Nolt v. United States Fidelity & Guaranty Co.

⁵⁵ KARWACKI, Judge. In this case we interpret two automobile liability policies issued by different insurers which covered the same motor vehicle to allocate the risk which arose from the negligent operation of that vehicle. I. Allen Ray Nolt (“Nolt”) was the owner of a 1978 Ford tractor truck registered in the Commonwealth of Pennsylvania. Starting in 1984, Nolt entered into annual leases of that truck to Lester R. Summers, Inc. (“Summers”), an Interstate Commerce Commission (“ICC”) authorized common carrier.

Such a lease was in effect when Nolt was driving his tractor with a trailer in tow along Md. Route 213 in Cecil County on December 6, 1988. At the time, Nolt was hauling a load for another ICC authorized common carrier, Charles M. Shirk Trucking Co. (“Shirk”), under a separate “one day trip” lease. That morning, Nolt negligently collided with a vehicle driven by Mary Ellen Hardesty near the intersection of Md. Routes 213 and 273. Ms. Hardesty sustained severe injuries; her passenger, Eva Linda Collins, was killed.

A suit was filed in April, 1989, by the personal representative and survivors of Mrs. Collins against Nolt, Summers, and Shirk claiming $4,639,513 in compensatory damages. Shirk’s insurance carrier, United States Fire Insurance Company (“U.S. Fire”), admitted coverage and provided a defense for Nolt. Summers’ insurance carrier, United States Fidelity & Guaranty Company (“U.S.F. & G.”), alleging that Nolt was operating the truck at the time of the accident without Summers’ permission, disclaimed coverage and denied a duty to defend. Nolt then filed a declaratory judgment action in the Circuit Court for Cecil County, seeking a determination of his coverage under the U.S.F. & G. policy and claiming fees and expenses incurred in defending the underlying tort action and in prosecuting the declar ⁵⁶ atory judgment action.

As an interested party, U.S. Fire was also named as a defendant. The declaratory judgment action was heard by a jury on September 19 and 20, 1990. After the jury responded to specific questions of fact in a special verdict, the court entered its judgment, declaring that Nolt was “afforded pro rata insurance coverage” under the policies issued by U.S. Fire and U.S.F. & G., that U.S.F. & G. was jointly liable with U.S. Fire for Nolt’s attorneys fees and expenses incurred in defending the underlying tort action, and that U.S.F. & G was responsible for the attorneys fees and expenses which Nolt incurred in maintaining the declaratory judgment proceeding. 1 U.S.F. & G. appealed. The Court of Special Appeals reversed.

U.S.F. & G. v. U.S. Fire, 90 Md.App. 327 , 600 A.2d 1178 (1992). The intermediate appellate court held that U.S. Fire provided the primary coverage for the liability resulting from the accident, that U.S.F. & G. provided only excess coverage, that U.S. Fire was solely responsible for the cost of defending the underlying tort action, and that U.S.F. & G was not liable for the attorneys fees and expenses incurred by Nolt in the declaratory judgment action. We issued our writ of certiorari to review that judgment on the petitions of Nolt and U.S. Fire.

II

Evidence presented at trial revealed that Nolt entered into annual leases of his tractor to Summers whereby Summers would hire Nolt to operate the tractor on a job-by- ⁵⁷ job basis. The lease included ICC mandated language 2 by which Summers held “exclusive possession, control, use and responsibility to the public, the shippers, and all regulatory agencies having jurisdiction” and language requiring Summers to outfit Nolt’s tractor with ICC identification placards. Nolt was displaying Summers’ ICC placards at the time of the accident. Summers had not been able to provide Nolt with any work since November 23, 1988.

For that reason, Nolt testified, he asked the President of Summers on December 5, 1988, for permission to use his tractor to haul for other truckers, even though the tractor was still leased to Summers. According to Nolt, he was granted that permission without any discussion of the existing lease of the tractor to Summers, for whom Nolt was going to work, his returning Summers’ ICC placards, or who would insure Nolt while he was hauling other truckers’ cargoes since Nolt did not independently provide liability insurance on his tractor. The President of Summers denied giving Nolt permission to use the tractor which he had leased to Summers to haul for other truckers. On the evening of December 5, 1988, Nolt telephoned the President of Shirk looking for work.

