Other Insurance in the Context of Automobile Liability Insurance
Liability insurance policies typically contain language that limits the insurer’s liability in the event that there is other insurance that covers the same loss. The purpose behind these provisions is to control how the insurer will cover a loss in the event that there is more than one insurance policy that provides coverage. Generally, the interplay between two policies’ “other insurance” clauses is only relevant if: (1) the insured is the same under both policies; (2) the policies insure the same risk; and (3) either policy would cover the loss if the other policy did not. Where two insurers are obligated to provide a defense and indemnity with respect to a claim and both policies contain an “other insurance” clause, a dispute often arises regarding the obligations of the insurers.
One such dispute is focused on whether the “other insurance” should even be considered insurance. “Other insurance” clauses often refer to the other insurance in terms of “collectible insurance”. In those cases where the insured’s other insurance is a fronting policy, self-insurance or insurance with a very high deductible as a result of which the insured itself will have to pay the entire loss, the insured may argue that the “other insurance” is not “collectible” and, therefore, the other insurance clause is not triggered. The law in this area is somewhat murky. However, in the context of automobile liability insurance, in Michigan the law is not as murky.
Pursuant to Michigan’s No Fault Act and Financial Responsibility Act, owners and operators of vehicles are required to maintain security for liability and are required to provide proof of financial responsibility for such liability. Proof of financial responsibility can be satisfied by insurance. Pursuant to MCL 500.3101(4), subject to approval by the Secretary of State, proof of financial responsibility can also be satisfied by means of self-insurance. At least one court has held that “self-insurance is the functional equivalent of insurance under the no-fault and financial responsibility acts” and constitutes “other collectable insurance” within the meaning of an “other insurance” clause. Allstate Ins Co v Elassal, 203 Mich App 548, 512 NW2d 856 (1994). It remains to be seen whether an automobile liability insurance policy that is a fronting policy or a high deductible policy will also be treated as “other collectible insurance”.