United States Fidelity & Guaranty Co. v. United States Fire Insurance

MOTZ, Judge. This case arises out of a declaratory judgment action brought by appellee, Allen Ray Nolt (“Nolt”), in which Nolt sought a determination of the respective insurance obligations of appellant/cross appellee, United States Fidelity & Guaranty Corporation (“U.S.F. & G.”) and appellee/crossappellant, United States Fire Insurance Company (“U.S. Fire”). Following a jury’s special verdict on specific questions of fact, the Circuit Court for Cecil County declared, inter alia, that: (1) Nolt was entitled to pro rata insurance coverage (including his attorneys fees) from U.S.F. & G. and U.S. Fire arising out of a fatal traffic accident in which ³³¹ Nolt was the driver at fault; and (2) U.S.F. & G. must bear Nolt’s counsel fees and expenses in the declaratory judgment action. We reverse.

(i) Nolt is the owner and operator of a 1978 Ford tractor truck. In each year since 1984, Nolt has leased his tractor for one-year terms, beginning December 31 of each year, to Lester R. Summers, Inc. (“Summers”), a company engaged in the interstate transport of property as authorized by the Interstate Commerce Commission (“I.C.C.”). Under the agreement, Summers would contact Nolt when a transport job became available and pay Nolt on a per-job basis. The agreement stipulated that, during the term of the lease, Summers held “exclusive possession, control, use and responsibility for the operation of the equipment [the tractor] (including full responsibility to the public, the shippers, and all regulatory agencies having jurisdiction).” 1 The lease further mandated that Summers would provide Nolt’s tractor with all necessary I.C.C. identification placards as required under federal law.

See 49 C.F.R. § 1057.11 (c) (1986). Nolt’s truck was insured under Summers’ policy with U.S.F. & G.; Nolt did not carry his own insurance. During late 1988, Summers provided Nolt with very little work. According to Nolt, in early December 1988, he visited Lester Summers at his office to pick up his paycheck and inquire as to the availability of future work.

Nolt testified that, on this occasion, Summers granted him permission to “haul for someone else” until business revitalized, without requiring that Nolt terminate the existing lease or turn in his I.C.C. placards. On December 5, 1988, Nolt independently called the Charles M. Shirk Trucking Company (“Shirk”) in search of an assignment. Shirk agreed to lease Nolt’s tractor the next day for a one-day hauling job; Charles Shirk testified at trial that he agreed ³³² to lease Nolt’s tractor based on Nolt’s representation that Summers had given Nolt permission to seek other employment. Although Summers disputed Nolt’s claim that Summers gave Nolt permission to operate the trailer for Shirk for one day, the jury found that Summers did give Nolt permission to operate his truck on December 6, 1988 for Shirk.

No party on appeal claims that this finding was clearly erroneous. Like Summers, Shirk was an I.C.C.-authorized carrier that had been in the business for many years. Nolt had previously transported goods for Shirk, but only as facilitated by Summers. That is, on previous occasions, Shirk contacted Summers, or Summers’ dispatcher, when Shirk wanted to hire one of Summers’ drivers and tractors and, if drivers and truckers were available, Summers' dispatcher assigned the work to one of Summers’ truckers.

As with any other outside contract, Shirk would pay Summers for the work and Summers, in turn, would pay the driver, including Nolt on occasion, after keeping a commission for itself. For the December 6, 1988 trip, and that trip alone, Shirk and Nolt executed a one-day lease which stated that Shirk was to provide Nolt with identification placards, to “assume complete responsibility for the operation of the equipment,” and “to provide Insurance only to the extent it is legally obligated to do so for the protection of the public pursuant to ICC regulations.” Though the lease was drawn up by Shirk on December 5,1988, Nolt did not sign the agreement until after the assignment. Nor did Shirk transfer to Nolt any I.C.C. placards to place in the truck, despite such a requirement in the lease and under federal law. Shirk was paid by its customer for the trip and Shirk in turn paid Nolt, keeping the entire commission itself; Summers received no payment for the trip.

On the morning of December 6, 1988, Nolt began his trip to Cecil County, Maryland with a load of concrete under a bill of lading issued by Shirk. Nolt’s truck continued to display Summers’ I.C.C. placards. Nolt’s rig collided with ³³³ another vehicle, causing a serious automobile accident, which resulted in the death of one person and the injury of another. Immediately after the accident, Nolt instructed the Maryland State Police to call Shirk.

While on his way to the scene of the accident, Charles Shirk contacted both his insurance company, U.S. Fire, and Summers. Approximately four months after the accident, Shirk, Summers and Nolt were named as defendants in a case filed by the personal representative and survivors of the person killed in the accident. Nolt sought coverage and representation from both U.S. Fire and U.S.F. & G. U.S. Fire agreed to defend Nolt and retained counsel for him. U.S.F. & G. denied coverage of Nolt and refused to participate in Nolt’s defense; it did provide a defense to Summers.