Shirk needed a tractor and driver to haul a load the next day because one of Shirk’s trucks was broken down. Nolt and Shirk agreed to a one day trip lease. Shirk drew up the lease that evening, but it was not signed until after the accident. Under that lease, Nolt gave Shirk “exclusive and unrestricted control and possession” of his tractor.

The lease required Shirk to provide Nolt with ICC identification placards, to “assume complete responsibility for the operation of the [tractor],” to obtain and pay for all necessary ICC permits, and to provide the liability insurance for the tractor which was required by ICC regulations. ⁵⁸ On December 6, 1988, Nolt began his trip for Shirk at its terminal in Ephrata, Pennsylvania. His destination was Elkton, Maryland. He was pulling a trailer owned by Shirk which contained cargo of one of Shirk’s customers. Nolt had that customer’s invoice and directions to the cargo’s destination.

Nolt operated on that day under Shirk’s bill of lading. Nolt’s Daily Log, which he was required to maintain by the ICC, identified Shirk as the carrier for whom he was driving. Nevertheless, Nolt’s tractor bore Summers’ ICC placards because Shirk forgot to give Nolt its placards when he departed from its terminal. Both the President of Shirk and Nolt testified that Nolt was working exclusively for Shirk in making this trip.

After the accident, one of Shirk’s drivers was substituted for Nolt and completed the trip with Nolt’s tractor pulling Shirk’s trailer. Shirk was paid by its customer for the delivery, and it paid Nolt. Summers was not aware of the lease between Nolt and Shirk until after the accident. Neither Shirk nor Nolt paid any compensation to Summers for the trip.

On previous occasions Nolt had hauled cargo for truckers other than Summers, but those trips were always arranged by Summers. On those occasions Summers would make all of the arrangements, issue its own bill of lading, assign the work to Nolt and dispatch him. Under such arrangements, Nolt had hauled cargo for Shirk, but when he did, Summers was paid by the customer. Summers would pay Nolt for his work, deduct a “commission” from the profit, and then pay the balance of the profit to Shirk.

The trial court submitted two questions to the jury for special verdict: “1. Did the Plaintiff, Allen Ray Nolt, have permission from Lester R. Summers, the owner of Lester R. Summers, Inc., to operate his truck on December 6, 1988 for Charles M. Shirk Trucking Company? YES NO ⁵⁹ “2. If you voted “yes”, then you must answer the following question. “On December 6, 1988, was Mr. Nolt’s truck used exclusively in Shirk’s or Summers’ business as trucker[?] SHIRK_or SUMMERS_” The jury answered the first question “yes.” With permission of the trial court, the jury amended the second question and concluded that Nolt’s truck was used exclusively in both Summers’ and Shirk’s businesses.

Based on these findings by the jury, the trial court interpreted the automobile liability insurance policies issued to Shirk and Summers by their respective insurers.

III

U.S.F. & G. and U.S. Fire both issued like policies, in a standard form developed for the trucking industry, to their respective insureds, Summers and Shirk. Both policies provided a $1,000,000 limit of liability for any one accident or loss. Both policies obligated the insurer to defend the insured in any action arising from claims potentially within the scope of the policy. “Insured” is defined to include, in addition to the named insured, “anyone else while using with your permission a covered ‘auto’ you own, hire or borrow....” U.S. Fire and U.S.F. & G. agree that Nolt met this definition of insured in their policies. We concur.

On December 6, 1988, Nolt’s tractor truck was under lease to both Shirk and Summers, and the jury specifically found that Nolt had permission from Summers to operate that tractor truck for Shirk. U.S.F. & G. does not challenge that jury finding. It is undisputed that Nolt had permission from Shirk to operate the tractor truck in question. The policies also contain an identical “Other Insurance-Primary and Excess Insurance Provisions” clause which provides in part: “a.

