Opinion ID: 2100698
Heading Depth: 1
Heading Rank: 5

Heading: Mutual Repugnance and Assignment of Pro Rata Liability

Text: [¶ 6.] We have not previously decided the issue of priority between an umbrella insurance policy and a primary insurance policy with an other insurance clause. The parties do not dispute that the primary coverage insurance policy of the vehicle owner must be exhausted first. Thus, the first $500,000 of the settlement amount was paid under that policy. The dispute is over which policy must next be applied to the $235,000 of the settlement amount remaining. [¶ 7.] The negligent driver had an auto policy with a $50,000 per accident limit, which would cover him in the event he caused injury as the permissive driver of another's vehicle. However, the policy stated, [A]ny insurance we provide for a vehicle you do not own shall be excess over any other collectible insurance.  (Emphasis added.) The owner of the vehicle had an umbrella policy with a $1,000,000 limit. His policy stated, If a covered person has other collectible insurance that covers damages which this policy also covers, this policy shall be excess to and will not contribute with such other insurance. This does not include insurance bought to apply in excess of the retained limit plus the limit of liability of this policy.  (Emphasis added.) Each of the policies requires that other collectible insurance be exhausted before it will pay. We are being asked to decide how this apparent impasse should be resolved. [¶ 8.] There are three possible resolutions to this problem. The first is to interpret the policies as requiring the umbrella policy to be exhausted before looking to the non-owner driver's liability coverage. See Unigard Ins. Group v. Royal Globe Ins. Co., 100 Idaho 123, 594 P.2d 633 (1979). The second is to find the policies to be mutually repugnant and render each insurer liable for a pro rata share of the remaining damages owed. See Royal Indem. Co. v. Metro. Cas. Ins. Co. of N.Y., 80 S.D. 541, 128 N.W.2d 111 (1964) (applying pro rata liability where two primary liability policies were mutually repugnant). The third is to interpret the policies as requiring the non-owner's liability policy to be exhausted before looking to the owner's umbrella policy. See LeMars Mut. v. Farm & City Ins., 494 N.W.2d 216 (Iowa 1992). The parties agree that a majority of courts in this country follow the third approach and require the non-owner's liability policy to be exhausted before looking to the umbrella policy. See Michael P. Sullivan, J.D., LL.M., Annotation, Automobile Insurance: Umbrella or Catastrophe Policy Automobile Liability Coverage As Affected By Primary Policy Other Insurance Clause, 67 A.L.R.4th 14 (1989). This Court hereby adopts the majority rule. [¶ 9.] As a general rule, in a dispute over the relative priority of insurance policies, the language of the policies is determinative. See Am. Concept Ins. Co. v. Certain Underwriters at Lloyds of London, 467 N.W.2d 480, 482 (S.D.1991). The trial court determined the excess coverage provisions of the policies were mutually repugnant. The court then determined that both insurance companies were liable on a pro rata basis according to South Dakota caselaw. See Royal Indem. Co., 80 S.D. at 546-47, 128 N.W.2d at 113-14. Although a finding that the policies were mutually repugnant was not unreasonable, we look here to the policies and their purposes as a whole. This court must construe all provisions of the policy together and ascertain the intention of the parties, if possible. Helmbolt v. LeMars Mut. Ins. Co., Inc., 404 N.W.2d 55, 59 (S.D.1987). In doing so, we conclude that only the NFU umbrella policy is a true excess policy and is, therefore, last in priority of payment. [¶ 10.] In arriving at this conclusion, we first examine the language of the excess insurance clauses of the respective policies. The clause in the NFU umbrella policy states as follows: 4. Other insurance. If a covered person has other collectible insurance that covers damages which this policy also covers, this policy shall be excess to and will not contribute with such other insurance. This does not include insurance bought to apply in excess of the retained limit plus the limit of liability of this policy. (Emphasis added.) The clause in the Farm & City policy states: Other insurance If there is other applicable liability insurance we will pay only our share of the loss. Our share is the proportion that our limit of liability bears to the total of all applicable limits. However, any insurance we provide for a vehicle you do not own shall be excess over any other collectible insurance. (Emphasis added.) [¶ 11.] Farm & City points to the NFU umbrella policy language which excludes another policy bought to apply in excess of the retained limit plus the limit of liability of this policy. Farm & City argues that this clause requires the exhaustion of the limits of both NFU's primary and umbrella policies before Farm & City would become liable. A closer look at the NFU umbrella policy does not support Farm & City's premise. Clearly, the first part of the Other Insurance clause in the NFU umbrella policy makes it an excess policy when a covered person has other collectible insurance that covers damages which