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Insurers both lose in fight over shared school fire claim

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Lexington Insurance Co. and Philadelphia Indemnity Insurance Co. must almost split in half a $6 million claim stemming from a fire at an Oklahoma school, a federal appeals court ruled.

Upholding a lower court ruling, the 10th U.S. Circuit Court of Appeals in Denver ruled against Lexington’s attempt to shift all the claim to Philadelphia and Philadelphia’s attempt to have Lexington pay more of the claim.

Charter school Tulsa School of Arts and Sciences had acquired an insurance policy with a $7 million limit for its leased school building in Tulsa County, Oklahoma, from Philadelphia Indemnity, a Bala Cynwyd, Pennsylvania-based unit of Tokio Marine Group, according to Thursday’s ruling in Philadelphia Indemnity Insurance Co. v. Lexington Insurance Co.

In addition to that policy, the school district within which the school was located, Independent School District No. 1 in Tulsa, had a $100 million policy with Lexington Insurance Co., the Boston-based surplus lines unit of American International Group Inc., which covered many district buildings, according to the ruling.

A fire that damaged the building in September, 2012 resulted in a total adjusted loss of $6 million, and coverage litigation ensued between the insurers.

The U.S. District Court in Salt Lake City ordered Philadelphia to pay 54% of the loss and Lexington the remaining 46%.  Lexington appealed, arguing it should have no obligation to pay, while Philadelphia cross-appealed, arguing Lexington should have to pay more.

The appellate panel upheld the lower court’s decision in a 2-1 ruling.

The district court “properly applied Oklahoma insurance law in concluding the loss must be shared.  Lexington’s arguments to the contrary are unpersuasive,” said the ruling. “Lexington would have one insurer pay a loss in full when multiple insurers are responsible for primary coverage under policies with different named insureds.”

The dissenting opinion in the case said it would have apportioned liability between Lexington and Philadelphia on a 50/50 basis.