Citizens Casualty Co. v. Allied Mutual Insurance

Bruñe, C. J., delivered the opinion of the Court. This is a controversy between two insurance companies as to which of them should bear the loss, or whether they should bear equally the loss, resulting from an automobile accident. Each of them had issued an automobile insurance policy in substantially identical form affording personal injury and property damage liability coverage. While both policies were in force one Thomas Flynn, when driving an automobile owned by his wife, became involved in an accident in which several persons were injured -and property damage was caused to another.

Mr. Flynn was the party at fault. He was covered by each insurance policy at the time of the accident. The questions presented are whether one policy constituted primary insurance and the other excess insurance and, if so, which one; and if not, whether the loss should be prorated (in this case divided evenly) between them. The case was tried on stipulated facts before the court, without a jury.

The trial court held that the loss should be prorated and accordingly entered a judgment for Allied Mutual Insurance Company (“Allied”), the plaintiff, against Citizens Casualty Insurance Company of New York (“Citizens”), the defendant, for one-half of the aggregate amount which Allied had paid out in satisfaction of a judgment for property damage and in settlement of personal injury claims of third parties arising out of the accident and for costs and expenses of investigation and defense. The final judgment also included interest and costs. The total amount was within the limits of each policy. The case involves the construction of the policies and of the Motor Vehicle Financial Responsibility Law (sometimes ⁴⁹⁷ referred to below as the “Act”), which is now contained in Sections 116-149, inclusive, of Article 66)/á of the 1957 Code.

All references to Sections thereof will be to their 1957 numbering in Article 66^2, and references simply to numbered Sections will be to Sections of that Article. 1 Thomas Flynn had a bad driving record involving one or more unspecified convictions for violation of the Motor Vehicle Eaw. Consequently, he was required under Section 118 to furnish evidence of financial responsibility in order to reinstate his right to operate a motor vehicle. He elected to do so in one of the three ways authorized by Section 130 by furnishing a policy of insurance. To do this, he obtained a policy from Citizens and filed with the Department of Motor Vehicles (the “Department”) a certificate of such insurance furnished by Citizens.

This certificate was on a form prescribed by the Department known as S R 22. The policy was issued to Thomas Flynn and covered the period from March 3, 1954, to March 3, 1955. It furnished insurance against liability under “Coverage A” for personal injury or death to the extent of $10,000 as to one person and of $20,000 as to two or more persons in any one accident, and under “Coverage B” to the extent of $5,000 for damage to the property of others in any one accident. These kinds and amounts of coverage were in accord with the minima required by the Act (Sec. 122).

This policy applied to such liabilities caused by accident and arising out of the ownership, maintenance or use of a certain 1951 Chevrolet automobile owned by and registered in the name of Thomas Flynn. It also contained a so-called “omnibus clause” as to persons covered and provisions extending coverage of certain insured persons in their use of other automobiles subject to conditions in case of there being other insurance. These will be referred to below. Mrs. Flynn owned a 1941 Plymouth automobile, and she ⁴⁹⁸ took out a policy with Allied covering the period from September 15, 1954, to September 15, 1955.

Apart from such differences as those in names, dates and vehicles covered, the Citizens and Allied policies here involved were actually or substantially identical in all terms relevant to this controversy. Each afforded the same coverage as to bodily injury (Coverage A) and property damage (Coverage B). Each contained in “Insuring Agreement III” an omnibus clause providing in part: “With respect to the insurance for bodily injury liability and for property damage liability the unqualified word ‘insured’ includes the named insured and * * * any person while using the automobile [described in the policy] * * *, provided the actual use of the automobile is by the named insured or with his permission.” Mr. Flynn was using Mrs. Flynn’s car with her permission at the time of the accident. Each policy also contained a clause designated as “Insuring Agreement V,” headed “Use of Other Automobiles,” reading in part as follows: “If the named insured is an individual who owns the automobile classified as ‘pleasure and business’ or husband and wife either or both of whom own said automobile, such insurance as is afforded by this policy with respect to said automobile applies to any other automobile subject to the following provisions: (a) With respect to the insurance for bodily injury liability and for property damage liability the unqualified word ‘insured’ includes (1) such named insured [and] (2) the spouse of such individual if a resident of the same household * * *.

