The Ultimate Finger-Pointing Game: Other Insurance Provisions and How They Intersect with Self-Insured Programs

Insurers like to make their coverage obligations someone else’s problem. One of the ways they do this is by saying that another insurer has to go first. In other words, insurers will sometimes take the position that another insurer has to pay its full policy limit before the first insurer pays anything. The insurers play this finger-pointing game by citing the “other insurance” provision, which is standard in most liability insurance policies. In certain circumstances, courts will “cancel out” dueling “other insurance” clauses and require each insurer to pay on a 50–50 basis when coverage truly overlaps. Other times, courts will establish a “proportional” split of responsibility if one insurer provided higher limits than the other insurer when multiple policies are triggered. As always, the precise words of the insurance policy will directly impact a court’s analysis of the disputed coverage provisions. Recently, the New Jersey Supreme Court tackled another “other insurance” dispute that does not often garner much attention but may be important for corporate policyholders to consider, especially if those policyholders “self-insure” a significant part of their insurance program.

In Statewide Insurance Fund v. Star Insurance Company, a young boy sadly died on the beach in Long Branch. His family sued the town, and they settled the case. Long Branch was part of a “joint insurance fund,” or “JIF,” administered by Statewide, which was an organization of towns in New Jersey that pooled their resources and insurance risk exposures in one fund up to a certain threshold—$10 million. Long Branch also had a separate policy of insurance issued by Star that provided a $10 million limit. When Long Branch settled the claim with the family, Star refused to contribute, taking the position that it was “excess” coverage and Star was on the hook only after “other insurance,” i.e., the Statewide funding, was exhausted. Statewide filed a declaratory judgment action seeking to establish that its coverage was excess to any coverage provided under the Star policy.