Case Name: STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, an Illinois Corporation, Plaintiff-Appellee, v. AMERICAN CASUALTY COMPANY, a Pennsylvania Corporation, Defendant-Appellant, The Fidelity and Casualty Company of New York, a New York Corporation, Defendant-Appellee
Court: United States Court of Appeals for the Eighth Circuit
Jurisdiction: United States
Decision Date: 1970-11-10
Citations: 433 F.2d 1007
Docket Number: No. 20123
Parties: STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, an Illinois Corporation, Plaintiff-Appellee, v. AMERICAN CASUALTY COMPANY, a Pennsylvania Corporation, Defendant-Appellant, The Fidelity and Casualty Company of New York, a New York Corporation, Defendant-Appellee.
Judges: Before GIBSON and LAY, Circuit Judges, and HUNTER, District Judge.
Reporter: Federal Reporter 2d Series
Volume: 433
Pages: 1007–1013

Head Matter:
STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, an Illinois Corporation, Plaintiff-Appellee, v. AMERICAN CASUALTY COMPANY, a Pennsylvania Corporation, Defendant-Appellant, The Fidelity and Casualty Company of New York, a New York Corporation, Defendant-Appellee.
No. 20123.
United States Court of Appeals, Eighth Circuit.
Nov. 10, 1970.
Frank X. Cronan, Minneapolis, Minn., for appellant.
James D. Cahill, Moorhead, Minn., for appellee.
Before GIBSON and LAY, Circuit Judges, and HUNTER, District Judge.

Opinion:
LAY, Circuit Judge.
A declaratory judgment action was initiated by State Farm Insurance Company to determine the rights and liabilities of three insurers on their respective contracts of insurance. The issue on appeal is whether American Casualty's policy provides only excess coverage. The district court held that the policies of State Farm and American Casualty are both primary insurance and ordered pro rata contribution. State Farm Mut. Auto Ins. Co. v. Northwest Leasing Corp., 299 F.Supp. 630 (D.N.D.1969). American Casualty appeals. We affirm.
The facts show that the local station manager of Pembina Broadcasting Company of Fargo, North Dakota, a wholly owned subsidiary of Evansville Television, Inc., of Evansville, Indiana, leased a 1965 Ford station wagon from the Northwest Leasing Corporation of Fargo. The lease required Pembina to purchase liability insurance of $100,000/$300,000 for personal injury and $25,000 for property damage. This policy was issued to Pembina by State Farm. The policy provides that if a loss is covered by other collectible insurance the State Farm coverage shall be applied pro rata with the other insurance.
Evansville Television, the parent corporation, was insured by a policy issued by American Casualty. The policy provided coverage of $500,000/$l,000,000 for personal injury and $100,000 for property damage. It is the effect of this policy which is in question here. The insuring agreement covered the insured for liability arising out of the use of "any automobile." Under a policy amendment Pembina, as a subsidiary, is named as an additional insured. The policy contains a pro rata clause similar to the State Farm Clause. However, it also contains a provision that the policy shall be excess insurance only for loss arising from the use of "any hired automobile insured on a cost of hire basis" or arising from the use of "any non-owned automobile." It is on the basis of this provision that American Casualty claims to be an excess carrier rather than a primary insurer responsible for contributing on a pro rata basis.
On January 31, 1965, Pembina's station manager collided with another vehicle while driving the leased 1965 Ford. The accident occurred near Dalton, Minnesota. He was killed and several other persons in the two ears were injured. Claims of more than $1,-000,000 in state and federal courts were brought against the estate of the station manager, Pembina, and Northwest Leasing. All the actions were tried and concluded, except for the claim of one Janice Pritchard which was settled by State Farm for $6,500 without suit. It is the Pritchard settlement for which State Farm sought and the district court granted pro rata contribution from American Casualty.
American Casualty has questioned the jurisdiction of the district court for lack of the requisite amount in controversy. When the action commenced, however, involving all the claims arising out of the accident, the jurisdictional amount was satisfied several times over. It is well settled in diversity cases that jurisdiction, once properly vested, is not lost by subsequent events which reduce the amount in controversy to less than the jurisdictional amount. St. Paul Mercury Indemnity Co. v. Red Cab Co., 303 U.S. 283, 292-293, 58 S.Ct. 586, 82 L.Ed. 845 (1938).
American Casualty's primary argument is that the State Farm policy specifically covered the 1965 Ford station wagon, whereas the schedule of insured vehicles appended to the American Casualty policy did not mention this specific automobile. The argument is that since Pembina did not request coverage of the Ford by American Casualty (through Evansville) the intention of the parties was not to provide coverage for that automobile. This overlooks the policy contract which provides liability insurance for loss arising out of the use of "any automobile" by the insured. This language does not manifest an intention to exclude automobiles not listed on the policy schedule. At most it raises a doubt as to the intention, and such an ambiguity (if it really is ambiguous) must be resolved against the insurer preparing the contract. As a matter of simple policy construction it appears that the American Casualty policy is primary insurance unless limited by some other term of the policy.
The question then becomes whether any policy exclusion protects American Casualty from primary liability. American's "Other Insurance" clause provides:
"If the insured has other insurance against a loss covered by 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 under this policy with respect to loss arising out of the maintenance or use of any hired automobile insured on a cost of hire basis or the use of any non-owned automobile shall be excess insurance over any other valid and collectible insurance." (Emphasis ours.)