Insuring Agreement III, Definition of Insured, does not apply to this insurance.” (Paragraph (b) contains exceptions not here relevant.) Each policy also contained a condition (No. 4 in Citizens’ policy, No. 8 in Allied’s) entitled “Financial Responsibility Laws” relating to Coverages A and B stating in part that: “Such insurance as is afforded by this policy for bodily injury liability or property damage liability shall comply with the provisions of the motor vehicle financial responsibility law of any state or province which shall be applicable with respect to any such liability arising out of the ownership, ⁴⁹⁹ maintenance or use of the automobile during the policy period, to the extent of the coverage and limits of liability required by such law, but in no event in excess of the limits of liability stated in this policy.” Condition 12 of the Citizens Policy is entitled “Other Insurance” and has the sub-heading “Coverages A and B.” It reads as follows: “If the insured has other insurance against a loss covered by 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 declaration bears to the total applicable limit of liability of all valid and collectible insurance against such loss; provided, however, the insurance with respect to temporary substitute automobiles under Insuring Agreement IV or other automobiles under Insuring Agreement V shall be excess insurance over any other valid and collectible insurance available to the insured, either as an insured under a policy applicable with respect to said automobiles or otherwise.” The corresponding provision of Allied’s policy (Condition 18) is virtually identical, except that it applies to more coverages. Condition 14 of Citizens’ policy provides for subrogation of the insurance company to all rights of recovery of the insured in respect of payments made under Coverages A and B. Condition 17 of Allied’s policy is similar, but also applies to other coverages not here involved. Section 122 is rather long. It starts out with provisions for the suspension by the Department of Motor Vehicles (the “Department”) of the license of the operator and of the registrations of the owner of motor vehicles involved in accidents in this State unless the operator or owner, or both, deposit security to cover judgments which may be rendered against them as a result of such accidents, and also furnish proof of continuing financial responsibility for the future.

Then come provisions stating that this section shall not apply: (1) to ⁵⁰⁰ an operator or owner of a motor vehicle involved in an accident if the owner had in effect at the time of the accident an automobile liability policy with respect to the motor vehicle involved; or (2) to the operator, if not the owner, of such a vehicle if he had an automobile liability policy or bond in effect at the time of the accident with respect to his operation of motor vehicles not owned by him; or (3) to the owner or operator of a motor vehicle if, in the judgment of the Department, his’ liability is covered by any other form of liability insurance policy or bond. These provisions are followed by an unnumbered paragraph stating that “[no] * * * policy or bond shall be effective under this section” (italics supplied) unless it meets certain requirements. By inference from this negative statement, a policy or bond is sufficient to entitle an owner or operator to the exemption, if it does meet those requirements. 2 They are, in brief, that the policy or bond must be issued by an insurance company authorized to do business in Maryland (subject to exceptions not here relevant in the case of vehicles not registered in Maryland), that its limits for bodily injury or death must be not less than $10,000 for any one person and $20,000 for any one accident, and for property damage not less than $5,000. This Section also provides that immediately upon receipt of notice of the accident the insurance or surety company which issued the policy or bond shall file with the Department a written notice that such a policy or bond was in force at the time of the accident.

In compliance with the last mentioned provision Allied filed with the Department a notice or certificate, on a form approved by the Department known as ⁵⁰¹ S R 21, with regard to the accident in which Mrs. Flynn’s car was involved while being driven by Mr. Flynn. (There are other provisions of Section 122 dealing with self-insurers, and Section 123 sets forth several exceptions from the requirements as to security and suspension in Section 122. None of these are relevant here.) The requirements above stated which an insurance policy must meet in order to qualify for the exemption from suspension of licenses and registrations under Section 122 are less in a number of respects than those set forth in Section 131 with regard to insurance policies offered as proof of financial responsibility; but the minimum coverages required for the exception under Section 122 and as proof of financial responsibility under Section 134, which supplements Section 131 as to this important matter, are the same. Section 131 deals with policies of insurance offered as proof of financial responsibility.

It provides in part that a “policy or policies of insurance shall provide insurance, in the name of the person insured, to apply to all motor vehicles owned by the person insured; and in addition thereto shall provide insurance, in the name of the person insured, to apply to any motor vehicle operated by, but not owned by the person insured.” Subsection (a) of Section 131 states that “[s]uch policy of insurance shall meet the requirements enumerated hereunder when” it contains specified provisions. These include: a description of the vehicles