Insurance Co. of N. Am. v. AMERICAN ECONOMY INS., CIV-90-323-A.

• Decision Date: 28 September 1990
• Docket Number: No. CIV-90-323-A.,CIV-90-323-A.
• Citation: 746 F. Supp. 59
• Parties: INSURANCE COMPANY OF NORTH AMERICA, Plaintiff, v. AMERICAN ECONOMY INSURANCE COMPANY, Defendant.
• Court: U.S. District Court — Western District of Oklahoma

746 F. Supp. 59

INSURANCE COMPANY OF NORTH AMERICA, Plaintiff, v. AMERICAN ECONOMY INSURANCE COMPANY, Defendant.

No. CIV-90-323-A.

United States District Court, W.D. Oklahoma.

September 28, 1990.

Tom E. Mullen, Fenton, Fenton, Smith, Reneau & Moon, Oklahoma City, Okl., for plaintiff.

Ronald L. Walker, Connie M. Bryan, McKinney, Stringer & Webster, P.C., Oklahoma City, Okl., for defendant.

ORDER

ALLEY, District Judge.

Before the Court are cross-motions for summary judgment, and each party has responded to the other's motion. After review of the relevant law and briefs of counsel, the Court now partially grants plaintiff's motion and denies defendant's motion for the following reasons.

Background

This lawsuit stems from an underlying case that was settled. Plaintiff paid $1,500,000 to Bill and Joann Russell, who were injured when a horse trailer came loose from a Chevy Blazer driven by Jesse Clement. The Blazer was owned by Riffel-Roberson, a professional corporation. The Russells sued Clement (among others), and plaintiff settled for the $1,500,000 figure.¹

At the time of the accident, Clement was insured by two of plaintiff's policies and one of defendant's. Plaintiff's first policy has limits of $500,000 and is agreed by the parties to be primary. That policy is therefore not in dispute, and the issue is the priority between plaintiff's second policy and defendant's policy.

Defendant's policy has limits of $300,000 liability for any auto that Clement drives. The "other insurance" clause of defendant's policy makes the insurance primary if Clement drives a car he owns, but excess if Clement drives a car he does not own, as he was when the Russells were injured. This policy states that when it covers on the same basis as another policy, it will pay its share on a determined proportionate basis. Defendant's policy contains provisions for other auto-related coverage such as uninsured motorist, collision, and comprehensive coverage. The annual premium for this policy from September 1, 1987 to September 1, 1988 was $8,651.00.

Plaintiff's second policy is titled "Excess Blanket Catastrophe Liability Policy," and has limits of $2,000,000, with a retained limit of $10,000 and an annual premium of approximately $2,800. The catastrophe policy requires maintenance of underlying insurance and insures against ultimate net loss in excess of the stated retained limit. Besides personal injury, the catastrophe policy also covers property damage and "advertising injury," which is defined to include libel, slander, defamation, infringement of copyright, title or slogan, piracy, unfair competition, idea misappropriation or invasion of rights of privacy, arising out of the insured's advertising activities. This policy has an "other insurance" clause providing that the policy is excess if any other collectible insurance is available, and that the policy will not contribute with any other insurance.

Plaintiff's position is that its policy is a true umbrella or excess policy and should be third in order, and that an "excess clause" in an otherwise primary policy such as defendant's cannot defeat the true nature of an excess policy such as plaintiff's. In response, defendant argues that plaintiff's policy is "closer to the risk" because it insured an owned vehicle, while defendant's policy insured a non-owned vehicle. In the alternative, defendant argues that it should only pay a pro rata share if the Court determines the excess clauses in defendant's policy and plaintiff's second policy are mutually repugnant.

Defendant further argues that the legal basis for plaintiff's claim is equitable subrogation, which should be barred due to plaintiff's conduct in the settlement of the underlying case and plaintiff's voluntary payment of the full amount of the settlement.

Plaintiff responds that its claim sounds in contract and that defendant is estopped from asserting its defenses because defendant attended the settlement conference, did not object to settlement, and because the dispute as to priority of the policies was reserved. Plaintiff further responds that the "underlying conduct" issue is irrelevant, and that its voluntary payment was made in the best interest of its insured, Jesse Clement.

