Other insurance clauses explain how a policy will respond when other policies cover the same loss.
Learn more about other insurance clauses and when they matter.
What Is an Other Insurance Clause?
Most claims insured under general liability and other policies are covered on a primary basis. For example, if a customer files a claim against your company for a bodily injury they sustained in a slip-and-fall accident on your premises, your liability policy should cover the claim first.
However, some events generate claims that are more appropriately insured by other types of policies. To address this issue, liability policies contain a policy condition called other insurance. This clause explains how the policy will respond when certain claims covered by the policy are also insured elsewhere.
How Other Insurance Clauses Work
How these clauses work depends on the situation. Consider the following scenario:
Harry operates a large retail hardware store in a building he leases from Buildings Inc. His lease requires him to insure the building under a commercial property policy. The policy lists both Buildings Inc. and Harry's business, Harry's Hardware, as insureds. The lease also requires Harry to purchase a general liability policy that includes Buildings Inc. as an additional insured.
One night, a fire breaks out in the building when the store is closed. Firefighters determine that the fire started in a bag of recyclables when a 9-volt battery reacted to a piece of steel wool. The fire caused $200,000 in damage to the building.
The liability policy that covers Harry's Hardware includes a $250,000 limit for damage to a rented building. The fire resulted from the hardware store's negligent storage of recyclables.
If Building's Inc. demands that Harry's Hardware pay for the fire damage to the building, the claim could be covered by Harry's liability policy. However, the fire damage to the building is also covered under Harry's commercial property policy. Which policy will apply first?
In this case, the liability would be excess coverage because it's primarily a property damage claim. It would pay after the commercial property policy pays out.
General liability policies are considered excess coverage for losses in several situations.
Fire or Other Property Insurance Covering Your Work
Let's say you're an electrical contractor and installing electrical wiring in a building that is under construction, and you own a liability policy. All of the contractors involved in the project (including you) are insured for physical damage to the building during construction under a builders risk policy. If you accidentally damage the building during its construction, the builder's risk policy will apply first. Your liability policy will cover damage caused by your negligence on a secondary basis.
Fire or Other Property Insurance Covering Premises You Rent
In the first example, Harry is insured under a commercial property policy for damage to the building he rents from Buildings Inc. Because the fire damage is insured under a property policy, that policy should apply first. Harry's liability policy will apply on an excess basis.
Other Insurance You've Purchased to Cover Your Liability as a Tenant for Property Damage to Premises You Rent
For example, suppose that you've rented office space under a short-term lease. Your landlord has insured the building under a commercial property policy. To protect yourself, you have purchased a legal liability policy, a type of property policy that covers your legal liability for damage to property owned by someone else but in your care. If you accidentally cause property damage covered by your legal liability policy, that should apply first. Your general liability policy will apply as excess coverage.
Any Other Insurance That Covers Your Liability for the Use of Aircraft, Vehicles, or Watercraft
For example, suppose that your company owns a yacht. You've purchased a marine policy that covers your liability for the use of your boat as well as boats you don't own. You rent a small boat and inadvertently cause an accident in which someone is injured. If the injured person files a claim, your boat policy should apply first. Your general liability policy will apply on a secondary basis.
The other insurance provisions in your liability policy may conflict with those in another policy. For example, if you're insured under two liability policies and both of them state that they apply on an excess basis. When other insurance clauses are inconsistent, state law or a previous court decision may determine how the conflict is resolved.
Coverage Provided to You as an Additional Insured
If you're covered for a claim under someone else's policy as an additional insured, that policy should cover you on a primary basis. Your own policy should cover the claim on an excess basis.
For example, Buildings Inc. is an additional insured under Harry's Hardware's liability policy for claims arising out of Harry's use of the leased building. Say that Building's Inc. is sued by a company that claims its building suffered smoke damage from the hardware store fire. The lawsuit alleges that Buildings Inc. is partly liable for the fire because it knew about Harry's improper storage of recyclables but did nothing to remedy the situation.
Because the claim arose out of Harry's use of the rented building, Harry's liability policy should respond to the claim on a primary basis. If Harry's liability coverage is used up, then Building's Inc.'s own liability policy should provide excess coverage.
- Other insurance clauses explain how a policy will respond when there's other insurance coverage for the same loss.
- Most insurance policies offer coverage on a primary basis, but some events generate claims that are a better fit for other coverage. For example, general liability policies typically pay second if a property policy also covers the same damage.
- Other insurance clauses vary depending on the policy language.