Jones v. Medox, Inc.

Decision Date09 April 1981
Docket NumberNo. 79-433.,79-433.
Citation430 A.2d 488
PartiesNancy R. JONES, et al., Appellants, v. MEDOX, INC., et Appellees.
CourtD.C. Court of Appeals

Gary W. Brown, Washington, D.C., for appellants.

Richard W. Galiher, Washington, D.C., for appellees.

Before NEWMAN, Chief Judge, KELLY, KERN, NEBEKER, HARRIS, MACK, FERREN and PRYOR, Associate Judges, and GALLAGHER,* Associate Judge, Retired.

GALLAGHER, Associate Judge, Retired:

The question presented is one of first impression in this jurisdiction and requires this court to scrutinize the "other insurance" clauses1 of two insurance policies in order to determine how two insurance companies, insuring the same risk, should apportion liability. Specifically, this court must determine whether the pro rata clause in the policy issued by Globe Insurance and the excess clause in the policy issued by the Insurance Company of North America can be reconciled and interpreted to give effect to the intent of the contracting parties, or whether the clauses are irreconcilable and require that this court sweep away the contractual language of the parties and impose a pro rata share of the loss upon each insurance company.

Although this issue has never been addressed and resolved by this court, many other jurisdictions have grappled with this problem and two distinct lines of authority have emerged. Courts adopting the majority view have reconciled the pro rata clause and the excess clause by interpreting the policy containing the excess clause as secondary coverage where there is another insurance policy covering the same risk. The result, under this view, is that the excess insurer is generally liable for the loss only to the extent that the insured's claim exceeds the policy limits of the insurance policy containing the pro rata clause.

Appellant urges this court to reject the majority rule and instead to adopt the minority rule. Courts adopting the minority rule view the pro rata clause and the excess clause as conflicting and automatically require that each insurance company shoulder a pro rata share of the claim. We do not view such clauses as being irreconcilable and choose not to adopt a rule that requires this court automatically to sweep away the contractual language and, perhaps, the negotiated intent of the parties. We therefore decline to adopt the minority rule and affirm the decision of the trial court.2

This case originated in a malpractice action initiated by the plaintiff below who sustained injuries allegedly resulting from an injection administered by Nancy Jones, a nurse at Doctors Hospital. Defendants in the action were Ms. Jones, the hospital, and Ms. Jones' employer, Medox, Inc., a corporation which provides temporary medical personnel to local doctors and hospitals. The case was settled for $100,000 pursuant to a settlement agreement which provided that the insurance companies representing all defendants would litigate separately their respective liabilities. In the event that this litigation was not concluded by March 1, 1978, the agreement provided further that Ms. Jones' insurer, Globe Indemnity Co., would pay the full amount of the settlement with no prejudice to its rights.

The insurers' liabilities were not adjudicated by the agreed date. Globe therefore paid the full amount of the settlement. Globe and Ms. Jones then brought an action against the hospital and its insurer, Hartford Insurance Co., and Medox and its insurer, Insurance Company of North America (INA). The trial court granted summary judgment to the hospital, Hartford Insurance Co., Medox, and INA, and dismissed the claim of Ms. Jones and Globe, thus ruling that Globe should bear the entire cost of the settlement. Ms. Jones and Globe have appealed the dismissal of their claim and the denial of their motions for summary judgment against Medox and INA.

The central dispute in this case is between INA and Globe and concerns the proper interpretation and application of two "other insurance" clauses, one in the INA policy and the other in the Globe policy. The "other insurance" clauses in both policies were designed to limit liability and to apply in situations where the insured event was also covered by another insurance company. At the time of the injection, Ms. Jones was the sole insured under the Globe policy. This policy had a $1,000,000 limit of liability and contained a pro rata "other insurance" clause which provided:

If the insured has other insurance against a loss covered by this policy . . . the company shall not be liable under this policy for a greater proportion of such loss than the applicable limit, of liability . . . bears to the total applicable limit of liability of all valid and collectible insurance against such loss.

