance was available to “you” and “you have been added as an additional insured” on the other insurance policy. “You” was defined as the named insured, Helget.

The Benchmark policy also contained an endorsement stating that the policy’s coverage would be primary and noncontributory for an additional insured under the policy where two conditions were met, namely, where (a) the additional insured was a named insured on another policy, and (b) “you” have entered into an agreement in writing stating that the coverage for the additional insured would be primary and noncontributory.

Travelers issued a liability policy AJR. The Travelers “other insurance” provision stated that the policy would be excess over other primary insurance available to “you” — defined as AJR — where “you have been added as an additional insured by attachment of an endorsement.” It also contained a property manager endorsement, providing that the coverage would be excess when AJR was acting as a real estate manager and had other available insurance coverage.

Travelers and Benchmark disputed which was excess to the other, as a result of which Travelers brought this declaratory action, and Benchmark filed a counterclaim. They followed with cross-motions for judgment on the pleadings.

Analysis

In an opinion by Judge Jeffrey I. Cummings, the court held in favor of Travelers. In reaching a decision, Cummings focused on three arguments Travelers raised.

The first, on which Benchmark also relied in support of its position, involved the interplay between the lease agreement and the primary-noncontributory endorsement in the Benchmark policy. Travelers argued that the first condition in the endorsement was satisfied, since AJR was a named insured on another policy, i.e., on Travelers’ policy.

As for the other condition, that “you” (meaning Helget) enter into an agreement providing for primary-noncontributory coverage, Travelers relied on the lease agreement itself that required Helget to provide coverage for AJR.

Cummings observed, however, that while Helget agreed to provide insurance coverage for AJR, nothing in the lease stated that the coverage would be primary and noncontributory. Thus, Cummings rejected Travelers’ initial position and agreed with Benchmark that the provision in question did not establish Travelers as excess.

Second, Travelers turned to the respective “other insurance” clauses, which found a more receptive audience. Cummings noted initially that Illinois courts look to “other insurance” provisions where possible to resolve the priority of coverage.

The only relevant “other insurance” language in the Benchmark policy indicated that the Benchmark coverage would be excess over other primary insurance available to Helget when Helget was added as an additional insured under another policy. Here, however, Helget was not an additional insured under the Travelers policy. So, this provision did not benefit Benchmark.

The Travelers “other insurance” provision, on the other hand, stated that Travelers would be excess over primary insurance available to AJR, where AJR was added as an additional insured to the other policy by endorsement. Because AJR was added to the Benchmark policy by endorsement, the Travelers coverage therefore was excess over the Benchmark coverage.

Third, the Travelers property management endorsement provided that the Travelers coverage would be excess over any other insurance available to AJR for liabilities arising out of AJR’s management of property. Since the underlying claim arose as such, Cummings found the Travelers policy to be excess for this additional reason.

Benchmark made a further argument based on the indemnification provision under the lease. That provision required Helget to indemnify AJR for claims except when the claim arose from AJR’s own negligence. Because the slip and fall here was claimed to have arisen from AJR’s own negligence, Benchmark argued Helget had no indemnification obligation.

Be that as it may, Cummings found the argument had no bearing on interpreting the duties of Travelers and Benchmark under their respective insurance policies. Thus, the lack of an indemnification obligation did not affect Benchmark’s primary coverage obligations.

Finally, Travelers sought to recover from Benchmark by way of subrogation the defense costs it had already incurred on behalf of AJR following Benchmark’s refusal to defend. Cummings wrote that Travelers would be entitled to subrogate but that its claim was premature.

It was premature because, according to Cummings, Illinois law did not allow for partial subrogation, and the subrogee must await until it pays off the debt in question in full. Here, Travelers had not fully discharged Benchmark’s obligation to defend because the underlying suit was ongoing. Consequently, Travelers’ subrogation recovery would be delayed.

The court therefore granted Travelers’ motion in substantial part and denied Benchmark’s, holding Travelers’ policy issued to AJR would apply in excess of Benchmark’s additional insured coverage for AJR. The court also denied Travelers’ claim for subrogation, although with leave for Travelers to refile its claim once the claim became ripe.

Key Points

• When possible, “other insurance” provisions are relied on in Illinois to coordinate coverage among insurers for purposes of determining which insurer has excess or primary coverage responsibility.

• Partial subrogation is not permitted, such that to be entitled to subrogation recovery, the subrogee must fully discharge the debt of the third party.