Discussion

The Court first addresses the theory of the case. Plaintiff claims the case sounds in contract, and defendant claims it is an equitable subrogation matter. Plaintiff cannot seriously argue that it has a contractual relationship with defendant though, because there has been no agreement, whose breach is sought to be remedied. The Court agrees with defendant that the matter is essentially equitable and in the nature of subrogation or contribution. Although the Complaint does not specify or otherwise indicate the plaintiff's theory, the nature of the action is equitable because it requires the Court to determine the rights of the parties inter se. This does not mean, however, that there are no fact questions, as will be discussed further.

Priority of the Policies

There is no dispute between the parties that their respective policies were in effect and provided coverage to Jesse Clement at the time of the accident. The only dispute is a legal one as to which policy should pay second after plaintiff's primary policy, and then which should pay third. Thus, the priority issue is ripe for summary judgment because there is no disputed issue of fact as to the policies themselves, but only as to priority.

The parties have stipulated that Arkansas law applies, but neither the parties nor the Court have been able to find Arkansas cases that would either be dispositive or provide direction on these specific facts. The Court must therefore attempt to determine what the Arkansas courts would do with what appears to be a case of first impression. The Court is guided by recent case law from other jurisdictions, as well as by the oft-quoted treatise Insurance Law and Practice by Appleman.

True excess coverage policies carry the various names of excess, blanket, umbrella, catastrophe and the like. "These are policies of insurance sold at comparatively modest cost to pick up where primary coverages end, in order to provide an extended protection.... It should be noted that these policies often provide a primary coverage in areas which might not be included in the basic coverage, since it is the intent of the company to afford a comprehensive protection in order that such peace of mind may truly be enjoyed. This may, and usually does, include such coverages as protection against liability for libel, slander, false arrest, false imprisonment, invasion of privacy and malicious prosecution. ... This involves no attempt upon the part of a primary insurer to limit a portion of its risk by describing it as `excess,' nor the employment of devices to escape responsibility. Therefore, umbrella coverages, almost without dispute, are regarded as true excess over and above any type of primary coverage, excess provisions arising in regular policies in any manner, or escape clauses." 8A Appleman, Insurance Law and Practice § 4909.85 (1981).

Several recent cases have relied on Appleman's position for authority when determining that a true umbrella policy comes last and should not be prorated. In Occidental Fire and Casualty Co. v. Brocious, 772 F.2d 47 (3d Cir.1985), the court juggled three policies. Two were issued by Buckeye Union Insurance Co. The first Buckeye policy had limits of $1,000,000 and provided excess coverage where the covered vehicle was not owned by the insured. Buckeye's other policy had limits of $20,000,000 and stated that if the loss was covered by other valid and collectible insurance, the policy would be in excess of and would not contribute with other such insurance. The third policy, from Occidental, was found to have an excess clause that was repugnant with Buckeye's excess clause, and so the policies were to be prorated. The district court did not specify, though, whether the two Buckeye policies were to be added together for the proration.

The Third Circuit examined the second Buckeye policy with limits of $20,000,000 and concluded that it was a true umbrella policy that should not be prorated. 772 F.2d at 53. The court relied on the fact that the policy was not an attempt by a primary insurer to avoid coverage or to limit risk. Further, the Buckeye umbrella policy had different language in its "other insurance" clause from either the $1,000,000 Buckeye policy or the Occidental policy. As support, the Third Circuit relied on Appleman's reasoning in the above-quoted passage.

The court concluded that "a number of cases have given effect to the different language of the umbrella policy and its underlying purpose by holding that primary policies or policies with excess clauses must be exhausted before the carrier of an umbrella policy is required to pay." 772 F.2d at 54 (citations omitted). Other courts have followed Brocious' lead in Aetna Casualty and Surety Co. v. United Services Automobile Assn, 676 F.Supp. 79 (E.D.Pa. 1987) and Home Insurance Co. v. Liberty Mutual Ins. Co., 678 F.Supp. 1066 (S.D.N. Y.1988).

In Aetna, the Pennsylvania district court was faced with a fact scenario closer to the one at hand. Aetna had two policies of insurance, one with limits of $250,000 and one with limits of $1,000,000. USAA had one policy with limits of $300,000. The parties agreed that Aetna's $250,000 policy was primary, but USAA argued that Aetna's second policy for $1,000,000 was not an umbrella policy and should have been prorated with USAA's $300,000 policy.

After reviewing Brocious and the pertinent sections from Appleman, the court concluded that the Aetna policy was indeed an umbrella or true excess policy, based on...