CC Housing Corp. v. Ryder Truck Rental, Inc.

746 P.2d 1109, 106 N.M. 577

• Court: New Mexico Supreme Court
• Decided: December 3, 1987
• Docket: 16774
• Status: Published

Opinions

OPINION

WALTERS, Justice.

CC Housing Corporation (CCH) owned a flat-bed trailer that was damaged in a traffic accident. CCH’s trailer was attached at that time to a diesel tractor it had leased from its owner, Ryder Truck Rental, Inc. The rig was operated by a driver furnished to CCH under a contract with Specialized Transport, Inc. (SPX). Continental Casualty Company provided CCH’s for insurance coverage, bodily injury and property damage. Both Ryder and SPX had similar insurance coverage with Old Republic Insurance Company. All parties agreed that the Continental and Old Republic policies covered CCH and its trailer at the time of the accident. Each insurance policy, however, contained “other insurance” clauses which attempted either to limit or eliminate its own liability by reason of the existence of the other policy.

Plaintiffs CCH and Continental sought a declaratory judgment against defendants Ryder, SPX, and Old Republic, claiming that Old Republic’s policy afforded primary coverage and that Continental’s excess coverage would not become available until the primary coverage had been exhausted. The defendants counterclaimed, asserting that both Old Republic and Continental supplied primary coverage on CCH’s trailer and that liability should be prorated according to the respective limits of each policy. The plaintiffs moved for judgment on the pleadings; the defendants moved for summary judgment. The trial court granted summary judgment to defendants, declaring that each insurance policy contained “other insurance” clauses that were irreconcilable, conflicting, and mutually repugnant, and which should be disregarded. The insurers were ordered to share the loss by prorating the liability proportionate to the total amount of coverage that each policy provided. Plaintiffs appeal; we affirm.

Plaintiffs argue here that Continental’s insurance policy is an excess policy, not a primary policy with an excess clause. They say that because Continental’s policy is not other valid and collectible insurance with respect to the Old Republic policy that affords primary coverage, benefits under Continental’s excess policy do not become available until all other collectible insurance has been exhausted. Defendants claim, however, that both parties covered the tractor and trailer as a unit and that absent the “other insurance” clauses, both policies would provide primary coverage. They argue, therefore, that because no way exists to effectuate the intent of both clauses and still provide coverage, the clauses are mutually repugnant and liability should be divided on a pro rata basis.

The relevant portion of the Old Republic insurance contract provides:

It is agreed Endorsement #7, Receipt Basis — Driverless Cars, is amended in part to read as follows:

3. The insurance coverage to such lessee/renter applies only to the maintenance or use of (1) the automobile so leased/rented and (2) trailers owned by the lessee/renter or for which he is legally liable, but only while attached to the leased/rented automobile, [sic] however, such insurance shall not apply if there is other coverage applicable to the trailer and available to the lessee/renter. (Emphasis in original.)

This provision constitutes an “escape clause” because it denies all liability when the insured has other valid and collectible insurance. 8A J. Appleman, Insurance Law and Practice § 4910 at 457 (1981).

The applicable provision of the Continental Insurance policy reads:

B. OTHER INSURANCE.

1. For any covered auto you own this policy provides primary insurance. For any covered auto you don’t own, the insurance provided by this policy is excess over any other collectible insurance. However, while a covered auto which is a trailer is connected to another vehicle the liability coverage this policy provides for the trailer:

a. Is excess while it is connected to a motor vehicle you don’t own.

b. Is primary while it is connected to a covered auto you own.

2. When two or more policies cover on the same basis, either excess or primary, we will pay only our share. Our share is the proportion that the limit of our policy bears to the total of the limits of all the policies covering on the same basis.

Because CCH owned the trailer but leased the tractor, Continental’s policy constitutes an excess policy with regard to the trailer. An excess policy limits the insurer’s liability to the amount of the loss which exceeds the maximum coverage of other valid and collectible insurance. 8A Appleman § 4906, at 347.

When discerning the purpose, meaning, and intent of the parties to a contract, the court’s duty is confined to interpreting the contract that the parties made for themselves, and absent any ambiguity, the court may not alter or fabricate a new agreement for the parties. Davies v. Boyd, 73 N.M. 85, 87-88, 385 P.2d 950, 951 (1963); Thompson v. Occidental Life Ins. Co. of Cal., 90 N.M. 620, 621, 567 P.2d 62, 63 (Ct.App.), cert. denied, 91 N.M. 4, 569 P.2d 414 (1977).

