Liberty Mutual Insurance Co. and RSUI Group Inc. must share coverage for damages caused by removing equipment from a business that was shutting down, a federal appeals court said Monday, reversing a decision in RSUI’s favor.
Heckethorn Manufacturing Co. of Dyersburg, Tenn., leased commercial property from HECO Realty LLC, also of Dyersburg, and to comply with its lease, Heckethorn purchased commercial property insurance from Liberty Mutual Fire Insurance Co., according to the ruling by the 6th U.S. Circuit Court of Appeals in Cincinnati in Landmark American Insurance Co. v. HECO Realty LLC, Liberty Mutual Insurance Co .
When Heckethorn’s business appeared to be closing down, HECO bought its own insurance from RSUI unit Landmark American Insurance Co.
As a result, both Liberty Mutual and Landmark covered the property in 2019, when one company damaged it while removing Heckethorn’s equipment, which would cost $2.3 million to repair. However, when presented with HECO’s claim, both insurers argued that the other had to pay first.
Liberty Mutual settled HECO’s claim for $1,675,000 and then assumed title to all payments to HECO from its Landmark policy.
In the ensuing trial, the US District Court in Jackson, Tennessee ruled in Landmark’s favor.
A three-judge panel of the Court of Appeal said in its decision that on their “clear terms” both policies offer excess cover. “That holding leaves us to decide how to allocate coverage Landmark and Liberty Mutual.
“The Tennessee Supreme Court has held that when two policies are “mutually repugnant”—that is, when their other policy clauses conflict—”the only reasonable result … is a proportionality between the two insurers in proportion to the amount of insurance provided by their respective policies,” the decision said, referring to a previous ruling.
“Proportion between Landmark and Liberty Mutual is appropriate here,” it said, as the case was remanded to the district court to determine how coverage should be apportioned.
Attorneys in the case did not respond to requests for comment.