Equity Mut. Ins. Co. v. Spring Valley Wholesale Nursery, Inc.

• Court: Oklahoma Supreme Court
• Writing for the Court: OPALA; DOOLIN; HODGES; ALMA WILSON; ALMA WILSON
• Citation: Equity Mut. Ins. Co. v. Spring Valley Wholesale Nursery, Inc., 747 P.2d 947, 1987 OK 121 (Okla. 1987)
• Decision Date: 08 December 1987
• Docket Number: No. 66443,66443
• Parties: EQUITY MUTUAL INSURANCE COMPANY, a foreign corporation, Plaintiff, v. SPRING VALLEY WHOLESALE NURSERY, INC., an Oklahoma corporation; State Department of Highways and Transportation, a commission created by the State of Texas; the Estate of Hank Evens, through the administrator William A. Nobels; and Sue Evens a/k/a Sue Makin, widow of Hank Evens, deceased; and Oklahoma Kansas and Texas Railroad, Defendants, National Indemnity Company, a foreign corporation, Intervenor and Cross-Petitioner.

Page 947

747 P.2d 947

1987 OK 121

EQUITY MUTUAL INSURANCE COMPANY, a foreign corporation, Plaintiff, v. SPRING VALLEY WHOLESALE NURSERY, INC., an Oklahoma corporation; State Department of Highways and Transportation, a commission created by the State of Texas the Estate of Hank Evens, through the administrator William A. Nobels; and Sue Evens a/k/a Sue Makin, widow of Hank Evens, deceased; and Oklahoma Kansas and Texas Railroad, Defendants National Indemnity Company, a foreign corporation Intervenor and Cross-Petitioner.

No. 66443.

Supreme Court of Oklahoma.

Dec. 8, 1987.

Certified question from a federal court.

Insurer brought an action to declare the extent of its obligations under a commercial automobile liability policy. Another insurer, who intervened, answered and pressed a claim of its own. The United States District Court for the Northern District of Oklahoma, James Ellison, Judge, certified for this court's answer three first-impression questions of law.

CERTIFIED QUESTIONS ANSWERED.

Richard D. Gibbon, Oliver W. Arbogast, Jr., Messrs. Gibbon, Gladd & Associates, Tulsa, for plaintiff.

Harry A. Parrish, Steve Wilkerson, Richard D. Wagner, Messrs. Knight, Wagner, Stuart, Wilkerson & Lieber, Tulsa, for defendant Spring Valley Wholesale Nursery, Inc.

A. Camp Bonds, Jr., Messrs. Bonds, Matthews, Bonds & Hayes, Muskogee, for defendant Oklahoma Kansas and Texas R.R.

Steven E. Holden, Melvin C. Weiman, Ray H. Wilburn, Messrs. Wilburn, Masterson & Holden, Tulsa, for intervenor and cross-petitioner Nat. Indem. Co.

Jim Mattox, Atty. Gen. of Texas, Austin, Tex., for defendant State of Texas.

OPALA, Justice.

The United States District Court for the Northern District of Oklahoma certified for this court's answer, pursuant to the Uniform Certification of Questions of Law Act, 10 O.S.1981 §§ 1601-1612, three questions of law:

1. Is it in violation of public policy in Oklahoma for the insurer and insured to agree that liability insurance coverage of a commercial vehicle does not apply beyond a 200-mile radius?

2. If the court finds it is not in violation of public policy, would such a limitation apply to liability claimants and additional insured who have no knowledge of the radius endorsement?

3. Is primary insurance carried by Equity Mutual Insurance Company [owner's insurer] or National Indemnity Company [permissive user's insurer]?

We answer the first question in the affirmative and hold that a 200-mile radius limitation in an owner's or operator's liability policy obtained in compliance with Oklahoma's compulsory liability insurance laws, 47 O.S.Supp.1982 §§ 7-600 et seq., contravenes the underlying statutory policy and is void insofar as it limits the minimum coverage required by the cited statute.

Because our affirmative answer to the first question is qualified, we must answer the second question as to the application of the 200-mile radius limitation to liability claimants and additional insured for coverage additional to the minimum required by law. ¹ We hold that an unambiguous geographical exclusion clearly set forth in a vehicle liability policy which is binding on the insured is also binding on liability claimants and additional insureds as to coverage above the statutory minimum, even if such claimants and additional insureds were unaware of the exclusion.

In answer to the third question, we hold that absent an agreement between the owner of a commercial vehicle and a permissive user, when one or more policies provide primary coverage for the same loss, that loss shall be shared by the insurers. Absent concurring provisions in the policies for apportionment, each insurer's share will be based on the ratio its policy limit bears to the cumulative limit of all concurrent policies.

Alternatively, when both the owner's insurer and the permissive user's insurer provide primary coverage for the same loss and the owner and permissive user have agreed that one will provide primary coverage, we hold that such an agreement may be given effect and other primary coverage treated as excess.

