What is an "Other Insurance" clause?

“Other Insurance” clauses can add a layer of complication for policyholders who experience a loss that may be covered under more than one of their insurance policies.  "Other insurance" clauses are designed to explain what happens in these scenarios--and they are typically designed to limit the insurance carrier's exposure vis-a-vis the other carrier as much as possible. 

"Other insurance" clauses typically fall into three categories:

1) Pro rata clauses state that when multiple policies are implicated in a covered loss, the policies will share in the loss;

2) “Excess” clauses  state that the insurance does not provide any coverage unless and until the limits of the "other insurance" is depleted on the claim.  In other words, the "other insurance" pays first and then if more money is needed to cover the loss, the policy with the "excess" loss kicks in.

3) “Escape” clauses state that the insurer has no liability on the claim whatsoever if another policy covers the loss -- even if the other policy's limits are far too low to put the policyholder back in their pre-loss condition. [1]

Despite what the policy says however, the law is what governs, and often times "other insurance" clauses can be rendered unenforceable.  Or, they may apply in ways not clear from their language.

Because nearly every policy has some kind of "other insurance" clause, they often clash, creating conflicts.  It is not uncommon that multiple or all carriers on the risk will refuse to provide coverage for a claim until the others do, and exhaust their limits.  Unfortunately, this creates a scenario where the policyholder is left without any coverage and is forced to sue their carriers.

These conflicts most commonly arise in large, complicated commercial claims.  Large commercial entities not only often have several different policies in effect at the same time, but they also experience losses that occur over long periods of time, spanning several different policy periods and implicating different insurance companies.  For example, environmental contamination claims often involve slowly leaking chemicals.

On the other hand, most individual policyholders often never experience this issue.  Most do not have multiple policies that cover the same risk, but if they do -- like homeowners and umbrella insurance -- how these policies interact is clearly defined.

[1] 3-22 New Appleman on Insurance Law Library Edition § 22.02 (2017)