Countryway Ins. Co. v. United Fin. Cas. Co.

• Decision Date: 24 January 2014
• Docket Number: NO. 2012-CA-002051-MR,2012-CA-002051-MR
• Parties: COUNTRYWAY INSURANCE COMPANY APPELLANT v. UNITED FINANCIAL CASUALTY COMPANY AND SHARON BARTLEY APPELLEES
• Court: Kentucky Court of Appeals

COUNTRYWAY INSURANCE COMPANY APPELLANT v. UNITED FINANCIAL CASUALTY COMPANY AND SHARON BARTLEY APPELLEES

NO. 2012-CA-002051-MR

Commonwealth of Kentucky Court of Appeals

RENDERED: JANUARY 24, 2014

TO BE PUBLISHED

APPEAL FROM WARREN CIRCUIT COURT

HONORABLE JOHN R. GRISE, JUDGE

ACTION NO. 10-CI-00689

OPINION

REVERSING AND REMANDING

BEFORE: ACREE, CHIEF JUDGE; JONES AND VANMETER, JUDGES.

JONES, JUDGE: This appeal concerns the priority of coverage between two uninsured motorist ("UM") policies, one issued by Appellant Countryway Insurance Company ("Countryway") and the other issued by Appellee United Financial Casualty Company ("United"). The Warren Circuit Court determined that the policies contained mutually repugnant excess coverage provisions and,therefore, damages should be prorated between the two policies. On appeal, Countryway asserts that the trial court should have deemed United's policy primary because it covered the vehicle involved in the accident. For the reasons more fully explained below, we hold that the policy covering the injured person should be deemed primary to the policy covering the vehicle. Accordingly, we reverse the Warren Circuit Court's order prorating the coverage.

I. Factual and Procedural Background

The underlying facts are undisputed. On September 27, 2007, Joey Bartley was driving his semi-tractor in Warren County. His mother, Appellee Sharon Bartley, was a passenger in the semi-tractor. Gregory Gaskey, an uninsured motorist, negligently struck the Bartleys' semi-tractor, injuring Sharon Bartley.¹

At the time of the collision, Joey Bartley maintained a United commercial auto insurance policy on the semi-tractor. The United policy provides UM coverage up to $50,000 per person and $100,000 per accident. It also contains an "other insurance" provision that states:

If there is other applicable uninsured or underinsured motorist coverage, we will pay only our share of the damages. Our share is the proportion that our limit of liability bears to the total of all available coverage limits. However, any insurance we provide shall be excess over any other uninsured or underinsured motorist coverage, except for bodily injury to you and, if the named insured is a natural person, a relative when occupying an insured auto or temporary substitute auto.

We will not pay for any damages which would duplicate any payment made for damages under other insurance. [Emphasis in original].

At the time of the accident, Sharon Bartley was insured under her husband's personal auto policy through Countryway. The Countryway policy provides UM coverage up to $100,000 per person and $300,000 per accident. Like the United policy, it also contains an "other insurance" provision. Countryway's other insurance provision states:

If there is other applicable insurance similar to the insurance provided by this endorsement, we will pay only our share of the loss. Our share is the proportion that our limit of liability bears to the total of all applicable limits. However, any insurance we provide with respect to a vehicle you do not own shall be excess over any other collectable insurance similar to the insurance provided by this endorsement.

Sharon Bartley pursued UM claims against both United and Countryway. The insurance providers conceded that Sharon Bartley was eligible for UM benefits under both policies. The providers, however, could not agree on the priority of the UM coverage because Sharon Bartley fell within the "other insurance" provisions of both policies.² Countryway argued that Kentucky common law and public policy mandated that United's policy was primary becauseit covered the vehicle involved in the collision. United argued that the excess coverage provisions in the two policies were mutually repugnant and, therefore, the damages should be prorated between the two policies.³

On October 26, 2012, the trial court rendered an order in United's favor on the priority of coverage issue. The trial court recognized that in Farm Bureau Ins. Co. v. Shelter Mut. Ins. Co., 326 S.W.3d 803 (Ky. 2010) (hereinafter referred to as "Shelter"), the Kentucky Supreme Court rejected the apportionment rule in favor of deeming the vehicle owner's insurance primary where excess liability clauses clashed. However, the trial court ultimately concluded that Shelter was not dispositive because it dealt with liability coverage under Kentucky's Motor Vehicle Reparations Act ("MVRA"). The trial court concluded that the public policy concerns at issue in Shelter did not apply to mutually repugnant excess UM provisions that fell outside the MVRA. Accordingly, the trial court applied Kentucky's general apportionment rule and ordered damages prorated between United and Countryway. This appeal followed.