On April 18, 1990, Nolt initiated this declaratory judgment action to determine the respective obligations of the two insurance companies. Questions of fact relevant to the interpretation of the U.S.F. & G. insurance policy were submitted to a jury, which found that Nolt had permission from Lester R. Summers, the owner of Lester R. Summers, Inc., to operate his truck on December 6, 1988 for Shirk and that, on December 6, 1988, Nolt’s truck was used exclusively in both Shirk’s and Summers’ businesses as truckers. On February 15, 1991, the circuit court issued a declaration that “Nolt is afforded pro rata insurance coverage for the December 6th automobile accident” from U.S.F. & G. and U.S. Fire; the court further held the two insurers “jointly liable, on a pro rata basis, for the counsel fees and expenses” expended by Nolt in the underlying tort action, and U.S.F. & G. “liable for Nolt’s counsel fees and expenses” in the declaratory judgment action. Further facts will be set forth within as necessary.

(ii) At issue before us is the “double coverage” of a single vehicle. Double coverage exists when more than one insurance policy covers a claim. Nat’l Indemnity v. Continental Ins., 61 Md.App. 575, 578 , 487 A.2d 1191 (1985) ³³⁴ (iciting 8A J. Appleman, Insurance Law and Practice, § 4907.65 at 364 (1981) [hereinafter Appleman ]). In this situation, often the insurance policy limits the insurer’s liability in two ways based on the availability of other coverage.

First, an excess clause specifies that an insurance company will make payment on a policy so long as: (1) it becomes liable only after the claimant has recovered the sums available under the other policies involved, and (2) it pays an amount equal to the difference between the total insurance paid by the other companies and the limit of its own policy. Nat’l Indemnity, 61 Md.App. at 578 , 487 A.2d 1191 (citing 8A Appleman § 4907.65 at 347-349). Second, a pro rata clause limits an insurer’s liability to its proportionate share in relation to all available coverage. Nat’l Indemnity, 61 Md.App. at 578 , 487 A.2d 1191 {citing 8A Appleman § 4907.65 at 345).

At the heart of the dispute here are the excess and pro rata clauses found in both the U.S.F. & G. policy and the U.S. Fire policy. Both policies provide coverage for “insureds” in addition to the “named insured,” i.e.: (1) “anyone [besides the named insured] while using with your permission a covered ‘auto’ ” and (2) “anyone from whom you hire ... a covered ‘auto’ ... while the covered ‘auto’ is being used exclusively in your business as a trucker” and “is being used pursuant to operating rights granted to you by a public authority.” In relevant part, the identical, “other insurance” clauses in each policy provide as follows: (a) This Coverage Form’s Liability Coverage is primary for any “auto” while hired or borrowed by you 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 covered “auto” while hired or borrowed from you by another “trucker.” ****** (e) When this coverage form and any other coverage form or policy covers on the same basis, either excess or primary, we will pay only our share. Our share is ³³⁵ the proportion 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.

(emphasis added.) Section (a) of the “other insurance” provisions constitutes the excess clause; section (e) is the pro rata clause. There are well-defined procedures under Maryland law that dictate how one such clause in an insurance policy will be treated when it conflicts with another. Specifically, an excess clause will prevail over a pro rata clause. Consolidated Mut.

Ins. Co. v. Bankers Ins. Co., 244 Md. 392 , 399, 223 A.2d 594 (1966). When both policies provide excess coverage only, liability is shared equally by the insurers.

Ryder Truck Rental, Inc. v. Schapiro & Whitehouse, Inc., 259 Md. 354, 364-65 , 269 A.2d 826 (1970). A conflict between two pro rata clauses results in a proportional sharing of liability without either insurer being considered primary or excess. Celina Mut. Cas.

Co. v. Citizens Cas. Co., 194 Md. 236, 241 , 71 A.2d 20 (1950). See also Centennial Ins. v. State Farm Mutual, 71 Md.App. 152, 158 , 524 A.2d 110 (1987). These principles, however, apply only if there is a conflict.

Under Maryland law, a court’s interpretation of a policy must be based on its plain meaning and, if a case involves a claim of double coverage, a court should attempt to reconcile any conflict. Nat’l Indem. Co. v. Continental Ins. Co., 61 Md.App. 575 , 487 A.2d 1191 (1985).