It is agreed that North Dakota law controls. However, both parties concede that there exists no specific North Dakota case law governing construction of this clause. The district court determined that the North Dakota Supreme Court would follow the prevailing view. It is generally held that when an excess clause in one policy conflicts with a pro rata clause in another policy, the excess clause controls and is given effect. Travelers Indemnity Co. v. National Indemnity Co., 292 F.2d 214, 223 (8 Cir. 1961); Citizens Mut. Auto. Ins. Co. v. Liberty Mut. Ins. Co., 273 F.2d 189, 192-193 (6 Cir. 1959). However, the pro rata clause alone governs in all other situations than those which fall within the terms of the excess clause. Citizens Mutual, supra, at 193, quoting from American Auto. Ins. Co. v. Republic Indent. Co. of America, 52 Cal.2d 507, 314 P.2d 675, 678 (1959).
Thus, American's coverage is excess if the loss arises from the use' of (1) a hired automobile insured on a cost of hire basis or (2) any non-owned automobile. American's policy defines "automobile" as follows:
"(b) Automobile. Except where stated to the contrary, the word automobile means a land motor vehicle or trailer as follows:
(1) Owned Automobile — an automobile owned by the named insured;
(2) Hired Automobile — an automobile used under contract in behalf of, or loaned to, the named insured provided such automobile is not owned by or registered in the name of (a) the named insured or (b) an executive officer thereof or (c) an employee or agent of the named insured who is granted an operating allowance of any sort for the use of such automobile;
(3) Non-Owned Automobile — any other automobile."
It appears that the 1965 Ford was "used under contract in behalf of, or loaned to, the named insured" so that it is a "hired automobile" within the terms of the American policy. The next inquiry is then whether this hired automobile was insured on a cost of hire basis. As defined by the policy, when used as a premium basis,
"The advance premium stated in the declarations is an estimated premium only. Upon termination of this policy the earned premium shall be computed in accordance with the company's rules, rates, rating plans, premiums and minimum premiums applicable to this insuranee. If the earned premium thus computed exceeds the estimated advance premium paid, the named insured shall pay the excess to the company; if less, the company shall return to the named insured the unearned portion paid by such insured."
"(6) the words 'cost of hire' mean the amount incurred for (a) the hire of automobiles, including the entire remuneration of each employee of the named insured engaged in the operation of such automobiles subject to an average weekly maximum remuneration of $100, and for (b) pickup, transportation or delivery service of property or passengers performed by motor carriers of property or passengers for hire, other than such services performed by motor carriers which are subject to the security requirements of any motor carrier law or ordinance. The rates for each $100 of 'cost of hire' shall be 5 % of the applicable hired automobile rates, provided the owner of such hired automobile has purchased automobile Bodily Injury Liability and Property Damage Liability insurance covering the interest of the named insured on a direct primary basis as respects such automobile and submits evidence of such insurance to the named insured."
It is conceded that American did not insure the 1965 Ford station wagon on this basis. In fact, American was unaware that its insured had leased the car at all. American argues that no premium was collected for coverage of the Ford Station wagon. The district court concluded that the excess clause is not applicable when the hired car is not insured on a cost of hire basis. In support of that conclusion the court relied on National Surety Corp. v. Western Fire & Indemnity Co., 318 F.2d 379, 387 (5 Cir. 1963). The court also cited Powell v. Home Indemnity Co., 343 F.2d 856, 859 (8 Cir. 1965), and Liberty Mut. Ins. Co. v. U. S. Fidelity & Guaranty Co., 232 F.Supp. 76, 82 (D,Mont. 1964). These cases support the cited proposition. American Casualty offers no authority to the contrary and merely states that the National Surety case involves different facts. The only case cited by American Casualty in support of its general position is Travelers Indemnity Co. v. National Indemnity Co., supra. However, that ease merely indicates that where applicable, an excess clause is to be given effect. Aided by the above cases, we agree with the district court that American does not fit into the first excess exclusion.
We must then determine whether the second excess exclusion applies, i. e. whether the 1965 Ford was a "non-owned automobile." At first glance this would seem to be the case. Reference to the policy definitions, however, indicates otherwise. By policy definition a "non-owned automobile" is "any other automobile." Considered in context this obviously means any automobile other than an "owned automobile" or a "hired automobile." Although the automobile in question was not insured on a cost of hire basis, there is little doubt that it was a "hired /'automobile" within the terms of the policy. Therefore, we conclude that the excess clause is not applicable and American Casualty is primarily liable with State Farm under its pro rata clause.
American argues on equitable considerations that it should . not be required to cover an automobile of which it was not even aware or which it did not subjectively intend to insure^ However, as the draftsman of its own insurance contract, it is solely responsible for defining the scope of its liability and for defining its terms such that any hired automobile even though not insured on a cost of hire basis was not a non-owned automobile. We recognize a salient principle in this respect:
" 'Questions of contribution between coinsurers have caused much trouble to the courts, a large part of which has arisen through efforts to equalize equities outside the contract. This trouble is lessened if the parties are left with their contracts as they themselves have made them.' " Citizens Mutual, supra, 273 F.2d at 194, quoting authority.
In the area of adhesive contracts an insurer virtually controls the terms of the bargain. The insurer holds the key to its own contractual obligations, and no court should interfere with what the insurer has constructed.
Judgment- affirmed.
. Northwest. Leasing was named as an additional insured under the State Farm policy. Northwest Leasing also had its own policy covering the Ford issued by Fidelity and Casualty Co. The district court held that the Fidelity policy was excess insurance only and the parties have not appealed this determination.
. Counsel further conceded in oral argument that decision in this appeal may affect ultimate contribution of the respective carriers in the other cases.
. However, the policy provides:
. The judgment of the district court was that State Farm's applicable policy limits were $50,000 and American Casualty's applicable policy limits were $500,000. The court held that under its pro rata clause American was required to contribute to State Farm in the proportion of 500/550 or 10/llths of the Pritchard claim.