Pro Rata Primacy and Irreconcilable Stacking Clauses in Underinsured-Motorist Coverage

Introduction

Citizens Insurance Company of the Midwest v. Samuel Gene McNeeley (6th Cir. Apr. 23, 2025) addresses a dispute over whether Citizens Insurance (“Citizens”) may recoup from its insured, Dr. Samuel McNeeley, an amount equal to payments made by a secondary underinsured-motorist carrier (Allstate). The core issues are: (1) how Michigan law treats competing “other-insurance” clauses—specifically pro-rata versus excess clauses—in underinsured-motorist policies; and (2) whether conflicting “anti-stacking” provisions can be enforced when one policy expressly allows stacking and the other forbids it. Citizens contended that McNeeley’s recovery from Allstate reduced its own obligation by $500,000. The district court rejected that claim, and Citizens appealed.

Summary of the Judgment

The Sixth Circuit affirmed the district court’s dismissal of Citizens’ declaratory-judgment action. Applying Michigan contract-interpretation principles, the court held:

Allstate’s other-insurance clause is an excess clause: it pays only after primary limits are exhausted.
Citizens’ other-insurance clause is a pro-rata clause: it defines Citizens’ share as its limit divided by the total of all policy limits on the same priority level.
Under St. Paul Fire & Marine Ins. v. American Home Assur. Co., pro-rata provisions are primary to excess clauses. Thus Citizens had to exhaust its million-dollar limit before Allstate’s excess coverage attached.
Citizens’ anti-stacking provision conflicted with Allstate’s stacking clause. Because clauses are irreconcilable, Michigan law requires pro-rata allocation of loss among insurers rather than enforcing one policy’s anti-stacking term.
Citizens did not overpay; it remains responsible for its full limit (minus the tortfeasor’s payment). Citizens is not entitled to reimbursement of the $500,000 Allstate paid.

Analysis

Precedents Cited

The court relied heavily on Michigan authorities governing other-insurance clauses and contract interpretation:

St. Paul Fire & Marine Ins. v. American Home Assur. Co. (514 N.W.2d 113, 1994): Defines “pro-rata” clauses (insurer pays its share of total limits) versus “excess” clauses (insurer pays only after other coverage is exhausted). Holds that, between a pro-rata policy and an excess policy, the pro-rata policy is primary.
Wilkie v. Auto-Owners Ins. (664 N.W.2d 776, 2003): Contracts are interpreted de novo; ambiguities are construed against the drafter (the insurer).
Klapp v. United Ins. (663 N.W.2d 447, 2003): Courts must give effect to all contractual provisions and avoid readings that render terms meaningless.
Combs v. International Ins. (354 F.3d 568, 2004): Where state law is unclear, federal courts make an “Erie guess” based on relevant data, including out-of-state jurisprudence and treatises.

Legal Reasoning

The court’s reasoning can be divided into three key steps:

Classification of Other-Insurance Clauses
Allstate’s clause expressly states its coverage is “excess” when the insured is a pedestrian. Citizens’ clause defines its “share” as its limit divided by the sum of all applicable limits—hallmarks of a pro-rata clause. Michigan law demands that a pro-rata policy exhaust its limit before an excess policy pays.
Rejection of Citizens’ Alternate Readings
Citizens argued that two other paragraphs rendered its coverage “excess” and coequal with Allstate. The court rejected those interpretations under the noscitur a sociis canon (linked-terms are given similar meaning) and basic contract-construction rules (avoid surplusage and carry out the parties’ intent). Citizens’ reading would have made its underinsured-motorist coverage almost always excess, undermining the policy’s purpose.
Irreconcilability of Stacking Provisions
Citizens’ anti-stacking language clashed with Allstate’s stacking provision. Michigan precedent instructs that irreconcilable clauses are disregarded in favor of a pro-rata allocation. Enforcing Citizens’ anti-stacking term would not only conflict with Allstate’s clear allowance but would also deprive the insured of coverage he paid for while giving Citizens an unwarranted windfall.

Impact on Future Cases

This decision clarifies under Michigan law that:

In underinsured-motorist disputes, a policy with a pro-rata other-insurance clause is treated as primary against an excess policy.
Anti-stacking provisions that directly conflict with another policy’s stacking clause will be disregarded, triggering pro-rata distribution rather than reduction of the insured’s aggregate recovery.
Insurers drafting underinsured-motorist policies should align their other-insurance and stacking provisions to avoid irreconcilability; otherwise courts will default to pro-rata apportionment.

Practitioners should review policy language for consistency. Drafters must ensure that excess, pro-rata, and stacking or anti-stacking clauses can coexist logically, or risk losing the benefit of contested terms.

Complex Concepts Simplified

Other-Insurance Clauses: Contract provisions that adjust an insurer’s liability when more than one policy covers the same loss. Two main types:
- Pro-Rata Clause: Insurer pays a portion of the loss equal to its policy limit divided by the sum of all applicable limits.
- Excess Clause: Insurer pays only after the limits of primary coverage are used up.
Stacking: When an insured who holds multiple policies combines the coverage limits of those policies to increase total recovery.
Anti-Stacking: Policy language that prevents an insured from combining coverage limits across policies.
Irreconcilability: When two contractual provisions cannot be read together without conflict. Michigan law mandates that irreconcilable other-insurance clauses be ignored, and loss allocated pro rata.

Conclusion

Citizens Ins. Co. of the Midwest v. McNeeley establishes that, under Michigan law:

A pro-rata other-insurance clause trumps an excess clause in determining which policy pays first in underinsured-motorist claims.
Conflicting stacking versus anti-stacking provisions are irreconcilable and must be set aside in favor of pro-rata apportionment.
Insurers must draft consistent policy language to avoid unintended primary/excess designations and preserve their risk-allocation choices.

The decision reinforces the importance of clarity in drafting other-insurance provisions and confirms that insureds will not lose coverage benefits they paid for simply because one carrier’s clause conflicts with another’s.