Utah Supreme Court
How should defense costs be allocated between successive insurance policies? Ohio Casualty v. Unigard Explained
Summary
Ohio Casualty and Unigard provided successive liability insurance policies to Cloud Nine. When Cloud Nine was sued for conduct spanning both policy periods, the federal court required equal sharing of defense costs. The Utah Supreme Court held that other insurance clauses apply only to concurrent insurers and defense costs should be allocated proportionally based on each insurer’s time on risk and policy limits.
Analysis
In Ohio Casualty v. Unigard, the Utah Supreme Court addressed a critical question about how defense costs should be allocated when multiple insurance companies provide successive coverage periods for the same type of liability.
Background and Facts
Ohio Casualty insured Cloud Nine under a commercial general liability policy from June 2001 to June 2002. After a gap in coverage, Unigard insured Cloud Nine from December 2002 through December 2005. When Edizone sued Cloud Nine for conduct that allegedly began during Ohio Casualty’s policy period and continued through Unigard’s coverage, both insurers were called upon to defend. The federal district court initially ruled that the insurers must equally share defense costs under the “other insurance” clauses in their policies.
Key Legal Issues
The Tenth Circuit certified to the Utah Supreme Court whether defense costs should be allocated using the equal shares method found in the other insurance clauses, or the time-on-risk method established in Sharon Steel Corp. v. Aetna Casualty & Surety Co.
Court’s Analysis and Holding
The court held that other insurance clauses do not apply to successive insurers. These clauses are designed to prevent multiple recoveries when concurrent policies provide coverage for the same loss, not to allocate costs between insurers providing coverage during different time periods. Since Ohio Casualty’s and Unigard’s coverage periods did not overlap, no “other valid and collectible insurance” was available for the same loss.
The court applied a modified version of the Sharon Steel time-on-risk formula, which apportions defense costs based on each insurer’s time on risk and policy limits. However, the court modified this approach to prevent allocation of costs to the insured for periods when it lacked coverage, recognizing that insurers retain exclusive control over litigation decisions.
Practice Implications
This decision clarifies that practitioners cannot rely on other insurance clauses to achieve equal cost-sharing between successive insurers. When representing insurers in successive policy disputes, attorneys should focus on time-on-risk calculations and policy limits rather than contractual other insurance provisions. The modified Sharon Steel approach ensures that insureds are not charged for defense costs during periods when they lack both coverage and control over the litigation.
Case Details
Case Name
Ohio Casualty v. Unigard
Citation
2012 UT 1
Court
Utah Supreme Court
Case Number
No. 20090340
Date Decided
January 6, 2012
Outcome
Affirmed in part and Reversed in part
Holding
Other insurance clauses do not apply to successive insurers, and defense costs should be apportioned using a modified time-on-risk method that excludes allocation to the insured for periods of non-coverage.
Standard of Review
Not applicable – certified question of law from federal court
Practice Tip
When dealing with successive insurance policies, argue for time-on-risk apportionment rather than equal sharing of defense costs, as other insurance clauses only apply to concurrent coverage.
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