Federal Ins. Co. v. Prestemon

• Court: Minnesota Supreme Court
• Writing for the Court: MURPHY; OTIS; PETERSON; I join in the dissent of OTIS
• Citation: Federal Ins. Co. v. Prestemon, 278 Minn. 218, 153 N.W.2d 429 (Minn. 1967)
• Decision Date: 06 October 1967
• Docket Number: No. 40490,40490
• Parties: FEDERAL INSURANCE COMPANY, et al., Respondents, v. Dennis PRESTEMON, et al., Respondents, Schmeiz Brothers, Inc., et al., Appellants.

Page 429

153 N.W.2d 429

278 Minn. 218

FEDERAL INSURANCE COMPANY, et al., Respondents, v. Dennis PRESTEMON, et al., Respondents Schmeiz Brothers, Inc., et al., Appellants.

No. 40490.

Supreme Court of Minnesota.

Oct. 6, 1967.

Syllabus by the Court

1. A garage customer using an automobile lent to him while his personally owned automobile was being repaired or serviced was an insured within the terms of the garage company's public liability policy which provided coverage on the described automobile while furnished to any 'other person' for 'regular use' where it was agreed by stipulation of facts entered into between the parties that the loaner automobile was 'to be used unrestrictedly and regularly for business and pleasure, and as (the customer) would his own car while his own car was thus temporarily withdrawn from normal use,' and where it appears that the customer's use was pursuant to a common business practice established in the operation of the garage company business.

2. In construing two automobile liability policies issued by separate companies, both of which purport to restrict or escape liability for a particular risk in the event there is other insurance, the prevailing rule is that where one of the policies contains an 'excess insurance' and the other contains a 'no liability' clause, liability is imposed upon the policy containing the 'no liability' clause, the reason being that the 'excess insurance' policy does not in fact provide other valid and collectible insurance so far as the 'no liability' clause of the other policy is concerned.

3. Liability of insurers issuing policies which provide overlapping coverage should be determined in light of the total policy insuring intent as determined by the primary policy risks upon which each policy's premiums are based and as determined by the primary function of each policy. In considering the allocation of liability of the policy insuring the automobile used in garage operations vis-a-vis the policy issued to the customer for generally nonbusiness and pleasure purposes, other factors to be considered are: (1) Which company by its policy intended to cover 'business operations'? (2) Which company specifically described the accident-involved vehicle in its policy? (3) Which premium is reflective of the greater contemplated exposure? (4) Which company insured the particular risk as an 'incident' of its object, and which policy appears to cover the particular car and the risks inherent in using the car for contemplated 'business operations' uses?

Hoppe & Healy, Minneapolis, for appellants.

Richards, Montgomery, Cobb & Bassford, and Lynn G. Truesdell, III, Minneapolis, for Fed. Ins. Co., and others.

Pierro, Johnson & Pieri, Minneapolis, for Prestemon, and others.

OPINION

MURPHY, Justice.

Appeal from a judgment in a declaratory action determining the rights of insurance carriers growing out of an accident in which Donald W. Judkins, while driving an automobile loaned to him by Schmelz Brothers, Inc.'s garage, collided with an automobile owned by Carol Prestemon. Judkins was given the use of the accident-involved car while his personally owned automobile was being repaired. Public liability on Schmelz Brothers' garage operations was carried by Guaranty Security Insurance Company. Public liability on Judkins' automobile was carried by Federal Insurance Company. The litigation grows out of conflicting provisions in the two policies as to which company should defend and answer for damages in the event Judkins is ultimately liable. In the context of the record we are asked to determine if a 'temporary substitute automobile' under one policy of automobile liability insurance can be a vehicle which is 'furnish(ed) * * * for * * * regular use' under another policy where, by stipulation of the parties, it is agreed that the vehicle was loaned to the bailee for his regular use, to be used unrestrictedly and regularly for business and pleasure as he would his own car.

