Insurance companies may find salvation in pro rata insurance clauses
The plaintiff obtained a fire insurance policy through Insurer A covering her personal property in her home up to $100,000. She obtained a separate policy through Insurer B, covering the same property, but only up to $20,000. Each policy contained a pro rata other insurance clause, providing that, if the plaintiff sustained a covered loss, and if she had other insurance covering the same loss, her loss recovery would be limited to the amount of the subject policy issuer’s pro rata share of the total insurance covering the loss.
After a fire allegedly destroyed the personal property in her home, the plaintiff initiated coverage claims with both insurance companies. Insurer A denied the plaintiff’s claim. The plaintiff did not pursue her claim with Insurer B. Instead, she sued Insurer A, alleging that it breached its policy with her by wrongfully denying her claim. Insurer A later filed a third-party subrogation claim against Insurer B, claiming that Insurer B was liable to the plaintiff for its proportionate share of any damages awarded to her.
Insurer B filed a motion for judgment on the pleadings, seeking dismissal based on each policy’s pro rata other insurance provision. Insurer B argued that, because the total amount insured under both policies, combined, was $120,000, and because Insurer A’s policy limit was $100,000, Insurer A should only have to pay 83.3 percent (i.e., its proportionate share, equal to $100,000 divided by $120,000) of any damages awarded to the plaintiff. Insurer B further argued that, because the plaintiff failed to pursue her insurance claim with it, and because she herself did not seek relief from Insurer B in the lawsuit, there was no reason to keep Insurer B in the case, as Insurer A would effectively receive the relief it sought in subrogation through an order limiting its liability to 83.3 percent of any damages awarded to the plaintiff.
The court agreed, dismissing Insurer B from the lawsuit, and limiting the plaintiff’s recovery against Insurer A to 83.3 percent of any damages awarded. The plaintiff and Insurer A are heading toward trial.