Opinion ID: 788569
Heading Depth: 2
Heading Rank: 2

Heading: Conflict

Text: 15 On the other hand, we depart from the court's view that no conflict existed between the two policies. While the district court's interpretation — that Royal's PL Other Insurance clause, by its own terms, is primary, while Hartford's PL Other Insurance clause, by its own terms, renders its policy excess — is plausible, it is contrary to controlling Fifth Circuit precedent. 16 Resolution of this issue turns on the breadth of the Texas Supreme Court's decision in Hardware Dealers Mut. Fire Ins. Co. v. Farmers Ins. Exch., 444 S.W.2d 583 (1969). In Hardware Dealers, two companies — Hardware Dealers Mutual Fire and Farmers Insurance — disputed their liability arising from an auto accident. Hardware Dealers insured Frizzell Pontiac, a garage, for claims of bodily injury or property damage incurred by customers and employees permissively using a car belonging to Frizzell. 444 S.W.2d at 585. Farmers insured John Hyde under a standard automobile insurance policy. Id. at 584. When John Hyde's daughter (who was covered under the policy) collided with another automobile during a test drive, the dispute between the two insurers began. Id. at 584. Both policies had other insurance clauses: Hardware Dealer's policy included a provision that excluded from coverage permissive users of Frizzell Pontiac's automobile who were covered by other insurance. Id. at 585. Farmer's policy included an other insurance provision that converted its coverage into excess insurance if other insurance coverage existed. Id. at 584. 17 In a thorough opinion, the state supreme court discussed the three types of other insurance provisions: (1) pro rata clauses, which restrict the liability of concurring insurers to an apportionment basis; (2) excess clauses, which restrict the liability of an insurer to excess coverage (that pays out only after the primary coverage is exhausted); and (3) escape clauses, which avoid all liability in the event of additional coverage. Id. at 586. After evaluating the possible interpretations, the court announced the following rule of interpretation: 18 When, from the point of view of the insured, she has coverage from either one of two policies but for the other, and each contains a provision which is reasonably subject to a construction that it conflicts with a provision in the other concurrent insurance, there is a conflict in the provisions. 19 Id. at 589. After finding that the two policies conflicted (an escape clause vs. an excess clause), the court concluded that in such circumstances, Texas courts should ignore the conflicting provisions, and instead apportion liability pro rata and require both insurers to defend. Id. at 590. 20 This court has cautioned against applying overly narrow constructions of the Hardware Dealers rule. In one case, we expressly rejected an argument that distinguished Hardware Dealers when an escape clause and a pro rata clause conflicted. St. Paul Mercury Ins. Co. v. Lexington Ins. Co., 78 F.3d 202, 210 (5th Cir.1996). In a footnote, this court explained that  Hardware Dealers set forth a general principle for resolving conflicting `other insurance' clauses, and that principle controls our decision in this case. Id. at 210 n. 25. Using the interpretation method counseled by Hardware Dealers, this court determined that 21 Sanifill [the insured] would be entitled to full coverage under Landmark's policy were it not for the existence of Centennial's policy; and Sanifill would be entitled to full coverage under Centennial's policy were it not for the existence of Landmark's policy. In other words, Landmark's pro rata clause conflicts with Centennial's escape clause, so we must prorate liability. 22 Id. at 210. 23 Measured against St. Paul Mercury 's interpretation of Hardware Dealers, the district court read the Supreme Court's decision too narrowly, and incorrectly determined that no conflict existed between the Royal and Hartford provisions. The fact that Hartford's policy contained an escape clause and Royal's policy contained a pro rata clause does not distinguish this case from Hardware Dealers. According to St. Paul Mercury, this case appears to be just another permutation of the conflict explained in Hardware Dealers. Viewed from the perspective of Riverside, the insured, one finds that Hartford provides coverage for the underlying suit if Royal's policy did not exist. Similarly, one sees that Royal provides full coverage for the underlying suit if Hartford's policy did not exist. A reasonable construction of the two policies from this perspective yields a conflict. Therefore, the substantive step of Hardware Dealers applies: both Royal and Hartford are liable proportionally, and both had a duty to defend Riverside. 4