State Farm Mut. Auto. Ins. Co. v. Universal Underwriters Ins. Co.

• Decision Date: 05 February 1980
• Docket Number: No. 40187,40187
• Citation: 594 S.W.2d 950
• Parties: STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, a corporation, Plaintiff- Appellant, v. UNIVERSAL UNDERWRITERS INSURANCE COMPANY, a corporation, and Bonnie Swanson, and Tammy Wyatt, and John A. Wyatt, Defendants-Respondents.
• Court: Missouri Court of Appeals

Page 950

594 S.W.2d 950

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, a corporation, Plaintiff- Appellant, v. UNIVERSAL UNDERWRITERS INSURANCE COMPANY, a corporation, and Bonnie Swanson, and Tammy Wyatt, and John A Wyatt, Defendants-Respondents.

No. 40187.

Missouri Court of Appeals, Eastern District, Division Four.

Feb. 5, 1980.

Kortenhof & Ely, Robert L. Nussbaumer, St. Louis, for plaintiff-appellant.

Moser, Marsalek, Carpenter, Cleary, Jaeckel, Keaney & Brown by Parks G. Carpenter, St. Louis, for defendant-respondent, Universal Underwriters Ins. Co.

Stefan Glynias, Clayton, for Bonnie Swanson.

SATZ, Judge.

This was a court-tried case. The pertinent facts are not in dispute.

Tammy Wyatt was operating a 1971 Plymouth Fury automobile owned by Chrysler Plymouth West, Inc., a dealership and repair shop, when she was involved in an accident with Bonnie Swanson. The Plymouth Fury automobile was a temporary substitute automobile loaned to Tammy's father, John A. Wyatt, to use while Chrysler Plymouth West, Inc., repaired his automobile, a 1971 Valiant Duster. John A. Wyatt was insured by State Farm Mutual Automobile Insurance Company (State Farm) and Chrysler Plymouth West, Inc., was insured by Universal Underwriters Insurance Company (Universal) under a garage liability policy. Absent any exclusionary clause disclaiming liability, Tammy Wyatt was a person insured under State Farm's policy, as a "relative" of John A. Wyatt, and she also was a person insured under Universal's policy, as a "permitted user" of the Fury automobile. ¹

Bonnie Swanson made a claim for personal injuries against Tammy Wyatt. Universal refused to defend Tammy, contending that State Farm covered the loss in question. State Farm disagreed, filed a declaratory judgment action against Universal, seeking, among other relief, a declaration by the trial court that Universal's policy afforded coverage for Tammy and that State Farm's policy did not apply. ² The trial court found that State Farm's policy provided coverage for Tammy and that Universal's policy provided no coverage. Understandably on appeal, both parties make the same arguments and take the same positions they took before the trial court. However, having reviewed the entire record, we do not agree with either party, and we conclude that the terms of their respective policies require State Farm and Universal to share responsibility for the loss incurred by Tammy on a pro rata basis.

State Farm and Universal each disclaim liability on the ground that its policy provides no coverage because "other insurance" was available to cover the loss in question. Thus, the present case raises the perennial issue in which a particular loss may be covered by more than one insurance policy and, arguing against double coverage, each insurer disclaims liability on the ground that "other insurance" is available to cover the loss. For our purposes here, we divide these "other insurance" provisions into three general categories: "(1) pro rata clauses (which) provide that the insurer will pay its pro rata share of the loss, usually in proportion which the limits of its policy bears to the aggregate limits of all valid and collectable insurance; (2) excess clauses (which) provide that the insurer's liability shall be only the amount by which the loss exceeds the coverage of all other valid and collectable insurance, up to the limits of the excess policy; and (3) escape clauses (which) provide that the policy affords no coverage at all when there is other valid and collectable insurance". Concurrent Coverage in Automobile Liability Insurance, 65 Colum.L.Rev. 319, 321-322 (1965); see, e. g., Hardware Dealers Mut. Fire Ins. Co. v. Farmers Ins. Exch., 444 S.W.2d 583, 586 (Tex.1969).

Initially, in the instant case, we have two policies which appear to contain overlapping "escape clauses". The State Farm policy, after defining those persons who are insured and providing for their coverage, contains an "escape clause" which provides:

"All of the foregoing provisions and all coverages are subject to the following:

. . . (b) The insurance with respect to

(i) a temporary substitute automobile,

(ii) a trailer, or

(iii) a non-owned automobile shall be excess coverage 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 LESS. " ³

The pertinent provisions of the "escape clause" relied on by Universal provide:

"IV. Persons Insured

Each of the following is an INSURED under this insurance to the extent set forth below:

Under the GARAGE BODILY INJURY and PROPERTY DAMAGE Liability Coverages:

(1) . . . .

