Allstate Ins. Co. v. Employers Liability Assur. Corp.

• Decision Date: 25 August 1971
• Docket Number: No. 31068.,31068.
• Citation: 445 F.2d 1278
• Parties: ALLSTATE INSURANCE COMPANY, an Illinois corporation, Plaintiff-Appellee, v. The EMPLOYERS LIABILITY ASSURANCE CORP., Ltd., Defendant-Appellant and United States Fidelity and Guaranty Co., Defendant-Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

445 F.2d 1278 (1971)

ALLSTATE INSURANCE COMPANY, an Illinois corporation, Plaintiff-Appellee, v. The EMPLOYERS LIABILITY ASSURANCE CORP., Ltd., Defendant-Appellant and United States Fidelity and Guaranty Co., Defendant-Appellee.

No. 31068.

United States Court of Appeals, Fifth Circuit.

June 30, 1971.

Rehearing Denied August 3, 1971.

On Motion to Amend and to Reconsider August 25, 1971.

James E. Tribble, Paul R. Larkin, Jr., Carey, Dwyer, Austin, Cole & Selwood, Blackwell, Walker & Gray, Miami, Fla., Henry J. Whelchel, Miami, Fla., for appellants.

Adams, George & Wood, Edward A. Perse, David L. Willing, George E. Bunnell, Miami, Fla., for Allstate Ins. Co.

Before JOHN R. BROWN, Chief Judge, and COLEMAN and CLARK, Circuit Judges.

CLARK, Circuit Judge:

In one of those ordinary extraordinary bits of diversity mysticism, we must perform the occult multiple feats of divining whether the district court correctly predicted what a Florida court would determine an Illinois court would decide on a question which the courts of Illinois have not yet squarely faced. Allstate Insurance Company (Allstate) brought this declaratory judgment action seeking a legal interpretation of the frequently conflicting, often abstruse, but standard and widely used in insurance policy words "other collectible insurance" in hired automobile coverage clauses of policies issued by Allstate and United States Fidelity and Guaranty Company (USF & G), and in a condition clause of an umbrella or catastrophe policy issued by Employers' Liability Assurance Corp., Ltd. (Employers). The issue here has an unusual twist. Instead of determining which of two policies, each negating primary coverage, must supply initial protection to the insured, we are required to establish secondary liability priorities among three insurers, who have all declared their coverages of the occurrence involved to be secondary, after an admittedly primary insurer has exhausted its coverage limits without extinguishing the insured's obligations. The precise question is whether the excess insurance provisions of the hired automobile coverage clauses grant "other collectible insurance" within the meaning of a contingent excess condition clause in the umbrella or a catastrophe policy. The district court held they did not and that the umbrella insurer was required to shoulder the entire liability over and above the primary coverage.¹ We disagree.

The parties have stipulated that the law of the State of Illinois, where the named and other insureds resided and where the policies were issued, controls the disposition of this case. The facts have also been stipulated and can be simply stated. Merit Rentals, Inc. (Merit) leased an automobile to Equitable Millinery Company (Equitable), a partnership. The period of the lease was for two years and obligated Merit to obtain and maintain public liability insurance protecting and naming Equitable and Merit as assureds in limits of not less than 100,000/300,000 dollars for personal injury. Harold Hefter, one of the partners in Equitable, was the primary driver of this automobile during the lease term. At a time when this automobile was being operated by Hefter, an accident occurred in Dade County, Florida resulting in serious injuries to Neal Allen Roth. At the time of this accident a primary policy of comprehensive general liability insurance, naming Equitable as an insured and containing the minimum lease required limits of 100,000/300,000 dollars, had been issued by Lumbermen's Mutual Casualty Company (Lumbermen's) to Merit. At this time USF & G also insured Equitable against liability for risks connected with the operation of automobiles owned by the partnership, through a policy which contained the following clause applicable to hired automobiles:

Other Insurance. This insurance shall be excess insurance over any other valid and collectible insurance for Bodily Injury Liability, for Property Damage Liability and for Automobile Medical Payments.

At the time of the accident Hefter was individually insured by Allstate against automobile risks through a policy which contained this clause pertaining to leased automobiles:

If there is other insurance ALLSTATE shall not be liable under this Part I for a greater proportion of any loss than the applicable limit of liability stated on the Supplement Page bears to the total applicable limit of liability of all collectible insurance against such loss; provided, however, the insurance with respect to a temporary substitute automobile or a non-owned automobile shall be excess insurance over any other collectible insurance.

