Insurers must split coverage in damage to equipment

Liberty Mutual Insurance Co. and RSUI Group Inc. must split coverage for damage caused in removing equipment from a company that was shutting down, a federal appeals court said Monday, in reversing a ruling in RSUI’s favor.

Heckethorn Manufacturing Co. in Dyersburg, Tennessee, rented commercial property from HECO Realty LLC, also in Dyersburg, and to comply with its lease Heckethorn bought 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 seemed to be on the brink of shutting down, HECO bought insurance of its own from RSUI unit Landmark American Insurance Co.

As a result, both Liberty Mutual and Landmark were covering the property in 2019, when a company damaged it while removing Heckethorn’s equipment, which would cost $2.3 million to repair. But when presented with HECO’s claim for the damages, both insurers claimed the other had to pay first.

Liberty Mutual settled HECO’s claim for $1,675,000, then assumed the right to any payout to HECO from its Landmark policy. 

In the ensuing litigation, the U.S. District Court in Jackson, Tennessee, ruled in Landmark’s favor.

A three-judge appeals court panel said in its decision that on its “plain terms” both policies offer excess coverage. “That holding leaves us to determine 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 insurance clauses conflict – ‘the only reasonable result…is a proration between the two insurance companies in proportion to the amount of insurance provided by their respective policies,’” the decision said, citing an earlier ruling.

“Proration between Landmark and Liberty Mutual is appropriate here,” it said, in remanding the case to the district court to determine how to prorate the coverage.

Attorneys in the case did not respond to requests for comment.