Carriers Insurance Co. v. American Home Assur. Co., 74-1330

• Decision Date: 04 April 1975
• Docket Number: No. 74-1330,74-1330
• Parties: CARRIERS INSURANCE COMPANY, Plaintiff-Appellee, v. AMERICAN HOME ASSURANCE COMPANY, Defendant-Appellant, and Hartford Fire Insurance Company, Defendant-Appellee.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 360

512 F.2d 360

CARRIERS INSURANCE COMPANY, Plaintiff-Appellee, v. AMERICAN HOME ASSURANCE COMPANY, Defendant-Appellant and Hartford Fire Insurance Company, Defendant-Appellee.

No. 74-1330.

United States Court of Appeals Tenth Circuit.

Argued Jan. 21, 1975.

Decided March 4, 1975.

Rehearing Denied April 4, 1975.

Bill E. Fabian, Kansas City, Kan. (McAnany, Van Cleave & Phillips, Kansas City, Kan., on the brief), for plaintiff-appellee Carriers Ins. Co.

David C. Trowbridge, Kansas City, Mo. (Donald F. Martin, Blackwell, Sanders, Matheny, Weary & Lombardi, Kansas City, Mo., and John J. Bukaty, Jr., Kansas City, Kan., on the brief), for defendant-appellant American Home Assurance Co.

John T. Flannagan, Olathe, Kan. (Keith Martin and Payne & Jones, Olathe, Kan., on the brief), for defendant-appellee Hartford Fire Ins. Co.

Before BREITENSTEIN, HILL and DOYLE, Circuit Judges.

BREITENSTEIN, Circuit Judge.

In 1971 two youths were injured in a vehicular accident. The amount of recovery, determined after jury trial in federal court, is not attacked. In 1975 the insurance companies are still fighting over their respective liabilities. The action before us is for a declaratory judgment. Jurisdiction is based on diversity.

The 582-page record is confusing beyond belief. In the district court there was no trial and the matter was submitted on pretrial order, briefs, and oral argument. The record contains 16 exhibits without any showing how they got there. Included are a mass of papers which, so far as we can ascertain, have nothing to do with the issues. The record references in the briefs are unsatisfactory. Many hours of judicial time have been ill-spent in an effort to sort out the pertinent policy provisions. If it had not been that the fight between insurers delays payment to the injured, the court would have required an appendix and rebriefing.

A sport van owned by Rudolph Chevrolet, Inc., DBA Rudolph Gold Key Auto Lease, of Phoenix, Arizona, and driven by Nicholas Glavas, an Arizona resident, collided at a Kansas intersection with a motorcycle. A negligence action in federal district court in Kansas against Rudolph and Glavas resulted in the dismissal of Rudolph and a judgment for $211,025 against Glavas.

Four insurance companies are involved. Carriers Insurance Company brought a declaratory judgment action against Planet Insurance Company and Glavas. By amendment American Home Assurance Company and Hartford Fire Insurance Company were joined as defendants. The court held that Hartford was not liable. The order of liability of the others was determined to be (1) Carriers, (2) Planet, and (3) American Home.

Planet issued an automobile liability policy to Glavas as named insured and provided for coverage of non-owned automobiles. After district court judgment herein, Planet paid to the court registry $100,000, the limit of its policy. We are not concerned with its order of liability.

Carriers issued to Rudolph an automobile liability policy with limits of $10,000/$20,000/$5,000. The policy contained an excess liability endorsement with $100,000/$300,000 limits. The district court imposed primary liability on Carriers under the policy provisions with the lesser limits. Carriers has not appealed and, accordingly, the district court judgment is conclusive on primary liability.

American Home issued to Rudolph and its rental agency as named insureds an umbrella liability policy. Hartford issued to Rudolph as named insured a comprehensive automobile and garage liability policy. These two policies will be discussed later.

A threshold question is the status of Glavas. Rudolph, the owner of the van, operated a garage and conducted a car-rental business. Rudolph furnished the van to Glavas for a vacation trip. There is evidence that neither Glavas nor anyone acting for him paid, or was obligated to pay, any rental charge for the use of the van. The pretrial order recited the contentions of Carriers and American Home that Glavas was a gratuitous bailee and stated that the case presented no question of fact. Although all parties had notice of the pretrial order and an opportunity to object thereto, no objection was made. Thereafter, Hartford argued that Glavas was a rentee or lessee. Hartford says that its failure to object to the pretrial order was the result of excusable inadvertence and mistake. We are not impressed. The trial court holding that Glavas was a gratuitous bailee is a reasonable inference from the record. For all purposes of this opinion, we treat Glavas as a gratuitous bailee.

The policies with which we are concerned may be an underwriter's dream but are a court's nightmare. They are filed with circumlocution stating inclusions and exclusions in fine print which is almost unreadable because of poor reproduction.

Carriers

The Carriers excess endorsement covers the named insured, its partners and executives and members of their households, and its employees. Glavas does not fit in any of these categories. The endorsement does not cover him as a permissive user. Carriers is not liable under the excess endorsement.

American Home

Rudolph was a named insured in the umbrella liability policy. The definitions found in the declaration portion say:

"the unqualified word 'Insured', wherever used in this policy, includes not only the Named Insured but also,

with respect to any automobile owned by the Named Insured * *, any person while using such automobile * * * provided the actual use of the automobile is with the permission of the Named Insured, except * * * (not applicable)."

Endorsement No. 2 says that the automobile liability coverage applies only to the named insured and not to a rentee or lessee. The endorsement does not purport to amend the declaration definition which provides that the term "insured" as used in the policy includes a permissive user such as Glavas.

Condition No. 7 of the declaration portion requires underlying insurance. An attached schedule of that insurance includes Aetna with a $1,000,000 limit and describes coverage as automobile liability. Endorsement No. 7 changes the schedule by fixing the Aetna limits at $100,000/$300,000/$25,000 and describing Aetna coverage as automobile liability (leased cars only). Endorsement No. 8 adds to the schedule Ranger Ins. Co. with $500,000 limits and describes coverage as automobile liability (short term rental fleet). Endorsement No. 9 further amends the schedule by deleting Ranger and adding Carriers Insurance Co. Nothing is said about the coverage of Carriers. We have noted that the Carriers policy with the lesser limits covers permissive users. The result is, and the trial court held, that the American Home policy is excess over the policy of Carriers with $10,000/$20,000/$5,000 limits.

The most charitable thing to be said for American Home is that its policy is ambiguous. The general rule is that an ambiguous insurance policy is to be construed in favor of the insured. Prime Drilling Co. v. Standard Accident Insurance Co., 10 Cir., 304 F.2d 221, 223; see also D. M. A. F. B. Federal Credit Union v. Employers Mutual Liability Insurance Company of Wisconsin, 96 Ariz. 399, 396 P.2d 20, 23.

All parties agree that we are concerned with Arizona law. Ownership and bailment were in that state and all of the policies were written there. Arizona Law, A.R.S. § 28-324, requires the owner of a rented vehicle to have public liability insurance covering the operator against liability arising from negligence in the operation of the vehicle. Carriers says that the statute does not apply because Glavas was a gratuitous bailee. However, the...