The Supreme Court of Virginia recently issued an opinion that addresses at least three core points: (1) when can a contract outside the policy itself affect which insurance applies if an accident happens? (2) how does an auto exclusion common to Commercial General Liability (“CGL”) policies[1] apply? and (3) what affect do “other insurance” clauses affect which carrier pays how much if multiple carriers are on the risk for an occurrence, or accident?

Nationwide Mutual Fire Insurance Co. v. Erie Insurance Exchange, 798 S.E.2d 170 (Va. 2017), issued on April 13 and written by Justice Cleo Powell, provided guidance on all three questions.


Two businesses contracted regarding construction services, East Coast and Rodriguez. East Coast lent Rodriguez a vehicle for work under their contract. Manzur drove that East Coast vehicle while working for Rodriguez. Manzur struck a vehicle, killing its operator Klaibur. Klaibur’s estate sued Manzur and East Coast for wrongful death. East Coast was nonsuited, leaving only Manzur as the tort defendant.

 Available insurance

Erie provided a commercial auto policy and an umbrella policy to East Coast. Rodriguez had a Nationwide business auto policy, CGL policy, and umbrella policy. The East Coast-Rodriguez construction services contract required Rodriguez to indemnify East Coast for work performed for East Coast under that contract.

A coverage declaratory relief suit ensued between Nationwide and Erie. The trial court ruled for Erie, holding the indemnification provision in the East Cost-Rodriguez contract controlled and established East Coast’s right to such indemnification from Rodriguez.

The auto exclusion

The Nationwide CGL policy excludes “’bodily injury’ arising out of the ownership, maintenance, use or entrustment to others of any . . . ‘auto’ . . . owned or operated by or rented or loaned to any insured.” Thus, “by its plain language, the Nationwide CGL policy excludes from coverage arising out of the use of an auto.”

So, that general liability policy did not apply at all to provide coverage. Thus, it could not be excess as to the Nationwide policy, as the trial court had held. The Supreme Court of Virginia reversed and found the Nationwide policy provided no coverage at any priority level.

Indemnification clause and priority

Erie relied on St. Paul Fire & Marine Insurance Co v. American International Specialty Lines Insurance Co., 365 F.3d 263 (4th Cir. 2004). That case arguably held an indemnification provision in a work-related contract may shift an entire loss to a particular insurer. The Supreme Court of Virginia matters because it adopts the Fourth Circuit approach as binding Virginia law, and the state’s high court is the final arbiter of all such issues.

While the Supreme Court of Virginia agreed with the rationale, it declined to reach that outcome in these facts. In Nationwide v. Erie, Manzur, not East Coast, was a party in the underlying tort case. The dispute was not whether East Coast was covered, but rather who must cover Manzur and in what order. Specifically at issue was coverage for Mazur’s liability, as a Rodriguez employee while driving a car East Coast owned but not while an East Coast employee. The coverage for East Coast itself, the party to be indemnified under a separate contract, was not at issue. The underlying plaintiff Manzur ultimately made no claims against East Coast.

Given that, Nationwide had no duty under its three policies to provide primary insurance before Erie’s two policies applied.

Other insurance clauses and priority

When two “other insurance” clauses have an essentially identical effect, neither provides primary coverage over the other and pro rata distribution is appropriate. Such provisions are “irreconcilable” and “mutually repugnant.” In such situations, neither “other insurance” provision trumps the other. And “[p]ro rata” means that each policy pays the same percentage of its maximum limits. Following those rules, the Supreme Court of Virginia found the two umbrella policies contributed pro rata. The Erie auto policy said it was primary, and the Nationwide auto policy said it was excess. The supreme court agreed with them both, following the policy terms.

[1] CGL policies are the basic liability policies provided to businesses for claims against an insured that do not arise from an auto wreck.