US Fire Ins. Co. v. Federal Ins. Co.

• Citation: 670 F. Supp. 1191
• Decision Date: 07 October 1987
• Docket Number: No. 85 Civ. 2014 (BN).,85 Civ. 2014 (BN).
• Court: U.S. District Court — Southern District of New York
• Parties: UNITED STATES FIRE INSURANCE COMPANY, Plaintiff, v. FEDERAL INSURANCE COMPANY, Aetna Casualty & Surety Company, John S. Bell, Jr. and Michael Bell, Defendants.

670 F. Supp. 1191

UNITED STATES FIRE INSURANCE COMPANY, Plaintiff, v. FEDERAL INSURANCE COMPANY, Aetna Casualty & Surety Company, John S. Bell, Jr. and Michael Bell, Defendants.

No. 85 Civ. 2014 (BN).

United States District Court, S.D. New York.

October 7, 1987.

Barry, McTiernan & Moore, New York City by Michael F. Close, for plaintiff U.S. Fire Ins. Co.

Shanley & Fisher, P.C., New York City by Robert M. Leonard, for defendants Federal Ins. Co., John S. Bell, Jr. and Michael Bell.

Leahey & Johnson, New York City by Edward Bosek, for defendant Aetna Cas. & Sur. Co.

OPINION, FINDINGS OF FACT AND CONCLUSIONS OF LAW

NEWMAN, Senior Judge, United States Court of International Trade, sitting as a District Court Judge, by designation:

United States Fire Insurance Company ("U.S. Fire") commenced this action against two other insurers to recover the sum of $866,345 U.S. Fire contributed to the settlement of an underlying personal injury action brought against an insured of all three companies, resulting from an automobile accident more fully described infra.

Initially, plaintiff named as defendants Federal Insurance Company ("Federal"), John Bell¹, and his son, Michael. Thereafter, an amended summons and complaint were served to include Aetna Casualty & Surety Company ("Aetna") as a defendant.² In due course, trial was had to the court. Diversity jurisdiction is predicated on Title 28 U.S.C. § 1332.

Subsequent to trial and after negotiations, defendant Aetna agreed to contribute its primary policy limit amount — $500,000 — in full settlement of all claims against it by Federal and U.S. Fire. Accordingly, this action is dismissed as to Aetna and the opinion herein discusses plaintiff's claims solely against Federal.

BACKGROUND

It has been stipulated that on August 24, 1981 Michael Bell, residing at 548 North Street, Greenwich, Connecticut, his lifelong domicile, was driving a 1979 Buick station wagon accompanied by a friend, David Spencer — a grandson of John D. Rockefeller, III. Spencer (the front seat passenger) and Bell (the driver) were the only two occupants of the vehicle which was owned by John Boyle & Company, Inc. ("the Boyle Company")³ and which was regularly furnished to Michael Bell for his use.

Bell and Spencer had just departed the Rockefeller Estate in Pocantico Hills, Westchester County, New York and were driving approximately one-half mile away when their auto left the roadway and collided with a tree, in a single vehicle accident. Spencer, then 19, suffered severe injuries including, inter alia, a comminuted, compound fracture of the right leg with dislocation and complete disruption of the knee joint, and a comminuted fracture of the right wrist and hand. Spencer's leg injury eventuated in an amputation above the knee.

Thereafter, Spencer commenced a personal injury action in New York Supreme Court against Michael Bell and the Boyle Company — the operator and owner of the accident vehicle, respectively. The defense for both defendants was provided by Federal, the primary insurer of the Boyle Company vehicle. Ultimately, the lawsuit was settled in November 1984 for $1,366,345. Of that amount, Federal paid $500,000 under its Boyle Company primary policy and U.S. Fire paid the remaining $866,345 pursuant to its catastrophe policy, also issued to the Boyle Company. See infra at 1193-94.

In the instant litigation, whereas Aetna contended that the amount of the Spencer settlement was unreasonably high, both U.S. Fire and Federal argued the converse, viz., that it was justifiably proper, particularly in view of David Spencer's youth (19); his projected additional life expectancy (approximately 52 years); the severity of his injuries (briefly described supra); and his socioeconomic standing (a Rockefeller family member).

At the close of trial, plaintiff moved for partial judgment on such issue of reasonableness and upon due consideration, its application was granted from the bench wherein the court determined that the Spencer personal injury settlement was reasonable.⁴ Consequently and subsequent to trial, Aetna agreed to contribute its policy limit of $500,000 in full settlement of the respective claims against it.⁵

At the time of the Bell/Spencer automobile accident, the following relevant insurance policies were in effect:

1. A $500,000 business automobile policy issued by Federal to the Boyle Company.

2. A $500,000 personal underlying automobile policy issued by Aetna to Mary Bell (Michael's mother) insuring a 1979 BMW, which vehicle was not involved in the accident.

