State Farm Mut. Auto. Ins. Co. v. Bogart
| Decision Date | 17 January 1985 |
| Docket Number | No. 1,CA-CIV,1 |
| Citation | 149 Ariz. 154,717 P.2d 458 |
| Parties | STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, a corporation, Plaintiff- Appellant, v. Joseph K. BOGART and Donna M. Bogart, his wife; the Hertz Corporation, a Delaware corporation; Employers Insurance of Wausau, a mutual company; John J. May and Margaret May, his wife, Defendants-Appellees. 6554. |
| Court | Arizona Court of Appeals |
The issue presented on appeal is whether the trial court erred by granting summary judgment in favor of the appellees. The facts are undisputed.
On the date of the automobile accident which triggered this litigation, John May was employed by Xerox as a branch manufacturing consultant. This job required a good deal of travel. On the day in question, May arrived by air in Phoenix and rented an automobile from Hertz Corporation in accordance with instructions from Xerox. Xerox was to reimburse him for the cost of the rental. After various events not relevant to our analysis, May was involved in an automobile accident with resulted in injuries to Joseph K. and Donna M. Bogart, husband and wife.
Hertz was a self-insurer, having filed the proper documents with the Division of Motor Vehicles of the Arizona Highway Department. Appellee Employers Insurance of Wausau (Wausau) insured Xerox to cover its employees who rented automobiles in the course of their employment. May carried a personal liability policy on his 1968 Volkswagen, issued by appellant State Farm Mutual Automobile Insurance Company (State Farm).
The Bogarts originally sued May and Hertz provided his defense. Before trial, however, Hertz paid $100,000 to each of the Bogarts, thereby exhausting its coverage. At that point, State Farm and Wausau assumed May's defense. State Farm filed a declaratory judgment action, seeking a declaration that it had no liability under its policy to May. State Farm then moved for summary judgment, to which Wausau responded and cross-moved for summary judgment. The trial court ruled that State Farm's policy provided excess coverage (over the amount already paid by Hertz) in the amount of $200,000. The court also ruled that Wausau's policy provided excess coverage (over the amount already paid by Hertz) in the amount of $500,000. The court, then finding that the two excess policies were conflicting, prorated the excess coverage, for any liability subsequently found at trial on the basis of two-sevenths to State Farm and five-sevenths to Wausau. The trial court also ruled that State Farm and Wausau were equally and jointly obligated to defend May in the Bogart action. 1 State Farm timely appealed the judgment.
The issue presented is clear-cut: whether State Farm's attempted "escape" clause insuring May's personally owned vehicle must be given effect so as to render the trial court's proration of liability improper. The applicable clause of the State Farm policy provides:
(b) The insurance with respect to:
shall be excess over other insurance; however, NO COVERAGE SHALL APPLY TO ANY LIABILITY OR LOSS IF THE VEHICLE IS OWNED BY ANY PERSON OR ORGANIZATION ENGAGED IN THE AUTOMOBILE BUSINESS AND IF THE INSURED OR OWNER HAS OTHER INSURANCE APPLICABLE IN WHOLE OR IN PART TO SUCH LIABILITY OR LOSS. (Italics and capitalization in original).
The policy also defines the term "automobile business" as "the business or occupation of ... leasing ... land motor vehicles or trailers." Wausau's policy provides:
Other insurance. The insurance offered by this policy is primary insurance, except when stated to apply in excess of or contingent upon the absence of other insurance. When this insurance is primary and the insured has other insurance which is stated to be applicable to the loss on an excess or contingent basis, the amount of the company's liability under this policy shall not be reduced by the existence of such other insurance.
................................................................................
* * *
With respect to a hired automobile, or a non-owned automobile, this insurance shall be excess insurance over any other valid and collectible insurance available to the insured. (Emphasis in original).
Wausau's argument is that the language of the State Farm policy with regard to coverage of hired non-owned vehicles is ambiguous and it must therefore be read to cover hired vehicles. Wausau further argues that since its policy and the State Farm policy are in conflict as to excess coverage, the court properly prorated liability in view of the respective policy limits. State Farm argues that the escape provision is unambiguous and as a matter of law precludes coverage under its policy. We agree with State Farm.
