Source: http://cabfinancial.com/articles/category/cases-from-bits/c113-volume-7-edition-3/
Timestamp: 2019-04-26 15:39:12+00:00

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Sentry Select Insurance Co. v. Fidelity & Guaranty Insurance Co.
Commerce & Industry Insurance Co. v. Scottsdale Indemnity Co.
SCOTTSDALE INDEMNITY COMPANY, Defendant, Cross-Complainant and Appellant.
A tractor-trailer rig was involved in an accident with a car. Plaintiff Commerce & Industry Insurance Company (Commerce) had issued a motor vehicle liability policy to the owner of the trailer; defendant Scottsdale Indemnity Company (Scottsdale) had issued a motor vehicle liability policy to the owner of the tractor. Each insurer, however, concedes that its policy covers both insureds and covers both the tractor and the trailer.
The fight is over how the loss (including defense costs) is to be allocated between the two insurers. Commerce contends–and the trial court ruled–that the Scottsdale policy is primary and the Commerce policy is excess. Scottsdale appeals, contending that both policies are primary and the loss should be prorated between them.
The Legislature enacted Insurance Code section 11580.9 (section 11580.9) with the express intent of reducing litigation over the priority between two or more motor vehicle liability insurance policies that cover the same loss. In cases to which it applies, section 11580.9 dictates, by means of a series of conclusive presumptions, which policy is primary and which is excess. As this case will demonstrate, however, the Legislature’s intent has not been fully realized. It is not always clear whether section 11580.9 applies, or, if it does apply, how its conclusive presumptions play out.
Fortunately, on the facts of this case, we are able to conclude that, regardless of whether section 11580.9 applies, and regardless of whether the trial court applied the correct conclusive presumption under section 11580.9, the result must be the same: The Scottsdale policy is primary, and the Commerce policy is excess. Accordingly, we will affirm.
On October 16, 1996, while Francisco Licea was driving a tractor-trailer rig, a pipe fell off; it hit a car driven by Javier Vargas, injuring Vargas and his son Jonathan.
Licea owned the tractor. Pipeline Trucking Company (Pipeline) owned the trailer; Pipeline had leased the trailer to Licea for his use as a subhauler for Pipeline.
FN1. The Composite Rate Endorsement indicated that Pipeline owned 280 trailers and that the premium per trailer was $280. However, the total premium charged for trailers was $63,280, which equals 280 times 226. Thus, it would appear that there was some mistake; probably either the actual number of trailers was 226, or the actual premium per trailer was $226.
was 226, or the actual premium per trailer was $226.
On July 18, 1997, as a result of the accident, Vargas filed an action for negligence against, among other defendants, Pipeline and Licea. Commerce defended Pipeline. Scottsdale defended Licea.
Vargas obtained a judgment against Pipeline and Licea for $220,000. Scottsdale paid the entire judgment, without any contribution from Commerce.
FN2. The other two conclusive presumptions apply: (1) when “one policy affords coverage to a named insured engaged in the business of selling, repairing, servicing, delivering, testing, road-testing, parking, or storing motor vehicles” (§ 11580.9, subd. (a)), and (2) when the “loss aris[es] out of the loading or unloading of a motor vehicle, and one or more of the policies is issued to the owner, tenant, or lessee of the premises on which the loading or unloading occurs” (§ 11580.9, subd. (c)).
“(1) Qualifies as a ‘commercial vehicle’ as that term is used in Section 260 of the Vehicle Code.
On January 19, 1999, Commerce filed this action against Scottsdale, asserting causes of action for declaratory relief and indemnity. Scottsdale filed a cross-complaint, likewise seeking declaratory relief and indemnity.
On August 29, 2001, Commerce filed a motion for summary judgment. After a hearing on November 13, 2001, the trial court tentatively granted the motion. It ruled that subdivision (b) did not apply because Pipeline had not leased the trailer to Licea for six months or longer. Thus, subdivision (d) did apply. Under subdivision (d), “the issue is whether both trailer and tractor are identified in the … policy. If they are, then both Scottsdale and Commerce are primary under Mission [Mission Ins. Co. v. Hartford Ins. Co. (1984) 155 Cal.App.3d 1199]; but if the Commerce policy doesn’t identify the tractor, then it’s excess under Transport Indemnity [Transport Indemnity Co. v. Royal Ins. Co. (1987) 189 Cal.App.3d 250].” The trial court tentatively found that the Scottsdale policy described or rated both the tractor and the trailer, and the Commerce policy described or rated only the trailer. However, it called for further briefing on the Commerce policy.