Defendants urge us to apply the minority Oregon Rule, or the Lamb-Weston doctrine, to the facts of this case. The Oregon Rule was established in Oregon Automobile Insurance Co. v. United States Fidelity & Guaranty Co., 195 F.2d 958 (9th Cir.1952), when the Ninth Circuit Court of Appeals construed excess and escape provisions in two insurance policies as indistinguishable in meaning and intent. That court noted that if both clauses were given effect, both insurers would escape liability. It therefore regarded the clauses as mutually repugnant and prorated the liability between the insurers. Id. at 960.

The Oregon Supreme Court then adopted the rule in Lamb-Weston, Inc. v. Oregon Automobile Insurance Co., 219 Or. 110, 341 P.2d 110 (1959). Holding both insurers liable, the court reasoned that “whether one policy uses one clause or another, when any come in conflict with the ‘other insurance’ clause of another insurer, regardless of the nature of the clause, they are in fact repugnant and each should be rejected in toto.” Id. at 129, 341 P.2d at 119. Thus, when each competing policy contains a provision which attempts to limit or eliminate its coverage because other insurance exists, courts adopting the Lamb-Weston doctrine invalidate all “other insurance” clauses and prorate the liability between the insurers. See, e.g., Werley v. United Serv. Auto. Ass'n, 498 P.2d 112, 119 (Alaska 1972) (applying Lamb-Weston doctrine when “other insurance” clauses of excess, pro rata, or escape variety found); Sloviaczek v. Estate of Puckett, 98 Idaho 371, 375, 565 P.2d 564, 568 (1977) (same); Lamastus & Assoc., Inc. v. Gulf Ins. Co., 260 So.2d 83, 86 (La.Ct.App.) (adopting Lamb-Weston doctrine), cert. denied, 261 La. 1054, 262 So.2d 40 (1972); Farm Bureau Mut. Ins. Co. v. Horace Mann Ins. Co., 131 Mich.App. 98, 104, 345 N.W.2d 655, 657 (1983) (same); Arditi v. Massachusetts Bonding & Ins. Co., 315 S.W.2d 736, 743 (Mo.1958) (adopting Oregon Rule); Sparling v. Allstate Ins. Co., 249 Or. 471, 476, 439 P.2d 616, 619 (1968) (applying Lamb-Weston doctrine).

We noted with approval but did not formally adopt the Oregon Rule in American Employers’ Insurance Co. v. Continental Casualty Co., 85 N.M. 346, 350, 512 P.2d 674, 678 (1973). We concluded there that two excess “other insurance” clauses were mutually repugnant because if the provisions were to have been applied literally, the insured would have had no coverage. In Sloan v. Dairyland Insurance Co., 86 N.M. 65, 519 P.2d 301 (1974), Justice Stephenson recognized that American Employers’ could have applied to hold two “other insurance” clauses mutually repugnant. Id. at 68, 519 P.2d at 304. In Sloan, however, “stacking” was the crucial issue, and the gist of the Court’s holding there was that an insurance company might not avoid coverage for which it had contracted and received premiums and, thus, stacking was permissible.

Professor Appleman has criticized the Lamb-Weston rule as an oversimplified way of arriving at an automatic result irrespective of factual, or legal, differences. 8A Appleman § 4906, at 344. We might agree that the criticism may be justified in some cases for, as Appleman notes, if the terms of each insurance policy are unambiguous and not in conflict, finding the escape and excess clauses mutually repugnant and therefore invalid is not warranted. 8A Appleman § 4910, at 477. Each policy, therefore, requires a critical examination to determine the nature and character of the coverage that each policy provides. Continental Ins. Co. v. Insurance Co. of N. Am., 224 Tenn. 306, 312, 454 S.W.2d 709, 711 (1970). The critical analysis, however, should focus primarily on protecting the one for whose benefits premiums have been paid for insurance coverage, and construing the policies liberally in favor of the insured and strictly against the insurers. Indiana Ins. Co. v. American Underwriters, Inc., 261 Ind. 401, 406-07, 304 N.E.2d 783, 787 (1973); Union Ins. Co. (Mutual) v. Iowa Hardware Mut. Ins. Co., 175 N.W. 2d 413, 417 (Iowa 1970); Graves v. Traders & Gen. Ins. Co., 200 So.2d 67, 77 (La.Ct.App.1967), aff'd, 252 La. 709, 214 So.2d 116 (1968); Hardware Dealers Mut. Fire Ins. Co. v. Farmers Ins. Exch., 444 S.W.2d 583, 589 (Tex.1969).

