U.S. Fidelity & Guar. Co. v. U.S. Fire Ins. Co.

• Decision Date: 01 September 1991
• Docket Number: No. 503,503
• Citation: 90 Md.App. 327,600 A.2d 1178
• Parties: UNITED STATES FIDELITY & GUARANTY COMPANY v. UNITED STATES FIRE INSURANCE COMPANY, et al. ,
• Court: Court of Special Appeals of Maryland

Page 327

90 Md.App. 327

600 A.2d 1178

UNITED STATES FIDELITY & GUARANTY COMPANY v. UNITED STATES FIRE INSURANCE COMPANY, et al.

No. 503, Sept. Term, 1991.

Court of Special Appeals of Maryland.

Feb. 4, 1992.

Certiorari granted June 15, 1992.

Robert L. Ferguson, Jr. (Christopher J. Heffernan and Thieblot, Ryan, Martin & Ferguson, on the brief), Baltimore, for appellant.

J. Mitchell Kearney (James R. Eyler and Miles & Stockbridge, on the brief), Baltimore, for appellees, U.S. Fire and Shirk.

Alva P. Weaver, III (Weaver and Bendos on the brief), Baltimore, for appellee, Nolt.

Argued before MOYLAN, MOTZ and HARRELL, JJ.

MOTZ, Judge.

This case arises out of a declaratory judgment action brought by appellee, Allen Ray Nolt ("Nolt"), in which Nolt sought a determination of the respective insurance obligations of appellant/cross appellee, United States Fidelity & Guaranty Corporation ("U.S.F. & G.") and appellee/cross-appellant, United States Fire Insurance Company ("U.S. Fire"). Following a jury's special verdict on specific questions of fact, the Circuit Court for Cecil County declared, inter alia, that: (1) Nolt was entitled to pro rata insurance coverage (including his attorneys fees) from U.S.F. & G. and U.S. Fire arising out of a fatal traffic accident in which Nolt was the driver at fault; and (2) U.S.F. & G. must bear Nolt's counsel fees and expenses in the declaratory judgment action. We reverse.

(i)

Nolt is the owner and operator of a 1978 Ford tractor truck. In each year since 1984, Nolt has leased his tractor for one-year terms, beginning December 31 of each year, to Lester R. Summers, Inc. ("Summers"), a company engaged in the interstate transport of property as authorized by the Interstate Commerce Commission ("I.C.C."). Under the agreement, Summers would contact Nolt when a transport job became available and pay Nolt on a per-job basis. The agreement stipulated that, during the term of the lease, Summers held "exclusive possession, control, use and responsibility for the operation of the equipment [the tractor] (including full responsibility to the public, the shippers, and all regulatory agencies having jurisdiction)." ¹ The lease further mandated that Summers would provide Nolt's tractor with all necessary I.C.C. identification placards as required under federal law. See 49 C.F.R. § 1057.11(c) (1986). Nolt's truck was insured under Summers' policy with U.S.F. & G.; Nolt did not carry his own insurance.

During late 1988, Summers provided Nolt with very little work. According to Nolt, in early December 1988, he visited Lester Summers at his office to pick up his paycheck and inquire as to the availability of future work. Nolt testified that, on this occasion, Summers granted him permission to "haul for someone else" until business revitalized, without requiring that Nolt terminate the existing lease or turn in his I.C.C. placards. On December 5, 1988, Nolt independently called the Charles M. Shirk Trucking Company ("Shirk") in search of an assignment. Shirk agreed to lease Nolt's tractor the next day for a one-day hauling job; Charles Shirk testified at trial that he agreed to lease Nolt's tractor based on Nolt's representation that Summers had given Nolt permission to seek other employment. Although Summers disputed Nolt's claim that Summers gave Nolt permission to operate the trailer for Shirk for one day, the jury found that Summers did give Nolt permission to operate his truck on December 6, 1988 for Shirk. No party on appeal claims that this finding was clearly erroneous.

Like Summers, Shirk was an I.C.C.-authorized carrier that had been in the business for many years. Nolt had previously transported goods for Shirk, but only as facilitated by Summers. That is, on previous occasions, Shirk contacted Summers, or Summers' dispatcher, when Shirk wanted to hire one of Summers' drivers and tractors and, if drivers and truckers were available, Summers' dispatcher assigned the work to one of Summers' truckers. As with any other outside contract, Shirk would pay Summers for the work and Summers, in turn, would pay the driver, including Nolt on occasion, after keeping a commission for itself.

For the December 6, 1988 trip, and that trip alone, Shirk and Nolt executed a one-day lease which stated that Shirk was to provide Nolt with identification placards, to "assume complete responsibility for the operation of the equipment," and "to provide Insurance only to the extent it is legally obligated to do so for the protection of the public pursuant to ICC regulations." Though the lease was drawn up by Shirk on December 5, 1988, Nolt did not sign the agreement until after the assignment. Nor did Shirk transfer to Nolt any I.C.C. placards to place in the truck, despite such a requirement in the lease and under federal law. Shirk was paid by its customer for the trip and Shirk in turn paid Nolt, keeping the entire commission itself; Summers received no payment for the trip.

