INSURANCE-RELATED COURT CASES
Digested from case reports published online
COURT DECISIONS
Insurers battle over contribution after apartment fire
A tragic fire occurred at an apartment building where four lives were lost. On the advice of one county 911 dispatcher, a building tenant kept a window in her second story apartment closed. That dispatcher advised that air flowing through an open window could become a flame accelerant.
Earlier during the same fire, a different 911 dispatcher entered some information received from another caller. She was also on the second story. She reported that she hung from the outside of her window and safely dropped about a dozen feet to the ground.
The other dispatcher did not ask what floor his caller was on. Further, he did not access the escape information, which would have been available at the time he advised his caller to keep her window shut.
Without knowledge that it may have been safe to escape via the apartment window, the caller and three others died from smoke inhalation. After the tragedy, the estates of the deceased tenants filed a lawsuit.
While the estates sued only one insurance company, two insurers were eventually entangled in the estates’ legal action. One was Travelers Indemnity Company. The named insured under a commercial general liability policy (CGL) was Surry County. The policy limits were a primary layer of $1 million dollars and an excess amount of $8 million. The other was American Alternative Insurance Corporation (AAIC). That company provided a policy with primary limits of $1 million and an excess layer of $7 million. The named insured under that AAIC policy was Surry County Emergency Services.
After Travelers paid out its entire policy limits of $9 million to the estates, it then sought a contribution from AAIC via a separate lawsuit. The trial-level court determined that only AAIC’s primary limits should respond to the loss. Since that ruling would result in a contribution of only $1 million, far below the 50% share of the loss ($4.5 million) that Travelers requested, it appealed.
As was the case with the trial court, the higher court focused on the coverage provisions of AAIC’s primary and excess layers. In that court’s opinion, both the language and scope of protection were essentially the same. However, a small difference proved critical.
It’s now important to revisit the fact that the named insured under AAIC’s policy was “Surry County Emergency Services” and not “Surry County.” The former is a county department that is distinct from the county’s 911 Call Center.
Both the lower and higher courts interpreted the primary and excess coverage provisions as having slightly different references to incidental operations. Both courts also shared the opinion that 911 dispatch services qualified as an incidental function. The interpretation resulted in the lower court allowing only AAIC’s primary coverage to be contributed to Travelers.
However, the appellate court reasoned that neither the primary nor the excess layer provisions applied to the loss. In their opinion, incidental operations referred only to those that were ancillary to Surry County Emergency Services department.
The 911 Call Center was a separate department of Surry County. Its actions, therefore, were not connected. In light of that finding, the matter was remanded to the trial court to enter judgment that neither AAIC’s primary nor excess layers required a contribution to Travelers.
The Travelers Indemnity Company v. American Alternative Ins. Corporation—US District Court for the Middle District of N.C.—No. 24-1370—April 8, 2025.