this policy also covers. The exception is when insurance is purchased to apply in excess of the retained limit plus the limit of liability of NFU's umbrella policy. The applicable policy definition of retained limit is the limit of the required underlying insurance plus any other insurance available to a covered person. Consequently under NFU's policy terms, Farm & City would only be last in priority if the policy were specifically purchased to apply over and above the underlying liability policy plus the umbrella policy. Farm & City is unable to show by contract language or otherwise that its primary coverage policy was purchased for the purpose of liability in excess of another's primary and umbrella coverage. As stated by the Colorado Court of Appeals concerning a very similar provision, the intent of the language of the proviso cannot accurately be divined without recognizing that there has been developed a tertiary level of liability insurance, sometimes referred to as `secondary excess coverage.' Allstate Ins. Co. v. Frank B. Hall & Co. of California, 770 P.2d 1342, 1347 (Colo.Ct.App.1989) (citing Lumbermens Mut. Cas. Co. v. Allstate Ins. Co., 51 N.Y.2d 651, 435 N.Y.S.2d 953, 417 N.E.2d 66 (1980)). The Colorado court concludes that the exception proviso refers to a third tier of insurance that treats the umbrella coverage as underlying insurance and specifically refers to that coverage. Id. [¶ 12.] The plain meaning of the NFU proviso in this case refers to this third tier of insurance. Unless some other insurance was purchased for the specific purpose of covering amounts in excess of the umbrella policy coverage, the umbrella policy is true excess coverage and will not contribute with such other insurance. Here the Farm & City personal auto policy was purchased by the driver to provide primary liability coverage and was only excess if another insurance covered the damage. The policy was not purchased as a secondary excess umbrella policy. Only the vehicle owner's personal umbrella policy was intended to be a true excess insurance policy. [¶ 13.] In addition to the contract language, the premiums paid for the policies also indicate which policy is the umbrella or true excess insurance policy. See Am. Concept Ins. Co., 467 N.W.2d at 483. Here, the $1,000,000 NFU umbrella policy premium was $211 annually while the $50,000 Farm & City auto policy premium was $108 for two months of coverage. In addressing this same issue, the Iowa Supreme Court ruled against Farm & City. See LeMars Mut. Ins. Co., 494 N.W.2d 216. The Iowa court analysis is instructive: The umbrella nature of the LeMars Mutual policy is clear from the policy title, Personal Excess and Catastrophe Liability Policy, its terms which provide that liability coverage will be in excess in nearly all cases, and the premium paid. [Appellee's insured] paid a yearly premium of only $120 for excess coverage of $1,000,000 over his primary coverage. Appleman stated the majority rule on this issue: [U]mbrella coverages, almost without dispute, are regarded as true excess over and above any type of primary coverage, excess provisions arising in regular policies in any manner, or escape clauses. [8A Appleman Insurance Law and Practice § 4909.85, at 455 (1981).] We believe that resolution of the question of priority in payment must come, as the majority rule indicates, from a common sense look at the basic function each policy was intended to serve. Competing other insurance clauses in the Farm & City and LeMars Mutual policies, which normally would invoke contract construction rules, must yield to a finding of the insurance policies' main functions. We are further persuaded to find the umbrella policy the true excess insurer in this case by the great weight of authority so holding in other jurisdictions which have considered the question. See, e.g., Allstate, 770 P.2d [1342] at 1342; Illinois Emcasco Ins. Co. v. Continental Casualty Co., 139 Ill.App.3d 130, 93 Ill.Dec. 666, 487 N.E.2d 110 (1985); State Farm Fire & Casualty Co. v. Li Mauro, 65 N.Y.2d 369, 492 N.Y.S.2d 534, 482 N.E.2d 13 (1985); Safeco Ins. Co. v. Insurance Co. of North America, 522 S.W.2d 867 (Tenn.1975); see also Umbrella Policy-Other Insurance, 67 A.L.R.4th § 4 at 14. The insuring intent of the LeMars Mutual umbrella insurance policy is to provide excess insurance in cases such as this. A primary insurance provider cannot hide behind an excess insurance clause in its other insurance provision to require an umbrella insurer to cover liability for its insured. We hold that Farm & City's primary insurance policy must be exhausted before the umbrella policy of LeMars Mutual may be reached for payment of the settlement damages. Id. at 219. The Eighth Circuit Federal Court of Appeals in addressing this issue stated the applicable rule succinctly: [A]n insurer that issued a true excess or umbrella policy is not liable for any portion of the loss until the primary insurer's policy limit has been exhausted, even if the primary policy contains an other-insurance clause. National Sur. Corp. v. Ranger Ins. Co., 260 F.3d 881, 884 (8thCir.2001) (applying Iowa law). [¶ 14.] The trial court erred in finding the policies mutually repugnant. Here, the true excess or umbrella policy is the NFU policy.