Allstate Ins. Co. v. State Auto. Mut. Ins. Co.

• Decision Date: 15 December 1987
• Docket Number: No. 17612,17612
• Court: West Virginia Supreme Court
• Parties: ALLSTATE INSURANCE COMPANY, etc. v. STATE AUTOMOBILE MUTUAL INSURANCE COMPANY, etc., Charles Nickerson, Jr., Charles Douglas Minor, etc., Kevin R. Cook, and Mary Cook.

Page 30

364 S.E.2d 30

178 W.Va. 704

ALLSTATE INSURANCE COMPANY, etc. v. STATE AUTOMOBILE MUTUAL INSURANCE COMPANY, etc., Charles

Nickerson, Jr., Charles Douglas Minor, etc., Kevin

R. Cook, and Mary Cook.

No. 17612.

Supreme Court of Appeals of

West Virginia.

Dec. 15, 1987.

Syllabus by the Court

1. We adopt the rule that when a pro-rata clause and an excess clause appear in the automobile liability policies of both the driver and the owner of an automobile, the insurer of the owner is primarily liable and must bear the whole loss, within the limits of the policy.

2. "Where a declaratory judgment action is filed to determine whether an insurer has a duty to defend its insured under its policy, if the insurer is found to have such a duty, its insured is entitled to recover reasonable attorney's fees arising from the declaratory judgment litigation." Syl. Pt. 2, Aetna Casualty and Surety Co. v. Pitrolo, 176 W.Va. 190, 342 S.E.2d 156 (1986).

John L. Allen, Wheeling, for appellant.

Frederick E. Gardner, Moundsville, for appellee.

Robert W. Kagler, Moundsville, for the Cooks.

Charles D. Bell, Wellsburg, for Minor.

NEELY, Justice:

Appellant, Allstate Insurance Company, filed this declaratory judgment action asking the trial court to require appellee, State Automobile Mutual Insurance Company, to assume the defense of Charles Douglas Minor in a civil action pending in the Circuit Court of Marshall County, ¹ and to require appellee to reimburse expenses incurred by Allstate in the investigation and defense of the claim. The matter was submitted to the court on Allstate's Motion for Summary Judgment. The court neither granted nor denied the motion, but ordered that the expense of defending Mr. Minor be shared equally between Allstate and State Auto. Both insurance companies appealed to this Court.

On February 29, 1980 Charles Douglas Minor went to a lumberyard in Moundsville, West Virginia to help load building materials into Charles Nickerson's Ford Bronco. While alone in the vehicle Mr. Minor turned the ignition key to activate the radio. The vehicle lurched backward and hit Kevin R. Cook, a lumberyard employee. Mr. Cook's complaint alleges that Mr. Minor was using the Ford Bronco owned by Mr. Nickerson with his permission. The court correctly concluded that the duty to defend Mr. Minor is to be determined by the insurance policies.

Mr. Nickerson's Bronco was insured under a standard automobile policy written by State Auto. That policy provides coverage to any licensed driver using the vehicle with Mr. Nickerson's permission. ² Allstate's standard policy insured an automobile owned by Mr. Minor's father. That policy extended coverage to Mr. Minor, as a family member, when he was driving vehicles other than the principle vehicle insured. ³ Each policy contains a clause apportioning a loss when there is other, valid and collectible insurance (the pro-rata clause). Both policies provide that when an insured is using a non-owned automobile, the insurance provided by the policy is excess over any other valid and collectible insurance (the excess clause). ⁴

Appellant contends that the lower court erred in apportioning the defense costs of a permissive user of an automobile between the insurer of the automobile and the permissive user's insurer in light of the almost universal rule making the automobile's insurer the primary carrier. We agree and reverse the lower court's ruling.

I

In American Surety Co. v. Canal Ins. Co., 258 F.2d 934 (4th Cir.1958) the court said:

"The common, and highly desirable, practice of including extended coverage clauses in automobile liability insurance contracts, sometimes leads to duplications of coverages. To resolve the questions inherent in such duplications of coverages, most policies incorporate excess insurance or 'other' insurance clauses which usually follow the general rule that the policy insuring the liability of the owner of a described vehicle has the first and primary obligation ...

Such excess insurance clauses serve a useful purpose in avoiding conflict. They are neither invalid nor unconscionable, and they may be given effect without invalidating a prorata contribution clause in the policy providing the other protection." [Emphasis added].

258 F.2d at 936. If the non-ownership coverage offered by one of the policies involved is "excess insurance" the conclusion is generally reached that the policy issued to the owner of the vehicle is the "primary" policy and the company issuing it is liable up to the limits of the policy without apportionment, although the policy contains a "pro-rata" clause. ⁵ Thus, the general statement of insurance law--"that insurance follows the automobile, rather than the driver." 8A Appleman, Insurance Law and Practice, § 4909.45 (1981).

For example, in American Automobile Ins. Co. v. Republic Indem. Co., 52 Cal.2d 507, 341 P.2d 675 (1959), the California Supreme Court addressed a situation factually similar to the present case. There, Steinberg, an insured of American Automobile Insurance Company, was driving an automobile borrowed from Max Barish, Inc., an insured of Republic Indemnity Company. Steinberg was involved in an accident and a $5,000 judgment was entered against him and Max Barish, Inc. Because the limits of either policy were sufficient to cover the loss, a declaratory judgment action was filed to determine which policy was primary.

As in the case now before us, both policies provided pro-rating when there was other insurance to cover the loss with the additional provision that when the insured was driving a car not owned by him, the insurance was excess over other valid and collectible insurance. The court found in American Auto that Republic Indemnity, the insurer of the car owner, was primarily liable:

"Where 'other insurance' clauses of this type appear in the automobile liability policies of both the driver and the owner, the cases have generally given effect to the excess provision in the policy of the driver and have held that the insurer of the owner is primarily liable and must bear the whole loss, within the limits of its policy." (Citations omitted)

341 P.2d at 678.

The simple, bright-line rule of law that the primary obligation to defend and indemnify follows the automobile, rather than the driver, facilitates an orderly determination of priorities among carriers insuring the same risk. These cases are based on the reasoning that the policy of the owner is other insurance within the meaning of the excess provision of the driver's policy and that, therefore, this provision is effective; they do not consider the driver's policy as other insurance within the meaning of the pro-rata provision of the owner's policy and accordingly treat the pro-rata provision as not operative. We conclude that the result reached in the cases cited above is correct. Therefore, we hold that State Automobile Insurance Company has the primary coverage in this case because it insured Mr. Nickerson's car. Consequently, State Automobile has the primary duty to defend Charles Douglas Minor.

II

Appellant next argues that instead of apportioning the litigation costs between Allstate and State Auto, the lower court should have awarded Allstate its costs and attorney's fees incurred in defending Mr. Minor. We agree. Because State Auto refused to defend Mr. Minor, Allstate assumed the defense and instituted this declaratory judgment action to require State Auto to live up to the terms of its policy.

There are no West Virginia cases that have considered this precise issue. However, in Aetna Casualty and Surety Co. v. Pitrolo, 176 W.Va. 190, 342 S.E.2d 156 (1986), we held that an insurer which wrongfully refused to defend its insured was...