Opinion ID: 1829136
Heading Depth: 2
Heading Rank: 1

Heading: The District Court Analysis

Text: We have recently held that our courts should apply the pro rata distribution rule in situations where there are conflicting excess insurance provisions. Illinois Nat'l, 578 N.W.2d at 673. This is not true where one insurance company provides primary insurance and the remaining companies provide excess insurance. In the present case, the three disputed policies each contain an excess insurance provision. The dispute here concerns the district court's determination that the Westfield policy provides primary insurance such that the pro rata share rule would only be implicated when its limits are exhausted. Westfield asks us to reverse this determination under the rationale that the court impermissibly applied the closer to the risk rule to determine it was a primary insurer. The closer to the risk rule was adopted by the courts in Minnesota. Interstate Fire & Cas. Co. v. Auto-Owners Ins. Co., 433 N.W.2d 82, 86 (Minn.1988). Specifically, this rule provides that whichever excess insurer's coverage more particularly contemplates the present incident is the primary insurer for dispute purposes. Id. There are three factors utilized by the court to determine which policy is closer to the risk. Id.; see also Illinois Nat'l, 578 N.W.2d at 673 (detailing the Minnesota approach). (1) Which policy, if any, particularly mentions the accident-causing instrumentality? Interstate Fire, 433 N.W.2d at 86. (2) Which premium suggests it provides broader coverage? Id. (3) Does any disputed policy contemplate the risk at issue, if so, which policy's language is the most specific? Id. In Illinois National we compared Minnesota's rule with Iowa's pro rata approach, and held that we prefer to apply our own rule. Illinois Nat'l, 578 N.W.2d at 673. The reason for this conclusion is: For one thing[,] the [pro rata] rule ... is clear and easy to apply. Assessing which policy is closer to the risk would often be a tricky business, and would be a fertile field for much dispute and litigation. Coverage of losses by an unrelated policy, might, as it does here, lead to a surprising result in view of a modest premium charge. But we do not think it follows that we should therefore fail to apply a clear and workable rule. Id. The district court in the instant case did not expressly mention the three factors used by the Minnesota court in its determination. Moreover, it is not readily apparent what formula the court utilized except to look at the language of the Westfield policy and determine the hired auto endorsement specifically insured the present scenario. Although the Westfield policy also contained an excess insurance clause, the district court found the hired auto endorsement provided coverage for risks not covered by the employees' primary auto insurance. As such, if the excess clause were to trump the hired auto endorsement, the district court reasoned this would impinge[ ] upon the insureds' right to expect full coverage for liability arising from non-owned hired autos in the course of their employment. The court concluded that the policy provided protection for the uncovered, additional risk of renting a car. Therefore, the Westfield policy should be categorized as primary insurance for such additional risks. The district court placed much emphasis on the fact that the Westfield policy has a broader coverage base. Unlike the other policies, it contains a hired auto liability endorsement provision. This provision states: The insurance provided ... applies to `bodily injury' or `property damage' arising out of the maintenance or use of a `hired auto' by you or your employees in the course of your employment. Hired auto is described as any `auto' you lease, hire or borrow from a nonemployee. No where in the endorsement does it state it provides primary coverage. Moreover, the Westfield excess insurance provision purports to apply to the entire policy. Westfield argues that the district court's use of the hired auto endorsement as proof that Westfield provides primary insurance actually applies the closer to the risk rule rejected by our court in Illinois National. We agree. On closer inspection, we believe the district court used this endorsement to find Westfield provided primary coverage because (1) the policy particularly mentions the accident-causing instrumentality by way of the endorsement, and (2) the policy more specifically contemplates the risk at issue. These reasons are two factors out of the three that make up the closer to the risk rule. Without weighing the specificity of Westfield's policy against the others, each policy provides basic auto coverage. The hired auto endorsement does not state it provides primary coverage. As such, the excess clause should govern. We find the district court used an improper standard for allocating loss because it ranked specificity over the presence of the excess clause. The district court's analysis is consistent with the closer to the risk formula and cannot be upheld.