See also Nat’l Grange Mut. Ins. Co. v. Pinkney, 284 Md. 694 , 399 A.2d 877 (1979). Prior to the circuit court’s determination of the insurers’ legal obligations under the policies, the jury was asked to arrive at a special verdict on the following two questions: 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? ³³⁶ YES_ NO_ 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_ To the first question, the jury answered “yes”; Summers did give Nolt permission to operate his truck for Shirk. This question was critical to the determination of whether U.S.F. & G. had any liability in this case.

If the jury had answered this question in the negative, U.S.F. & G. would have had no coverage responsibility here. It is conceded that the jury’s affirmative answers mean that, at the very least, U.S.F. & G. is an excess insurer of Nolt because he is a covered “insured,” i.e., using the vehicle with Summers’ permission, under U.S.F. & G.’s policy with Summers. The significance of the second question is not as clear. Apparently, it was originally propounded in an effort to assist the judge in determining which company was the primary insurer of Nolt. 2 Both the policy that U.S.F. & G. issued to Summers and the policy that U.S. Fire issued to Shirk provided primary insurance to a covered auto only while (1) “used exclusively” in the trucking company’s “business as a ‘trucker’ ” and (2) “pursuant to [the trucking company’s] operating rights granted to” it “by a public authority.” If the jury had answered that Nolt’s truck was “used exclusively” in Shirk’s or Summers’ business on December 6, 1988, and this verdict was based on any evidence, the first factor as to primary coverage would have ³³⁷ been determined. 3 The jury did not answer this question, however, in the originally proposed “either-or” fashion.

Rather, prior to its deliberations, the jury asked for and received the court’s permission, over U.S.F. & G.’s objection, to answer this question as “Shirk,” or “Summers,” or “both.” The jury then answered the question that Nolt’s truck was, in fact, used “exclusively” in both Shirk’s and Summers’ businesses as truckers. Upon hearing this, the trial court, which had during the trial repeatedly stated that U.S.F. & G. and Summers were entitled to a “directed verdict” that Nolt’s truck was used exclusively for Shirk on the day of the accident, concluded that this was “not quite a clear question.” The court explained, “Aside [from] the jury verdict, there’s no question there was a lease signed, exclusive, but you have another lease signed also saying exclusive, which was not terminated, and you also have the I.C.C. placard and number on the other vehicle, and the I.C.C. statute says that you must have insurance to protect the public.” For this reason, the circuit court “rule[d] you’re [U.S.F. & G. and U.S. Fire] jointly and severally liable up to this point— you have the excess.” U.S.F. & G. claims that the circuit court erred in permitting the jury to find that Nolt’s truck was used “exclusively” in both Shirk’s and Summers’ business because, it asserts, the undisputed facts establish that Nolt’s truck was used exclusively in Shirk’s business. Accordingly, U.S.F. & G. contends that no conflict exists between the two policies, that U.S. Fire provided primary coverage to Nolt, and that U.S.F. & G. provided only excess coverage. U.S. Fire 4 ³³⁸ claims that either the two policies conflict, i.e., both provide primary coverage or both provide excess coverage, and, therefore, the circuit court’s proration of liability between U.S.F. & G. and U.S. Fire was correct under the rules enunciated in Ryder Truck and Celina Mutual or, in the alternative, that the U.S.F. & G. policy provides primary coverage.

(iii) The parties agree that the basis for the lower court’s holding is a conflict between the two policies. The only possible basis for such a conflict is evidence that: (1) either Nolt’s truck was used exclusively in both Summers’ business and Shirk’s business and pursuant to operating rights granted to each carrier; or (2) Nolt’s truck was not used exclusively by, and pursuant to, the operating rights of either carrier. In the former situation both carriers would be primary; 5 in the latter both would be excess. In either ³³⁹ situation, the policies would be regarded as conflicting and pro rata coverage would then be required.

Ryder, 259 Md. at 364-65 , 269 A.2d 826 ; Celina Mutual, 194 Md. at 241 , 71 A.2d 20 . Since each policy provides an identical amount of coverage — $1 million — the coverage liability of U.S.F. & G. and U.S. Fire would be equal. In arguing that the circuit court's holding be affirmed, U.S. Fire concedes, as it must, that on December 6, 1988, Nolt was operating under a bill of lading with Shirk, hauling cargo for Shirk, pursuant to Shirk’s instructions. It claims, however, that the December 6 trip was identical to a number of other trips in which Shirk hired a driver, under an annual lease to Summers, for a day trip, and the driver hauled cargo for Shirk, under Shirk’s bill of lading, following Shirk’s instructions but pursuant to the driver’s lease with Summers, under Summers’ I.C.C. placards and Summers’ insurance.

For this reason, U.S. Fire asserts there is evidence that Nolt’s truck was used “exclusively” and pursuant to the operating rights of both Summers and Shirk — or used “exclusively” by neither. We have searched the record to find evidence to support this theory. There is none. Rather, a number of undisputed facts render it impossible.

