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

• Decision Date: 25 August 2016
• Docket Number: 2014-SC-000265-DG
• Citation: 496 S.W.3d 424
• Parties: Countryway Insurance Company, Appellant v. United Financial Casualty Insurance Company and Sharon Bartley, Appellees
• Court: United States State Supreme Court — District of Kentucky

496 S.W.3d 424

Countryway Insurance Company, Appellant

v.United Financial Casualty Insurance Company and Sharon Bartley, Appellees

2014-SC-000265-DG

Supreme Court of Kentucky.

AUGUST 25, 2016

COUNSEL FOR APPELLANT: Brian Keith Pack, Herbert, Herbert & Pack

COUNSEL FOR APPELLEE, UNITED FINANCIAL CASUALTY, INSURANCE COMPANY: Tracey C. Smith, Gwin Steinmetz & Baird PLLC

COUNSEL FOR APPELLEE, SHARON BARTLEY: Brian M. P. Driver, Rogers & Driver, LLP

OPINION OF THE COURT BY JUSTICE HUGHES

This Court granted the motion for discretionary review by Countryway Insurance Company, a New York corporation, in its dispute with United Financial Casualty Company,¹ over how to apportion damages between the two, both insurers having provided uninsured motorist (UM) coverage to a passenger injured in an automobile accident in Bowling Green, Kentucky. In light of what it deemed mutually repugnant “other insurance” clauses in the two policies, the Warren Circuit Court ordered the companies to share the damages pro rata, in proportion to their respective policy limits. Countryway appealed from that decision to the Court of Appeals, contending that the damages should not have been divided at all, but should have been apportioned entirely to United Financial, the insurer of the accident vehicle. To Countryway's dismay, the Court of Appeals panel decided that that argument was half right: the Court agreed that the damages should not have been divided, but in its view Countryway, the insurer of the injured passenger, bears primary, and in this case full, responsibility for the passenger's UM claim. We accepted review to consider the Court of Appeals panel's application of Kentucky Farm Bureau Mut. Ins. Co. v. Shelter Mut. Ins. Co., 326 S.W.3d 803 (Ky.2010)

(Shelter ), a case in which we addressed competing “other insurance” clauses in two auto insurance liability policies. The Court of Appeals departed somewhat from our approach in Shelter because of the different type of coverage—uninsured motorist (UM)—involved in this case. Convinced that the Court of Appeals needlessly distinguished the two types of coverage, we reverse the decision of the Court of Appeals and remand the matter to the Warren Circuit Court for entry of an appropriate order in favor of Countryway.

RELEVANT FACTS

As is often the case in insurance apportionment contests, the pertinent facts are not in dispute and may be briefly stated. On about September 27, 2007, on Morgantown Road in Bowling Green, Sharon Bartley, a resident of Barren County, Kentucky, was riding as a passenger in a semi-tractor owned and operated by her son, Joey Bartley. The semi-tractor was involved in a collision with a 1994 Pontiac Sunbird owned and operated by an uninsured driver, that driver's negligence being the sole cause of the collision. Sharon Bartley suffered significant injuries as a result of the accident.

Joey Bartley's semi-tractor was insured by United Financial. The United Financial policy included uninsured motorist coverage of $50,000 per person/ $100,000 per accident. Sharon Bartley, as a “person occupying [the] insured auto,” was an additional insured under that portion of the policy. Ms. Bartley's personal vehicle was insured by Countryway under a policy that also included uninsured motorist coverage, the limits of which were $100,000 per person/$300,000 per accident. As the family member and spouse of the policy's named insured, Sharon Bartley was an insured under this portion of Countryway's policy.

Although neither insurer denied that Bartley was an insured under its respective policy, both denied her claim for UM benefits on the ground that the other company's liability came first. As a result, Bartley brought suit in the Warren Circuit Court in April 2010 seeking, among other things, a declaration as to which carrier's coverage should apply. In June 2011, Countryway moved for a “determination of priority,” and while that motion was pending, in December 2011 (more than four years after the accident), United Financial, without waiving its position in the priority dispute with Countryway, settled Bartley's claim for $22,500.

The UM provisions of both policies include “other insurance” clauses. United Financial's policy provides as follows:

If there is other applicable uninsured or underinsured motorist coverage, we will pay only our share of the damages. Ourshare 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 [the named insured] and, if the named insured is a natural person, a relative when occupying an insured auto or temporary substitute auto.