3. A $10,000,000 commercial comprehensive catastrophe liability policy issued to the Boyle Company and two other companies by U.S. Fire.⁶

4. A $2,000,000 personal excess liability policy issued by Federal to John Bell.⁷

Federal assumed the defense of the Spencer lawsuit under its primary business auto policy, which covered the Boyle Company vehicle involved in the accident. As indicated, of the $1,366,345 settlement, Federal paid $500,000 under its primary policy and U.S. Fire contributed the balance of $866,345; after trial, Aetna contributed its primary policy limit of $500,000. Thus, U.S. Fire claims an outstanding amount of $366,345, contending that Federal's $2,000,000 excess liability policy should provide an initial level of excess coverage and should contribute before U.S. Fire's $10,000,000 catastrophe policy. In plaintiff's view, its policy provides coverage only after available excess (such as Federal's) and primary insurance has been exhausted. The short of the matter is: plaintiff insists that Federal's excess liability policy is "more specific to the accident, and therefore applies first."

In the alternative, U.S. Fire argues that both its and Federal's excess policies should be applied ratably in the ratio of their respective limit amounts, viz., $10,000,000: $2,000,000, i.e., 10:2.

Conversely, "Federal admits its `Personal Excess Policy' covers the accident, but contends U.S. Fire's `Comprehensive Commercial Catastrophe Policy' applies first. Since the latter policy is not exhausted, Federal has no liability." Joint pre-trial order at 7.

For the reasons set forth infra, the court finds the U.S. Fire and Federal excess insurance policies to be indistinguishable for purposes of determining which should be deemed "more excess". Critical provisions and certain phraseology of plaintiff's catastrophe and defendant's excess liability policies are highly comparable and the subject insurance contracts operate to cancel each other out. Hence, the court applies the general rule and holds that the parties must contribute pro rata based on their respective limit amounts. Since U.S. Fire has paid the outstanding $366,345 to Spencer, Federal shall pay to plaintiff one-sixth ( 1/6 ) thereof, viz., $61,057.50 (representing Federal's proportionate share), plus costs.

DISCUSSION

A.

A discussion of the instant controversy necessarily commences with a review and comparison of pertinent provisions of both insurance contracts in question.

THE U.S. FIRE POLICY

Plaintiff's policy is entitled "Commercial Comprehensive Catastrophe Liability Policy" and its general coverage provision states:

The Company agrees to pay on behalf of the insured the ultimate net loss in excess of the retained limit hereinafter stated, which the insured may sustain ... for:

(a) Personal Injury Liability

Exh. 1 at 1.

More specifically, the policy expressly applies

with respect to an automobile owned by ... the named insured, to any person using the automobile with the named insured's permission, and any person or organization legally responsible for the use thereof.

Id. at 2.

Clearly, the accident is a covered event, i.e., plaintiff's policy applies as Michael Bell was furnished with the regular use of the Boyle Company vehicle, in which David Spencer was injured.

"Ultimate net loss" is defined as:

All sums which the insured, or any company as his insurer, or both, is legally obligated to pay as damages, whether by reason of adjudication or settlement, because of personal injury ... liability to which this policy applies....

This policy shall not apply to defense, investigation, settlement or legal expenses covered by underlying insurance

Id. (boldface in original omitted).

"Underlying Insurance" is defined as follows:

If underlying insurance is exhausted by any occurrence, the company shall be obligated to assume charge of the settlement or defense of any claim or proceeding against the insured resulting from the same occurrence, but only where this policy applies immediately in excess of such underlying insurance, without the intervention of excess insurance of another carrier.

Id. at 4.

With respect to the "retained limit" of $10,000 above which U.S. Fire will pay the amount of ultimate net loss:

The company's liability shall be only for the ultimate net loss in excess of ... the greater of:

(a) the total of the applicable limits of the underlying policies listed in Schedule A hereof, and the applicable limits of any other insurance collectible by the insured; or

(b) an amount as stated in Item 4(C) of the declarations as the result of any one occurrence not covered by the said policies or insurance;

and then up to an amount not exceeding the amount as stated in Item 4(A) of the declarations as the result of any one occurrence.

Id. at 3.

Schedule A, appended to the U.S. Fire policy, lists various underlying coverage including $500,000 comprehensive automobile liability coverage. The declarations page dated "12/19/80" under section 4(A) "Limit of Liability" states a coverage amount of $5,000,000 for each occurrence and an additional $5,000,000 aggregate per annum limit "with respect to the products hazard", thereby comprising the subject $10,000,000 policy.

Finally, as to "other insurance":

If other collectible insurance including other insurance with this company is available to the insured covering a loss also covered hereunder

...