After receiving and considering such further briefing, the trial court entered a minute order granting the motion for summary judgment. In its minute order, it found that the Scottsdale policy described or rated only the tractor, and not the trailer; the Commerce policy did not describe or rate either the tractor or the trailer. Accordingly, the Scottsdale policy was primary and the Commerce policy was excess.
Counsel for Commerce submitted a proposed formal order, which the trial court signed and entered. Once again, it ruled that the Scottsdale policy was primary and the Commerce policy was excess. However, it found that the Scottsdale policy described or rated both the tractor and the trailer, whereas the Commerce policy described or rated only the trailer; hence, Transport Indemnity Co. v. Royal Ins. Co., supra, 189 Cal.App.3d 250 was “controlling.” These findings were consistent with its oral tentative ruling but inconsistent with its minute order.
The trial court then entered a final judgment, awarding Commerce its defense costs against Scottsdale.
In the trial court, Commerce argued, among other things, that subdivision (b) applied. The trial court ruled that it did not. Scottsdale supports this aspect of the trial court’s ruling. Commerce, however, reiterates its argument that subdivision (b) applies.
For our purposes, it is sufficient to note that, for subdivision (b) to apply at all, Pipeline would have to be “engaged in the business of renting or leasing motor vehicles without operators.” (Subd. (b).) Thus, if subdivision (b) did apply, the Scottsdale policy would be primary and the Commerce policy would be excess. Scottsdale does not argue otherwise. Accordingly, the trial court would have been right, albeit for the wrong reason, and we would affirm.
Parenthetically, we note that the parties have focused on whether the tractor or the trailer “is described or rated as … owned.” They take it for granted that, if so, then each is also “described or rated as an owned automobile. ” (But see Ins.Code, § 11580.06, subd. (d).) We accept this assumption for purposes of our opinion. If, however, this assumption is incorrect–if neither policy described or rated the tractor or the trailer as an owned “automobile” within the meaning of subdivision (d)–then subdivision (d) did not apply. We have already discussed that scenario in part IV, ante.
In determining which policy or policies described or rated the vehicle as owned, the trial court cited and relied on Transport Indemnity Co. v. Royal Ins. Co., supra, 189 Cal.App.3d 250 (Transport ). Scottsdale argues that Transport conflicts with Mission Ins. Co. v. Hartford Ins. Co., supra, 155 Cal.App.3d 1199 (Mission ). We therefore begin by discussing these two cases.
In this case, the trial court followed Transport–quite properly, as it was required to do so. (Auto Equity Sales, Inc. v.. Superior Court (1962) 57 Cal.2d 450, 455.) Scottsdale, however, argues that Transport was badly reasoned, in conflict with Mission, and contrary to legislative intent.
FN3. They may also have disagreed as to which policy described or rated the trailers “as owned.” The case is ambiguous on this point.
Transport, to the extent that it held that “unidentified semi-trailer[s]” was sufficient to describe and rate the trailers involved, simply cannot be squared with Ohio. Hence, we find ourselves forced to choose between these two approaches.
The majority in Transport seems to have confused the question of which policy “described or rated” the vehicle with the question of coverage of the vehicle. It reasoned, essentially, that the insurer must be held to have described the trailers because the description was ambiguous and the insurer had failed to avoid the ambiguity. For purposes of coverage, ” ‘[a]ny ambiguous terms are resolved in the insureds’ favor, consistent with the insureds’ reasonable expectations.’ [Citation.]” (Safeco Ins. Co. v. Robert S. (2001) 26 Cal.4th 758, 763, quoting Kazi v. State Farm Fire & Casualty Co. (2001) 24 Cal.4th 871, 879.) For purposes of subdivision (d), however, such a construction-against-the-insurer rule is inappropriate. A dispute over which policy is primary under subdivision (d) cannot arise unless there is coverage under both policies. At that point, two insurers are pitted against each other; the reasonable expectations of the insured become irrelevant.
