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MARYLAND CAS. CO. v. HORACE MANN INS. CO.

November 19, 1982

MARYLAND CASUALTY COMPANY and ASSURANCE COMPANY OF AMERICA, a subsidiary, Plaintiffs,
v.
HORACE MANN INSURANCE COMPANY, Defendant



The opinion of the court was delivered by: ZIEGLER

 I. History of Case

 This is a civil action predicated on the Declaratory Judgment Act, 28 U.S.C. § 2201, involving the interpretation of three liability insurance policies. Plaintiff, Maryland Casualty Company (Maryland Casualty), is a citizen of the state of Maryland. Plaintiff, Assurance Company of America (Assurance), is a subsidiary of Maryland Casualty and is a citizen of the state of New York. Defendant, Horace Mann Insurance Company (Horace Mann), is incorporated in the State of Florida, with its principal place of business in Illinois. Jurisdiction is based on 28 U.S.C. § 1332. Pennsylvania law is controlling.

 On December 13, 1978, a student was severely injured while using a lathe in a classroom at Juniata Valley School District, Alexandria, Pennsylvania. The student, a minor, and his parents filed a diversity action against Oliver Machinery Company, the manufacturer of the product involved in the accident. Oliver impleaded the school district and a teacher, Wayne Sollenberger, as third-party defendants. That action is pending in this court at Civil Action No. 80-1104.

 Assurance maintained an insurance policy covering the Juniata Valley School District and its employees with liability limits of $500,000 for each occurrence. Maryland Casualty issued an "excess" policy to the School District with limits of $1,000,000 per occurrence with a $10,000 retained limit. Horace Mann issued an insurance policy to the Pennsylvania State Education Association, covering Wayne Sollenberger, with limits of $500,000 per occurrence. The parties agree that Sollenberger is an insured under all three policies.

 Each of the three contracts contains what is known in the industry as an "other insurance" clause. The purpose of such a clause is to allocate liability between insurance companies when overlapping or concurrent coverage exists in two or more policies per occurrence. The "other insurance" clauses of the three policies read as follows:

 
(A) Assurance Policy
 
(1) Other Conditions: If the Insured has other insurance against a loss covered by this policy, the Company shall not be liable under this policy, for a greater proportion of such loss than the applicable limit of liability under this policy bears to the total applicable limit of liability of all insurance against such loss.
 
(B) Maryland Policy
 
(C) Horace Mann Policy
 
A. Other Insurance. This policy does not apply to that portion of any claim made or suit brought against the insured which is insured by another valid policy or policies of insurance, whether primary or excess, or which is insured by any program or programs of self-insurance, whether primary or excess, nor shall the Company be liable to make any payment in connection with any such portion of a claim or suit.

 We are confronted with three issues. First, whether any or all of the three policies can be deemed a primary policy and, if so, the allocation of liability amongst the primary carriers. Second, the division of liability between the companies who are not primary carriers but rather excess carriers, if one is deemed a primary carrier. Finally, the allocation of liability among the three companies if none of the carriers is deemed a primary carrier. ...


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