(2) . . . .

(3) with respect to the AUTOMOBILE HAZARD;

(a) . . .

(b) any other person while actually using an AUTOMOBILE covered by this Coverage part with the permission of the NAMED INSURED, provided that such other person (a) has no automobile liability insurance policy of his (her) own, either primary or excess, or (b) is not included in 'Persons Insured' or 'Definition of INSURED' in any other insurance policy, either primary or excess. Insurance afforded by this sub-paragraph (c) shall not exceed the minimum limit of liability specified in the Financial Responsibility Law of the state in which the accident occurs. However, if such person has another policy available but said other policy has limits of liability less than the minimum limits specified in the Financial Responsibility Law of the state in which the accident occurs, then the policy to which this Coverage Part is attached shall apply only as excess insurance for the difference between said minimum limits and the limits under said other policy."

We must determine whether these clauses conflict or can be harmonized. In doing so, we are aware that insurance is a matter of contract and, as with other consensual undertakings, it must be given effect according to the plain terms of the agreement, Transport Indem. Co. v. Teter, 575 S.W.2d 780, 784(1) (Mo.App.1978), consonant with the reasonable expectations, objectives and the intent of the parties. Reliance Ins. Co of Pa. v. Community Fed. Savings & Loan Assn., 440 S.W.2d 929, 931(2) (Mo.1969); Kay v. Metropolitan Life Ins. Co., 548 S.W.2d 629, 631(1) (Mo.App.1977). If the intention of the parties can be determined by an interpretation of the language used in the policy definitions and the policy itself, the court is bound by the intention, Swaringin v. Allstate Ins. Co., 399 S.W.2d 131, 133(2) (Mo.App.1966), and the court cannot create an ambiguity in order to distort the language of an unambiguous policy, or, in order to enforce a particular construction which it might feel is applicable. M.F.A. Mut. Ins. Co. v. Dunlap, 525 S.W.2d 766, 769(7) (Mo.App.1975). We view the present record in the light of these principles.

There is no dispute here that Tammy was driving a "temporary substitute automobile" and, thus, under the terms of its "escape clause", State Farm escapes liability if (1) this automobile is owned by an organization engaged in the automobile business and (2) the owner has insurance covering the loss. Universal argues here, as it did to the trial court, that, because of the terms of its "escape clause", it does not provide insurance coverage for the loss in question, which means the second condition of State Farm's "escape clause" is not met and, thus, State Farm's "escape clause" is inapplicable. More specifically, Universal argues that if Tammy were an insured under its policy, as a permitted user of an automobile owned by its named insured, she would be afforded coverage under its policy if, but only if, she were "not included in 'Persons Insured' or 'Definition of INSURED' in any other insurance policy, either primary or excess". Then, turning to the State Farm policy, Universal limits itself to the Definition Section of that policy and finds that Tammy is included in the " 'Definition of INSURED' " because the Definition Section of the State Farm policy provides that Tammy is an insured as a "relative" of John A. Wyatt, State Farm's named insured. Since Tammy is included with the " 'Definition of INSURED' in (another) insurance policy", Universal reasons, she is not an insured under its policy and, thus, its policy provides her no coverage for the loss in question. This means State Farm cannot escape liability because the second condition of State Farm's "escape clause", requiring other insurance covering the loss in question, is not met.

We reject Universal's narrow and restrictive interpretation of the provisions of its "escape clause". To reach its conclusion that its "escape clause" excludes Tammy Wyatt from coverage under its policy, Universal limits itself to a single phrase in its policy and interprets that phrase completely out of context. Thus, in interpreting its "escape clause", Universal limits itself to the single phrase " 'Definition of INSURED' in any other policy" and, then, focuses its attention solely on the definition section of the other insurance policy, here, the State Farm policy. Finding that Tammy Wyatt is defined as an insured in the definition section of State Farm's policy, Universal argues this finding excludes Tammy from being an insured under Universal's policy, regardless and without consideration of whether State Farm's policy provided Tammy with valid and collectable coverage for the loss in question. To develop this interpretation, Universal rips its "escape clause" completely out of context, and, then, considering this clause in pristine, literal isolation, Universal discovers a meaning inconsistent with the meaning this clause would have if it were considered in context.

The clause in question, if completed, reads: " 'Definition of INSURED' in any other insurance policy, either primary or excess " (emphasis added) and, in its...