Union Ins. Co. (Mut.) v. Iowa Hardware Mut. Ins. Co.

Decision Date10 March 1970
Docket NumberNo. 53325,53325
CourtIowa Supreme Court

Westfall, Laird, Burington, Bovard & Heiny, Mason City, for appellant.

Warren L. DeVries, Mason City, for appellee.

RAWLINGS, Justice.

This appeal involves an action in equity for declaratory judgment seeking a determination as to the obligation of plaintiff and defendant insurers under their respective 'other insurance' automobile liability policies. Trial court held adverse to plaintiff, and it appeals. We reverse.

June 17, 1965, Doris I. Cook, while permissibly operating an automobile owned by Humboldt Motor Sales, struck a car driven by Charlotte Watts, causing injury to her and an occupant daughter, also damaging the Watts' vehicle. Resultant claims made are still pending.

At the time of the accident Doris I. Cook owned a Plymouth automobile with liability coverage unider a policy issued by Union Insurance Company (Mutual) of Lincoln, Nebraska. Contemporaneously Humboldt Motor Sales had coverage under a policy issued by Iowa Hardware Mutual Insurance Company of Mason City, Iowa.

Part I of Cook's Union Insurance policy provides coverage for bodily injury and property damage liability. It also states, in material part: 'If the insured has other insurance against a loss covered by Part I of this policy the company shall not be liable under this policy for a greater proportion of such loss than the applicable limit of liability stated in the declarations bears to the total applicable limit of liability of all valid and collectible insurance against such loss; Provided, however, the insurance with respect to a temporary substitute automobile or non-owned automobile shall be excess insurance over any other valid and collectible insurance.' (Emphasis supplied)

The relevant portion of Iowa Hardware's policy held by Humboldt Sales likewise included coverage for bodily injury or property damage, and to the extent here relevant provides coverage for:

'(1) The named insured,

'(2) * * *

'(3) * * *

'(a) * * *

'(b) Any other person, but only if no other valid and collectible automobile liability insurance, either primary or excess, with limits of liability at least equal to the minimum limits specified by the financial responsibility law of the state in which the automobile is principally garaged, Is available to such person; * * *.' (Emphasis supplied)

As indicated, supra, trial court adjudged plaintiff Union Insurance primarily liable, to the limits of its policy, imposing liability on defendant Iowa Hardware only after exhaustion of coverage provided by Union Insurance.

On appeal plaintiff urges, in substance, primary liability should be imposed on Iowa Hardware, or alternatively the policies be found mutual repugnant and liability prorated in proportion to coverage provided by the two insurers respectively.

I. An examination of the policies at hand discloses both plaintiff and defendant attempted to provide coverage only to the extent 'other insurance' is unavailable. This means, if either policy had not existed the other insurer would alone have been liable. See Graves v. Traders & General Insurance Company, 252 La. 709, 214 So.2d 116, 117--118; Allstate Insurance Co. v. Shelby Mutual Ins. Co., 269 N.C. 341, 152 S.E.2d 436, 440; 8 Appleman, Insurance Law & Practice, Second Ed., section 4913; and The Law of Liability Insurance, by Rowland H. Long, section 22.08. But the presence of both compels an inquiry as to which insurer is primarily responsible, or whether both are proportionately obligated.

The myriad problems attendant upon 'other insurance' clauses is not new, and the conflicting solutions adopted demonstrate a frustrating judicial attempt to resolve what appears to be an endless interindustry semantic battle.

The confusion involved is probably best illustrated by merely referring to Annos. 76 A.L.R.2d 503; 69 A.L.R.2d 1122; 46 A.L.R.2d 1163; and 38 Minn.L.Rev. 838.

II. Although other appellate tribunals have dealt with the precise question here involved, it has never before been squarely presented to this court.

Truck Insurance Exchange v. Maryland Casualty Co., Iowa, 167 N.W.2d 163, involved 'other insurance' and we held, in an action for contribution, where the policy issued by each of two competing insurers provided repugnant like 'excess' coverage, both must be held liable on a pro rata basis.

In so holding this court prefatorily also stated, 167 N.W.2d loc. cit. 164: 'As a general rule, when two insurance companies provide insurance on the same loss, the question of their respective insurance obligations is determined by a construction of the language used by the respective insurers and not upon any arbitrary rule or circumstance.'

So our task is to determine whether the policy provisions before us, though dissimilar, are mutually repugnant, or can be harmonized by judicial construction.

