Opinion
4-23-1956
The PEERLESS CASUALTY COMPANY, a corporation, Plaintiff and Respondent, v. CONTINENTAL CASUALTY COMPANY, a corporation, Defendant and Appellant. CONTINENTAL CASUALTY COMPANY, a corporation, Cross-Complainant and Appellant, v. The PEERLESS CASUALTY COMPANY, a corporation and Underwriters at Lloyd's, Cross-Defendants and Respondents. * Civ. 16741.
Carroll, Davis & Burdick, San Francisco, for appellant Continental Cas. Co. Dana, Bledsoe & Smith, San Francisco, Wilbur J. Russ, San Francisco, of counsel, for respondent Peerless Cas. Co. Hancock, Elkington & Rothert, San Francisco, for respondent Underwriters at Lloyd's.
The PEERLESS CASUALTY COMPANY, a corporation, Plaintiff and Respondent,
v.
CONTINENTAL CASUALTY COMPANY, a corporation, Defendant and Appellant.
CONTINENTAL CASUALTY COMPANY, a corporation, Cross-Complainant and Appellant,
v.
The PEERLESS CASUALTY COMPANY, a corporation and Underwriters at Lloyd's, Cross-Defendants and Respondents.
April 23, 1956.
Rehearing Granted May 22, 1956.
Carroll, Davis & Burdick, San Francisco, for appellant Continental Cas. Co.
Dana, Bledsoe & Smith, San Francisco, Wilbur J. Russ, San Francisco, of counsel, for respondent Peerless Cas. Co.
Hancock, Elkington & Rothert, San Francisco, for respondent Underwriters at Lloyd's.
Weinstock, Anderson, Maloney & Chase, San Francisco, Sidney L. Weinstock, John R. Maloney, San Francisco, of counsel, amici curiae in support of contentions of appellant.
PER CURIAM.
This is an appeal on an agreed statement from a declaratory judgment determining the liability of three insurers, relative to the damage caused in one and the same accident. A tractor and Trailer, leased by its owner, Nevada Trading Company (further called Nevada) to Vaughn Millwork Company (further called Baughn) and driver by Vaughn's employee Campbell, collided in this state with a truck and trialer which suffered property damage and whose driver was injured. At the time of the accident Nevada had in its name:
1. a policy of comprehensive liability insurance issued by the Peerless Casualty Company (further called Peerless) covering the motor vehicle involved, with a limit for bodily injury of $10,000 for each person injured and of $5,000 for property damage.
2. two policies of excess liability insurance issued by the Underwriters at Lloyd's, London (further called Lloyd's), the first of which provided coverage after exhaustion of the coverage of the above Peerless policy, to which specific reference was made, with a limit for bodily injuries of $15,000 for each person injured (after the $10,000 of the Peerless policy) and $20,000 for property damage (after the $5,000 of the Peerless policy) and the second of which provided coverage after exhaustion of the coverage of the above two policies, with a limit for personal injuries of $175,000 for each person injured (after the above total of $25,000 primary coverage).
Vaughn had at said time in its name one policy of comprehensive liability insurance issued by Continental Casualty Company (further called Continental) with a limit for bodily injuries of $100,000 for each person injured and of $25,000 for property damage.
Each of the above policies provided liability insurance directly to Campbell as an additional insured for the claims ensuing from the accident. Pursuant to an agreement reserving judicial determination of the respective liabilities of the several insurers, Peerless and Lloyd's settled said claims by payment of $5,946.60 for personal injuries and $6,053.40 for property damage. The controversy of the parties relates mainly to the effect to be given to the 'other insurance' clauses of the Peerless and Continental Policies.
The other insurance clause of the Continental Policy reads: '13. Other Insurance 'If the insured has other valid and collectible insurance against a loss covered by this policy, the insurance under this policy shall be excess insurance with respect to such loss but shall apply only in the amount by which the applicable limit of liability stated in the declarations exceeds the total applicable limits of liability of such other insurance.'
The part of the other insurance clause of the Peerless policy applicable to the circumstances of this case reads: 'N. Other Insurance 'If the insured has other insurance against a loss covered by this policy, the company shall not be liable under this policy for a greater proportion of such loss than the applicable limits of liability stated in the declaration bear to the total applicable limit of liability of all valid and collectible insurance against such loss; * * *.'
The trial court held that Peerless and Continental were liable for the total amounts of the settlements in proportion of the maximum coverage provided by their respective policies for the two kinds of damage involved. Lloyd's was held not liable on its policies. (The proportionate liability of Peerless does not exhaust the coverage provided by its policy.) Continental appeals, claiming primarily that this decision, in prorating the loss, disregards the other insurance clause of its policy. We have concluded that the decision in supported by the authority of Air Transport Mfg. Co. v. Employers' Liability, etc., Corp., 91 Cal.App.2d 129, 204 P.2d 647, hearing in the Supreme Court denied, and should be upheld.
