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Vol. 7, Iss. 2
March 7, 2018

Follow Form Excess Policy: Is There An Inconsistency Between Primary And Excess Terms?

It is well known that a follow form excess policy is subject to the terms of the underlying policy, except when they are inconsistent. In that case, the terms of the excess policy control. But how do you know when the terms of the two policies are inconsistent?

This was the issue before the court in Praetorian Ins. Co. v. Western Milling, LLC, No. 15-557 (E.D. Cal. Feb. 2, 2018). The facts stated by the court are thin. All we are told is that the case involves the availability of coverage for damaged cattle and, at issue, is the applicability of a “care, custody or control” exclusion. The exclusion in the primary policy precludes coverage for property in the “care custody or control of the insured.” The exclusion in the excess policy precludes coverage for property in the “care custody or control of any insured.”

In the matter at hand, the excess policy, standing alone – with its “any insured” verbiage -- would preclude coverage. However, the primary policy contained a severability of interests clause and the excess policy did not. The issue before the court was whether the excess policy, as a follow form policy, included the severability of interest clause. If so, then the excess policy’s “any insured” care, custody or control exclusion, in conjunction with the now-included severability of interest clause, would be read as care, custody or control of “the insured.” In that case coverage would be owed.

The insured argued that the primary policy’s severability of interest clause was included in the excess policy since it was not inconsistent with the excess policy. Indeed, the excess policy did not have a severability of interests clause. So how could it be inconsistent? The insured maintained that “a provision of the primary policy is only inconsistent if it is in direct conflict with another term found in the excess policy: for instance, the excess policy requires notification of a claim ‘promptly in writing,’ whereas the primary policy requires notification of a claim ‘as soon as practicable.’”

But the court did not see it that way. It examined whether the provision in the primary policy, to be incorporated into the excess policy, is facially inconsistent with a term in the excess policy. Using that test, the court found a facial inconsistency: “The severability provision of the primary policy states that the policy applies ‘[a]s if each Named Insured were the only Named Insured.’ The ‘care, custody, or control’ exclusion in the excess policy excludes coverage for losses to ‘[p]ersonal property in the care, custody or control of any insured.’ The severability provision of the primary policy therefore purports to treat each insured’s coverage separately, while the exclusion of the excess policy applies collectively regardless of which insured is claiming the loss and which insured had control of the property at issue. The inconsistency is apparent on the face of the primary and excess policies.”

Accordingly, on account of this inconsistency, the court held that the severability provision of the primary policy was not incorporated into the excess policy. Therefore, the excess policy’s exclusion, for property in the “care custody or control of any insured” applied in “full force.”

 
 
 
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