Georgia Court Reaffirms Longstanding Rule on Conflicting “Other Insurance” Provisions

On a certified question from the U.S. District Court for the Northern District of Georgia, the Supreme Court of Georgia has held that the traditional rule of pro rata allocation of coverage applied when two policies’ “other insurance” provisions conflict, regardless of the fact that one of the coverages was from a state-regulated insurance program.  Nat’l Cas. Co. v. Ga. Sch. Bds. Ass’n-Risk Mgmt. Fund, 2018 WL 3850936 (Ga. Aug. 14, 2018).

A professional association of teachers and administrators had overlapping liability insurance coverage through a commercial insurer and a self-insurance pool regulated by the state of Georgia.  Both policies had “other insurance” provisions which held that coverage would apply in excess of any other insurance available to an insured.  Over a period of two years, several lawsuits were filed against the association.  The commercial insurer and risk management pool initially refused to defend the association, arguing that their policies were excess only, and that the other policy acted as primary coverage.  After the commercial insurer’s continued refusal on that basis, the risk management pool agreed to defend and indemnify the insured, pending the resolution of a declaratory judgment action regarding the rights and obligations of the parties with respect to the lawsuits.

In the coverage action, the district court held that the respective “other insurance” provisions cancelled each other out and that the parties thus owed joint coverage on a pro rata basis, consistent with Georgia law.  After the parties moved for reconsideration of the ruling, the district court certified the following question to the state supreme court: whether the irreconcilable provisions rule, which developed from cases involving conflicts between two commercial insurance policies, also applied when coverage is provided by an entity formed under state law and entrusted with public funds.

The risk management pool argued, on public policy grounds, that commercial insurance should exhaust before any publicly funded risk management monies are used.  The state supreme court ultimately found that there was no basis in state law or public policy to support that position.  The court also held that requiring commercial insurance funds to be exhausted before legislatively mandated funds, without respect to the policies’ “other insurance” provisions, would frustrate “the bedrock public policy of freedom of contract.”