The Legislature could have drafted subdivision (d) so as to focus on which vehicle is “covered as owned”; it chose instead to focus on which vehicle is “described or rated as owned.” Under Insurance Code section 11580.1, every motor vehicle liability insurance policy must “[d]esignat[e] by explicit description of, or appropriate reference to, the motor vehicles or class of motor vehicles to which coverage is specifically granted.” (Ins.Code, § 11580.1, subd. (b)(2).) Section 11580.9, subdivision (d) was enacted at the same time and by the same bill. (Stats.1970, ch. 300, § 4, p. 573, and § 7, pp. 576-577.) Subdivision (d), however, requires a description of (not just an appropriate reference to) a motor vehicle (not just a class of motor vehicles). We can only conclude that “described or rated” means something different from “covered .” Wording such as “unidentified semitrailer” or “any semitrailer attached to a covered auto” may be adequate for purposes of coverage, but it is not sufficiently particular to “describe or rate” a vehicle for purposes of subdivision (d).
Certainly a policy is sufficiently particular when it specifies a vehicle by its unique license number or vehicle identification number. (Highlands Ins. Co. v. Continental Casualty Co. (9th Cir.1995) 64 F.3d 514, 519; see also Grand Rent-A-Car Corp. v. 20th Century Ins. Co., supra, 25 Cal.App.4th at p. 1253.) Here, the Scottsdale policy stated that one of the “Covered Autos You Own” was a “1993 Freightliner Tractor # 1FUYADYB7PP469996.” It is undisputed that this was sufficient to “describe” the tractor as owned.
The Scottsdale policy also stated that “Covered Autos You Own” included “[a]ny unidentified semitrailer when attached to a covered auto.” “Any unidentified semitrailer” could be referring to any semitrailer in the world. Hence, as a matter of law, the Scottsdale policy did not “describe,” within the meaning of subdivision (d), the trailer involved in the accident.
The Commerce policy listed, as “Covered Autos You Own,” some 41 tractors and 226 (or 280) trailers. Once again, this could have been referring to any tractors and trailers in the world. The fact that Pipeline owned the trailer involved in the accident does not necessarily mean it was one of the 226 (or 280) trailers specified in the policy. Pipeline could have sold some of those trailers and acquired more trailers since the policy was issued. Accordingly, as a matter of law, the Commerce policy did not “describe” the tractor or the trailer involved in the accident.
Scottsdale argues, however, that “rate” means something different than “describe” and requires less particularity. “Rating,” for insurance purposes, is defined as “[t]he process by which an insurer arrives at a policy premium for a particular risk.” (Black’s Law Dict. (7th ed.1999) p. 811.) Commerce did “rate” the 41 tractors and 226 (or 280) trailers, in that it calculated the premium as a price per tractor plus a price per trailer.
Nevertheless, we believe that “rate,” within the meaning of subdivision (d), requires as much particularity as “describe.” In Ohio, the court held that the policy did not describe or rate a newly acquired vehicle, despite the fact that an additional premium would be charged, after an audit, based on it. Moreover, the court held that both description and rating required “a particularization of the vehicle.” (Ohio, supra, 85 Cal.App.3d at p. 524.) Subsequent cases have echoed this formulation.
The Commerce policy rated some 41 tractors and some 226 (or 280) trailers. It did not, however, rate the particular tractor and trailer involved in the accident. The policy was concerned only with how many tractors and trailers Pipeline owned, not with which tractors and trailers they might be. Thus, the Commerce policy did not describe or rate, within the meaning of subdivision (d), the tractor or the trailer involved.
Scottsdale also argues that Commerce admitted, as an undisputed fact, that its policy described the trailer. True, Commerce moved for summary judgment partly on the theory that the Scottsdale policy described both the tractor and the trailer, whereas its own policy described just the trailer. Accordingly, in its separate statement of undisputed material facts (see Code Civ. Proc., § 437c, subd. (b)), it stated: “The Commerce … policy[ ] only describes the trailer, and does not describe or reference the 1993 Freightliner at all.” (Italics added; capitalization omitted.) Scottsdale, however, never agreed that this was undisputed. To the contrary, it responded that it was “[d]isputed [, a]rgumentative and legally incorrect.” Thus, the trial court was not bound by this admission.
