Universal Underwriters Insurance v. Allstate Insurance

MOTZ, Judge. This appeal concerns the liability of two insurance companies for losses arising from an automobile accident involving a vehicle owned by a dealer, who was insured by one company, when “test driven” by a driver, who was insured by the other company. The facts are undisputed. Appellant, Universal Underwriters Insurance Company (Universal), issued a Maryland policy to Crystal Ford, Ltd. (Crystal), a car dealership, which provided garage liability protection for vehicles owned by Crystal. ⁵⁹⁷ Appellee, Allstate Insurance Company (Allstate), had previously issued an individual automobile indemnity policy in Kentucky to Scott A. Lynn, the prospective purchaser of a car owned by Crystal.

On April 20, 1991, Mr. Lynn obtained Crystal’s permission to test drive a vehicle being offered for sale by the dealer. During his test drive, Mr. Lynn struck a vehicle operated by a third party, in which Delores Hayes was a passenger. Ms. Hayes sustained injuries as a result of the collision and, in March, 1992, sued both Mr. Lynn and Crystal in the Circuit Court for Montgomery County for damages allegedly caused by his negligence. Universal filed the instant declaratory judgment action in May, 1992.

In its complaint, Universal sought a declaration that Mr. Lynn’s Allstate policy provided primary coverage for Ms. Hayes’s damage, that Allstate bore “the primary duty to defend and indemnify” Mr. Lynn, and that Universal’s duty, if any, was “excess” to that of Allstate. Allstate subsequently moved for summary judgment; Universal filed a cross-motion for summary judgment. Following a hearing on the motions, the circuit court granted summary judgment in favor of Allstate and denied Universal’s motion. The court issued a declaration that: Universal Underwriters Insurance Company, as primary insurer, is obligated to defend and indemnify (up to its policy limits) the defendant, Scott A. Lynn, for all claims arising from the occurrence which underlies this action, with the policy of Allstate Insurance Company providing excess coverage up to its policy limits.

Universal seeks reversal of the declaratory judgment granted in favor of Allstate. Before this Court, Universal raises a single question: Did the trial court err in declaring that Universal’s policy was primary and Allstate’s excess rather than requiring the carriers to share the cost of defense and indemnity equally? Where as here factual issues are undisputed, an appellate court determines whether the moving party was entitled to summary judgment as a matter of law. Beatty v. Trail ⁵⁹⁸ master Products, Inc., 330 Md. 726, 737 , 625 A.2d 1005 (1993).

The applicable standard of review is simply “whether the trial court was legally correct.” Id. The Universal policy owned by Crystal provides: INSURING AGREEMENT—WE will pay all sums the INSURED legally must pay as damages (including punitive damages where insurable by law) because of INJURY to which this insurance applies caused by an OCCURRENCE arising out of GARAGE OPERATIONS or AUTO HAZARD. “AUTO HAZARD” is defined as: [T]he ownership, maintenance, or use of any AUTO YOU own or which is in YOUR care, custody, or control and ... furnished for the use of any person or organization. The policy then states who might be considered an insured within the meaning of the auto hazard protections: 1. YOU; 2.

Any of YOUR partners, paid employees, directors, stockholders, executive officers, a member of their household or a member of YOUR household, while using an AUTO covered by this Coverage Part, or when legally responsible for its use. The actual use of the AUTO must be by YOU or within the scope of YOUR permission; 3. Any other person or organization required by law to be an INSURED while using an AUTO covered by this Coverage Part within the scope of YOUR permission. Other provisions narrow the breadth of the policy’s coverage: THE MOST WE WILL PAY * * * With respect to persons or organizations required by law to be an INSURED, the most WE will pay is that portion of such limit needed to comply with the minimum limits provision of such law in the jurisdiction where the OCCURRENCE took place.

