Erie Ins. Exch. v. State Farm Mut. Auto. Ins. Co.,
2025 Ind. App. LEXIS 211 (Ct. App. June 30, 2025)
When a single loss may trigger coverage under more than one policy, the key question often becomes: which insurer is first in line? That familiar dispute played out again in Erie Ins. Exch. v. State Farm Mut. Auto. Ins. Co., where the Indiana Court of Appeals addressed whether conflicting “other insurance” provisions in underinsured motorist (“UIM”) policies could be resolved by contract language alone—or whether Indiana’s statutory priority rules, specifically the Bailee Coverage Statute, I.C. § 27-8-9-11, dictated the outcome.
A customer brought his truck to an auto repair shop for repairs. While completing the work, a shop employee took the truck for a test drive and was struck by a UIM. After the tortfeasor’s insurer paid its limits, a coverage dispute arose regarding which insurer should provide primary UIM coverage: the insurer of the customer’s truck, Erie, or the insurer of the employee’s personal vehicle, State Farm.
Both policies contained standard “other insurance” clauses designed to make the UIM coverage excess to other available coverage. Erie’s policy stated it would not pay “until all other forms of insurance under all bodily injury and property damage liability bonds and insurance policies and self-insurance plans applicable at the time of the accident have been exhausted by payment of their limits.” Similarly, State Farm’s policies provided that its UIM coverage “applies as excess coverage” when other UIM coverage from non-State Farm sources also applies as excess coverage to the same accident.
The trial court granted partial summary judgment for State Farm, but the Court of Appeals reversed. It found that both policies were primary policies with limited “other insurance” provisions rather than true excess policies, meaning the competing provisions created a conflict that required resolution through statutory interpretation.
The Court of Appeals turned to Indiana’s Bailee Coverage Statute, which states that “any coverage available to the bailee is primary” and that recovery cannot be made under the vehicle owner’s policy “until the limits of all motor vehicle insurance coverage available to the bailee have been exhausted.” The Court of Appeals noted that the statute is unambiguous and applies to circumstances where a motor vehicle is under the control of a bailee engaged in servicing vehicles.
Applying the Bailee Coverage Statute, the Court of Appeals concluded that the shop employee was the bailee, and therefore State Farm’s coverage (available to the employee) was primary over Erie’s coverage (available to the customer as the vehicle owner). The Court of Appeals emphasized that “when the Indiana legislature enacted specific priority rules for bailees under Indiana Code § 27-8-9-11, courts must not attempt to parse competing ‘other insurance’ clauses that are functionally identical but use different terminology.”
This decision is a reminder that statutory priority rules—which are not limited to bailments—may control when evaluating coverage under primary auto policies with conflicting “other insurance” provisions.