Case Briefs

Court Rejects Primary Insurers' Invocation of 'All Sums' Rule When Allocating Loss Among Triggered Policy Years

In Federated Rural Elec. Ins. Exch. v. National Farmers Union Prop. & Cas. Co., 805 N.E.2d 456, 466 (Ind. Ct. App. 2004), the Indiana Court of Appeals held that the “all sums” rule is inapplicable to insurers' allocation of loss among successive primary policies. A policyholder there sought coverage from its primary insurers ' National Farmers Union Property and Casualty Company (“NFU”) and Federated Rural Electric Insurance Exchange (“Federated”) ' when it was sued because its stray electrical voltage allegedly damaged another's dairy cows over an 11-year period.

Both NFU and Federated each provided primary coverage for part of the 11 years. Although NFU's and Federated's policies contain similar “all sums” provisions, occurrence definitions and “other insurance” provisions, only Federated agreed to defend and indemnify the policyholder. Federated then took an assignment of the policyholder's rights and sued NFU for contribution, indemnity and subrogation. While the coverage suit was pending, the Indiana Supreme Court issued its “all sums” ruling (see Allstate Ins. Co. v Dana Corp., 759 N.E.2d 1049 (Ind. 2000)), finding that a policyholder “may elect to seek indemnity from any or all of the policies at risk as to any single occurrence” pursuant to those policies' “all sums” provisions.

Federated thereafter moved for summary judgment, arguing that it, standing in the policyholder's shoes, elected to collect “all sums” from NFU. NFU argued it owed nothing because: 1) the policyholder had “elected” Federated to pay all sums, and 2) further payment would constitute a “double recovery” in the name of a policyholder already made whole by Federated. The trial court rejected both parties' arguments, concluding that both primary insurers were liable for a prorated amount of the resultant damages and costs.

The Indiana Court of Appeals affirmed the trial court's decision, holding that the “all sums” rule does not control insurers' allocation of loss between primary policies covering the same risk at different times and during different policy periods. The court reiterated the “all sums” rule: An insurer whose policy is triggered by an occurrence must pay its policyholder “all sums” up to its policy limits, not just a pro rata share of damages, for an occurrence within a particular policy period. The court observed that the existence of other coverage, equitable principles and the “relationship between the primary and excess insurance” nonetheless remained relevant considerations in the ultimate allocation of loss. It therefore concluded that when primary insurers provide coverage for an occurrence in different periods, the policyholder has “no election to make” as to any single policy period. Accordingly, neither Federated nor NFU was entitled to summary judgment. The court noted, however, that although it was unequipped to allocate the loss at this juncture, it found instructive the decision in Midwest Mut. Ins. Co. v. Indiana Ins. Co., 412 N.E.2d 84, 88-89 (Ind. Ct. App. 1980), holding that an insurer that recognizes its full obligation to its policyholder is not a volunteer and is entitled to pro rata contribution from other insurers whose policies cover the same risk.

Court Rejects Primary Insurers' Invocation of 'All Sums' Rule When Allocating Loss Among Triggered Policy Years

In Federated Rural Elec. Ins. Exch. v. National Farmers Union Prop. & Cas. Co., 805 N.E.2d 456, 466 (Ind. Ct. App. 2004), the Indiana Court of Appeals held that the “all sums” rule is inapplicable to insurers' allocation of loss among successive primary policies. A policyholder there sought coverage from its primary insurers ' National Farmers Union Property and Casualty Company (“NFU”) and Federated Rural Electric Insurance Exchange (“Federated”) ' when it was sued because its stray electrical voltage allegedly damaged another's dairy cows over an 11-year period.

Both NFU and Federated each provided primary coverage for part of the 11 years. Although NFU's and Federated's policies contain similar “all sums” provisions, occurrence definitions and “other insurance” provisions, only Federated agreed to defend and indemnify the policyholder. Federated then took an assignment of the policyholder's rights and sued NFU for contribution, indemnity and subrogation. While the coverage suit was pending, the Indiana Supreme Court issued its “all sums” ruling (see Allstate Ins. Co. v Dana Corp., 759 N.E.2d 1049 (Ind. 2000)), finding that a policyholder “may elect to seek indemnity from any or all of the policies at risk as to any single occurrence” pursuant to those policies' “all sums” provisions.

Federated thereafter moved for summary judgment, arguing that it, standing in the policyholder's shoes, elected to collect “all sums” from NFU. NFU argued it owed nothing because: 1) the policyholder had “elected” Federated to pay all sums, and 2) further payment would constitute a “double recovery” in the name of a policyholder already made whole by Federated. The trial court rejected both parties' arguments, concluding that both primary insurers were liable for a prorated amount of the resultant damages and costs.

The Indiana Court of Appeals affirmed the trial court's decision, holding that the “all sums” rule does not control insurers' allocation of loss between primary policies covering the same risk at different times and during different policy periods. The court reiterated the “all sums” rule: An insurer whose policy is triggered by an occurrence must pay its policyholder “all sums” up to its policy limits, not just a pro rata share of damages, for an occurrence within a particular policy period. The court observed that the existence of other coverage, equitable principles and the “relationship between the primary and excess insurance” nonetheless remained relevant considerations in the ultimate allocation of loss. It therefore concluded that when primary insurers provide coverage for an occurrence in different periods, the policyholder has “no election to make” as to any single policy period. Accordingly, neither Federated nor NFU was entitled to summary judgment. The court noted, however, that although it was unequipped to allocate the loss at this juncture, it found instructive the decision in Midwest Mut. Ins. Co. v. Indiana Ins. Co., 412 N.E.2d 84, 88-89 (Ind. Ct. App. 1980), holding that an insurer that recognizes its full obligation to its policyholder is not a volunteer and is entitled to pro rata contribution from other insurers whose policies cover the same risk.