U.S. Fidelity and Guar. Co. v. Hanover Ins. Co.

• Decision Date: 03 May 1994
• Citation: 632 N.E.2d 402,417 Mass. 651
• Parties: UNITED STATES FIDELITY AND GUARANTY COMPANY v. HANOVER INSURANCE COMPANY.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 402

632 N.E.2d 402

417 Mass. 651

UNITED STATES FIDELITY AND GUARANTY COMPANY v. HANOVER INSURANCE COMPANY.

Supreme Judicial Court of Massachusetts Hampden.

Argued March 7, 1994.

Decided May 3, 1994.

Donald W. Goodrich, Adams, for plaintiff.

Patricia A. Zak, Springfield, for defendant.

Before: LIACOS, C.J., and ABRAMS, NOLAN, O'CONNOR and GREANEY, JJ.

GREANEY, Justice.

We granted an application for direct appellate review in this case to decide the responsibility between two insurers, the plaintiff, United States Fidelity and Guaranty Company (USF & G), and the defendant, Hanover Insurance Company (Hanover), to pay personal injury damages in the amount of $100,000, when their respective insurance policies contain limiting clauses which each insurer claims makes the other solely responsible for the entire $100,000. A judge of the Superior Court, who had before him a statement of agreed facts and exhibits and cross motions for summary judgment, decided that the limiting clauses in the two insurance policies were mutually repugnant, and, as a result, USF & G and Hanover were required to prorate the damages. We conclude that USF & G is responsible for the entire loss. Accordingly, we vacate the judgment and direct the entry of a new judgment declaring that responsibility.

The record discloses the following. On October 5, 1988, Brian D. Mulvagh decided to test drive a motor vehicle owned by Springfield Auto Sales-East, Inc. While Mulvagh was driving in Chicopee, he lost control of the vehicle and struck a telephone pole. A passenger in the vehicle was seriously injured. Mulvagh's liability for the accident was "reasonably clear."

Springfield Auto Sales-East, Inc., had a so-called "garage policy" with Hanover. The maximum amount of optional bodily injury coverage available under the policy was $100,000. In its policy, Hanover imposed limitations on Coverage B (optional bodily injury), "in consideration of [a] reduced rate of premium." Under its "Limited Customer Coverage," Hanover agreed to provide coverage only if "no other valid and collectible automobile liability insurance, either primary or excess, with limits of liability at least equal to ... the limits required by the Massachusetts Compulsory Automobile Liability Security Act ... is available." ¹

Mulvagh was married to, and lived in the same household as, Louise E. Mulvagh. She owned a 1987 Buick Century automobile which was insured by USF & G under a Massachusetts automobile insurance policy. The parties have stipulated that Mulvagh was an insured under this policy. Part 5 (the provision for optional bodily injuries to others, which also provided a maximum of $100,000 in coverage) of Mrs. Mulvagh's USF & G policy provided, "[i]f someone covered under this Part is using an auto he or she does not own at the time of the accident, the owner's auto insurance must pay its limits before we pay."

Mulvagh's passenger gave a notice of claim to both USF & G and Hanover. The "full and fair compromised value" of the claim was $100,000. Hanover concluded that "other insurance" was available under the USF & G policy to cover Mulvagh's liability. Based on its limiting clause, Hanover refused to pay. For its part, USF & G concluded that Hanover was responsible for covering Mulvagh's liability. After reserving its rights against Hanover, however, USF & G paid the passenger its policy limits of $100,000. In return the passenger released all claims against both the Mulvaghs and USF & G.

USF & G then commenced an action in the Superior Court against Hanover on multiple theories requesting an order that Hanover pay all, or at least one-half of, the $100,000. USF & G and Hanover filed a statement of agreed facts and exhibits, together with cross motions for summary judgment pursuant to Mass.R.Civ.P. 56(a) and (b), 365 Mass. 824 (1974), which led to the decision and judgment now before us finding each insurer liable for $50,000.

In Mission Ins. Co. v. United States Fire Ins. Co., 401 Mass. 492, 517 N.E.2d 463 (1988), we discussed three types of "other insurance" clauses, pro rata, escape and excess, ² and the methods employed by courts to resolve conflicts between them. We noted in the Mission Ins. Co. decision that, in an effort to resolve such conflicts in the context of automobile insurance, " 'the majority of courts have embraced a humanistic rule of construction--insurance clauses that conflict are to be reconciled and interpreted upon the determination of the sense and meaning of the terms the parties used.' ... This approach generally has resulted in giving excess clauses preference to escape and pro rata clauses and declaring mutual repugnancy where either excess or escape clauses appear in both policies." Id. at 496, 517 N.E.2d 463, quoting Kurtock, Overlapping Liability Coverage--The "Other Insurance" Provision, 25 Fed'n Ins.Couns.Q. 45, 46-47 (1974).

