Hardware Dealers Mut. Fire Ins. Co. v. Farmers Ins. Exchange

• Citation: 444 S.W.2d 583
• Decision Date: 30 July 1969
• Docket Number: No. B-1437,B-1437
• Parties: HARDWARE DEALERS MUTUAL FIRE INSURANCE COMPANY, Petitioner, v. FARMERS INSURANCE EXCHANGE et al., Respondents.
• Court: Supreme Court of Texas

Page 583

444 S.W.2d 583

HARDWARE DEALERS MUTUAL FIRE INSURANCE COMPANY, Petitioner, v. FARMERS INSURANCE EXCHANGE et al., Respondents.

No. B-1437.

Supreme Court of Texas.

July 30, 1969.

Rehearing Denied Oct. 1, 1969.

Bean & Manning, Frank M. Bean, Houston, for petitioner.

Baker, Botts, Shepherd & Coates, Stephen A. Wakefield, Houston, for respondents.

POPE, Justice.

Farmers Insurance Exchange instituted this suit for declaratory judgment against Hardware Dealers Mutual Fire Insurance Company seeking a determination of the extent, if any, automobile liability insurance coverage is afforded Anita Hyde by a family auto policy issued by Farmers to Anita's father, or by an auto garage policy issued by Hardware to Frizzell Pontiac, the owner of the car Anita Hyde was driving at the time of an accident. The suit also asked for a declaration concerning the insurers' duty to defend a pending action against Anita Hyde by reason of the accident. Both Farmers' and Hardware's policies had clauses which restricted liability or coverage in the event of other insurance. The courts below have held that Hardware owed the primary coverage up to the limits of its policy as well as the duty to defend Anita Hyde. 437 S.W.2d 390. We reverse the judgments of the courts below and render judgment that the two insurers must apportion liability, and each has the duty to defend.

Anita Hyde, daughter of John Hyde, who was covered by Farmers' policy issued to her father, on May 26, 1966 entered the premises of Frizzell Pontiac in Houston, Texas, for the purpose of purchasing a new auto. While on a test drive in a new 1966 Pontiac with Frizzell's permission, she was involved in a collision with another auto driven by Hugo Teste. Teste instituted suit against Hyde as a result of the accident and that suit is now pending.

Hardware says the courts below erred in fixing all liability upon it. It argues that its policy afforded coverage on the Frizzell Pontiac automobile which was permissively driven by Anita Hyde when she had the accident, but that its policy contained an escape clause, specific in nature, which excluded all coverage if Anita Hyde, the permissive driver, had other collectible insurance. It says that Anita had other insurance with Farmers and that Hardware's escape clause should be given force to free it of all liability. Farmers, on the other hand, says that its policy afforded only excess coverage to Anita under a policy issued to her father who was the named insured. Anita was driving a non-owned automobile and was covered by Farmers' policy except that the policy contained an 'other insurance' clause which limited Farmers' coverage to excess insurance if Anita had other valid insurance. Farmers says Anita had such other insurance by reason of Hardware's policy. Thus, Farmers says it owes excess liability only, because of Hardware's other insurance; Hardware says its escape clause is the more specific of the two clauses and it escapes all liability. The questions presented area whether the two restrictive provisions conflict, and if so, how the conflict should be resolved.

Farmers issued to John Hyde a standard Texas automobile owners insurance policy, on a 1966 Ford truck, with limits for personal injury of $10,000 per person, $20,000 per accident, and $5,000 coverage for property damage. The policy provided that the named insured and his family would be provided with coverage while driving an automobile which the insured did not own. This has been called the drive-other-car clause. Farmers' policy contained restrictions upon its liability as to a driver of a non-owned vehicle. The courts below have held that Farmers was liable only for excess insurance under this provision in its policy:

1. '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 limits 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.' (Emphasis added)

Hardware issued to Frizzell Pontiac a garage auto liability policy. Its policy insured any person against claims for bodily injury or property injury while permissively using an auto belonging to Frizzell. The policy limits were $500,000, $1,000,000, and $50,000. The policy included a special endorsement known as Form 53 which contained a non-liability or escape clause. The purpose of the clause was to exclude from coverage permissive users of Frizzell Pontiac's automobile who were covered by other insurance. The endorsement also limited liability as to an unnamed insured, and a permissive user such as Anita Hyde, to the minimum limits of liability specified in the Texas Financial Responsibility Law. The endorsement in part provided:

'In consideration of the reduced rate of premium made applicable to the insurance under Part I, it is agreed that the policy is amended as follows:

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) any employee, director or stockholder of the named insured, any partner therein and any resident of the same household as the named insured, such employee, director, stockholder or partner,

(b) Any other person, but only if no other valid and collectible automobile liability insurance, either primary or excess, with limits of liability at least equal to the minimum limits specified by the financial responsibility law of the state in which the automobile is principally garaged, is available to such person; provided that with respect to Coverage C, such person shall be deemed to be a person for whom insurance is afforded, whether or not there is any other valid and collectible automobile liability insurance. (Emphasis added).

2. Paragraph 1(a), (b), and (c) of 'Limits of Liability' under Part 1 is made subject to the following provision:

'Provided that with respect to a person described as insured under paragraph (3)(b) of Persons Insured and any person or organization legally responsible for the use of the automobile by such person, other than the named insured and any person or organization described in paragraph (3)(a) of Persons Insured,

(i) the applicable limit of the company's liability shall be the amount by which (1) applicable minimum limit of liability for bodily injury or property damage specified in the financial responsibility law of the state in which the automobile is principally garaged exceeds (2) the sum of the applicable limits of liability under all other valid and collectible insurance available to the insured, and

(iii) the insurance under this policy shall not apply to any loss with respect to which the insured has other valid and collectible insurance unless the total amount of the loss exceeds the sum of the limits of liability of all other policies affording such other insurance and the company shall then be liable, subject to clause (i) foregoing, only for the excess."

We have two policies which appear to contain overlapping clauses. We must determine whether the clauses conflict or can be harmonized. To narrow the question, we restate the two clauses:

Farmers' policy: '* * * 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.' (Emphasis added)

Hardware's policy: '* * * Any other person, but only if no other valid and collectible automobile liability insurance, either primary or excess, with limits of liability at least equal to the minimum limits specified by the financial responsibility law of the state in which the automobile is principally garaged, is available to such person; * * *.' (Emphasis added).

Farmers and Hardware concede that Anita Hyde would be covered by either policy but for the existence of the other. They concede that, whatever construction we might give to the two policies, Anita Hyde as the insured person is not to have less coverage than if she had been protected by only one of the policies. This concession is in accord with settled principles because a different result would be unconscionable. Allstate Insurance Co. v. Shelby Mutual Ins. Co., 269 N.C. 341, 152 S.E.2d 436 (1967); 8 Appleman, Insurance Law & Practice, § 4913, p. 386 (2d ed. 1962).

The development of 'other insurance' clauses began in the area of property insurance. Insurers included provisions in their policies which would avoid an insured's temptation or fraud of over-insuring his property or of inflicting self-injury. Such limitations of liability met with approval. See Concurrent Coverage in Automobile Liability Insurance, 65 Colum.L.Rev. 319, 320 (1965); Note, 38 Minn.L.Rev. 838, 840 (1954). In the field of automobile insurance, 'other insurance' provisions have generally been treated differently, because the moral hazard of self-injury is not present as in the case of insurance upon property and because of the trend toward expanding coverage to include other insureds. In expanding coverage, however, insurers have hedged about their coverage by 'other insurance' provisions. We have the situation of insurers writing policies which seek both to expand and yet limit their coverage.

In automobile insurance, three kinds of 'other...