Royal Ins. Co. of America v. Thomas

• Decision Date: 03 October 2003
• Citation: 879 So.2d 1144
• Parties: ROYAL INSURANCE COMPANY OF AMERICA v. Sandra Hill THOMAS et al.
• Court: Alabama Supreme Court

879 So.2d 1144

ROYAL INSURANCE COMPANY OF AMERICA v. Sandra Hill THOMAS et al.

1011518.

Supreme Court of Alabama.

October 3, 2003.

Philip R. Collins of Huie, Fernambucq & Stewart, L.L.P., Birmingham, for plaintiff.

Jack B. McNamee and Michael D. Petway of McNamee, Snead & Petway, Birmingham; and Rhonda Pitts Chambers of Taylor & Taylor, Birmingham, for defendant Velma Daniel.

Russell Q. Allison and Allan Sidney Jones of Carr, Allison, Pugh, Howard, Oliver & Sisson, P.C., Birmingham, for defendant Lloyd's of London.

JOHNSTONE, Justice.

This Court consented to answer two questions certified by the United States District Court for the Northern District of Alabama ("the federal district court") under Rule 18, Ala. R.App. P. The certified questions relate to the coverage afforded Sandra Hill Thomas ("Thomas"), a customer of Carl Cannon Chevrolet-Olds, Inc. ("Carl Cannon"), by two insurance policies issued to Carl Cannon: a garage policy issued by Certain Interested Underwriters at Lloyd's of London ("Lloyd's London") and an umbrella policy issued by Royal Insurance Company of America ("Royal").

Facts

About October 9, 1998, Carl Cannon lent a car to Thomas while Carl Cannon repaired Thomas's car. On October 13, 1998, Thomas was driving the Carl Cannon car when it collided with another car occupied by Velma Daniel ("Daniel"). To recover for injuries she suffered in the collision, Daniel sued Thomas and Carl Cannon in the Walker Circuit Court. The Walker Circuit Court entered a summary judgment for Carl Cannon.

The Lloyd's London and Royal policies constituted Thomas's only potential sources of liability insurance for the collision. Lloyd's London contended that Section II, paragraph A.1.a.(2) of the Lloyd's London garage policy ("the exclusion") excluded Thomas as an insured unless she either had no other available primary, excess, or contingent insurance or had insufficient coverage under such insurance to meet the $20,000 minimum required by the Motor Vehicle Safety-Responsibility Act, § 32-7-1 et seq., Ala.Code 1975 ("the Act"). Lloyd's London further contended that, if Thomas did not have other available primary, excess, or contingent insurance or had insufficient coverage under such insurance to meet the $20,000 minimum required by the Act, then the exceptions to the exclusion preserved coverage for Thomas under the Lloyd's London garage policy but limited the coverage to the amount necessary for her to meet the $20,000 minimum required by the Act.

The exclusion and the two exceptions to the exclusion appear within the subsection of the Lloyd's London garage policy defining "who is an insured" under the policy. After that subsection of the policy initially defines "insured" as including Carl Cannon and anyone else while using a Carl Cannon car with the permission of Carl Cannon, the exclusion then excludes customers of Carl Cannon. The two exceptions to the exclusion then preserve coverage for customers who either have no other available primary, excess, or contingent insurance or have insufficient coverage under such insurance to meet the $20,000 minimum required by the Act. The pertinent portions of the Lloyd's London garage policy provide:

"SECTION II—LIABILITY COVERAGE

"A. COVERAGE

". . . .

"1. WHO IS AN INSURED

"a. The following are `insureds' for covered `autos':

"(1) You [Carl Cannon] for any covered `auto.'

"(2) Anyone else while using with your permission a covered `auto' you own, hire or borrow except:

". . . .

"(d) Your customers, if your business is shown in the Declarations as an `auto' dealership. However, if a customer of yours:

"(i) Has no other available insurance (whether primary, excess or contingent) they are an `insured' but only up to the compulsory or financial responsibility law limits where the covered `auto' is principally garaged.

"(ii) Has other available insurance (whether primary, excess or contingent) less than the compulsory or financial responsibility law limits where the covered `auto' is principally garaged they are an `insured' only for the amount by which the compulsory or financial responsibility law limits exceed the limit of their other insurance."

(Emphasis added.)

Daniel and Royal contend that the exclusion in the Lloyd's London garage policy is invalid because it violates public policy as expressed in the requirement of the Act that a car owner's liability insurance policy shall insure permissive users of the car. Daniel and Royal further contend that, because the exclusion is invalid, Thomas is an insured entitled to the same coverage of $1,000,000 as permissive users of Carl Cannon cars who were not customers of Carl Cannon.

The Royal policy states on the declarations page that it provides umbrella coverage:

"ITEM 2 COVERAGE: UMBRELLA"

The Royal policy defines an insured, in pertinent part:

"IV. WHO IS AN INSURED

"1. If you [Car] Cannon] are designated in the declarations as:

"(a) An organization other than a partnership, joint venture or limited liability company, you are an insured. . . .

