Source: http://courts.mrsc.org/supreme/148wn2d/148wn2d0929.htm
Timestamp: 2019-04-21 06:53:07+00:00

Document:
148 Wn.2d 929, N.H. Indem. Co. v. Budget Rent-A-Car Sys.
Argued November 12, 2002. Decided March 13, 2003.
NEW HAMPSHIRE INDEMNITY COMPANY, INC., Respondent, v. BUDGET RENT-A-Car SYSTEMS, INC., Petitioner.
K.C. Webster(of Phillips & Webster, P.L.L.C.), for petitioner.
Meriwether D. Williamsand Patrick J. Cronin (of Winston & Cashatt, P.S.), for respondent.
Janet G. Limon behalf of Washington State Auto Dealers Association, amicus curiae.
Lamont C. Looand Carol J. Cooper on behalf of Washington State Independent Auto Dealers Association, amicus curiae.
Linda B. Claphamand June K. Campbell on behalf of Car & Truck Renting & Leasing Association, amicus curiae.
SANDERS, J. - We must settle a dispute between two insurers over which party is primarily responsible for insurance coverage in an accident involving a rental car insured by Budget Rent-A-Car Systems, Inc. (Budget) but driven by a driver with personal liability insurance through New Hampshire Indemnity Co. (New Hampshire). Specifically, the question is whether the insurer of a vehicle is always primary, or whether the terms of the insurance contracts themselves are determinative. We hold that the conditions of coverage depend on the terms of the insurance contracts and that no per se rule requires the insurer of a vehicle to provide primary coverage.
Thomas Bentley, a Virginia resident, rented a car from Budget in Spokane on April 4, 1998. Mr. Bentley chose not to buy optional liability insurance through Budget, relying instead on his personal liability insurance policy with New Hampshire. On April 7 while driving in Idaho, he was involved in an automobile accident that injured members of the Reilly family. The Reillys submitted claims with Budget and New Hampshire.
only, and New Hampshire was entitled to reasonable attorney fees and costs and disbursements. Budget appealed. The Court of Appeals affirmed in a published opinion, holding Budget as owner of the vehicle was primary insurer. N.H. Indem. Co. v. Budget Rent-A-Car Sys., 109 Wn. App. 394, 396, 405, 35 P.3d 1180 (2001). The court awarded New Hampshire attorney fees on the appeal. Budget sought, and we granted, discretionary review under RAP 13.4.
Our review of the trial court's grant of summary judgment is de novo. Wilson v. Steinbach, 98 Wn.2d 434, 437, 656 P.2d 1030 (1982). Interpretation of Budget's and New Hampshire's policies presents a question of law. State Farm Gen. Ins. Co. v. Emerson, 102 Wn.2d 477, 480, 687 P.2d 1139 (1984). As such, our review of these policies is also de novo. McDonald v. State Farm Fire & Cas. Co., 119 Wn.2d 724, 730-31, 837 P.2d 1000 (1992); Griffin v. Allstate Ins. Co., 108 Wn. App. 133, 137, 29 P.3d 777, 36 P.3d 552 (2001). We interpret insurance contracts as an average person would and in a manner that gives effect to each provision of the policy. Smith v. Cont'l Cas. Co., 128 Wn.2d 73, 78, 904 P.2d 749 (1995); McDonald, 119 Wn.2d at 733; Cook v. Evanson, 83 Wn. App. 149, 152-53, 920 P.2d 1223 (1996).
«1» Rental car agreements are treated as stand-alone policies of vehicle insurance. Van Vonno v. Hertz Corp., 120 Wn.2d 416, 425, 841 P.2d 1244 (1992) ("The rental agreement, in which Hertz contracted to indemnify Van Vonno, constitutes a motor vehicle liability policy.").
«2» "Other insurance" clauses attempt to make an otherwise primary insurer secondary or to relieve the insurer of responsibility for the risk altogether. 15 LEE R. RUSS & THOMAS F. SEGALLA, COUCH ON INSURANCE § 219:2, at 219-8 to 219-9 (3d ed. 1999). "Super escape clauses" are one type of other insurance clause which provide that insurance will not apply to any liability for loss that is covered by primary, excess, contributory, or any other basis by other insurance. 15 RUSS & SEGALLA, supra, § 219:36, at 219-43. "Excess clauses" are another type of other insurance clause which provide that an insurer will pay a loss only after other available primary insurance is exhausted. Id. § 219:4, at 219-12.
A. BUDGET'S LIABILITY PROTECTION DOES NOT APPLY until after exhaustion of all automobile liability insurance and/or other protection available to the driver of the Vehicle (personal automobile insurance, employer's insurance and/or any other protection or indemnification whether primary, excess or contingent), and then Budget's protection applies only to the extent it is needed to meet, on a cumulative basis with all such liability insurance and/or protection available to the driver, the minimum financial responsibility limits required by applicable law.
If the insured has other insurance against a loss covered by Part I of this policy the company shall not be liable under this policy for a greater proportion of such loss than the applicable limit of liability stated in the declarations bears to the total applicable limit of liability of all valid and collectible insurance against such loss; provided, however, the insurance with respect to a temporary substitute automobile or non-owned automobile shall be excess insurance over any other valid and collectible insurance.