III. Research discloses the case of Hardware Deal. Mut. F. Ins. Co. v. Farmers Ins. Exch., Tex., 444 S.W.2d 583, is so factually akin to the case at bar, and reasoning of the court so persuasive, we adoptively restate it at length with some paraphrasing and adaptive minor revisions.

The development of 'other insurance' clauses began in the area of property insurance. Insurers included provisions in their policies designed to avoid an insured's self-injury temptation, or fraud by overinsuring. Such limitations of liability met with approval. See Concurrent Coverage in Automobile Liability Insurance, 65 Colum.L.Rev. 319, 320; Note, 38 Minn.L.Rev. 838, 840. In the automobile field, however, 'other insurance' provisions have generally been treated differently, because moral hazards of self-injury are relatively nonexistent, and by reason of the more recent trend toward enlarging coverage to include other insureds. But in the course of this expansion process many insurers have attempted to hedge their coverage by adoption of various 'escape' provisions. Resultantly there has been a growing tendency on the part of insurers to write policies which seek both to expand, yet limit their coverage.

With regard to automobiles, three basic types of 'other insurance' approaches have developed. (1) A pro rata clause restricting liability upon concurring insurers to an apportionment basis. (2) An excess clause restricting liability upon an insurer to excess coverage after another insurer has paid up to its policy limits. (3) An escape clause avoiding all liability in event of other insurance. Such provisions, standing alone, ordinarily present no problem and are given effect when only one of the concurrent policies contains an 'other insurance' clause. Controversies do arise, however, when more than one policy covers the same insured and each has an 'other insurance' clause restricting its liability because of existing separate coverage.

Conflicts between concurrent insurance provisions have arisen in a number of areas. They are classified in 7 Am.Jur.2d, Automobile Insurance, section 202, page 544. With some rearrangement and editing, they are thus grouped: (1) One policy contains an excess clause, the other a pro rata clause, see 76 A.L.R.2d 512; (2) one policy contains a non-liability or escape clause, the other a pro rata clause, see 46 A.L.R.2d 1167; (3) both policies contain an excess clause, see 69 A.L.R.2d 1122; (4) one policy contains an excess clause, the other a non-liability or escape clause, see 46 A.L.R.2d 1165; (5) one policy contains what has been termed a specific escape clause which specifies the kind of 'other insurance', existence of which will relieve the former insurer of liability, see 46 A.L.R.2d 1168. Note also 8 Blashfield, Automobile Law and Practice, Third Ed., sections 345.10--345.14. Our problem seems to focus upon the last two types.

Courts have adopted various avenues of approach in an effort to harmonize these apparently conflicting provisions. At first the 'prior-in-time' theory was applied by which liability was imposed upon the insurer whose policy was earliest in time. New Amsterdam Cas. Co. v. Hartford Acc. & Indem. Co., (6 Cir.), 108 F.2d 653, and 38 Minn.L.Rev. 838, 845. That method was soon criticized as arbitrary, being one of convenience rather than reason, and because the time of coverage is not as significant as the vital fact that coverage existed when the accident occurred. Most courts have abandoned this method. Other tribunals have resolved such cases by determining identity of the primary tort-feasor and directness of his relationship to the insurer. Liability under such method rested upon the insurer whose named insured, as distinguished from an additional insured, is the tort-feasor. This too has been declared arbitrary and rejected by most courts. Zurich General Accident & Liability Ins. Co. v. Clamor, (7 Cir.), 124 F.2d 717, and 38 Minn.L.Rev. 838, 843. It would deny coverage for an unnamed or additional insured even though the insurer intended to protect him as an insured. Another method employed in an effort to reconcile double insurance clauses has been that of determining which of two 'other insurance' provisions is the more specific in its restriction, then giving it effect over the general. Trinity Universal Ins. Co. v. General Acc., F. & L.A. Corp., 138 Ohio St. 488, 35 N.E.2d 836, and 38 Minn.L.Rev. 838, 841. We disclaim any of these rationales in that they are to us unrealistic, artificial, or produce arbitrary results.

IV. With regard to the foregoing, escape clauses were once written in general terms. In the face of that situation some courts concluded, as aforesaid, a general escape clause must yield to the more specific excess clause. Hence, that policy containing a general escape clause was usually held primarily liable. See 8 Appleman, Insurance Law & Practice, Second Ed., section 4914.

The above rule was applied in these cases: Zurich General Accident & Liability...

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