". . . .

"2. Each of the following is also an insured:

". . . .

"(d) Any person who has your permission to use an `automobile' owned by, loaned to, or hired for use by you, and any person or organization legally responsible for the use of that `automobile'.. . ."

Royal concedes that Thomas is an insured entitled to coverage under the Royal umbrella policy. However, Royal contends that the Royal umbrella policy covered Thomas only for liability to Daniel that exceeds $1,000,000. Royal contends that the Insuring Agreement of the Royal umbrella policy provides that Royal insures "sums in excess of the `retained limit,' and that the policy defines Thomas's "retained limit" as "the applicable policy limits of the `underlying insurance' shown on the declarations page" of $1,000,000. In pertinent part, the Insuring Agreement of the Royal umbrella policy provides:

"I. INSURING AGREEMENT

"1. We will pay on behalf of the insured those sums in excess of the `retained limit' which the insured becomes legally obligated to pay as damages to which this insurance applies because of:

"(a) `Bodily injury' or `property damage' which occurs during the policy period and is caused by an `occurrence';

". . . .

"The amount we will pay is limited as described in Section VI—LIMITS OF INSURANCE.

". . . ."

In pertinent part, the Royal policy defines "retained limit" and "underlying insurance:"

"V. DEFINITIONS

". . . .

"11. `Retained limit' means:

"(a) With respect to any `occurrence' that is covered by `underlying insurance' . . ., . . . the applicable limits of the `underlying insurance' shown on the declarations page . . .; or

"(b) With respect to any `occurrence' that is not covered by `underlying insurance' or any other insurance, the amount stated in Item 4 of the declarations as the Retained Limit/Each Occurrence.

". . . .

"13. `Underlying insurance' means the policies . . . listed in the Schedule of Underlying Insurance. . . ."

The Schedule of Underlying Insurance on the declarations page of the Royal policy shows, in pertinent part:

"ITEM 6 SCHEDULE OF UNDERLYING INSURANCE "Type of Policy Insurer Applicable Limit "GARAGE LIABILITY LLOYD'S $1,000,000 AUTO ONLY $1,000,000 OTHER THAN AUTO $2,000,000 AGGREGATE

(Capitalization original; emphasis added.)

Item 4 on the declarations page of the Royal umbrella policy shows:

"ITEM 4 LIMITS AND PREMIUM "LIMITS OF INSURANCE "$5,000,000. EACH OCCURRENCE "$5,000,000. AGGREGATE WHERE APPLICABLE "$_________ RETAINED LIMIT/EACH OCCURRENCE "PREMIUM X FLAT ____ AUDITABLE— $6,000.00 SEE PREMIUM COMPUTATION ENDORSEMENT"

(Capitalization original; emphasis added.)

Daniel, on the other hand, contends that, if Thomas's coverage under the Lloyd's London garage policy is limited to $20,000, then Section VI.6 of the Royal policy ("the drop-down provision") obliges Royal to "drop down" and to indemnify Thomas for any liability she incurred to Daniel that is in excess of $20,000 and less than or equal to $5,000,000, the policy limit of the Royal policy. The drop-down provision provides:

"VI. LIMITS OF INSURANCE

". . . .

"6. If the applicable limits of the `underlying insurance' or other insurance are reduced or exhausted by payment for `bodily injury' or `property damage' which occurs . . . during the policy period of this policy, the limits of this policy will apply in excess of such reduced or exhausted limits."

To resolve these coverage disputes, Royal sued Thomas, Daniel, and Lloyd's London for a declaratory judgment in the federal district court. Thomas, whom neither Lloyd's London nor Royal provided with counsel for the coverage disputes, depended on Daniel to advocate Thomas's rights to coverage under the policies. (Likewise, Thomas has not filed a brief in this Court.) After Royal moved for a partial summary judgment and Lloyd's London cross-moved for a summary judgment, the federal district court certified these questions to this Court:

"1. Is the exclusion or limiting clause contained in Section II, paragraph A.1.a.(2) of the Lloyd's Garage Liability Policy issued to Carl Cannon Chevrolet-Olds, Inc., as the insured's primary liability coverage, valid under Alabama law? Put another way, does the Alabama law allow an insurer to limit its exposure under a so-called `garage' policy by reducing its liability limit to the statutory minimum in cases in which a permitted driver qualifies as an `insured,' but does not possess automobile liability coverage?

"2. Depending upon the answer to question 1, what coverage, if any, is provided to the driver of the automobile that was furnished by Carl Cannon Chevrolet-Olds to her under the language of Section VI.6 of Royal's Big Shield Commercial Catastrophe Liability Policy?"

Analysis

Lloyd's London Policy

An exclusion in an insurance policy is a provision that eliminates coverage that would have existed in the absence of the exclusion. Coppi v. West American Ins. Co., 247 Neb. 1, 11, 524 N.W.2d 804,...