The Employers policy which was effective when Roth was injured had been issued to Merit Chevrolet, Inc. covering a number of businesses — including that of a long term auto lessor, and it expressly covered subsidiary companies, including Merit Rentals. This policy was entitled "Umbrella Policy" and it extended nine different types of liability coverage. Among other things, it agreed to indemnify Merit for all amounts the insured should become obligated to pay by reason of personal injury and property damage liability within the policy definition of ultimate net loss. The words "ultimate net loss" were defined as "the total sum which the insured, or any company as his insurer or both, becomes legally obligated to pay" as a consequence of automobile accidents. The policy expressly required Merit to maintain in effect certain other policies of primary insurance, termed underlying insurance, in the various liability areas covered during the policy period, and contained the following clause as a condition:

Other Insurance. If any other valid and collectible insurance exists protecting the insured against ultimate net loss covered by this policy (other than the policies of underlying insurance specified in Item 3 of the declarations and other than any policy with respect to which this policy is specified therein as underlying insurance), this policy shall be null and void with respect to such loss whether the insured is specifically named in such other policy of insurance or not; provided, however, if the amounts recoverable by the insured under such other insurance are not sufficient to completely protect the insured against such loss, this policy shall apply but only as excess insurance over such other valid and collectible insurance in an amount not to exceed the limit of the company\'s liability stated in this policy, and not as contributing insurance.

A lawsuit was filed against Merit, Equitable and Hefter to recover for Roth's injuries. Ultimately all interested parties, including the insurers named here, succeeded in settling this action for a total sum of 250,000 dollars. Lumbermen's, conceding to all concerned that it owed coverage on a primary basis to these defendants, paid its maximum limit for a single injury in a single occurrence of 100,000 dollars; 50,000 dollars each was paid by Allstate, USF & G and Employers, to complete the settlement. The contributions of the latter three insurers were made under an agreement between these carriers that their contributions were made without prejudice to their rights to commence and defend this present action to determine their correlative rights and responsibilities.

The court sua sponte has determined that the vitality of declaratory judgment jurisdiction presents a sufficiently important question to warrant comment. The issue centers upon whether a justiciable case or actual controversy within the meaning of 28 U.S.C.A. § 2201 (1959), survived the action of the insurers who are parties to the present action in paying their pro rata share of the judgment against their insureds.

The declaratory judgment remedy is an all-purpose remedy designed to permit an adjudication whenever the court has jurisdiction, there is an actual case or controversy and an adjudication would serve a useful purpose. 6A Moore's Federal Practice ¶ 5705. The act is remedial and is to be liberally construed to achieve its wholesome and salutary purpose. Miss. Power & Light Co. v. City of Jackson, 116 F.2d 924 (CCA 5th 1941). In Golden v. Zwickler, 394 U.S. 103, 89 S.Ct. 956, 22 L.Ed.2d 113 (1969), the court stated:

"The federal courts established pursuant to Article III of the Constitution do not render advisory opinions. For adjudication of constitutional issues `concrete legal issues, presented in actual cases, not abstractions\' are requisite. This is as true of declaratory judgments as any other field." United Public Workers of America (C.I.O.) v. Mitchell, 330 U.S. 75, 89, 67 S.Ct. 556, 564, 91 L.Ed. 754 (1947). "The difference between an abstract question and a `controversy\' contemplated by the Declaratory Judgment Act is necessarily one of degree, and it would be difficult, if it would be possible, to fashion a precise test for determining in every case whether there is such a controversy. Basically, the question in each case is whether the facts alleged, under all the circumstances, show that there is a substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment." Maryland Casualty Co. v. Pacific Coal & Oil Co., 312 U.S. 270, 273, 61 S.Ct. 510, 512, 85 L.Ed. 826 (1941).

We have held that no action for declaratory relief will lie to establish an insurer's liability in a policy clause contest such as the one at bar until a judgment has been rendered against the insured since, until such judgment comes into being, the liabilities are contingent and may never materialize. American Fidelity & Casualty Co. v. Pennsylvania Threshermen & Farmers' Mutual Casualty Ins. Co., 280 F.2d 453 (5th Cir. 1960). There is no question here that such a judgment has been rendered establishing liability in the premises. But did its voluntary payment, although accompanied by a full reservation of rights by the payors as between themselves, nevertheless operate...