On the morning of December 6, 1988, Nolt began his trip to Cecil County, Maryland with a load of concrete under a bill of lading issued by Shirk. Nolt's truck continued to display Summers' I.C.C. placards. Nolt's rig collided with another vehicle, causing a serious automobile accident, which resulted in the death of one person and the injury of another. Immediately after the accident, Nolt instructed the Maryland State Police to call Shirk. While on his way to the scene of the accident, Charles Shirk contacted both his insurance company, U.S. Fire, and Summers.

Approximately four months after the accident, Shirk, Summers and Nolt were named as defendants in a case filed by the personal representative and survivors of the person killed in the accident. Nolt sought coverage and representation from both U.S. Fire and U.S.F. & G. U.S. Fire agreed to defend Nolt and retained counsel for him. U.S.F. & G. denied coverage of Nolt and refused to participate in Nolt's defense; it did provide a defense to Summers.

On April 18, 1990, Nolt initiated this declaratory judgment action to determine the respective obligations of the two insurance companies. Questions of fact relevant to the interpretation of the U.S.F. & G. insurance policy were submitted to a jury, which found that Nolt had permission from Lester R. Summers, the owner of Lester R. Summers, Inc., to operate his truck on December 6, 1988 for Shirk and that, on December 6, 1988, Nolt's truck was used exclusively in both Shirk's and Summers' businesses as truckers.

On February 15, 1991, the circuit court issued a declaration that "Nolt is afforded pro rata insurance coverage for the December 6th automobile accident" from U.S.F. & G. and U.S. Fire; the court further held the two insurers "jointly liable, on a pro rata basis, for the counsel fees and expenses" expended by Nolt in the underlying tort action, and U.S.F. & G. "liable for Nolt's counsel fees and expenses" in the declaratory judgment action.

Further facts will be set forth within as necessary.

(ii)

At issue before us is the "double coverage" of a single vehicle. Double coverage exists when more than one insurance policy covers a claim. Nat'l Indemnity v. Continental Ins., 61 Md.App. 575, 578, 487 A.2d 1191 (1985) (citing 8A J. Appleman, Insurance Law and Practice, § 4907.65 at 364 (1981) [hereinafter Appleman ]. In this situation, often the insurance policy limits the insurer's liability in two ways based on the availability of other coverage. First, an excess clause specifies that an insurance company will make payment on a policy so long as: (1) it becomes liable only after the claimant has recovered the sums available under the other policies involved, and (2) it pays an amount equal to the difference between the total insurance paid by the other companies and the limit of its own policy. Nat'l Indemnity, 61 Md.App. at 578, 487 A.2d 1191 (citing 8A Appleman § 4907.65 at 347-349). Second, a pro rata clause limits an insurer's liability to its proportionate share in relation to all available coverage. Nat'l Indemnity, 61 Md.App. at 578, 487 A.2d 1191 (citing 8A Appleman § 4907.65 at 345). At the heart of the dispute here are the excess and pro rata clauses found in both the U.S.F. & G. policy and the U.S. Fire policy.

Both policies provide coverage for "insureds" in addition to the "named insured," i.e.: (1) "anyone [besides the named insured] while using with your permission a covered 'auto' " and (2) "anyone from whom you hire ... a covered 'auto' ... while the covered 'auto' is being used exclusively in your business as a trucker" and "is being used pursuant to operating rights granted to you by a public authority." In relevant part, the identical, "other insurance" clauses in each policy provide as follows:

(a) This Coverage Form's Liability Coverage is primary for any "auto" while hired or borrowed by you and used exclusively in your business as a "trucker" and pursuant to operating rights granted to you by a public authority. This Coverage Form's Liability Coverage is excess over any covered "auto" while hired or borrowed from you by another "trucker."

* * * * * *

(e) When this coverage form and any other coverage form or policy covers on the same basis, either excess or primary, we will pay only our share. Our share is the proportion that the Limit of Insurance of our Coverage Form bears to the total of the limits of all the Coverage Forms and policies covering on the same basis.

(emphasis added.)

Section (a) of the "other insurance" provisions constitutes the excess clause; section (e) is the pro rata clause. There are well-defined procedures under Maryland law that dictate how one such clause in an insurance policy will be treated when it conflicts with another. Specifically, an excess clause will prevail over a pro rata clause. Consolidated Mut. Ins. Co. v. Bankers Ins. Co., 244 Md. 392, 399, 223 A.2d 594 (1966). When both policies provide excess coverage only, liability is shared equally by...