insurance. See, e.g., U.S. Fid. & Guar. Co. v. Hanover Ins. Co., 417 Mass. 651, 655, 632 N.E.2d 402 (1994); Ins. Co. of N. Am. v. Cont'l Cas. Co., 575 F.2d 1070, 1073 (3d Cir. 1978). This reasoning is troubling because it does not effectuate the language of the policies. The reasoning is also circular; whether it makes sense depends on which policy you read first. Other courts have found the two clauses are mutually repugnant, and therefore both insurers should pay on a pro rata basis. See, e.g., Dette v. Covington Motors, Inc., 486 So. 2d 805 (La. Ct. App. 1986); Brown v. Travelers Ins. Co., 610 A.2d 127 (R.I. 1992). Again this solution fails to give effect to the specific terms of the insurance policy when one policy contains a super escape clause. Other courts enforce the super escape clause to effectuate the parties' clear intent to exclude coverage if excess insurance is available. See, e.g., Farm Bureau Mut. Ins. Co. v. Alamo Rent A Car, Inc., 319 Ill. App. 3d 382, 388-89, 744 N.E.2d 300, 253 Ill. Dec. 18 (2000); Hodgen v. Forest Oil Corp., 862 F. Supp. 1567, 1577 (W.D. La. 1994), aff'd in part, 115 F.3d 358 (5th Cir. 1997); Hanover Ins. Co., 417 Mass. at 655. This approach most nearly effectuates the intent of the contracting parties.
C.J.S. Contracts § 211, at 1024 (1963)). We have never condemned super escape clauses; they are not prohibited by statute, nor are they contrary to "public morals," whatever those may be.
Both Budget and New Hampshire argue public policy supports making the other party's coverage primary. The cited statutes, the mandatory liability insurance act (MLIA), chapter 46.30 RCW, and the financial responsibility act (FRA), chapter 46.29 RCW, do not provide support for either party. The public policy behind the FRA and the MLIA is to protect the public from motorists who are unable to compensate the victims of accidents. Mendoza v. Rivera-Chavez, 140 Wn.2d 659, 999 P.2d 29 (2000). This policy is not implicated where coverage is a given and the only question is which insurance company must assume primary responsibility for coverage.
We hold that parties may, consistent with the law, contract for automobile insurance coverage that only becomes available after all other insurance available, including excess insurance, is exhausted. Here Budget's super escape clause does no more than this. Budget's super escape clause is effective to avoid primary coverage, and New Hampshire must provide coverage under the terms of its excess insurance provision.
«3» Also cited are two cases which have relied on the same sentence from Millers in their holding: Perez Trucking, Inc. v. Ryder Truck Rental, Inc., 76 Wn. App. 223, 232, 886 P.2d 196 (1994); Rasmussen v. Allstate Insurance Co., 45 Wn. App. 635, 726 P.2d 1251 (1986). Neither case analyzed the statement before applying it, however.
It will be recalled that Western insured Formanek, the nonowner driver of the truck, with a policy containing an "excessive insurance" clause, and that Farmers insured Hendrickson, the owner of the truck, with a policy containing a "pro-rata" clause. As between Western and Farmers, then, by virtue of the respective clauses, Farmers' policy, so far as covering a permissive and included use of the truck, would be considered the primary policy and Western's the secondary policy for subrogation, contribution, or apportionment purposes.
Id. The decision in Millers was rightfully decided on the terms of the policies.
Moreover, a rule that insurance on the vehicle must be primary does not make sense in the context of drivers of rental vehicles. A car rental customer is not in a position to sit down and carefully consider the coverage provided in the rental agreement, nor is the rental agency able to carefully examine the driving history of a customer renting its vehicles. Requiring rental insurance always to be primary would be inefficient and likely lead to higher costs for renters. On the other hand, when a customer buys coverage on their personal automobile, both customer and prospective insurer can reflect on the terms and investigate each other before signing a policy. Unsafe drivers will pay higher premiums and safe drivers lower premiums as is fair. Thus, if we were to invent a per se rule, which we do not choose to do, it would make more sense for the driver's personal liability insurance to provide primary coverage.
(2001) is inapplicable here. See N.H. Indem., 109 Wn. App. at 404-05. Diaz said in dicta that "the name given to an insurance policy by the insurer is not necessarily controlling as to whether the policy functions as an excess or primary policy. The functionality of the policy determines its character, not necessarily the name given it by an insurance company." Diaz, 143 Wn.2d at 63 n.2. This dicta from Diaz only establishes that titles are not determinative where language in the policies indicates a function other than that expressed in the title. Diaz does not give license to courts to ignore the terms of the policy. Ignoring the language of the super escape clause is not supported by Diaz and is contrary to this court's policy of interpreting insurance policies based on their terms.
Budget challenges the superior court's finding that it was responsible for the costs of defending Mr. Bentley in the underlying tort suit, arguing New Hampshire should be responsible for these costs. Significantly, Budget's policy does not promise a defense, but New Hampshire's policy specifically provides that New Hampshire will defend Mr. Bentley for occurrences involving either an owned or a nonowned vehicle.
Under Washington law the duty to defend and the duty to indemnify are separate obligations, the duty to defend being broader. Weyerhaeuser Co. v. Commercial Union Ins. Co., 142 Wn.2d 654, 690, 15 P.3d 115 (2000). The insured should not be left without a prompt and proper defense and if a primary insurer fails to assume the defense, for any reason, the excess insurer which has a duty to defend should provide the defense and, to do justice, should be entitled to recoup its costs from the primary insurer. 7CAPPLEMAN ON INSURANCE LAW AND PRACTICE § 4682, at 33, 35 (Berdal ed. 1979).
recover the cost of the defense it provided to New Hampshire's insured.
We reverse. New Hampshire must indemnify to its limits and provide a defense to Mr. Bentley. Budget remains liable to provide excess coverage. Reasonable attorney fees, costs, and litigation expenses are awarded to Budget based on the stipulation of the parties that such an award to the prevailing party is appropriate. The award to New Hampshire of its reasonable attorney fees, expenses, and costs is reversed.
ALEXANDER, C.J., JOHNSON, MADSEN, IRELAND, BRIDGE, CHAMBERS, and OWENS, JJ., and SMITH, J. PRO TEM., concur.

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