In the Air Transport case, supra, a truck rented by Air Transport from American U-Drive and driven by an employee of Air Transport, was involved in an accident in which one person was injured. Air Transport and American U-Drive each had in its name a liability policy with a limit of $25,000 as to the claim of one injured person. The policy in the name of Air Transport issued by Pacific contained another insurance clause requiring prorating like the Peerless policy in our case. The policy in the mane of American U-Drive issued by Employers' contained another insurance clause reading as follows: '8. Other Insurance. If other valid insurance exists protecting the Insured from liability for such bodily injury, sickness, disease or death or such injury to or destruction of property, this policy shall be null and void with respect to such specific hazard otherwise covered, whether the Insured is specifically named in such other Hugh M. Terrell, plaintiff and appellant. the applicable limit of liability of this policy exceeds the applicable limit of liability of such other valid insurance, then this policy such apply as excess insurance against such hazard in an amount equal to the applicable limit of liability of this policy minus the applicable limit of liability of such other valid insurance.' Both the trial court and the appellate court held that notwithstanding the latter clause Employers' was liable for its proportionate part (half) of the claim. Rejecting other bases of decision sometimes used, the court held that the liability of the insurers should be decided by construction of the other insurance clauses involved and in so doing held, that because of its pro rata clause the Pacific policy did not constitute such unconditional insurance as would render void the policy of Employers' under its clause and that by reason of the latter's policy, that of Pacific afforded only pro rata insurance. Employers' had therefore to bear the remaining portion of the loss.
Appellant tries to distinguish the Air Transport case, supra, by the contention that it involves a conflict between a 'pro rata' clause and an 'escape' clause, whereas the present case is said to involve a conflict between a 'pro rata' and an 'excess' clause, which 'excess' clause is more regularly granted recognition and preponderance by the courts than an 'escape' clause. We do not agree. The other insurance clauses, generally inserted in liability insurance policies and given many different formulations, and often distinguished in three types: 'Pro rata' clauses providing for the apportionment of the loss with other valid insurance; 'excess' clauses providing for liability up to the limits of the policy covering excess loss only after exhaustion of other valid insurance; and 'escape' clauses providing for avoidance of liability when there is other valid insurance. See 5 Stanford L.R. 147; 38 Minn.L.R. 838, 840. The clauses of Continental in the case before us and of Employers' in the Air Transport case are neither characteristic excess nor characteristic escape clauses. Although the clause of Continental if formulated more like an excess clauses and the one of Employers' more like an escape clause their effect if exactly the same and each is a composite of escape and excess elements. Each provides for excess insurance if and in so far only as its coverage exceeds all other valid coverage combined and does not provide for any coverage if its coverage is not so in excess. In the absence of such excess it works as an escape clause, if there is such excess as a modified excess clause (which does not cover excess loss to the limit of its agreed coverage but only to the excess of such limit over other valid coverage). The clause of Continental does not say so expressly as the clause of Employers' that is shall be void in the absence of an excess of its coverage over all other coverage, but as it applies only in the amount of such excess it does not provide any coverage if there is no excess.
Both in the Air Transport case and in our case there was no such excess. In the Air Transport case the coverage under both policies was the same; in our case the combined coverage of the other policies (Peerless and Lloyd's) is same as that of Continental with respect to property damage (each $25,000) and exceeds that of Continental with respect to coverage of injury to one person ($200,000 as against $100,000). In both cases the clauses compared worked as escape clauses conflicting with pro rata clauses. With respect to the Air Transport case such was recognized expressly by the appellate court which decided it in distinguishing said case in Norris v. Pacific Indemnity Co., Cal.App., 237 P.2d 666, 672.
Under approximately similar facts and policy provisions a contrary result was reached in McFarland v. Chicago Exp., 7 Cir., 200 F.2d 5, 7. In that case Employers,' whose policy has the mixed eacape and excess clause, was the insurer of the owner of the truck and the pro rata clause was contained in the policy of the user of the truck, directly responsible for the accident. Such may have influenced the decision although according to its terms the opinion, like the one in the Air Transport case, in based on "a construction of the language employed by the respective insurers." The McFarland opinion, however, starts its reasoning from the other side and holds that because of its escape clause the Employers' policy is not valid and collective insurance to which the pro rata clause in the other policy applies, on which ground it is concluded that the writer of said policy was not entitled to prorating with Employers' but must bear the whole loss.