The Mission Ins. Co. decision further noted that, when mutual repugnancy occurs, each insurer should be "required to contribute to the loss, for to give effect to both clauses would result in no coverage for the insured." Id. at 496 n. 4, 517 N.E.2d 463 (a finding that the insured has no coverage could leave the injured person without a recovery, a result which would contravene public policy where insurance exists). We concluded in the Mission Ins. Co. decision (which involved a conflict between two excess clauses) that repugnancy existed, and that the insurers had to contribute equally to the loss. Id. at 499, 517 N.E.2d 463. Finally, we emphasized in the Mission Ins. Co. decision that, in resolving conflicting "other insurance" clauses, we have acted consistently with the modern trend discussed above, id. at 496, 517 N.E.2d 463, and tried to apply an "analytical approach of giving effect to the policy language" in the antagonistic insurance contracts. Id. at 497, 517 N.E.2d 463, and cases cited.

The dispute in this case does not involve two excess clauses or an excess clause and a so-called "basic" escape clause, namely one that provides an insurer is not liable if other coverage is available. This dispute concerns a conflict between the excess clause in the USF & G policy and the so-called "super-escape" clause in the Hanover policy which denies coverage when other valid and collectible insurance, either primary or excess, is available. See 8A J.A. Appleman, Insurance Law and Practice, § 4906, at 349-350 (rev. ed. 1981) (defining super-escape clauses).

When conflict occurs between a super-escape clause and an excess clause, courts are divided on how the conflict should be resolved. Some courts give effect to the specific language of a super-escape clause over that of an excess clause. See, e.g., Royal Globe Ins. Cos. v. Safeco Ins. Co., 560 S.W.2d 22 (Ky.Ct.App.1977); Government Employees Ins. Co. v. Globe Indem. Co., 415 S.W.2d 581 (Ky.Ct.App.1967); State Farm Mut. Auto. Ins. Co. v. Western Casualty & Sur. Co., 477 S.W.2d 421, 425-427 (Mo.1972); Allstate Ins. Co. v. Shelby Mut. Ins. Co., 269 N.C. 341, 152 S.E.2d 436 (1967). Other jurisdictions, however, have decided that the policy with the super-escape clause is primary. See, e.g., Insurance Co. of N. Am. v. Continental Casualty Co., 575 F.2d 1070 (3d Cir.1978) (applying Pennsylvania law); Protective Nat'l Ins. Co. v. Bell, 361 So.2d 1058 (Ala.1978); Automobile Underwriters, Inc. v. Hardware Mut. Casualty Co., 49 Ill.2d 108, 273 N.E.2d 360 (1971). Still other courts have found the clauses to be mutually repugnant and have decided that damages should be shared proportionately. See, e.g., Dette v. Covington Motors, Inc., 486 So.2d 805 (La.Ct.App.1986); Brown v. Travelers Ins. Co., 610 A.2d 127 (R.I.1992); Hardware Dealers Mut. Fire Ins. Co. v. Farmers Ins. Exch., 444 S.W.2d 583 (Tex.1969).

As has been discussed, we follow the majority approach which seeks, whenever possible, to reconcile conflicting policy clauses based on the sense and meaning of the terms in an effort to effectuate the language of the insuring agreements. Mission Ins. Co., supra at 495-496, 517 N.E.2d 463. As has also been discussed, this approach generally results in giving excess clauses preference to escape clauses, id. at 496, 517 N.E.2d 463, at least where the escape clause is of the basic type. See 16 G. Couch, Insurance § 62:77 (rev. 2d ed. 1983); Note, Resolution of Conflicting "Other Insurance" Clauses, 46 Ind.L.J. 270, 278 (1970-1971). The rationale behind the preference considers a policy constituting excess insurance as not furnishing "other collectible [or available] insurance" as far as the basic escape clause is concerned. Horace Mann Ins. Co. v. Continental Casualty Co., 54 N.C.App. 551, 555, 284 S.E.2d 211 (1981), citing 16 G. Couch, Insurance § 62:76 (2d ed. 1966). A super-escape clause, however, specifying that even other insurance that labels itself "excess" will be primary, reverses that result, rendering the excess policy as one providing primary coverage. See Note, Resolution of Conflicting "Other Insurance" Clauses, supra at 279-280. 8A J.A. Appleman, supra at § 4910, at 470-473, and cases cited; 16 G. Couch, supra at § 62:76, and cases cited. This outcome is based on examination of the contract language. "[W]hen the escape clause expressly provides 'that the insurance does not apply to any loss covered by other specified types of insurance, including the excess insurance type, it has been held that the insurer whose policy so provides is absolved from liability.' " ³ Horace Mann Ins. Co. v. Continental Casualty Co., supra, quoting 16 G. Couch, Insurance, supra at § 62:75. We conclude, after applying these principles to the conflicting clauses in this case, that the explicit and comprehensive language of the Hanover super-escape clause brings into effect the excess coverage provided by USF & G, making the latter solely responsible for the loss.

In reaching this conclusion, we have considered and rejected the arguments made by USF & G seeking...