830 F.3d 337
5th Cir.2016Background
- The University of Southern Mississippi (owner) leased the Ogletree House to the University Alumni Association (tenant), which purchased a Southern Insurance policy (building limit $4,112,000; personal property $250,000). The university had a blanket Affiliated FM policy (overall $500 million) listing the house value at $3,962,662 on a schedule; the association was not a named insured on Affiliated's policy and the university was not an additional insured on Southern’s.
- A 2013 tornado damaged the house. Southern paid the association’s personal-property claim but denied the association’s building-repair claim and one week later filed a declaratory-judgment action against Affiliated and the association. Affiliated paid $3,080,932.36 to the university for repairs and reserved rights to seek contribution.
- Southern’s policy valuation clause for tenants’ improvements stated loss is valued at actual cash value if tenant repairs promptly, proportionally if delayed, and “Nothing if others pay for repairs or replacement.” Southern later argued that Affiliated’s payment made the association’s loss “nothing.”
- Each policy contained an other-insurance clause treating itself as excess to other coverage. Southern’s clause required contribution based on limits if other insurance was "on the same basis," otherwise it paid only excess. Affiliated’s clause made its coverage excess in any event.
- The district court denied Southern’s summary-judgment motion (finding ambiguity and absurd-result in Southern’s valuation reading), held the other-insurance clauses were mutually repugnant, applied pro rata allocation using policy limits (Southern $4,112,000; Affiliated $500,000,000), and apportioned liability accordingly. Southern and Affiliated/Association cross-appealed.
Issues
| Issue | Plaintiff's Argument (Southern) | Defendant's Argument (Association/Affiliated) | Held |
|---|---|---|---|
| Whether Southern's valuation clause permits valuing the association's loss at “nothing” because Affiliated paid repairs | Valuation clause unambiguously values tenant improvements at nothing if others pay; Affiliated’s payment reduces the association’s loss to zero | Clause ambiguous when read with other policy provisions; applying it here produces absurd result because Southern’s denial prompted the other insurer’s payment | Court: Ambiguous and leads to absurd/unfair result; Southern not entitled to summary judgment on that basis |
| Whether Affiliated’s payment was a voluntary payment barring recovery from Southern | Payment was voluntary and therefore nonrecoverable | Affiliated’s payment was compelled by its contractual obligation to its insured (university), not voluntary | Court: Affiliated’s payment was not voluntary; it acted pursuant to its duty to cover the university |
| Whether the policies’ other-insurance clauses are mutually repugnant, requiring pro rata allocation | Other-insurance not triggered because Southern owes nothing; clauses operate as written | Both clauses are excess clauses covering the same property/risk; mutual repugnance applies even though insureds differ | Court: Clauses mutually repugnant because both cover same property/interest/risk; disregard clauses and apply pro rata allocation |
| Proper denominator for pro rata allocation: blanket policy limit vs. scheduled value for the house under Affiliated policy | (Alternative) If pro rata applies, use Affiliated schedule value ($3,962,662) not the $500 million blanket limit | Affiliated policy lacks an express scheduled-limit endorsement; declarations show blanket limit; scheduled values alone don't create sub-limit | Court: Use policy limits (Southern $4,112,000; Affiliated $500,000,000); scheduled listing did not create a sub-limit; pro rata allocation affirmed |
Key Cases Cited
- Edgewood Manor Apartment Homes, LLC v. RSUI Indem. Co., 733 F.3d 761 (7th Cir. 2013) (construing repair-or-replace exclusion for tenants’ improvements under Mississippi law contextually)
- Allstate Ins. Co. v. Chi. Ins. Co., 676 So. 2d 271 (Miss. 1996) (when other-insurance clauses are mutually repugnant, courts apportion loss pro rata by policy limits)
- American Nat'l Ins. Co. v. U.S. Fid. & Guar. Co., 215 So. 2d 245 (Miss. 1968) (excess coverage clause only applies where policies affect same property, interest, and risk)
- Travelers Indem. Co. v. Chappell, 246 So. 2d 498 (Miss. 1971) (mutually repugnant other-insurance clauses must be disregarded)
- Guidant Mut. Ins. Co. v. Indem. Ins. Co. of N. Am., 13 So. 3d 1270 (Miss. 2009) (distinguishing voluntary payment; insurer acting under contractual duty to defend/indemnify is not a volunteer)
- State Farm Mut. Auto. Ins. Co. v. Allstate Ins. Co., 255 So. 2d 667 (Miss. 1971) (insurer with solemn obligation to defend or indemnify is not a volunteer)