At the time that a fire destroyed two poultry houses, their owner carried two policies on them that covered fire loss, each of which included an "escape" clause. The pertinent provision in the policy issued by the first insurer stated: "This Company shall not be liable for loss occurring:....(d) while the insured shall have any other contract of insurance, whether valid or not, on property covered in whole or in part by this policy."

The policy issued by the second insurer provided that: "This Policy does not cover any loss or damage which at the time of happening of such loss or damage is insured by, or would, but for the existence of this Policy, be insured by any other insurance policy or policies either as primary or excess."

The second insurer sought a declaratory judgment with regard to the application of coverage. The district court, noting that its "escape" clause was based on the time of loss, determined that it was not activated because the first policy "no longer covered the poultry houses." It determined that the insured, upon buying the second policy, activated the "escape" clause in the first policy. This had the effect of relieving the first insurer of liability, according to the court.

Reviewing Arkansas law, the appeal court concluded that the two "escape" clauses were functionally equivalent; "either policy would insure the loss if the other policy did not exist."

It noted that "....an “escape' clause serves to avoid double recovery by an insured who holds two or more policies covering the same risk....but does not otherwise suspend an insurance policy's coverage...."

The court concluded that the two "escape" clauses were mutually repugnant and that the policies must share pro rata liability. Accordingly, the judgment of the district court was reversed and the cause remanded to it for fixing each insurer's pro rata liability.

(UNDERWRITERS AT LLOYD'S, LONDON, Appellant v. PIKE ET AL., Appellees. United States Court of Appeals, Eighth Circuit. No. 92-1230WA. October 21, 1992. CCH 1993 Fire and Casualty Cases, Paragraph 4015.)