LIBERTY MUT. INSUR. v. State Farm Automobile Insurance Company

Barnes, J., delivered the opinion of the Court. The principal issue in this appeal is in regard to the proper construction of the two automobile liability insurance policies of the appellant and cross-appellee, Liberty Mutual Insurance Company (Liberty Mutual), and of State Farm Automobile Insurance Company (State Farm), one of the appellees and cross-appellants, as the provisions of these policies relate to the obligations between the respective liability insurance companies for ³⁰⁷ amounts paid by State Farm in settlement of claims for personal injuries and property damage resulting from an automobile accident which occurred on December 30, 1966, on York Road near Ensor Avenue in Baltimore County. The basic facts are not in dispute. When the accident occurred, the insured, Phillip D. Sacratini (Sacratini or the insured), was an employee of the Tilo Company, a home improvement corporation which was a subsidiary of Reynolds Metals Company.

Liberty Mutual had issued, for a number of years, a liability policy in which it insured Reynolds Metals and certain of its subsidiaries, including the Tilo Company. Tilo had, in turn, issued certificates of coverage to certain of its key employees, making each, by express endorsement, a named insured. Sacratini was such a named insured under the Liberty Mutual policy in regard to his ownership, maintenance, operation and use of a 1963 Cadillac automobile. The Liberty Mutual policy had limits of $100,000 for each occurrence in regard to injury and $5,000 in regard to property damage.

The policy was in effect from January 1,1966, through January 1,1967. Sacratini was also a named insured under the terms of a policy of automobile liability insurance issued by State Farm the morning of the accident—December 30, 1966 —which covered a 1966 Chevrolet automobile which had been acquired by Sacratini some two months earlier by trading his 1963 Cadillac. The record does not disclose that Liberty Mutual was advised of the newly acquired 1966 Chevrolet prior to the happening of the accident. Sacratini reported the accident to both Liberty Mutual and State Farm.

Sacratini had been employed by the Tilo Company as the Branch Manager of the Baltimore office located in Timonium. Prior to the accident, the Tilo Company closed its office in Virginia, transferred its Virginia Branch Manager to the Baltimore office as a consequence of which Sacratini was demoted to Assistant Branch Manager with a reduction in compensation. Sacratini was dissatis ³⁰⁸ fled with his new position and planned to leave his employment with the Tilo Company. He testified that he knew that as a Branch Manager of the Tilo Company, he was provided with the protection of a policy of automobile insurance but that no such protection was afforded for Assistant Branch Managers.

He also had traded his 1963 Cadillac, scheduled in the Liberty Mutual policy, for a 1966 Chevrolet in October 1966 and testified that the financial institution through which he financed the purchase of the 1966 Chevrolet, required—and he also desired—collision insurance (the Liberty Mutual policy had neither collision nor comprehensive coverage), so that he applied for and received a binder for a new automobile insurance policy from State Farm containing both collision and comprehensive coverage covering his newly acquired 1966 Chevrolet. This new policy provided the insured with limits of $15,000 for each person and $30,000 for each occurrence as to injury and $5,000 as to property damage. As already indicated, there is no dispute that the new policy was in effect at the time of the accident. After the accident, the claims personnel of both Liberty Mutual and State Farm began an investigation of the accident.

Sacratini was sued by claimants named Pit-kin and Fisher for damages resulting from Sacratini’s alleged negligence. For approximately two years after the accident, the two insurance companies negotiated in regard to which company should respond to the risk. State Farm admitted it had a valid and operative insurance policy, but that Liberty Mutual was a co-insurer, and, as such, should participate in the defense and payment of the claims arising out of the accident. Liberty Mutual, on the other hand, contended that its policy would not respond in that there was an escape clause abrogating coverage if there was other valid and collectible insurance.

No attempt was made during the discussions to implead or involve the Tilo Company. State Farm undertook the defense of the claims, without prejudice to its position in regard to Liberty Mutual, kept Liberty Mu ³⁰⁹ tual fully advised concerning the progress of the cases, sending copies of all relevant pleadings and particulars, and continuously invited Liberty Mutual to participate. The Pitkin and Fisher claims had been fully developed and evaluated by State Farm and its counsel by September 1969. Settlement figures of $7,500 for personal injury and $525 for property damage were agreed upon in the Pitkin case and of $10,000 in the Fisher personal injury case.

These settlement figures were submitted to Liberty Mutual for its approval and that company, with the benefit of all background material, agreed that the amounts of the proposed settlements were fair and reasonable, but adhered to its position that there was no coverage under its policy. On August 12, 1969, State Farm filed a petition for declaratory relief (later amended on March 30, 1970) in the Circuit Court for Baltimore County seeking a declaration that Liberty Mutual should reimburse State Farm for that proportion of the total sum paid by State Farm in the settlements which should be equal to the proportion to which the limits of the Liberty Mutual policy bear to the total limit of liability of the policies of both State Farm and Liberty Mutual and that Liberty Mutual should reimburse State Farm for a proportionate share of the costs incurred by State Farm in the defense of the Pitkin and Fisher lawsuits. Liberty Mutual in its answer maintained its position that there was no coverage under its policy. At the conclusion of the testimony before Judge Proctor, an oral opinion was rendered indicating that Liberty Mutual was liable on a pro rata basis for the amounts paid in settlement of the Pitkin and Fisher lawsuits and for 50% of the costs in defending those cases.

