Western Cas. and Sur. Co. v. Trinity Universal Ins. Co. of Kansas, Inc.

Decision Date23 November 1988
Docket NumberNo. 61990,61990
Citation13 Kan.App.2d 133,764 P.2d 1256
PartiesWESTERN CASUALTY AND SURETY COMPANY, Appellant, v. TRINITY UNIVERSAL INSURANCE COMPANY OF KANSAS, INC., Appellee.
CourtKansas Court of Appeals

Syllabus by the Court

1. Insurance is a matter of contract and the parties have the right to employ whatever terms they wish and the courts will not rewrite them, so long as such terms do not conflict with pertinent statutes or public policy.

2. The voluntary allocation of risk between themselves by subscribing insurers is in accord with the general rule that a prerequisite to enforcing contribution between insurers is that their policies insure the same interest. However, the right of insurers to this allocation of risk must be determined not by an adjustment of equities, but by the provisions of the contracts which were made.

3. "Other insurance" clauses are not in violation of public policy, but are merely invoked by insurance companies to establish priority as to which policy should be exhausted first in satisfying the liability.

4. If both policies insure the same interest, the "other insurance" clauses contained in the policies are enforceable to allow contribution between the insurers.

5. Insurers may not use unclear policy clauses to defeat the coverage reasonably expected by the insured.

6. Where there are two applicable insurance policies, one policy containing a pro rata other insurance clause and the other an excess other insurance clause, provisions of each will be interpreted to give effect to the intent of the contracting parties.

7. Under the two insurance policies at issue, where the two insurers provided fire insurance on the same building and contents, the policy containing the pro rata clause is other collectible primary insurance which triggers the excess clause in the second policy. The policy containing the excess clause is not considered to be other valid and collectible primary insurance for the purpose of triggering the pro rata clause. The policy containing the excess clause becomes secondary coverage only.

Theresa Shean Hall and Glenn E. McCann, of Knipmeyer, McCann, Fish & Smith, Kansas City, for appellant.

Leonard R. Frischer, of Turner and Boisseau, Chartered, Overland Park, for appellee.

Before BRISCOE, P.J., LARSON, J., and DAVID F. BREWSTER, District Judge, Assigned.

BRISCOE, Presiding Judge:

This is a declaratory judgment action brought by Western Casualty and Surety Company (Western) to obtain an adjudication of the respective liabilities of Western and Trinity Universal Insurance Company of Kansas, Inc., (Trinity) under policies of insurance each had issued on a tavern and its contents. Western's policy contained an "other insurance" excess clause; Trinity's policy contained an "other insurance" pro rata clause. Upon cross-motions for summary judgment, the district court construed the "other insurance" clauses contained in each policy to require a pro rata contribution from each company. Western appeals.

On February 9, 1985, Western issued a property insurance policy on a building at 106 Amity, Louisburg, Kansas, to Chris and Barbara Renner. The policy listed Chris Renner and/or Barbara Renner as the named insureds and the Bank of Louisburg as mortgagee. The building was insured for $160,000 and the contents were insured for $5,000.

On May 18, 1985, Trinity issued a property insurance policy on the same building to S.J. Wolfe, Inc., d/b/a Sandy's Den. Wolfe was purchasing the building from the Renners pursuant to a contract for deed. Wolfe, d/b/a Sandy's Den, was the named insured in this policy and the Bank of Louisburg and the Renners were designated as mortgagees. The building was insured for $140,000 and the contents were insured for $40,000.

On July 30 and September 23, 1985, fires caused losses to the building and contents of $94,000. As a result of the fires, a claim for insurance proceeds was made against both Western and Trinity in the amount of $94,000. Approximately $79,000 of the claim represented damage to the building. The remaining $15,000 was attributable to the loss of or damage to the contents. Both insurers agreed that the Bank of Louisburg, as mortgagee under both policies, was owed payment for the loss. Therefore, Western and Trinity agreed to each pay a pro rata share of the claim while reserving any rights or claims each may have under their respective policies. Western contributed $43,470.60 toward payment of the claim. Western then filed this declaratory judgment action seeking recovery of its contribution.

