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.

First Circuit Limits Definition of “You” to Policy’s Named Insured

In its recent decision in Wright-Ryan Constr., Inc. v. AIG Ins. Co. of Can., 2011 U.S. App. LEXIS 15502 (1^st Cir. July 27, 2011), the United States Court of Appeals for the First Circuit, applying Maine law, had occasion to consider whether the term “you” as used in a general liability policy is limited to the policy’s named insured, or whether it includes additional insureds.

This issue in Wright-Ryan arose out of a priority of coverage dispute involving two primary policies under which Wright-Ryan qualified as an insured.  The first policy, issued by Acadia Insurance Company, was issued directly to Wright-Ryan.  The second policy, issued by AIG to a subcontractor of Wright-Ryan’s, provided additional insured coverage to Wright-Ryan on a primary and non-contributory basis for all liability “arising out of [the subcontractor’s] premises or operations.”  Wright-Ryan was sued in a bodily injury lawsuit brought by an employee of the subcontractor.  Wright-Ryan tendered the matter to the subcontractor and to AIG directly, but when neither responded, Acadia defended the matter directly and ultimately settled the case.  Acadia and Wright-Ryan then commenced a declaratory judgment action against AIG to recover the settlement amount as well as Wright-Ryan’s defense costs.

The Maine federal district court concluded that Wright-Ryan qualified as an additional insured under the AIG policy, but that the AIG policy was excess to the Acadia policy.  Looking to the policies’ other insurance clauses, the First Circuit disagreed.  Both policies contained the following excess other insurance provision:

a. Primary Insurance  This insurance is primary except when b., below, applies.

. . .

b. Excess Insurance

This insurance is excess over:

(1) Any of the other insurance, whether primary, excess, contingent, or on any other basis . . . (a) That is . . . coverage for "your work"; . . .

(2) Any other primary insurance available to you covering liability for damages arising out of the premises or operations for which you have been added as an additional insured by attachment of an endorsement.

When this insurance is excess, we will have no duty . . . to defend the insured against any "suit" if any other insurer has a duty to defend the insured against that "suit".

The First Circuit focused on the word “you” as used in these provisions.  Acadia and Wright-Ryan argued that the AIG policy could not be considered excess over the Acadia policy since the word “you” in the AIG policy was limited to that policy’s named insured.  As such, they argued that the excess other insurance provision in the AIG policy should not even be considered in terms of the coverage afforded to Wright-Ryan.  AIG, however, argued that the word “you” as used in its policy should be read to include additional insureds, in which case the AIG policy would be excess to any other policy providing coverage for Wright-Ryan’s work.  The court rejected AIG’s contention, noting that the first page of each policy expressly stated that  “[t]hroughout this policy the words 'you' and 'your' refer to the Named Insured shown in the Declarations, and any other person or organization qualifying as a Named Insured under this policy.”  Further, Section II. of the policies, titled “WHO IS AN INSURED” extended coverage to certain individuals and entities not otherwise identified in the policies’ declarations, such as officers, employees and newly acquired organizations.  Absent from Section II. was any reference to additional insureds.  Thus, held the court:

Reading these provisions together, we find the definition of "you" to be unambiguous: it refers solely to a person or organization listed as a Named Insured in the policy Declarations or “qualifying as Named Insured” by virtue of being newly formed or acquired by a Named Insured.

Applying this definition to the AIG and Acadia policies, the court concluded that the AIG policy could not be considered excess to the Acadia policy, since the word “you” in the AIG policy referred not to Wright-Ryan, but rather to the subcontractor.   On the other hand, because the word “you” in the Acadia policy referred solely to Wright-Ryan, the coverage afforded under Acadia policy necessarily was excess to the coverage afforded to Wright-Ryan under the AIG policy.