We see no reason to deviate from the decision given in this state in the Air Transport case, which reaches a result which we consider preferable. It is clear that the reasoning used in said case, based on construction of the language of the policy clauses, is not conclusive, considering that on the same basis the McFarland case reaches the opposite result. It is pointed out in Oregon Auto Ins. Co. v. United States Fidelity & Guaranty Co., 9 Cir., 195 F.2d 958, 960, that such reasoning is 'completely circular, depending, as it were, on which policy one happens to read first.' The Oregon case accepts the principle that the mutually repugnant clauses should be disregarded and prorating applied as if the policies did not contain any other insurance clauses. Other methods applied to solve the difficulty of the inconsistent clauses are stated and rejected in the Oregon case as well as in our Air Transport case. Nevertheless there are situations where no porrating with other insurance should be applied; e. g., where, as in the Lloyd's policies in this case, the policy provides coverage for the excess over specifically stated, existing insurance only or where, as is accepted in Norris v. Pacific Indemnity Co., supra, for standard automobile liability policies, the policies themselves show that the insurance on the car was intended to be primary and that on the driver excess, 237 P.2d at page 672. Each case must therefore be solved on its specific facts.
In the case before us we find no ground why the escape clause of Continential should prevail over the pro rata clause of Peerless; hence there is reason to disregard both and to prorate in accordance with the principle of tue Oregon case. It can even be said that an escape clause is less desirable than a pro rata or excess clause, because, without prohibiting other insurance, it deprives the insured, if other insurance is taken out, of some of the protection he expects, whereas pro rata or excess clauses leave him all coverage expected and regulate the distribution of the loss among the several insurers only. The clause in the Continental policy has the added disadvantage that its partial escape character is more or less camouflaged and does not provide clear warning for the insured. Under these circumstances the application of prorating is the more equitable.
Continental's further contention that if prorating is applied the coverage provided by the Lloyd's policies should also be included in the proration is to a limited extent meritorious. Evidently the second Lloyd's policy whose primary limits are not reached by the total damage claims cannot be involved and the same applies to the personal injury coverage of the first Lloyd's policy as the primary limit of $10,000 for net loss with respect to one person is not reached. The question is, however, presented as to the property damage coverage of the first Lloyd's policy because the settlement in that respect, $6,053.40, exceeds the primary limit of $5,000--contained therefor in said policy. If the Continental coverage had not been involved in this case, Lloyd's would have had to pay the excess over $5,000--covered by Peerless. We have concluded that the excess clauses in the first Lloyd's policy which specifically provide only that its coverage is excess coverage after the $5,000 coverage of Peerless do not justify exemption from proration with respect to the excess over $5,000 property damage. Gillies v. Michigan Millers, etc., Ins. Co., 98 Cal.App.2d 743, 221 P.2d 272, a fire insurance case on which Lloyd's relies for its total exclusion from prorating, is distinguishable because in that case the excess coverage was expressly written as excess after both primary policies involved, see, 98 Cal.App. at page 748, 221 P.2d 272.
The provisions of the Lloyd's policy 'that liability shall attach to the Underwriters only after the Primary Insurers have paid or have been held liable to pay the full amount of their respective ultimate net loss liability' [for property damage to the limit of $5,000] and that 'Liability under this Insurance shall not attach unless and until the Primary Insurers shall have admitted liability for the Primary Limit or Limits, or unless and until the Assured has by final judgment been adjudged to pay a sum which exceeds such Primary Limit or Limits', are not completely free of ambiguity and contradiction if applied to the present case. However, construing them most favorably to the insured, we hold that they provide for attachment of liability of Lloyd's when the claims against the assured, the validity of which is shown by admission of the primary insurer or by judgment, exceed the primary limit. The settlement in this case is such admission by Peerless (and by Lloyd's).
A correct and equitable prorating of the property damage under the facts and provisions here involved must give Peerless no benefit of the coverage by Lloyd's which is secondary to it, but must give Continental the benefit of Lloyd's co-liability as to the excess property damage over $5,000. Therefore Peerless must bear its full 1/6 of the property damage as fixed by the trial court or $1,008.90, of which $175.57 is its proportionate part of the excess over the primary limit which excess totals $1,053.40. The remaining part of this excess or $877.83 must be prorated between Continental and Lloyd's in the ratio of their coverages ($25,000 and $20,000) so that Lloyd's bears 4/9 of $877.83 or $390.15. The remaining part of the property damage or $4,654.35 must be borne by Continental.
Insofar as the judgment appealed from fixes the amount to be paid by Continental for property damage at $5,044.50 and exonerates Lloyd's completely the judgment is reversed with directions to the trial court to amend it in accordance with our above opinion; in all other respects the judgment is affirmed; Lloyd's to pay its own costs; Continental to pay its own costs and those of Peerless. --------------- * Petition of Continental Casualty Co. dismissed June 20, 1956. ** Opinion vacated 301 P.2d 602.