845 F.3d 1330
10th Cir.2017Background
- TSAS (charter tenant) leased Barnard Elementary from the District; lease required tenant insurance. TSAS procured a Philadelphia policy naming the District as loss payee; the District separately had a Lexington blanket policy covering many District buildings.
- Both policies had identical “Other Insurance” provisions with (1) a pro rata clause and (2) an excess/other-insurance clause; both policies ran July 1, 2012–July 1, 2013.
- Fire damaged Barnard on Sept. 5, 2012; agreed adjusted loss = $6,014,359.06. Insurers litigated inter-insurer obligations; Philadelphia sued for declaratory relief in federal court.
- District court held the excess clauses were mutually repugnant under Oklahoma law (Equity Mutual), ordered pro rata sharing, but used $6,014,359.06 (the adjusted loss) as Lexington’s applicable limit for the calculation resulting in Philadelphia paying ~53.79% and Lexington ~46.21%.
- Lexington appealed (arguing no obligation to pay or that Philadelphia lacks standing); Philadelphia cross‑appealed the choice of Lexington’s relevant limit. Tenth Circuit affirmed the district court in full.
Issues
| Issue | Philadelphia's Argument | Lexington's Argument | Held |
|---|---|---|---|
| Standing to bring insurer‑vs‑insurer declaratory action | Philadelphia had concrete financial injury and adverse interests; declaratory relief would resolve it | Philadelphia lacks standing because it is not a party/beneficiary of Lexington’s policy | Philadelphia has Article III standing; insurer‑vs‑insurer declaratory suits are permitted to determine relative obligations |
| Whether both insurers must share loss (mutual repugnancy of excess clauses) | Identical provisions render excess clauses mutually repugnant; Equity Mutual requires pro rata sharing | Policies name different insureds and insurable interests (tenant vs. owner), so clauses should not cancel | Excess clauses cancel; both policies cover the same loss/interest (District benefits as insured and loss payee) and must share pro rata under Oklahoma law (Equity Mutual) |
| Relevance of TSAS‑District lease allocation of primary coverage | Lease cannot alter unambiguous policy terms or expand insurer obligations; policies govern | Lease made TSAS’s insurance primary, so Philadelphia should be primary and Lexington excess | Lease cannot override policy terms; it does not defeat the mutual‑repugnancy rule or pro rata outcome |
| Method and inputs for pro rata apportionment (Lexington limit) | Use Lexington’s $100,000,000 policy limit -> Lexington pays ≈93.46% | Endorsement limits Lexington to the least of: adjusted loss, (deleted b), or any specific sublimit; thus applicable limit is $6,014,359.06 -> Lexington pays ≈46.21% | Endorsement controls: because it caps liability at the least amount, Lexington’s applicable limit is the actual adjusted loss; district court’s use of $6,014,359.06 for pro rata is affirmed |
Key Cases Cited
- Equity Mut. Ins. Co. v. Spring Valley Wholesale Nursery, Inc., 747 P.2d 947 (Okla. 1987) (establishes rule that conflicting excess‑coverage clauses are mutually repugnant and insurers share loss pro rata)
- Southern Ins. Co. v. Affiliated FM Ins. Co., 830 F.3d 337 (5th Cir. 2016) (applying similar repugnancy/pro rata reasoning where two policies insured same property to mutual benefit)
- MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118 (2007) (clarifies Article III case‑or‑controversy requirement in declaratory judgment context)
- Am. Cas. Co. v. Health Care Indem., Inc., 520 F.3d 1131 (10th Cir. 2008) (Tenth Circuit insurer‑versus‑insurer declaratory precedent applying Oklahoma law on pro rata allocation)
- Republic Underwriters Ins. Co. v. Fire Ins. Exch., 655 P.2d 544 (Okla. 1982) (Oklahoma Supreme Court ordering pro rata sharing and cautioning against penalizing prompt payment by one insurer)
- Indus. Indem. Co. v. Cont’l Cas. Co., 375 F.2d 183 (10th Cir. 1967) (applies pro rata apportionment where policies cover same risk despite differing scope)