Accordingly, we reverse. See Canal Ins. Co. v. First General Ins. Co., 889 F.2d 604, 607 (5th Cir.1989) (appellate court found facts underlying district court’s declaratory judgment as to liability of insurer of tractor’s lessor were “clearly erroneous” and so reversed).

First, Nolt and Shirk were in direct contact prior to this trip and contracted directly for this trip. On every other occasion in which Nolt hauled Shirk’s freight, Shirk had contacted Summers or Summers’ dispatcher and contracted with Summers for one of Summers’ drivers and trucks. Second, Nolt and Shirk executed a day-trip lease evidencing their direct contract in which they agreed that Nolt gave ³⁴⁰ Shirk “exclusive and unrestricted control and possession” of the tractor and that Shirk was to provide Nolt with I.C.C. identification placards for the trip, assume “complete responsibility for” the truck’s “operation,” and provide liability insurance as required by the I.C.C. 6 On no other occasion had Shirk executed a lease directly with a driver under lease to Summers; rather, previously, Shirk’s contact and contract were with Summers, and the only lease at issue was Summers’ lease with the driver. Third, although Shirk did not supply Nolt with the required I.C.C. identification placards, Shirk himself testified that this was not because he thought Nolt was working for Summers but because Shirk “forgot” to give Nolt the placards.

Thus, according to Shirk’s own testimony, Nolt’s truck was being driven under Summers’ placards, rather than Shirk’s, simply because of Shirk’s mistake. Fourth, although here, as on prior occasions, when Shirk had contracted with Summers to have a Summers driver haul a load for Shirk, Shirk had prepared a bill of lading, on previous occasions Summers had also prepared a bill of lading. For the December 6 trip no bill of lading was prepared by Summers. Fifth, Nolt and Shirk testified unequivocally that Nolt was working for Shirk, not Summers, on December 6, 1988.

Sixth, it is similarly undisputed that Nolt asked the Maryland State Police at the accident to call Shirk, not Summers, and Nolt was in contact with U.S. Fire, not U.S.F. & G., with regard to coverage for the accident. Finally, in Nolt’s daily log, which he was required to keep by I.C.C. regulations and which he signed and certified to be true and correct, he stated that Shirk was the I.C.C. carrier for whom he drove on the December 6, 1988 trip. Indeed, Nolt specifically scratched out Summers’ preprinted ³⁴¹ name and address as the carrier and wrote in Shirk’s name and address. On no other occasion did Nolt certify in his daily log that he was working for Shirk rather than for Summers. 7 In sum, there are simply no facts to support the finding that on December 6, 1988, Nolt’s truck was used exclusively in Summers’ business.

Rather, the evidence is uncontroverted that Nolt’s truck was used exclusively in Shirk’s business, hauling Shirk’s load for Shirk’s customers, in accord with Shirk’s bill of lading, as agreed to in a lease between Nolt and Shirk (to which Summers was not a party), in which Shirk contracted to assume complete responsibility for Nolt’s truck. All of the parties so testified. Moreover, this is indicated on all contemporaneous documents, none of which were prepared by Summers, i.e., the day-trip lease and the bill of lading, both of which were prepared by Shirk, and Nolt’s daily log, which Nolt prepared and certified to be correct. Accordingly, Summers’ insurer, U.S.F. & G., was entitled to a judgment as a matter of law that U.S. Fire’s coverage was primary for Nolt’s tractor because, on December 6, 1988, Nolt’s truck was ³⁴² hired by Shirk, pursuant to “operating rights” granted to Shirk by the I.C.C., and was “used exclusively” in Shirk’s, and only Shirk’s, business as a “trucker.” (iv) Nor do certain I.C.C.-mandated provisions in the leases and insurance policies at issue here, which the circuit court apparently relied upon, require a different result.

In 1956, Congress amended the Interstate Commerce Act to allow the I.C.C. to prescribe regulations to ensure that motor carriers would be fully responsible for the operation of vehicles they leased. See 49 U.S.C. § 304 (1956) (revised and recodified at 49 U.S.C. § 11107 (1978)). 8 I.C.C. certified carriers are now required to maintain “exclusive possession, control and use of the equipment for the duration of the lease,” and “assume complete responsibility for the operation of the equipment for the duration of the lease.” 49 C.F.R. 1057.12(c). Both the Summers-Nolt annual lease and the Shirk-Nolt day-trip lease contained such a provision. In addition, I.C.C.-certified carriers must maintain insurance or another form of surety so that the carrier is prepared to “ ‘Pay any final judgment recovered against such motor carrier for bodily injuries to