Commerce & Industry Insurance v. Chubb Custom Insurance

On March 21, 1996, fire destroyed a New Orleans warehouse causing millions of dollars of damage. The sums involved are large but the issue here is simple—whether that loss is to be borne by one insurer or allocated between two insurers whose policies have competing “other insurance” provisions. We hold that the amount of loss must be prorated between the insurers.

Background

New Orleans municipal authorities leased a plot of unimproved land to West Coast Liquidators, Inc. (West Coast). Sometime after West Coast built the warehouse and went into possession, it sold and assigned all of its “right, title and interest” under the master lease with the municipal authorities to TriNet Corporate Realty Trust, Inc. (TriNet). Simultaneously TriNet leased the premises back to West Coast. At the time of the fire West Coast was covered by a policy of insurance issued by Commerce & Industry Insurance Company (Commerce), while TriNet had a policy from Chubb Custom Insurance Company (Chubb). On behalf of West Coast, Commerce paid $57.5 million to the municipal authorities.

The Commerce policy included a liability limit of $60 million and was effective for the year commencing October…