The interpretation of an insurance contract is a question of law to be determined independently by the reviewing court. E.g., Continental Casualty Company v. Signal Insurance Company, 119 Ariz 234, 580 P.2d 372 (App.1978). A contract of insurance is to be treated like any other contract, and the intention of the parties as determined by the language employed in the policy must prevail. Rodemich v. State Farm Mutual Automobile Insurance Co., 130 Ariz. 538, 637 P.2d 748 (App.1981). If the language in the policy is unclear and can be reasonably construed in more than one sense, an ambiguity exists which will be construed most favorably to the insured. E.g., Parks v. American Casualty Company of Reading, Pennsylvania, 117 Ariz. 339, 572 P.2d 801 (1977). 2 However, if the provisions of the policy are not ambiguous, the court must construe them according to their plain and ordinary meaning. E.g., Almagro v. Allstate Insurance Company, 129 Ariz. 163, 629 P.2d 999, 25 A.L.R.4th 61 (App.1981).
As previously noted in United Services Automobile Association v. Empire Fire and Marine Insurance Co., 134 Ariz. 64, 653 P.2d 712 (App.1982), a multitude of cases from many jurisdictions wrestle with the problems and conflicts created by the existence of concurrent insurance policies and so-called "other insurance" or "excess insurance" clauses. The case at hand specifically presents the collision of an "escape" clause with an "excess" clause where there is a third insurer who has conceded primary coverage.
An "escape" clause is one that provides for avoidance of liability when there is other valid insurance. Chamberlin v. Smith, 72 Cal.App.3d 835, 140 Cal.Rptr. 493, (1977). An "excess" clause is one that provides insurance only for losses exceeding all other insurance. See Annot., 12 A.L.R.4th 995 (1982). Some courts, presented with such conflicts where only two policies are involved, have upheld the escape clause. Others have placed primary liability on the escape clause insurer, and still others have prorated the coverage between the escape clause insurer and the excess clause insurer. See State Farm Mutual Automobile Insurance Co. v. United States Fidelity and Guaranty Co., 490 F.2d 407, 410 (4th Cir.1974); see generally, Annot., 46 A.L.R.2d 1159 (1954).
Our decision is based on the basic principle of law that in interpreting insurance contracts, the intention of the parties should control. United Services Automobile Association v. Empire Fire and Marine Insurance Co., 134 Ariz. 64, 653 P.2d 712 (App.1982). Where two "other insurance" clauses truly conflict, they are to be disregarded and the loss apportioned between the insurers. E.g., Harbor Insurance Co. v. United Services Automobile Association, 114 Ariz. 58, 559 P.2d 178 (App.1976). In our view, the two policies here do not conflict; therefore, apportionment is inappropriate.
We believe that there is a logical order of the policies in this case. Of the three insurance policies, it is clear that the Hertz self-insurance was the primary coverage, a fact that the parties do not dispute. See A.R.S. § 28-324; State Farm Mutual Automobile Insurance Co. v. Agency Rent-A-Car, Inc., 139 Ariz. 201, 677 P.2d 1309 (App.1983).
The second policy in the logical order of coverage is the Wausau policy. This policy was obviously issued for the express purpose of dealing with the coverage of Xerox employees while they were driving rented vehicles. The policy was amended by Endorsement Number 15 to include as persons insured:
Any partner, executive officer or employees thereof, but with respect to a nonowned automobile only while such automobile is being used in the business of the named insured.... (Amended portion italicized).
Endorsement Number 16 provided that the term "hired automobile" in the policy:
Shall be deemed to include any automobile hired in his own name by an employee of the named insured in the course of his employment by the named insured.
By contrast, the State Farm policy merely provided "drive other cars" coverage as an incident to May's policy on his personal vehicle. While the State Farm policy declared itself an excess carrier generally as to non-owned auto liability if there were...
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State Farm Mut. Auto. Ins. Co. v. Bogart
...the total available limits. The court of appeals reversed, giving full effect to the escape clause. State Farm Mutual Auto Insurance Co. v. Bogart, 149 Ariz.App. 154, 717 P.2d 458 (1985). Since the case raises issues of first impression in Arizona, we granted review pursuant to Rule 23, Ari......