Ms. Jones was also covered under a provision of Medox's INA policy by which INA contracted with Medox to pay liabilities incurred under stated circumstances by Medox's employees and contractors. The applicable limit of liability in the INA policy was also $1,000,000 and the policy contained an excess "other insurance" clause which provided:

The insurance afforded [by this policy] shall be excess insurance over any other valid and collectible insurance. [Hereinafter INA's blanket excess clause.]3

We begin our discussion of the issue in this case by recognizing the confusion that pervades the entire realm of "other insurance" clauses. The problems created by "other insurance" provisions have been covered extensively in numerous articles in legal periodicals written during the past thirty years.4 Some commentators have urged that the insurance industry solve these problems by adopting uniform pro rata clauses in all insurance policies or that, in the alternative, a legislative solution be devised.5 Because the insurance industry continues to employ "other insurance" clauses without defining the relationship of these clauses to one another in situations involving multiple insurance policies and because no legislative action has been taken, courts are sometimes forced "into a game that ought not, and need not, be played." Schoenecker v. Haines, 88 Wis.2d 665, 674, 277 N.W.2d 782, 786 (1979).

We turn now to analyze the majority and the minority rules and to confront the specific problem presented by the pro rata clause contained in the Globe policy and the excess clause contained in the INA policy. Most courts attempt to reconcile dissimilar "other insurance" clauses by giving effect to the intent of the parties through an examination of the language of the clauses whenever possible.6 In order to reconcile a pro rata clause and an excess clause and to interpret the clauses so as to give effect to the intent of the parties, these courts reason that

[W]here an excess clause is inserted in a typical . . . liability insurance policy the usual intent of the insurer is that the policy will afford only secondary coverage when the loss is covered by "other insurance." On the other hand, a provision that limits a policy to only pro rata liability in the event of concurrent coverage usually is intended to become effective only when other valid and collectible primary insurance is available. [Comment, Concurrent Coverage in Automobile Insurance, 65 Colum.L.Rev. 319, 328 (1965) (citations and footnote omitted; emphasis in original).]

Stated another way, these courts assume that the standard phrase "other valid and collectible insurance" means other valid and collectible primary insurance. It follows, then, that the policy containing the pro rata clause is other valid and collectible primary insurance that triggers application of the excess clause in the second policy. The excess clause in the second policy therefore is given full effect and that carrier is liable only for the loss after the primary insurer had paid up to its policy limits. The policy containing the excess clause, however, is not considered to be other valid and collectible primary insurance for the purpose of triggering the operation of the pro rata clause, because when a stated contingency occurs, that is, when there is other valid and collectible primary insurance available to the insured, the policy containing the excess clause becomes secondary coverage only.7

Critics of this approach to interpretation of insurance contracts have argued that it requires a circularity of reasoning, and that the decision as to which policy constitutes other valid and collectible insurance triggering the "other insurance" clause of the second policy will depend on which contract is read first. See, e. g., Oregon Automobile Insurance Co. v. United States Fidelity and Guaranty Co., 195 F.2d 958, 960 (9th Cir. 1952); Werley v. United Services Automobile Association, 498 P.2d 112, 117 (Alaska 1972). See generally Note, Automobile Insurance — Effect of Double Coverage and "Other Insurance" Clauses, 38 Minn.L.Rev. 838, 852 (1954). Disenchanted with the majority approach and with insurance companies' attempts to escape liability, a minority of courts have adopted the Lamb-Weston rule. Lamb-Weston, Inc. v. Oregon Automobile Insurance Co., 219 Or. 110, 129, 341 P.2d 110, 119 (1959).8 Courts applying the Lamb-Weston rule abandon all attempts to discern the intent of the contracting parties where there are dissimilar "other insurance" clauses and take the position that all "other insurance" clauses, regardless of their nature, are mutually repugnant, requiring proration of liability9

The Lamb-Weston rule presents an appealingly simple and no-nonsense way to deal with the vagaries of insurance policies. A principal concern of courts adopting this rule apparently is that one insurance company is getting "stuck" and that regardless of the intent of the contracting parties as expressed in their "other insurance" clauses, two companies covering the same risk should pay equally. Courts swayed by this concern, however, have failed to recognize that the insurance companies have...

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