Opinion ID: 1814753
Heading Depth: 1
Heading Rank: 3

Heading: The Reasonable Expectations of the Contracting Parties

Text: While the language of the policies is critical to the priority analysis, as our entire analysis indicates, it should be construed in light of all the circumstances of each contracting party to determine the intention of each contract within the design of a consistent overall insuring scheme. Allstate Ins. Co. v. Employers Liability Assurance Corp., 445 F.2d 1278, 1283 (C.A.5, 1971). Moreover, in attempting to ascertain the parties' contractual intent, a court must consider the language of the policy, the character of the contract, the contract's object and purpose, and the surrounding facts and circumstances at the time of execution. U.S. Fire Ins. Co. v. Maryland Casualty Co., 52 Md.App. 269, 275, 447 A.2d 896 (1982). Auto-Owners argues that the plaintiff erroneously invokes the principle that the policy language at issue should be strictly construed against the insurer and should comport with the reasonable expectations of the insured. While such construction devices are appropriate when coverage is at issue, they have no application where the question is not the existence or extent of coverage, but priority of coverage. Construing the policies strictly against the insurers is of little use in resolving priority issues because, as Auto-Owners asserts, construing all of the policies against all of the insurers is not a fruitful approach to a solution. Plaintiff provides no rationale for construing the umbrella policy provisions against USAA and Auto-Owners and construing the Frankenmuth policy provisions in favor of Frankenmuth. Such a rule makes little sense in these circumstances and is virtually impossible to apply. Instead, the insurer's reasonable expectations should be accommodated in a priority dispute, as this Court has recognized. [7] Frankenmuth held that requiring an excess insurer to participate pro rata on notice that the claim might exceed the primary insurer's limits effectively forces the excess insurer to be a coinsurer, despite the policy language, and such a result is contrary to the excess insurer's reasonable expectations. Frankenmuth, supra at 437, 537 N.W.2d 879. Additionally, this Court's holding in St. Paul was based in part on the insurer's intent that the policy afforded only secondary coverage when the same loss was covered by other insurance. St. Paul, supra at 568, 514 N.W.2d 113. The nature of the Frankenmuth policy and its language contradict the conclusion that Frankenmuth's reasonable expectation was that its policy was written specifically in excess of any primary policy. It is a primary policy with an excess clause triggered under certain circumstances. While true that it is excess insurance in this instance, it necessarily contemplated a different and probably a greater risk than that covered by the [umbrella] polic [ies]. USAA v. Empire Fire & Marine Ins. Co., 134 Ariz. 64, 66, 653 P.2d 712 (1982). This policy would have provided primary coverage if the Continental policy did not or if an owned vehicle was involved in the accident. The overwhelming weight of authority supporting our decision to characterize the Frankenmuth policy as coincidental excess belies the conclusion that Frankenmuth reasonably expected its policy to be characterized as true excess. Both the Auto-Owners and USAA policies were written to be excess to any underlying insurance under all circumstances; the only policy that could be excess to either is one written specifically to be excess, which the Frankenmuth policy was not. Moreover, the Frankenmuth policy was not written to be prorated with other true excess insurers. Both the Auto-Owners and USAA umbrella policies contain language indicating proration with similar insurance or other insurance written to be excess of another primary policy, while the Frankenmuth policy does not. On the basis of a reading of the language of all the policies, the insurers' reasonable expectations require the conclusion that three tiers of coverage are appropriate. This is consistent with decisions of this Court and other courts that policies should be read as a whole and the negotiated intent of the parties should not be nullified. See St. Paul, supra at 577, 514 N.W.2d 113, and Emcasco, supra at 133-134, 93 Ill.Dec. 666, 487 N.E.2d 110. Under the trial court's analysis, each provision relating to excess insurance, other insurance, and proration with other policies is given meaning. The Court of Appeals analysis failed to give effect to all policy provisions, and does not give the parties what they bargained for; in other words, it is inconsistent with the parties' reasonable expectations. Moreover, three tiers of priority are harmonious with the nature and purpose of the policies, the risks assumed by the insurers, and the reasonable expectations of the insurers in the light of all the surrounding circumstances.