Title: Indiana Insurance Co. v. American Underwriters, Inc.

State: indiana

Issuer: Indiana Supreme Court

Document:

304 N.E.2d 783 (1973)
INDIANA INSURANCE COMPANY, an Indiana Corporation, Plaintiff-Appellant,
v.
AMERICAN UNDERWRITERS, INC., Attorney-in-Fact for the Subscribers at American Interinsurance Exchange, Defendant-Appellee.
No. 1273S260.

Supreme Court of Indiana.
December 26, 1973.
*784 Daniel F. Kelly, Steven R. Crist, Tinkham, Beckman, Kelly & Singleton, Hammond, for plaintiff-appellant.
James K. Whitaker, Hammond, Marshall E. Williams, Indianapolis, for defendant-appellee.
HUNTER, Justice.
This cause arises upon petition to transfer and presents an issue of first impression for our determination. The controversy is between two insurance companies as to which is primarily liable for a tortfeasor's property damage. That is to say, when a tortfeasor comes within the coverage of two insurance policies, one policy providing an "escape" clause when there is other insurance against loss, and the other policy providing only "excess" coverage when there is other valid and collectible insurance, which policy will prevail? The instant facts are stipulated and may be briefly summarized.
On March 19, 1968, an automobile owned by Stanley Malocha and operated, with permission, by his brother, George Malocha, struck two other autos causing property damage to both of them. At the time of the accident, the Malocha automobile was insured by American and the policy contained the following provisions:
The "other insurance" provision quoted above is commonly referred to as an "escape clause." The driver of the Malocha automobile, the tortfeasor, was insured by Indiana under an "excess coverage clause" as follows:
The owners of the damaged vehicles sued the Malocha brothers demanding judgment against each of them in the amount of $700. American refused to defend the tortfeasor's interest on the ground that Indiana was the primary carrier. Indiana settled the property damage claim and subsequently initiated the instant action against American for recovery of the amount paid in settlement plus costs and attorneys' fees.
The trial court entered summary judgment in favor of the defendant, American, holding that the tortfeasor's insurer should be primarily liable. The Court of Appeals reversed, holding that the majority rule places primary liability on the owner's insurer and, further, the language of the Indiana escape clause was insufficient to shift liability to the driver's insurance carrier. Therefore, the court found American to be primarily liable.
The Court of Appeals correctly stated the majority rule  that is, all else being equal, primary liability falls on the owner's insurer rather than the operator's insurer. The Court went on to apply principles of construction to the policies at issue. The leading case in this body of authority, construing "other insurance" policy provisions, is Zurich General Accident & Liability Ins. Co. v. Clamor (7th Cir., 1942), 124 F.2d 717. The Zurich opinion discounted prior theories which had placed liability upon whichever insurer first assumed the risk of loss and adopted the rule that primary liability was to be dependent upon the language of the policies. Applying rules of construction, the federal court found that the owner's policy was more specific and thus the owner's insurer was deemed primarily liable. The decision eventually developed into what has become the so-called "majority view."
At the outset we should emphasize that this Court is not overly impressed with the contention advanced that we should adopt a rule merely because numerous other state courts have followed it. We do not sanction blind adherence to quantitative analysis, but choose instead to apply close judicial scrutiny to existing law in order to obtain a qualitative result.
The original purposes for "other insurance" clauses were to prevent overinsurance and to protect carriers from an insured's self-injury temptation. The clauses had their origin in the field of property insurance and were generally met with approval. However, in the automobile field, where the hazard of self-injury is less likely to occur, the original purposes become less important:
Another reason for treating automobile insurance provisions with less deference than other property insurance clauses is that automobile coverage is generally enlarged to encompass "other insureds."[2]
*786 In the wake of the Zurich decision, supra, automobile insurance carriers have attempted to reduce their liability where concurrent coverage exists and, at the same time, expand their coverage in consonance with existing "omnibus statutes." The resultant confusion occurring where policy provisions conflict has been tremendous. As stated by the Iowa Supreme Court, when faced with the identical issue that is before us:
The myriad of approaches employed by various courts to determine liability when policy provisions conflict is in hopeless disarray. However, as the issue is squarely before us, we choose to examine the problem in considerable detail.
No rational logic can sustain the rule that places liability upon the insurer whose policy was first obtained. The significant inquiry is whether coverage exists at the time of the accident when the policy provisions first come into play. The length of time of the coverage is otherwise immaterial to the critical issue.
The "primary tortfeasor rule" must likewise fail. This arbitrary approach denies coverage to an unnamed insured even though the insurer intended to protect him as an additional insured person. For example, liability coverage under this method extends only to a named insured who is the tortfeasor.
Some courts have attempted to resolve the issue of liability by determining which policy provision is more specific and then giving the more specific provision effect over the more general clause. Therefore, a policy containing a general escape clause will yield to one containing a specific excess clause. Zurich General Accident & Liability Ins. Co. v. Clamor, supra. The obvious result of such judicial determination is to encourage the drafting of more specific escape clauses. Some courts have given effect to these specific clauses.[3] Others have not.[4] At any rate, the undeniable result of such decisions has been a draftmanship foray. As the Iowa court has summarized:
The policies at issue have conflicting provisions. In the final analysis, we must be concerned with protecting the insured person. Competing clauses between insurers should not be allowed judicial sanction at the expense of removing the insured's coverage:
This Court must seek an equitable result preponderating in favor of the insured who has paid premiums for such insurance. At the same time, we must remain conscious that a contract of indemnity does not allow windfall gains nor any recoupment above the damage actually suffered.
Both policies, when read separately, appear to afford coverage to the insured. Yet each "other insurance" provision forces an examination of its opponent. This "circular riddle" can be resolved by (1) attempting to give effect to one policy provision over the other, or (2) applying mechanical or arbitrary rules hereinbefore discussed, or (3) holding both clauses to be conflicting and mutually repugnant and, therefore, disregarding them. We find the last mentioned alternative to be the most reasonable. This method not only provides indemnification for the insured, but also, through the process of proration, gives effect to the general intent of the insurers.
The insurers draft "other insurance" provisions for the purpose of reducing their liability when the insured has access to other collectible insurance. Therefore, we can give effect to this purpose by holding that where "other insurance" clauses conflict, as in the case at bar, they are to be ignored and each insurer is liable for a prorated amount of the resultant damage not to exceed his policy limits. In such a case, there exists dual primary liability.
In the instant case, if neither policy had contained the "other insurance" provision, then each insurer would have been liable in a prorated amount up to the respective policy limits. The same reasonable result should be reached where the policy provisions conflict:
Indiana urges that adoption of the pro-rata rule would "create a situation of utter chaos insofar as the investigation and defense of the claim is concerned because neither company would be willing to undertake the expense of investigation and defense on its own and therefore neither company would do so." We do not find this argument persuasive. Under our view of the rule which we have adopted, the insurers share primary liability. Both are obligated to defend and are free to enter an agreement between them as to costs of investigation, defense, settlement, etc. We are not competent here to project the actuarial results with respect to premium rates which may absorb any added cost to insurers. However, we are confident that the automobile insurance industry has such expertise and will find internal cooperation desirable and effective. The reasoning of the Alaska Supreme Court is on point:
For all the foregoing reasons, transfer is granted and the cause is remanded to the trial court for further proceedings not inconsistent with this opinion.
ARTERBURN, C.J., and GIVAN and PRENTICE, JJ., concur.
DeBRULER, J., not participating.
[1]  Comment, "Other Insurance" Clauses: The Lamb-Weston Doctrine, 47 Ore.L.Rev. 430 (1968).
[2]  This statutory requirement is found in our omnibus statute. Ind. Ann. Stat. § 39-4309 (1965 Repl); IC 1971, XX-X-XX-X.
[3]  8 Appleman, Insurance Law & Practice, 2nd ed., § 4914.
[4]  These cases are collected at 46 A.L.R.2d 1165.