The parties simply “drew different legal conclusions or conclusions of ultimate fact from the factual transaction which both sides agreed to as to its details. With the issue in this posture, it was proper for the trial court to proceed to resolve the motion as a matter of law. [Citation.]” (C.L. Smith Co. v. Roger Ducharme, Inc. (1977) 65 Cal.App.3d 735, 743 [Fourth Dist., Div. Two].) In its minute order, the trial court appears to have concluded–as do we–that the Commerce policy did not describe or rate either the tractor or the trailer (although it muddied the waters later by signing the formal order containing different conclusions). Commerce’s contention that its policy described the trailer but not the tractor makes no sense. Its policy described the tractor and the trailer in exactly the same way–by lumping them into groups of 41 undifferentiated tractors and 226 (or 280) undifferentiated trailers, respectively. It described or rated both, or neither. We conclude neither.
The main holding of Transport was that, when one policy describes or rates an entire tractor/trailer rig and a second policy describes or rates only the tractor or the trailer, the first is primary and the second excess. Scottsdale urges us to reject this aspect of Transport, too. The dissenting justice, however, did not disagree; he had no occasion to do so, because, in his view, neither policy described or rated the entire rig. We find ourselves in the same position–we need not decide whether we would agree with Transport on this point.
Accordingly, under both Mission and Transport, the Scottsdale and Commerce policies cover the same motor vehicle or vehicles–viz., the combined tractor/trailer rig. The Scottsdale policy describes or rates the tractor but not the trailer. The Commerce policy does not describe or rate either the tractor or the trailer. Thus, assuming subdivision (d) otherwise applies, we conclude once again that the Scottsdale policy is primary and the Commerce policy is excess.
Scottsdale contends that section 11580.9 did not apply at all. It argues that section 11580.9 applies only to “liability insurance.” (See Ins.Code, §§ 11580.8, 11580.9, subds. (a), (d).) It then argues that the policies in this case provided “common carrier liability insurance,” which it claims is distinct from “liability insurance” as the two are defined by the Insurance Code. (Compare Ins.Code, § 108, subd. (a) with Ins.Code, § 110; see also Home Indemnity Co. v. King (1983) 34 Cal.3d 803, 810-812.) Hence, in this part, we assume, without deciding, that section 11580.9 did not apply.
According to Commerce, if section 11580.9 does not apply, we must look to the provisions of the subhauling and equipment rental agreements between Pipeline and Licea. Under these agreements, Licea was to obtain liability insurance covering the trailer and covering Pipeline as an additional insured; Licea also indemnified Pipeline against all claims arising out of either the performance of the subhauling agreement or the use of the trailer. Commerce argues that, under Rossmoor Sanitation, Inc. v. Pylon, Inc. (1975) 13 Cal.3d 622, these provisions effectively render the Scottsdale (i.e., Licea) policy primary and the Commerce (i.e., Pipeline) policy excess.
Scottsdale does not dispute that, if Rossmoor applies, that would be the result. It merely argues that Rossmoor does not apply. Accordingly, assuming, without deciding, that Rossmoor does apply, the trial court did not err.
B. Application of the “Other Insurance” Clauses.
If, however, Rossmoor does not apply, the parties concur that we would have to look to the “other insurance” clauses in the policies. We begin by reviewing the general operation of “other insurance” clauses.
In the insurance context, “primary” and “excess” have two different meanings. First, a policy may be “primary,” meaning that a duty to indemnify and defend arises immediately upon the happening of a covered occurrence, as opposed to “excess,” meaning that a duty to indemnify and defend does not arise until some specified underlying policy has been exhausted. (See generally Travelers Casualty & Surety Co. v. American Equity Ins. Co. (2001) 93 Cal.App.4th 1142, 1149.) Both the Scottsdale and Commerce policies were “true” primary policies in this sense.
“(1) On the same basis primary or excess as for the power unit if the power unit is a covered auto.
Under the Scottsdale policy, the tractor was a “covered auto.” Moreover, because Licea owned the tractor, it was a “covered auto you own.” None of the exceptions governing a hired or borrowed auto or a trailer connected to a power unit applied.