When there is other insurance applicable, WE will pay only the amount needed to comply with such minimum limits after such other insurance has been exhausted. ⁵⁹⁹ OTHER INSURANCE—The insurance afforded by this COVERAGE PART is primary, except it is excess ... for any person or organization who becomes an INSURED under this Coverage Part as required by law. (emphasis added). The policy’s “general conditions” further specify its purported relationship to other insurance: OTHER INSURANCE—Unless stated otherwise in a Coverage Part, this insurance is excess over any other insurance, whether it is collectible or not. [The policy’s Maryland amendment deletes the words “whether collectible or not” from the end of the last sentence.] Taken together, these provisions unambiguously state that when an auto owned by the policyholder is driven by a person “who becomes an Insured ... as required by law,” like Mr. Lynn, a test driver, the policy is “excess” when other insurance is “applicable.” Mr. Lynn’s Allstate policy also contains an “excess” insurance provision. The provision is applicable whenever its insured, here Mr. Lynn, drives a vehicle not owned by him.

Although the policy states that it will provide coverage to its insured if it is driving a “non-owned” vehicle, it nonetheless restricts coverage: If There is Other Insurance Our liability insurance will be excess over any other collectible insurance if: 1. an insured person is using a substitute private passenger auto or non-owned auto.... Mr. Lynn’s policy with Allstate then, equally unambiguously is “excess” to other insurance when, as here, the insured is driving a car not owned by him and other insurance is applicable. The situation presented in this case concerns “double or overlapping insurance,” which occurs when more than one insurance policy might cover damages arising from a claim involving a single vehicle. Nolt v. United States Fidelity and Guaranty Co., 329 Md. 52, 60 , 617 A.2d 578 (1993).

Because a literal reading of the excess clauses of each policy “would ⁶⁰⁰ leave the insured without coverage,” we must determine which policy (or policies) is (or are) “primary” and which is (or are) “excess.” Ryder Truck Rental, Inc. v. Schapiro & Whitehouse, Inc., 259 Md. 354 , 361 n. 1, 269 A.2d 826 (1970) (observing that no court has accepted the argument that conflicting excess provisions ought to preclude liability of the insurers). Universal argues that it and Allstate should bear equally the indemnification and defense of Mr. Lynn; Allstate claims that Universal should be regarded as the primary insurer, with Allstate providing only excess coverage. Both companies rely on the Court of Appeals’ Ryder opinion. The Ryder court noted that the facts presented there were unique and “apt never to recur.” Ryder, 259 Md. at 355 , 269 A.2d 826 .

Two insurers disputed their relative liabilities arising from an accident involving a tractor-trailer combination. It appeared “that the proximate cause of the accident was ... negligence in the maintenance of the brakes on [the] trailer.” Id. at 360 , 269 A.2d 826 . What made Ryder so unusual was that the dispute involved the insurers of two vehicle owners (each of whom owned one component of the tractor-trailer combination), not the more usual case of the insurer of the owner and the insurer of a non-owning operator. Both owners’ policies provided that their coverage was excess when the accident arose out of the use of a non-owned vehicle.

To invoke its excess clause, the insurer of the tractor’s owner asserted that the accident arose from the use of the tractor rather than the maintenance of the trailer; the insurer of the tractor’s owner relied on the fact that the accident arose from the use of the trailer to invoke its excess clause. Id. at 361-62 , 269 A.2d 826 . Each insurer, thus, claimed that its coverage was excess to the other because the accident arose from the use of a non-owned vehicle within the meaning of the policies. In a footnote, the Ryder court distinguished this “true excess-excess conflict” from that between the “owner of an automobile insured with an omnibus clause and a driver whose policy covers the use of non-owned vehicles.” Id. at 365 n. 2, 269 A.2d 826 .

In the latter situation, the Ryder Court noted ⁶⁰¹ that “[t]he cases and the writers support ... a rule” that “the owner’s insurer must pay when his insurance has an ‘other insurance’ clause and the driver’s insurance is ‘excess only’ with respect to non-owned vehicles.” Id. In Ryder , itself, however, coverage was allocated equally between the insurance carriers because, as the