II. Standard of Review

The question before us is a purely legal one regarding coverage under insurance policies. Our standard of review, therefore, is de novo. Dowell v. Safe Auto Ins. Co., 208 S.W.3d 872, 875 (Ky. 2006). Under de novo review, we owe nodeference to the trial court's application of the law to the established facts. Grange Mutual Ins. Co. v. Trude, 151 S.W.3d 803, 810 (Ky. 2004).

III. Analysis

A. UM Coverage

"[T]he purpose of uninsured motor vehicle coverage is to make available to injured parties from their own insurer a stated minimum amount of insurance coverage when no other valid or collectible insurance exists with respect to the vehicle causing the damage." Commonwealth Fire & Cas. Ins. Co. v. Manis, 549 S.W.2d 303, 305 (Ky. App. 1977). "We have noted on several past occasions that in enacting KRS [Kentucky Revised Statutes] 304.20-020, the General Assembly did not presume to write an uninsured motorist policy, but merely gave a general outline of the coverage required, the legislature recognizing that the limits and terms of the statute's general outline of required coverage would of necessity be specifically defined by reasonable 'terms and conditions' in the various insurance contracts." See State Farm Mut. Auto. Ins. Co. v. Christian, 555 S.W.2d 571, 572 -73 (Ky. 1977).

While Kentucky requires insurers to make UM coverage available under all automobile liability policies of insurance, it does not require owners and operators of motor vehicles to carry UM coverage. See KRS 304.20-020 ("[T]he named insured shall have the right to reject in writing such coverage; and provided further that, unless the named insured requests such coverage in writing, such coverage need not be provided in or supplemental to a renewal policy where thenamed insured had rejected the coverage in connection with a policy previously issued to him or her by the same insurer.")

"From its inception, [Kentucky courts] have recognized UM coverage is first party coverage, which means that it is a contractual obligation directly to the insured which must be honored even if the tortfeasor cannot be identified." Coots v. Allstate Ins. Co., 853 S.W.2d 895, 898 (Ky. 1993). Given the personal nature of UM coverage, we have held that it follows the insured regardless of whether the insured is injured as a motorist, a passenger, or as a pedestrian and such coverage is only limited by the actual, valid exclusions of each insurance policy. Dupin v. Adkins, 17 S.W.3d 538 (Ky. App. 2000).

B. Other Insurance Provisions

Other insurance provisions are standard in contracts of insurance. "Other insurance clauses are generally of three types: (1) calling for proration of coverage between the multiple policies; (2) stating that the policy will be 'excess' to any other applicable coverage; (3) seeking to avoid any contribution at all." 12 Couch on Insurance, Third Edition § 169:9 (1995). Historically, other coverage provisions have been upheld as generally valid under Kentucky law. See Calvert Fire Ins. Co. v. Stafford, 437 S.W.2d 176, 179 (Ky. 1969).

Not surprisingly, where more than one policy of insurance is at issue, the other insurance provisions in the policies will often conflict with one another.In such cases, at least prior to Shelter, Kentucky followed the rule of repugnancy. See Government Emp. Ins. Co. v. Globe Indem. Co., 415 S.W.2d 581-582 (Ky. 1967); Ohio Cas. Ins. Co. v. State Farm Mut. Auto. Ins. Co., 511 S.W.2d 671 (Ky.1974). Under the repugnancy rule, if the two competing excess clauses could not be applied without canceling each other out, the courts deemed them mutually repugnant. See Great Am. Ins. Co. v. Lawyers Mut. Ins. Co. of Ky., 492 F. Supp. 2d 709 (W.D. Ky. 2007) (citing Ohio Cas. Ins. Co., 511 S. W.2d at 674-675). Both provisions were considered void and the courts apportioned liability between the two policies with neither policy receiving priority over the other. Id.

C. Case Law Prior to Shelter

Despite acknowledging the existence of the general rule of repugnancy in Kentucky law, Countryway asserts that even prior to Shelter there was a longstanding common-law rule that the UM coverage for the vehicle involved in the accident is deemed primary if two or more policies are potentially applicable, irrespective of the existence or effect of any excess coverage provisions. We have carefully reviewed the common law prior to Shelter and find no persuasive authority to support Countryway's position.

In American Auto. Ins. Co. v. Bartlett, 560 S.W.2d 6 (Ky. App. 1977), the passenger's estate brought a claim against the passenger's carrier for UM benefits. The passenger's carrier argued that the other insurance clause in its policy rendered the driver's UM insurer liable to the limits of its coverage first. Thepassenger's estate and the driver's insurer had entered into an agreement that would operate to prevent the estate from retaining any of the proceeds collected under the driver's uninsured motorist policy. The trial court refused to allow the passenger's insurer to file a third-party complaint against the driver's insurer. On appeal, the court determined that the driver's policy was primary where the passenger's other insurance provision was applicable....