By an order, filed October 7, 1970, this opinion was effectuated by the entry of judgment of $13,724.03 in favor of State Farm against Liberty Mutual as the latter’s pro rata liability in the settlement of the cases and for $2,165.50 representing 50% of the fees and costs incurred by State Farm in defense of the cases and the prosecu ³¹⁰ tion of the declaratory judgment proceedings. Liberty Mutual took a timely appeal to this Court from the judgments entered. State Farm also took a timely cross-appeal from the judgments in order to challenge before us the alleged error of the trial court in its method of appor-. tioning the legal fees and costs. Inasmuch as we have concluded that there was no liability under the Liberty Mutual policy, we shall reverse the judgments below without considering the question raised by the cross-appeal.

The specific provisions of the Liberty Mutual policy will now be considered. The Liberty Mutual policy contains a “Family Automobile Coverage” endorsement, Form 1450 A, which contains the controlling provisions of the policy so far as the present case is concerned. Paragraph 6 of the endorsements provides in relevant part as follows: “6. In Insuring Agreement IV of the policy, division (a), ‘Automobile,’ and division (b), ‘Private Passenger Automobile,’ are replaced by the following: “Automobile.

The word ‘automobile’ means: “Owned Automobile “(a) a private passenger, farm or utility automobile described in this policy for which a specific premium charge indicates that coverage is afforded, “(b) a trailer owned by the named insured, “(c) a private passenger, farm or utility automobile ownership of which is acquired by the named insured during the policy period, provided “(1) it replaces an owned automobile as defined in (a) above, or “ (2) the company insures all private passenger, farm and utility automobiles owned by the named insured on the date of such ac ³¹¹ quisition and the named insured notifies the company during the policy period or within 30 days after the date of such acquisition of his election to make this and no other policy issued by the company applicable to such automobile, or * * *” Then follow other definitions of “Private Passenger Automobile,” of “Farm Automobile,” of “Utility Automobile,” of “Trailer” and of “Automobile Business.” Paragraph 7 provides for reimbursement of the insured for transportation expenses incurred during the period commencing 48 hours after the theft of an entire automobile covered by the policy has been reported to the police, with a limit of $10.00 a day and a total of $300.00. Then comes paragraph 8 which replaces the Exclusions in the policy (except exclusions (d), (j), (1) and (q)), not involved in the present case. It then provides in relevant part: “(i) under coverages A and B, to the ownership, maintenance, operation, use, loading or unloading of an automobile ownership of which is acquired by the named insured during the policy period or any temporary substitute automobile therefor, if the named insured has purchased other automobile liability insurance applicable to such automobile for which a specific premium charge has been made; * * *” It is apparent that the 1966 Chevrolet was acquired by the named insured (Sacratini) in October 1966—during the Liberty Mutual policy period—and that the named insured had purchased other automobile liability insurance from State Farm for the 1966 Chevrolet for which a specific premium charge had been made. In short, the factual situation in the present case fits precisely with ³¹² in the language of the paragraph 8 exclusion from liability, unless some other provisions of the policy modify or change the meaning and effect of the paragraph 8 exclusion.

The lower court was of the opinion that the definitions in paragraph 6, already set forth, did modify or make ambiguous the provisions of the paragraph 8 exclusion on the theory that in the paragraph 6 definition it is provided that a private passenger automobile is one the ownership of which is “acquired” by the named insured during the policy period, provided it “replaces” an owned automobile as defined in (a) above, so that the definition includes both acquisition and replacement whereas the paragraph 8 exclusion only uses the word “acquired” but not the word “replacement” or “replaces.” The trial court quoted from the Psalms that “The Lord giveth and the Lord hath taken away” and expressed the opinion (in which we concur) that this did not apply to automobile liability insurance policies. The lower court, however, concluded that Liberty Mutual could not confer coverage in one part of the policy and take it away at another part of the policy. We do not concur in this conclusion, however, inasmuch (1) almost all liability policies do just that by conferring broad coverage in the first part of the policy only to narrow that broad coverage by exclusions, conditions, etc., later in the policy and (2) we find no conflict between the provisions of paragraphs 6 and 8, as properly construed. The provision in paragraph 6 (c) (1) in requiring that the automobile acquired by the named insured during the policy period “replace” the owned automobile defined in (a) is a limitation in the definition to prevent the coverage of vehicles acquired by the insured in addition to the vehicle covered by the policy for which Liberty Mutual would not have been