California Court Addresses Priority of Coverage In Auto Context

In the recent case GuideOne Mutual Insurance Company v. Utica National Insurance Group (4^th Appellate Dist. 2/28/13), the California Court of Appeal considered priority of coverage among primary and excess insurers following settlement of a serious bodily injury claim from a car versus motorcycle accident.  The accident case settled for $4.5 million and the coverage action was subsequently filed to reallocate the settlement payments.

The driver of the car was a pastor for Crosswinds Community Church, which operated under the oversight and control of an organization referred to as CEA.  The accident happened during the course of the pastor’s work for Crosswinds.  The pastor’s personal auto insurance policy, which specifically identified the subject car as a covered auto, paid its $100,000 policy limits toward the settlement.  GuideOne insured Crosswinds under a commercial general liability policy which also covered the pastor as Crosswind’s employee acting in the course and scope of employment.  GuideOne paid its $1 million primary policy limits and its $1 million umbrella policy limits.  Utica National Insurance Group and its affiliate (referred to collectively by the court as “Utica”) covered CEA under a commercial auto policy (and its umbrella policy) for liability as to covered autos, which included nonowned autos.  Utica paid its $1 million primary policy limits and $400,000 out of the $5 million umbrella policy limits.  

GuideOne subsequently sued Utica for contribution from the umbrella policy, seeking reallocation of the settlement shares based on a ratio as to the respective coverage held by the insurers, as was the sharing formula provided for in the other insurance clauses of each policy.  The trial court found in favor of GuideOne on its motion for summary judgment, holding that it was entitled to contribution in the amount of $600,000.

Utica argued on appeal that GuideOne’s policies were primary to both of Utica’s policies because GuideOne insured the pastor, the tortfeasor, while Utica’s policies insured an entity which was only vicariously liable.  The court of appeal agreed with that argument.

The appellate court found that the statute dealing with priority of coverage, Insurance Code §11580.9(d), only established that State Farm was primary because it specifically scheduled the car as a covered auto, and the other four policies were excess.  The priority of coverage for the remaining policies was not subject to the conclusive presumption in §11580.9(d).  In reversing the trial court, the court of appeal relied on the decision in United States Fire Ins. Co. v. Nat. Union Fire Ins. Co. (1980) 107 Cal.App.3d 456, which held, in an airplane accident case, that insurance covering the negligent pilot was primary to insurance covering the pilot’s vicariously liable employer.  The U.S. Fire court looked to general principles of indemnity law which says an employer liable for the negligent acts of his employee is entitled to indemnity from the employee   A Ninth Circuit Court of Appeal case, Canadian Indem. Co. v. U.S. F&G Co., 213 F.2d 658 (9^th Cir. 1954) held similarly.

GuideOne argued that neither of those cases involved Ins. Code §11580.9(d) nor did they involve excess policies.  The court of appeal rejected that argument, pointing out that §11580.0(d) did not apply by its terms, and both GuideOne’s primary and excess policies covered the negligent driver and both of Utica’s primary and excess policies covered the employer who was only vicariously liable.  The court also noted that GuideOne’s policies both covered CEA for its vicarious liability.