Massachusetts Court Holds that All Excess Policies are Created Equal
In Massachusetts, competing excess insurance policies will apply equally to provide excess coverage even if one policy is a true excess policy and the other is a hybrid policy that provides either primary or excess coverage depending on the circumstances. See Great Divide Ins. Co. v. Lexington Ins. Co., 2017 WL 4969942 (Mass. Nov. 1, 2017). In a November 1, 2017 opinion, the Supreme Judicial Court of Massachusetts held that the plain language of the insurance policies was the determinative factor in establishing priority of coverage between the policies, not the nature of the policies or the presumed intent of the parties. By this ruling, Massachusetts law varies from the law in other states which would require a hybrid policy to be exhausted before a true excess policy is triggered.
The underlying personal injury claim giving rise to the priority of coverage dispute was covered under three insurance policies: a primary policy, a hybrid policy, and an excess umbrella policy. The hybrid policy’s other insurance provision stated that the policy provided either primary or excess coverage depending on circumstances. Under the circumstances of the claim, the hybrid policy was excess of other primary coverage. A dispute arose regarding the priority of coverage between the umbrella policy and the hybrid policy. The Massachusetts court held that both policies provided excess coverage at the same level because the plain language of the hybrid policy’s other insurance provision triggered excess coverage at the same level as the umbrella policy. The court rejected the argument made by the umbrella policy insurer that its policy was a true excess policy and the hybrid policy was a primary policy that became excess under the circumstances and that therefore the umbrella policy should not apply until after the hybrid policy was exhausted. The court also rejected the umbrella policy insurer’s argument that the hybrid policy should be triggered first due to its primary nature, including that it covered mostly a primary risk, it was not clearly labeled as an “excess” or “umbrella” policy, and it had the high premiums and a low coverage limit typical of a primary policy.
The Massachusetts court’s decision is an example of the conflict between courts across the nation on this issue. For example, as discussed in The Insurance & Reinsurance Report earlier this year, a Federal District Court in Texas recently made the opposite ruling. The Texas court held that a true excess policy sat above a hybrid policy in the insurance hierarchy, and therefore would not be triggered until the hybrid policy was exhausted. Unlike the equal application of the policies under Massachusetts law, the Texas court considered the hybrid policy to be “excess by coincidence” and thus at a lower tier of coverage than the true excess policy. These recent decisions demonstrate the competing viewpoints on this issue and highlight the importance of evaluating the law of the applicable jurisdiction when a claim involves competing excess policies.