It is agreed that at the time of the accident Judkins was operating a Chevrolet automobile lent to him by Schmelz Brothers and that he was operating it with their knowledge and consent while his Thunderbird automobile was in the Schmelz garage for repairs and servicing. Federal's complaint alleges that Guaranty issued its garage operations liability insurance policy to Schmelz Brothers, which listed the Chevrolet as an owned automobile, and that under the terms of that policy Judkins was also an insured. The complaint alleges that the Federal insurance contract with Judkins provided only for excess insurance over and above other valid and collectible insurance under circumstances where a nonowned automobile is driven by the insured as a temporary substitute for the owned automobile withdrawn from normal use for repair or servicing. The complaint further alleges that, as a result of the accident, the Prestemons commenced an action against Schmelz Brothers and Judkins seeking recovery of damages; that in that action Schmelz Brothers was being defended by Guaranty and Federal was defending Judkins; and that Guaranty had refused to accept a tender of the defense from Federal as to the claims against Judkins. It is not disputed that the limits of coverage under the Guaranty policy are sufficient to cover the claims asserted by the Prestemon suit. The trial court was asked to determine or allocate the respective liabilities of the two companies in the event a judgment growing out of the accident was ultimately entered against Judkins.

The Federal policy which covered Judkins at the time of the accident contained an 'other insurance' clause providing that, in case of overlapping coverage of a 'temporary substitute automobile,' the Federal coverage would be 'excess.' The clause reads:

'Other Insurance: If the insured has other insurance against a loss covered by Part I of this policy the company shall not be liable under this policy for a greater proportion of such loss than the applicable limit of liability stated in the declarations bears to the total applicable limit of liability of all valid and collectible insurance against such loss; provided, however, the insurance with respect to a temporary substitute automobile or non-owned automobile shall be excess insurance over any other valid and collectible insurance.'

'Temporary substitute automobile' was defined in the Federal policy as--

'* * * an automobile or trailer, not owned by the named insured, while temporarily used with the permission of the owner as a substitute for the owned automobile or trailer when withdrawn from normal use because of its breakdown, repair, servicing, loss or destruction; * * *.'

At the time of the accident, Schmelz Brothers was insured by a policy of the Guaranty Security Insurance Company. The Guaranty policy defined its 'unqualified insured' as follows:

'(a) Insured. The unqualified word 'Insured' wherever used also includes any partner, executive officer, director or stockholder thereof while acting within the scope of his duties as such.

'The coverage afforded under this insuring agreement with respect to automobiles owned by, registered in the name of, or hired by the Insured, is extended to any other person, firm or corporation while using or legally responsible for the use thereof, provided such use is with the permission of an Insured or his spouse, who is the legal or registered owner of or hires the automobile, and if such Insured is an individual, he may give such permission through an adult member of his household other than a domestic servant or chauffeur.'

Under separate sections, 'Hazards' were defined:

'A. Hazards Defined:

'Garage Operations Hazard: The ownership, maintenance or use of the premises for the purposes of a garage, and all operations necessary or incidental thereto, hereinafter called 'garage operations'; including the

'Automobile Hazard:

'(a) the ownership, maintenance or use of any automobile for the purpose of garage operations, and the occasional use for other business purposes and the use for non-business purposes of any automobile owned by or in charge of the named insured and used principally in garage operations;

'(b) the ownership, maintenance or use of any automobile owned by the named insured in connection with garage operations while furnished for the use of (i) the named insured, a partner therein, an executive officer thereof or, if a resident of the same household, the spouse of any of them, or (ii) any other person or organization to whom the named insured furnishes automobiles for their regular use.'

And a qualified definition of 'Insured' appeared:

'B. Definition of Insured:

'Persons insured: Each of the following is an insured with respect to the Garage Operations Hazard, except as provided below:

'(3) with respect to the Automobile Hazard:

'(b) any person while using an automobile to which the insurance applies under Paragraph (b) of the Automobile Hazard with the permission of the person or organization to whom such automobile is furnished, provided such person's actual operation or (if he is not operating) his other actual use thereof is within the scope of such permission.'

The garage operations provisions defining 'persons insured' were amended by an endorsement which provided:

'1. Paragraph 3 of 'Persons Insured' is amended to read as follows, and Paragraphs 4 and 5 below are added, all subject to exceptions (i), (ii), (iii) and (iv) as set forth in the policy.

"(3) With respect to an automobile to which the insurance applies under Paragraph 1(a) of the Automobile Hazards, any of the following persons while using such automobile with the permission of the named insured, provided such person's actual operation or (if he is not operating) his other actual use thereof is within the scope of such permission:

'(a) (not applicable)

'(b) any other person, but only if no other valid and collectible automobile liability insurance, either primary or...