Upon consideration of cross-motions for summary judgment, the court overruled Western's motion and granted Trinity summary judgment. The district court reviewed the "other insurance" clause contained in each policy and determined the loss should be prorated between the two parties. In doing so, the court found the language contained in Trinity's "other insurance" clause expressly limited its exposure to its prorated share of the total coverage available for the loss. In addition, the court specifically adopted and incorporated the rationale contained in Western Cas. & Surety Co. v. Universal Underwriters Ins. Co., 232 Kan. 606, 657 P.2d 576 (1983), and Lamb-Weston et al. v. Ore. Auto. Ins. Co., 219 Or. 110, 341 P.2d 110 346 P.2d 643 (1959). Although the court does not explain its application of these cases to the case at bar, Trinity construes this reference to mean that "to the extent the Trinity and Western 'other insurance clauses' were repugnant, the clauses would be disregarded and the loss would be prorated between the two insurers." Since we cannot flesh out the court's ruling by reference to either motion filed by the parties because neither was included in the record on appeal, we will accept Trinity's construction as a reasonable interpretation of the district court's order.

On appeal, Western contends that an excess clause in its policy protects it from any liability in this case. Western argues it is not liable for any portion of the loss until Trinity's policy limits are exhausted. Since the loss was below Trinity's policy limits, Western argues it has no exposure. Trinity contends a pro rata clause in its policy is mutually repugnant to Western's excess clause and that each insurer should pay a pro rata share of the claim. Trinity argues there is other insurance which covers the property and its pro rata clause is triggered whether the other insurance is collectible or not. Therefore, even if the court were to determine that the insureds could not collect from Western, Trinity should be liable for no more than its pro rata share of the loss.

As a general rule, the construction of a written instrument is a question of law and an appellate court may construe the instrument and determine its legal effect. Kennedy & Mitchell, Inc. v. Anadarko Prod. Co., 243 Kan. 130, 133, 754 P.2d 803 (1988). Insurance is a matter of contract and the parties have the right to employ whatever terms they wish and the courts will not rewrite them, so long as such terms do not conflict with pertinent statutes or public policy. Gibson v. Metropolitan Life Ins. Co., 213 Kan. 764, 770, 518 P.2d 422 (1974); Farmers Ins. Co. v. Prudential Property & Cas. Ins. Co., 10 Kan.App.2d 93, 95, 692 P.2d 393 (1984), rev. denied 237 Kan. 886 (1985). The voluntary allocation of risk between themselves by subscribing insurers is in accord with the general rule that a prerequisite to enforcing contribution between insurers is that their policies insure the same interest. However, the right of insurers to this allocation of risk must be determined not by an adjustment of equities, but by the provisions of the contracts which were made. New Hampshire Ins. Co. v. American Employers Ins. Co., 208 Kan. 532, 536, 492 P.2d 1322 (1972).

"Other insurance" clauses have become commonplace in property insurance policies. Jerry, Recent Developments in Kansas Insurance Law: A Survey, Some Analysis, and Some Suggestions, 32 Kan.L.Rev. 287, 312 (1984). There are three general categories of "other insurance" provisions. Pro rata clauses provide that the insurer will pay a prorated share of a loss, usually in the proportion the policy limits bear to the total limits of all valid and collectible insurance. Excess clauses provide that the insurer's liability will be only the amount by which the loss exceeds the coverage of all other valid and collectible insurance. Escape clauses provide that the policy affords no coverage when there is other valid and collectible insurance. Western Cas. & Surety Co. v. Universal Underwriters Ins. Co., 232 Kan. at 610-11, 657 P.2d 576. The court in Western Cas. found that "other insurance" clauses were not in violation of public policy, but were merely invoked by insurance companies to establish priority as to which policy should be exhausted first in satisfying the liability. 232 Kan. at 609, 657 P.2d 576.

Western's policy contains both a pro rata and an excess clause, but the excess clause appears controlling. Lines 86-89 of policy No. CM 130-10-85 state:

"This Company shall not be liable for a greater proportion of any loss than the amount hereby insured shall bear to the whole insurance covering the property against the peril involved, whether collectible or not."

In addition, lines 25-27 also state:

"Other insurance may be prohibited or the amount of insurance may be limited by endorsement attached hereto."

The foregoing policy provisions are supplemented by additional provisions in an endorsement, form CF 00 13, which pertains to the building, and form CF 00 14, which applies to the contents. Both forms contain both pro rata and excess clauses which provide:

"(A) If at the time of loss there is other insurance written in the name of the Insured upon the same plan, terms, conditions and provisions as contained in this policy, herein referred to as Contributing Insurance, this...

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