This Coverage Form’s Liability Coverage is primary for any covered ‘auto’ while hired or borrowed by you ⁶⁰ and used exclusively in your business as a ‘trucker’ and pursuant to operating rights granted to you by a public authority. This Coverage Form’s Liability Coverage is excess over any other collectible insurance for any covered ‘auto’ while hired or borrowed from you by another ‘trucker’____ ****** “e. When this Coverage Form and any other Coverage Form of policy covers on the same basis, either excess or primary, we will pay only our share. Our share is the proportion of that the Limit of Insurance of our Coverage Form bears to the total of the limits of all the Coverage Forms and policies covering on the same basis.” “Double or overlapping insurance” exists when more than one policy covers a claim involving a single vehicle. 8A Appleman on Insurance Law and Practice, § 4907.65 at 367 (rev. ed. 1981).

Section (a) of the “other insurance” clause of the subject policies constitutes an excess clause, while section (e) of the policies’ “other insurance” clause is a typical pro rata clause. This Court has clearly defined a policy to address “other insurance” clause conflicts in double coverage cases: “In cases where two or more of these ‘other insurance’ clauses conflict, most courts resolve the problem of double coverage by attempting to reconcile the conflicting clauses____ This approach recognizes that the rights and liabilities of the different insurers involved should depend, as far as possible, upon the specific language of the policies.” Consolidated Ins. Co. v. Bankers Ins. Co., 244 Md. 392, 396 , 223 A.2d 594, 596-97 (1966).

Where an excess clause from one policy conflicts with a pro rata clause from a concurrently effective policy, we disregard the pro rata clause in favor of the excess clause. Id. at 399 , 223 A.2d at 598 . Where both policies provide for excess coverage only, liability is shared equally by the insurers. Ryder Truck ⁶¹ Rental, Inc. v. Schapiro & Whitehouse, Inc., 259 Md. 354, 364-65 , 269 A.2d 826, 831 (1970).

Where the policies’ pro rata clauses are in conflict and there are no other provisions limiting liability, the insurers share liability proportionately. Celina Mut. Casualty Co. v. Citizens Casualty Co., 194 Md. 236, 241 , 71 A.2d 20, 22 (1950). Attached to each of the policies was an identical “Endorsement for Motor Carrier Policies of Insurance for Public Liability under Sections 29 and 30 of the Motor Carrier Act of 1980.” (the ICC endorsement).

That endorsement provided in pertinent part: “The policy to which this endorsement is attached provides primary or excess insurance, as indicated by 13 for the limits shown: 13 This insurance is primary and the company shall not be liable for amounts in excess of $1,000,000 for each accident. □ This insurance is excess and the company shall not be liable for amounts in excess of $__ for each accident in excess of the underlying limit of $- for each accident____ “The insurance policy to which this endorsement is attached provides automobile liability insurance and is amended to assure compliance by the insured, within the limits stated herein, as a motor carrier of property, with Sections 29 and 30 of the Motor Carrier Act of 1980 and the rules and regulations of the Federal Highway Administration’s Bureau of Motor Carrier Safety (Bureau) and the Interstate Commerce Commission (ICC). “In consideration of the premium stated in the policy to which this endorsement is attached, the insurer (the company) agrees to pay, within the limits of liability described herein, any final judgment recovered against the insured for public liability resulting from negligence in the operation, maintenance or use of motor vehicles subject to the financial responsibility requirements of Sections 29 and 30 of the Motor Carrier Act of 1980 regardless of whether or not each motor vehicle is specifically described in ⁶² the policy and whether or not such negligence occurs on any route or in any territory authorized to be served by the insured or elsewhere____ It is understood and agreed that no condition, provision, stipulation, or limitation contained in the policy, this endorsement, or any other endorsement thereon, or violation thereof, shall relieve the company from liability or from the payment of any final judgment, within the limits