Alternatively, when none of the concurrent policies provides primary coverage, we hold that (a) an excess clause controls over both a pro rata clause and an escape clause, (b) an escape clause controls over a pro rata clause and (c) conflicting "other insurance" clauses cancel each other, making both policies primary.

ANATOMY OF THE FEDERAL LITIGATION

The federal district court has asked this court to decide these questions on the basis of the following facts: ²

The owner's insurer issued to the owner a policy providing liability coverage for a tractor. The permissive user borrowed the tractor. The owner requested that the permissive user obtain insurance coverage for the tractor. The permissive user owned a trailer insured by the intervenor-insurer. The policy insuring the trailer limited coverage to an area within 200 miles of the permissive user's address. The permissive user was operating the borrowed tractor with his own trailer attached outside the 200-mile radius. ³

ANALYSIS, DISCUSSION AND ANSWER

CERTIFIED QUESTION I

In 1976 the Oklahoma legislature enacted the Compulsory Insurance Law, ⁴ now codified in Article VI of the Financial Responsibility Act. ⁵ Its terms mandate that all vehicle owners maintain liability insurance or other authorized security at not less than the minimum required by 47 O.S.1981 § 7-204 ⁶ of the Financial Responsibility Act unless a vehicle is exempt by statute. In addition, all operators of motor vehicles are required to maintain liability coverage unless such coverage, which does not exclude the operator as an insured, is provided by the owner. ⁷

The statute specifically requires "security for the payment of loss resulting from the liability imposed by law for bodily injury, death and property damage sustained by any person arising out of the ownership, maintenance, operation or use of ... [a] vehicle." ⁸ The manifest purpose of the legislature, expressed in the text of the statute, is to provide compensation for injury or loss to members of the public with claims that are actionable. When a policy expressly states that it provides coverage required by Oklahoma's compulsory liability insurance laws, ⁹ the policy must be strictly construed against the insurer by a standard consistent with its terms and with the statutory policy it embodies. ¹⁰ A liability policy which confines coverage to a 200-mile radius would not provide security for even the members of the Oklahoma public. Though the compulsory liability insurance laws do not specifically state how far--in terms of geographic radius--coverage must extend, ¹¹ the statutes must be broadly construed to accomplish the legislative aim. When dealing with one another in conformity to the law, the insurer and insured may not negotiate for coverage which unreasonably limits the range of protection the law affords. ¹² Although the 1982 amendments to the compulsory statutes allow for some freedom of contract, ¹³ that freedom cannot extend to territorial limitations which in light of the statutes' manifest purpose would produce an absurd result. Because a 200-mile radius limitation from any geographical point in this state could exclude from coverage a loss arising within the state, it is an unreasonable limitation. We hold that when liability insurance is issued in compliance with compulsory insurance laws, statutory policy at the very minimum requires coverage for all actionable claims which may arise within the state. We do not hold by this opinion that the statute requires coverage only for losses within the state, just as we do not hold that the statute requires coverage for losses in all states. Neither holding is compellable by the language of the statute or by the policy that led to its enactment. Until such a time as the Legislature so defines the geographical perimeter of the coverage required by the statute, we hold that a geographical exclusion shall be judged according to whether it reasonably complies with the manifest purpose of the compulsory insurance laws. ¹⁴

National jurisprudence on this issue is scarce. Most of the cases addressing geographical exclusions in insurance policies were decided prior to the enactment of compulsory insurance laws. Since then, a New York court held a 100-mile exclusion void as contrary to law. ¹⁵ The Kansas Supreme Court condemned a household and garage shop exclusion as violative of compulsory insurance laws. ¹⁶ A South Carolina court held a use limitation contravened its compulsory insurance laws. ¹⁷

The Oklahoma Court of Appeals held that a passenger exclusion in a liability policy issued in compliance with Articles II and III ¹⁸ of the Financial Responsibility Act contravened the intent of the act and was therefore void. ¹⁹ This court in Looney v. Farmers Ins. Group ²⁰ considered the exclusion from coverage of one of the insureds in a policy issued in compliance with the Compulsory Insurance Law. The exclusion passed muster because the insureds in question were not intended as the statute's protected class. ²¹ The purpose of the law is to shield the public, not members of the named insured's household. Moreover, the family-household exclusion serves another public policy interest--that of protecting the insurer against collusive or friendly lawsuits. ²² The geographical exclusion in contest here, unlike the family-household exclusion in Looney, ²³ strips of indemnity members of the public with actionable claims--the very class of persons the statute was intended to protect.

The intervenor-insurer contends that public policy does not preclude parties from contracting to limit an insurer's liability and that it is not bound by the permissive user's contract with the owner to secure insurance. This argument is without merit. We deal here not only with contractual duties to third parties but also with a statutory mandate for the protection of the public. A 200-mile...