(emphasis in original) The policy defines a “relative” as “any person living in the household in which the named insured resides who is related to the named insured by blood, marriage, or adoption, including a ward or foster child.” Sharon Bartley was not a named insured on her son's policy, and, since she did not reside with her son, she was not his “relative” either, for policy purposes. United Financial thus insisted that the UM coverage provided to Bartley as a vehicle occupant was excess over other UM coverage.

The Countryway policy's “other insurance” clause provides that

[i]f 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 collectible insurance similar to the insurance provided by this endorsement.

Since Bartley was injured while a passenger in a vehicle she did not own, Countryway's UM coverage was thus also “excess” according to the policy.

Coverage under both policies being “excess,” United Financial argued before the trial court that the rule of “mutual repugnance” applied. Under that rule, competing excess clauses, such as these appear to be, effectively ify each other, leaving the two companies co-insurers with the obligation to provide pro rata coverage with respect to any remaining liability up to the policy limits. Progressive Northern Ins. Co. v. Conner, 2006 WL 318819 (E.D.Ky.2006)

(applying this rule in a similar case involving a claim for underinsured motorist benefits and citing Hamilton Mut. Ins. Co. v. U.S. Fid. & Guar. Co., 926 S.W.2d 466 (Ky.App.1996) ).

Countryway argued against the pro rata result on the ground that United Financial's attempt to limit its coverage of certain occupants of the insured vehicle to excess coverage was contrary to an established practice in Kentucky whereby vehicle insurers provided primary coverage to all vehicle occupants. That practice is purportedly reflected in American Auto. Ins. Co. v. Bartlett, 560 S.W.2d 6 (Ky.1977)

; Hamilton Mut. Ins. Co., supra; and Metcalf v. State Farm Mut. Auto Ins. Co., 944 S.W.2d 151 (Ky.App.1997).

United Financial's denial of primary coverage to an insured vehicle occupant was also contrary, Countryway maintained, to this Court's then recent decision in Shelter, supra,

in which we discerned in the Motor Vehicle Reparations Act (MVRA), Kentucky Revised Statute (KRS) Chapter 304, Subchapter 39, a strong legislative policy favoring the expeditious settlement of auto injury liability claims. That policy was being frustrated, the Court explained in Shelter, by insurance company efforts to avoid primary coverage in favor of excess coverage. To curtail those efforts, at least in the context of auto liability insurance, the Court held that, notwithstanding an “other insurance” clause, the insurer of the accident vehicle has primary responsibility for liability coverage to the extent of its policy limits. Similarly, Countryway argued, the accident vehicle insurer should be deemed primarily liable to injured vehicle occupants for UM benefits. The trial court rejected these arguments by Countryway and agreed with United Financial that the insurers' competing excess provisions essentially cancelled each other, leaving the companies liable for Bartley's damages on a pro rata basis.

Countryway, as noted above, appealed from that decision to the Court of Appeals. That Court agreed with Countryway that the concerns this Court expressed in Shelter,

concerns about frequent, lengthy apportionment disputes clogging the arteries of the accident-victim compensation process, applied no less to UM-based compensation claims than they did to liability-based claims. Accordingly, the panel concluded, “[a]bolishing the rule of apportionment for UM coverage is a logical and natural extension of Shelter. It will undoubtedly lead to quicker payment to injured victims of uninsured motorists, cut down on the battle of the forms, and reduce litigation.” Countryway Ins. Co. v. United Fin. Cas. Co., No. 2012-CA-002051-MR, p. 13 (January 24, 2014).

In the panel's view, however, indemnity insurance (so-called first-party insurance), such as UM coverage, is unlike the liability insurance at issue in Shelter

(so-called third-party insurance), in that indemnity insurance is “personal to the insured,” and has been said to “follow the person, not the vehicle.” The Court rejected, therefore, the Shelter rule fixing primary liability coverage on the insurer of the accident vehicle, and held that primary UM coverage would be fixed instead on the “UM policy covering the injured person, in this case, Countryway's policy.” Countryway v. United Fin., pp. 15-16.

It is this latter determination making the accident victim's insurer primarily liable for UM compensation, rather than the accident vehicle's insurer, that Countryway contests and has asked us to review. As Countryway sees it, this part of the Court of Appeals' decision is both wrong and unauthorized. It is wrong because it ignores a general rule, a rule at least latent in our ...