When two identical “other insurance” clauses are involved, they negate one another because an “effort to test the reality of contractual intent, including the reasonable expectations of the assured in these cases, inexorably leads to that same detestable circuity of reasoning and dubiety of obligation. * * * ” Continental Ins. Co., 224 Tenn. at 315, 454 S.W.2d at 713; see American Home Assurance Co. v. Hartford Ins. Co., 74 A.D.2d 224, 228, 427 N.Y.S.2d 26, 29 (1980). If two or more “other insurance” clauses are of a nature that a court, to give effect to the intent of each clause simultaneously, must leave the insured with no coverage for which premiums have been paid, then the clauses are mutually repugnant. We have held that two excess “other insurance” clauses, identical in meaning and intent, cancelled out one another and were mutually repugnant. American Employers’, 85 N.M. at 350, 512 P.2d at 678. If, however, two “other insurance” clauses, when read together, do not deny coverage to the insured, the clauses are not mutually repugnant, and the court will honor the language of each insurance policy. To apply the Lamb-Weston doctrine literally and thereby disregard all “other insurance” clauses without determining first whether the clauses together would deny coverage to the insured would indeed constitute the “Lazy-Way” approach in interpreting insurance contracts which Professor Appleman abjures. 8A Appleman § 4906, at 344.

After carefully scrutinizing the “other insurance” clauses of the two insurance policies in the present case, we can only conclude that the two clauses are mutually repugnant and irreconcilable. In an attempt to break the impasse created by two conflicting “other insurance” provisions, a line of cases has held that a policy with an “escape” clause affords primary coverage, and that a policy with an “excess” clause does not constitute other valid and collectible insurance and thus provides only secondary coverage. See, e.g., Insurance Co. of N. Am. v. Continental Casualty Co., 575 F.2d 1070, 1074 (3d Cir.1978); State Farm Mut. Auto. Ins. Co. v. Auto-Owners Ins. Co., 287 Ala. 477, 486, 252 So.2d 631, 640 (1971); New Amsterdam Casualty Co. v. Certain Underwriters at Lloyds, London, 34 Ill.2d 424, 430, 216 N.E.2d 665, 668-69 (1966); Jensen v. Universal Underwriters Ins. Co., 208 Neb. 487, 492, 304 N.W.2d 51, 54 (1981); Horace Mann Ins. Co. v. Continental Casualty Co., 54 N.C.App. 551, 557, 284 S.E.2d 211, 213-14 (1981). We are not impressed with cases which arbitrarily assign the order of priority of the competing policies. Those courts as easily could have held that the “excess” clause policy afforded primary coverage, and that the “escape” clause created secondary coverage or exempted that insurer from any liability. We therefore decline to follow the foregoing jurisdictions.

Likewise, we refuse to give effect to both policies as written because we can see that if we were to give literal effect to a reading of both “other insurance” clauses by reason of the labels attached to them, we would leave the insured without any coverage.

Finding no rational way to harmonize one clause with the other, and rejecting the primary-secondary solution of the cases cited above (which we view as a kind of Hobson’s choice), we therefore invoke the Lamb-Weston doctrine.

It is abhorrent, as a matter of policy, to permit an insurance company to write into its policy, for which it has received premiums, a clause which exculpates itself from liability. Branchal v. Safeco Ins. Co. of Am., 106 N.M. 70, 738 P.2d 1315 (1987); Sloan, 86 N.M. at 68, 519 P.2d at 304. Because a literal reading of the two clauses together would afford the insured no coverage, and because the intent of both policies was to extend coverage to the insured in consideration of the premiums paid, public policy dictates the equitable solution of holding both policies primarily liable and requiring proration of the loss in proportion to the respective limits of each policy. Accordingly, because the limits of each policy were the same, we affirm the decision of the trial court granting summary judgment in favor of defendants and equally allocating the liability between the insurers.

IT IS SO ORDERED.

SOSA, Senior Justice, and RANSOM, J., concur. SCARBOROUGH, C.J., concurs in result only.

STOWERS, J., dissents.