Smith v. Pacific Auto. Ins. Co.

• Decision Date: 02 April 1965
• Citation: 400 P.2d 512,240 Or. 167
• Parties: Alfred F. SMITH, Respondent and Cross-Appellant, v. PACIFIC AUTOMOBILE INSURANCE CO., a corporation, Appellant and Cross-Respondent.
• Court: Oregon Supreme Court

Page 512

400 P.2d 512

240 Or. 167

Alfred F. SMITH, Respondent and Cross-Appellant, v. PACIFIC AUTOMOBILE INSURANCE CO., a corporation, Appellant and Cross-Respondent.

Supreme Court of Oregon, In Banc.

Argued and Submitted Feb. 1, 1965.

Decided April 2, 1965.

William G. Wheatley, Eugene, argued the cause for appellant and cross-respondent. On the briefs were Jaqua & Wheatley, Eugene.

Arthur C. Johnson, Eugene, argued the cause for respondent and cross-appellant. On the briefs were Johnson, mjohnson & Harrang, Eugene.

Before McALLISTER, C. J., and PERRY, SLOAN, O'CONNELL, GOODWIN, DENECKE, and HOLMAN, JJ.

GOODWIN, Justice.

This is a proceeding for a declaratory judgment concerning the rights of the parties under an automobile liability insurance policy. Smith, the insured, seeks $5,000. The defendant-insurer contends that it owes Smith nothing. From a judgment awarding Smith $2,500 and attorney's fees, both parties appeal.

The facts are not in dispute. Smith was injured while riding in an automobile owned by Donald Damewood. The injuries were the result of a collision between Damewood's automobile and a vehicle driven by an uninsured motorist. Damewood was killed in the collision. Smith's damages are conceded to have been in excess of $20,000

At the time of the accident, the Damewood vehicle was insured by the Oregon Mutual Insurance Company, and, as a passenger in the Damewood automobile, Smith was an 'insured' under Damewood's policy. Under Damewood's uninsured-motorist clause, the Oregon Mutual policy afforded each of its 'insureds' coverage to a limit of $5,000 per person within a gross limit of $10,000 per accident.

Without litigation, Oregon Mutual exhausted its liability by distributing $10,000 in the following way: $2,500 to Smith; $2,500 to one of the other occupants of the Damewood vehicle; and $5,000 to Damewood's estate. Because the question is not before us, we express no opinion upon the On the briefs were Johnson, Johnson &

At the time of the accident, Smith owned an automobile which was insured by the defendant. Damewood's and Smith's respective insurance policies not only contained similar 'uninsured-motorist' protection, with similar limits, but each policy contained 'other-insurance' clauses. Because the case turns upon the construction and interaction of these 'other-insurance' clauses, we will set them out.

The relevant language in Damewood's policy is as follows:

'With respect to bodily injury to an insured * * * [Smith] through being struck by an uninsured automobile, if such insured [Smith] is a named insured under other similar insurance available to him, then the damages shall be deemed not to exceed * * * [$5,000], and the company shall not be liable under this part for a greater proportion of the * * * [$5,000] than such limit bears to the sum of the applicable limits of this insurance and such other insurance [$10,000].'

The relevant language in Smith's policy with Pacific is as follows:

'With respect to bodily injury to * * * [Smith] while occupying * * * [Damewood's] automobile the insurance hereunder shall apply only as excess insurance over any other similar insurance available to * * * [Smith], and this insurance shall then apply only in the amount by which * * * [$5,000] exceeds the sum of the applicable limits of all such other insurance.'

The Pacific clause is a standard 'excessinsurance' clause, purporting to obligate the carrier to pay only the amount by which its limits exceed the limits of all other available insurance. If applied to the facts in the case at bar the way it is interpreted by the defendants, the 'excess-insurance' clause would allow the defendant to avoid all liability.

The defendant assigns error to the refusal to treat Pacific's excess clause as an escape clause. The defendant says that its excess clause means that under this particular part of the policy the defendant has only agreed to assume a risk as an excess insurer to the extent that its $5,000 exposure may exceed the $5,000 limits of Damewood's insurance. The defendant contends that its interpretation of the 'excess' clause is binding upon the insured whether or not the proceeds of Damewood's insurance are collectible. This view of an 'excess' clause has respectable support. See, e. g., Travelers Indemnity Co. of Hartford, Conn. v. Wells, 316 F.2d 770 (4th Cir.1963); and see cases noted in 65 Colum.L.Rev. 319 (1965). The Travelers Indemnity case is not, however, the law in Oregon.

In this case we need not decide whether 'other similar insurance available to such occupant' means insurance proceeds that an insured may spend, or simply, as the defendant contends, 'other-insurance' limits existing only on paper. There is another reason why the defendant's excess clause must be disregarded.

If the two 'other-insurance' clauses, which we have quoted, are repugnant to each other, the clauses are disregarded and the loss is prorated between carriers. The rationale for this arbitrary but equitable rule is that to give literal effect to each of the multiple 'other-insurance' clauses in a given case could result in no coverage at all. Lamb-Weston et al. v. Ore. Auto. Ins. Co., 219 Or. 110, 341 P.2d 110, 346 P.2d 643, 76 A.L.R.2d 485 (1959). The Lamb-Weston formula has been followed in subsequent cases. See, e. g., Gen. Ins. Co. v. Sask. Gov. Ins. Office, 78 Or.Adv.Sh. 679, 391 P.2d 616 (1964). We are now fully committed to the rule that an 'excess-insurance' clause will, in a case of conflict with a pro-rata clause, be disregarded. Otherwise, the carriers may engage in a circular controversy over 'primary' and 'excess' coverage which is reminiscent of the seniority dispute between the chicken and the egg. Oregon Auto. Ins. Co. v. United Fidelity and Guar. Co., 195 F.2d 958 (9th Cir. 1952), noted in 38 Minn.L.Rev. 838, 855 (1954), and 28 Ind.L.J. 429 (1953).

The defendant argues that the two clauses are not repugnant because the Pacific policy affords '...