Legal Definitions - other-insurance clause

An other-insurance clause is a specific provision found within an insurance policy. Its purpose is to define how the policy will respond and limit its payout if the insured individual or entity has additional insurance coverage from another policy that also covers the exact same loss or liability.

Essentially, these clauses prevent an insured from collecting more than the actual value of their loss by claiming from multiple policies. Instead, they establish rules for how different insurers will share the cost of a claim when more than one policy applies.

Here are a few examples to illustrate how an other-insurance clause might work:

• Example 1: Car Accident with Multiple Policies

  Imagine Sarah is driving her personal car for a ride-sharing service. She has her own personal auto insurance policy. The ride-sharing company also provides a commercial auto insurance policy that covers its drivers while they are actively transporting passengers. If Sarah gets into an accident while working, both her personal policy and the company's commercial policy might potentially cover the damages. The other-insurance clause in Sarah's personal policy might state that it is "excess" coverage when she's driving for a ride-sharing service, meaning it will only pay after the ride-sharing company's policy has paid its maximum. Conversely, the company's policy might have a clause stating it's "primary" coverage during active service. These clauses help determine which insurer pays first and how much each contributes to the total claim.

• Example 2: Business Property Damage

  A small manufacturing company, "InnovateTech," has a comprehensive business property insurance policy covering its factory building and all its contents. Separately, InnovateTech also leases a highly specialized, expensive piece of machinery and, as part of the lease agreement, has purchased a specific equipment insurance policy just for that machine. If a fire damages the factory, including the leased machinery, both InnovateTech's general business property policy and the specialized equipment policy could potentially cover the damage to the machine. The other-insurance clause in one or both policies would dictate how the two insurers coordinate payment for the machinery's damage, ensuring InnovateTech is compensated for its loss without receiving a double payout.

• Example 3: Contractor Liability

  A construction company, "BuildRight," is hired by a property developer to build a new apartment complex. BuildRight carries its own general liability insurance policy. The property developer, as part of their contract, requires BuildRight to be named as an "additional insured" on the developer's own general liability policy for the duration of the project. If a visitor is injured on the construction site due to BuildRight's work and sues both BuildRight and the developer, both the contractor's policy and the developer's policy (which now also covers BuildRight) could be triggered. The other-insurance clauses in these policies would specify whether one policy is primary, secondary, or if they share the liability on a "pro rata" (proportional) basis, ensuring a fair and coordinated response to the claim.