Irreconcilable “Other Insurance” Clauses Result in Pro Rata Allocation of Defense Costs

The United States District Court for the Eastern District of Michigan, applying Michigan law, has held that irreconcilable “other insurance” provisions in two polices, each with a concurrent duty to defend, cannot be given effect such that each insurer was therefore liable for defense costs proportionate to the limits of each policy. Aspen Spec. Ins. Co. v. ProSelect Ins. Co., 2022 WL 4109623 (E.D. Mich. Sept. 8, 2022).

An individual sued both a massage therapist and the massage therapist’s employer for negligence. The massage therapist’s professional liability insurer provided a defense against the underlying action and filed suit against the employer’s insurer, seeking a declaratory judgment that the employer’s insurer also had a duty to defend the massage therapist and equitable subrogation for past and future defense expenses. On prior cross-motions for summary judgment, the court held that the employer’s insurer also had a duty to defend. The insurers then filed further summary judgment motions on the issue of allocation of defense costs between the two policies with concurrent duties to defend. 

The court first held that the “other insurance” clauses in the two policies were each “excess” clauses that could not be reconciled, and therefore neither could take effect. The court held that an additional “escape” clause in one of the policies that purported to negate a duty to defend when that policy was excess and another insurer had a duty to defend was inapplicable, as neither policy provided that it was to be primary insurance.

Having held that the two “other insurance” provisions could not be given effect, the court held that each insurer must pay defense costs proportionate to its limit of liability. In so holding, the court rejected the argument that the pro rata by limits rule of allocation under Michigan law is limited to allocating indemnity costs; rather, the court held the rule applied to allocation of defense costs as well.