"Contradictions from ‘Separation of Insured’ Clauses on ‘Any Insured’ Exclusions"

Blakely Lloyd authored an article for the Insurance Coverage Law Center (ICLC) highlighting challenges in insurance policies containing provisions known as “separation of insureds” or “severability of interests” clauses related to potential contradictions for exclusions that apply to “any insured” as opposed to “the insured.”

“In this context, the term ‘any insured’ has become a lightning rod for litigation, with claimants arguing that the phrase is ambiguous when read in conjunction with separation of insureds clauses,” Lloyd said. “Federal courts considering the issue are divided into two camps. The majority opinion holds that when ‘any insured’ is found in an exclusion, the exclusion ‘expresses a contractual intent to create joint obligations and preclude coverage to innocent co-insureds, despite the presence of a severability clause. In contrast, the minority opinion rules in favor of coverage, finding that separation of insureds clauses supersede exclusionary language.”

The Eleventh Circuit recently ruled on the issue and demonstrated hazards of using such divisive policy language, finding ambiguous an exclusions use of “any insured” when read in conjunction with the separation of insured clause and imposed upon an insurer the duty to defend. “This view holds that a separation of insureds clause requires that a policy, including any exclusions, be read as if each person/entity seeking coverage is the only insured covered,” Lloyd explained. “In contrast, the majority of courts have determined this interpretation impermissibly contradicts the plain language of certain exclusionary clauses. The majority view holds that a separation of insureds clause does not prevent an exclusion from precluding coverage to ‘any insured.’”

Lloyd provides insight on court decisions demonstrating both the minority and majority viewpoint in the ICLC article, which she also covered in a previous Swift Currie First Party Report, available here.

For the full article, ICLC subscribers can click here.