Allocating the Duty to Defend Between Co-Insurers

A Video Explaining How to Allocate Defense Costs When two or More Insurers Insure the Same Risk

Since other insurance clauses usually do not prescribe how defense costs should be apportioned among insurers, courts have developed general allocation rules. When only one of two insurers is held to provide coverage, that insurer must bear the entire burden of defense. [Mandell Corp. v. Insurance Co. of No. America, 125 Misc. 2d 390, 479 N.Y.S.2d 452 (Sup.Ct. New York County 1984)]

The majority view is that the insurers must share the costs of defense pro rata in the same proportion that the face amount of each policy bears to the total amount of valid and collectible insurance.

Generally, an excess insurer is not required to contribute to the defense of the insured so long as the primary insurer is required to defend. The discussion assumes that the relationship between the insurers arises through the operation of other insurance clauses and not by design of the insured. The considerations regarding allocation of the duty to defend where the relationship between the insurers arises by design may differ from that when the relationship arises by coincidence.

When other insurance clauses operate to make one insurer the primary insurer and the other an excess insurer, the primary insurer is generally held to have the burden of defending.. Nevertheless, there are cases that suggest that in certain circumstances, insurers may owe a duty to participate in the insured’s defense.

Policyholders should not assume, whether they agree with the decisions in Comerica and Qualcomm or not, that they can settle with underlying insurers for less than the amount of any applicable underlying limits without putting excess coverage at risk. Policyholders with pending claims must carefully review their policies for exhaustion language like that found clear and unambiguous in Comerica and Qualcomm should consult coverage counsel before considering settlement of a suit or claim. Policyholders seeking new or renewal policies should seriously consider whether the price of the coverages is sufficient to provide the coverage needed even with the limitations created by the language found to be effective.

© 2021 – Barry Zalma Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders.

He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business.

He is available at http://www.zalma.com and zalma@zalma.com. Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award. Over the last 53 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

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