Lurking within most insurance policies issued in the Commonwealth of Pennsylvania is a dreaded “severability clause”; the clause which provides that: “[t]his insurance applies separately to each insured.” What does it mean? What effect does it have on my policy’s coverage(s)? Why is it even in my policy? The purpose of this Article is to provide an answer to each of these questions.
It appears the severability clause originated to offset coverage in commercial automobile insurance policies which denied coverage for claims made by employers for the injuries of an employee, on the grounds that workman’s compensation insurance provided such reimbursement. See Windt, Allan D., 2 Insurance Claims and Disputes 5th §11:8 (2009). Since this origin, however, the severability clause has now worked its way into most insurance contracts, but the question remains, why? This question, along with other related questions, has been answered by the Courts in one of two ways: the majority view and the minority view.
At this time, a minority of jurisdictions hold that the severability clause acts exclusively to require that each insured on a policy be treated as having separate coverage under the policy. See, e.g., Worcester Mut. Ins. Co. v. Marnell, 398 Mass. 240 (1986).1 Thus, should one insured commit an act excluded by the policy, coverage will not be denied to the other insureds under that same policy due to the severability clause. Id.
The minority view so holds even when the policy at issue contains exclusionary language otherwise evincing an intent to provide “joint” coverage to the insureds; such as exclusions precluding all coverage for the act of “any insured”, “an insured” or the like.2 Thus, under the minority view, the severability clause acts to convert exclusionary language otherwise evincing “joint” coverage, (i.e. “any insured” or “an insured”), into exclusionary language evincing “several” coverage, (i.e. “the insured”).3
Fortunately, the majority of jurisdictions which have considered these issues reject the flawed logic underlying the minority view.
As one might expect in light of the above, the majority view holds that the severability clause does not act to mandate that each insured on a policy be treated as having separate coverage there under. See, e.g., BP America, Inc. v. State Auto Prop. & Cas. Ins. Co., 148 P.3d 832 (Okla. 2005). Instead, the majority recognizes the rightful purpose of the severability clause, which is to afford each insured under the policy a full measure of coverage up to the policy limits.4 Id.
This majority view also holds that the severability clause has absolutely no effect on exclusionary language otherwise evincing “joint” coverage to the insureds. Id. The majority view is premised upon the following rationale, so eloquently stated by the courts of Oklahoma:
[T]o hold . . . [that the presence of a severability clause renders the language “any insured” or “an insured” ambiguous] would effectively nullify . . . [otherwise clear and unambiguous exclusionary language in the policy]. [Our courts] realize that . . . [affording] coverage [to one insured despite another insured having committed an excluded act] requires a tortured reading of the insurance agreement, [and requires] expanding liability beyond that bargained for by a reasonable person under the plain policy language. [Therefore, we hold that] . . . in the presence of an exclusionary clause utilizing the term[s] “any insured” [or “an insured”] , a claim made against any insured for conduct arising out of the specific conduct within the exclusionary clause, is barred. Failure to so hold results in the specific terms of the exclusionary language being overridden by a more general severability provision. Furthermore, it requires the court to ignore and treat as superfluous the term “any” [or “an”] in the policy language.
BP America, 148 P.3d at 840-41 (citations omitted).
Now, for our regional readers, all of the above may beg the question: has Pennsylvania considered this issue and does it follow the majority view? That answer, while proving much more difficult to discern than this author anticipated, appears to be a yes.6
In two unreported Eastern District Federal Court cases, the Courts held that, under Pennsylvania law, a severability clause cannot act to modify the meaning of an otherwise clearly and unambiguously worded exclusionary provision. See North Wales Water Auth. v. Aetna Life and Cas., 1996 W.L. 627587 (citing Pennsylvania Mfr.’s Ass’n Ins. Co. v. Aetna Cas. & Sur. Ins. Co., 426 Pa. 453 (1967)(noting the somewhat convoluted rationale of this opinion); Strouss v. Fireman’s Fund Ins. Co., 2005 W.L. 2989309. Thus, in accordance with these opinions, it is submitted that insurers in the Commonwealth of Pennsylvania should take the position that “a severability provision will not alter the otherwise clear and unambiguous language utilized in an exclusionary provision; such as “an insured”, “any insured” and/or the like.7 See Pennsylvania Mfr.’s Ass’n Ins. Co., 426 Pa. 453 (1967).
However, given the less than clear opinions explaining Pennsylvania law on these questions, it is likely the effect of the severability clause on otherwise clear and unambiguous exclusionary language will be revisited again by our Appellate courts. The outcome of such a case, while open to possible educated speculation (likely favoring an outcome in line with the majority view), remains to be seen.
1 – – More recently, Massachusetts courts have implicitly interpreted this case to be sui generis, in that it turned on the allocation of risks between the homeowner’s coverage and automobile coverage at issue therein. See Hingham Mutual Fire Ins. Co. v. Smith, 69 Mass.App.Ct. 1 (2007).
2 – – These jurisdictions find that the severability clause renders such exclusionary language ambiguous. Id.
3 – – The rationale of the minority view is that to hold otherwise would effectively render the severability clause within a policy completely meaningless. As set forth hereinafter, this could not be more untrue.
4 – – There are also additional purposes for the severability clause related to underwriting, not discussed herein.
5 – – The majority courts also hold that the severability clause is not a “coverage provision”. See, e.g., Argent v. Brady, 386 N.J.Super. 343 (2006).
6 – – The application of these cases, however, remains unclear. Put another way, it is not clear whether these cases will apply outside of their particular context.
7 – – As set forth herein above, the applicability of this holding (and the unreported federal court holdings) is unknown.