Scottsdale relies on the exception for a “covered auto while hired or borrowed from you by another trucker.” It argues that, by virtue of the subhauling agreement, the tractor had been “hired or borrowed” from Licea by Pipeline. We cannot agree.
The subhauling agreement provided, as relevant here: “[Licea], as an independent contractor, agrees to transport freight for [Pipeline] … and to furnish all equipment and perform all services for such transportation.” Thus, Pipeline “hired” Licea, as an independent contractor, to provide transportation. It did not hire his tractor. The subhauling agreement did not specify any particular equipment Licea was to provide. Accordingly, the exception that required a “covered auto … hired or borrowed by you” did not apply. We conclude that, as to the tractor, the Scottsdale policy was primary.
The trailer, too, was a “covered auto.” However, it came under the exception for “a covered auto which is a trailer … connected to a power unit” (namely, the tractor). Thus, the policy was primary or excess “[o]n the same basis … as for the power unit….” Because the Scottsdale policy was primary as to the tractor, it was also primary as to the trailer.
Under the Commerce policy, the tractor was a “covered auto.” However, because Pipeline did not own the tractor, it was a “covered auto you don’t own.” For the reasons just discussed (see Part VI.B.1.a, ante ), the exception for a “covered auto while hired or borrowed by you” did not apply. Accordingly, as to the tractor, the Commerce policy was excess.
The trailer, too, was a “covered auto” and, as noted, it was connected to a “power unit.” Because the Commerce policy was excess as to the tractor, it also was excess as to the trailer.
c. Effect of the Federal Motor Carrier Endorsement.
Finally, Scottsdale argues that the “other insurance” clause in the Commerce policy was modified by the motor carrier endorsement. This endorsement was required by federal law. [FN4] (See 49 U.S.C. §§ 13906(a)(1), 31139(b)(2); 49 C.F.R. §§ 387.7(a), 387.9, 387.15.) In it, the line stating, “This insurance is primary …” was checked; the line stating, “This insurance is excess …” was not.
FN4. The Commerce policy includes the federally mandated endorsement, presumably because Pipeline operated in interstate commerce. The Scottsdale policy, by contrast, includes a similar–though not identical–endorsement prescribed by the state Public Utilities Commission (see PUC Gen. Order No. 100-M; but see Pub. Util.Code, §§ 212, subd. (e), 216.5; Veh.Code, §§ 34630, 34631, 34631.5; Stats.1996, ch. 1042, § 28 [repealing former Pub. Util.Code, § 3631 et seq.), presumably because Licea operated wholly instrastate. Unlike the federal endorsement, the state endorsement does not address “other insurance” in any way.
This motor carrier endorsement does not override the “other insurance” clause in the Commerce policy, for two reasons. First, it is not in conflict with the “other insurance” clause. It relates solely to whether the policy is a “true” primary or “true” excess policy; it simply does not speak to how a loss will be apportioned between two true primary policies. Second, the majority of federal appellate courts that have considered this question have held that such an endorsement operates only when necessary to protect injured members of the public; it does not govern the allocation of a loss between insurers. (Canal Ins. Co. v. Distribution Services, Inc. (4th Cir.2003) 320 F.3d 488, 489, 492- 493, and cases cited.) Hence, as to this, the “other insurance” clauses in the two policies remain controlling.
C. Application of Equitable Principles.
We see no equitable reason to override the policies’ own allocation of risk. Quite the contrary–equity strongly supports that allocation, for two reasons. First, the clauses, on these facts, do not conflict. This is not a case in which both policies purport to be excess only, or one purports to be excess while the other purports to prorate. We can enforce both clauses according to their terms without leaving the insureds unprotected. Second, it is significant that the other insurance clauses in both policies were identical. This means that, while Commerce and Scottsdale did not contract directly with each other, they both agreed be bound by the same provisions.
We therefore conclude that, even if section 11580.9 did not apply at all, the trial court’s ruling was correct: The Scottsdale policy was primary and the Commerce policy was excess.
The judgment is affirmed. Commerce is awarded costs on appeal against Scottsdale.
We concur: WARD and KING, JJ.

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