Second Circuit Asks California Supreme Court for Input on Priority of Coverage Dispute

The Second Circuit recently asked the California Supreme Court to clarify how two primary general liability policies should contribute to the settlement of a construction accident claim, in a situation where one policy contained an excess “other insurance” clause and the other did not.

The dispute arose out of a 2004 accident when an employee of Kinetics Group Ltd. damaged equipment owned by Tower Inc. on a project in Israel. Due to its business structure and use of international subsidiaries, Kinetics and its subsidiary had two primary layer policies with The Insurance Co. of the State of Pennsylvania (“ICSOP”) and Migdal Insurance Co. Ltd. (“Migdal”).

When Tower sued Kinetics, Migdal assumed the defense of Kinetics, settled with Tower, and then sued ICSOP for contribution. ICSOP’s policy contained an “other insurance” clause stating that the policy was excess to any other policy covering losses at the same level; Migdal’s policy contained no “other insurance” clause.

The New York district court applying California law determined that Migdal was entitled to equitable contribution from ICSOP because the modern trend in California is to require proportional contribution among same-level insurers regardless of “other insurance” clauses.

ICSOP appealed this finding to the Second Circuit, which determined that California law was unsettled on this issue, and therefore certified the question to the California Supreme Court.

SDV will monitor this case and report the result reached by the California Supreme Court. Priority of coverage disputes have a significant impact on coverage, particularly in the additional insured context. Thus, this is an important issue for policyholders in a jurisdiction such as California.

The case is Migdal Ins. Co. Ltd. V. The Ins. Co. of the State of PA, case no. 15-2588 (2d Cir. 2016).



Jul 21, 2016
William S. Bennett

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