Who Pays And How Much When Multiple Policies Apply?
by Micah Skidmore
“Less is more.”—Architect Ludwig Mies van der Rohe
While sometimes less may indeed be more, more should never be less. But, when multiple policies apply to a single claim, policyholders can sometimes feel as though they would be better off with only one policy.
If, for example, a long-tail environmental claim or latent construction defect claim triggers coverage under a series of liability or property policies, each subject to a deductible or self-insured retention (SIR), those carriers responding to the claim may each insist on satisfaction of a separate deductible/SIR before the insured may recover. Will an insured with the foresight to purchase continuous insurance coverage have to satisfy multiple deductibles/SIRs before accessing the benefits of any policy?
As a general rule, when multiple policies are triggered by a single “occurrence,” the insured has the right, under Texas law, to choose which policy will respond to the claim, including whichever policy has the lowest deductible. Nonetheless, in the event that the insurer, chosen to respond to a given claim, exercises its right of subrogation to pursue coverage from so-called “other insurance,” the question remains whether the insured is required to satisfy one or more deductibles or SIRs, to which that “other insurance” may be subject.
Fortunately, however, there are other means to protect the insured against attempts by insurers to “stack” deductibles or SIRs. Many policies do not specify the means by which a deductible or SIR must be satisfied. Absent an express limitation, the insured may be able to satisfy the requirement of a retention or deductible under one policy using the proceeds of another policy.
There are, for example, a number of decisions from courts in California and Florida concluding that unless a policy unambiguously requires exhaustion of a deductible or SIR by the insured, the insured may satisfy such SIR or deductible with so-called “other insurance” also implicated by the same occurrence or loss. At least one Texas court has similarly concluded that an insured “may satisfy the self-insured retention by making its payment in whatever form it wants.” Pak-Mor Mfg. Co. v. Royal Surplus Lines Ins. Co., 2005 U.S. Dist. LEXIS 34683, at *29–30 (W.D. Tex. Nov. 3, 2005).
Alternatively, when coverage is afforded by two policies with differing deductible/SIR obligations, the deductible under one policy may be allocated between those policies providing coverage. Those authorities permitting allocation of a deductible or SIR reason that an insurer whose coverage obligations are prorated is not entitled to demand the payment of a full deductible or SIR.
Still other authorities require that the insurer with the smaller of the two deductibles/SIRs pay the amount of the larger deductible, with any excess loss apportioned between both carriers. In this instance, the insured is required to pay only the cost of the smaller deductible or SIR.
However, because the deductible or SIR obligation under many liability and property policies is triggered by an “occurrence” or “accident,” avoiding the “stacking” of SIRs or deductibles depends on the existence of a single “occurrence.” Whether a loss arises from one or more “occurrences” depends, in part, on the subject policy’s definition of “occurrence.” Some policies specify that continuous or repeated exposure to substantially the same general conditions shall be deemed to be one “occurrence.” Otherwise, Texas courts apply a “cause” analysis to determine whether a set of facts involves one or more “occurrences” by determining the number of events that “cause” the underlying loss or liability.
Provided that a given loss or claim involves only a single “occurrence,” an insured should never be required to pay more than one deductible or self-insured retention. To conclude otherwise would deny the insured the benefit of the insurance purchased and violate principle that more should never be less.
Micah E. Skidmore is an associate at Haynes and Boone, LLP. He can be reached at Micah.Skidmore@haynesboone.com.