Court Opinion

ID: 9543818
Source: CourtListenerOpinion
Date Created: 2023-08-07 16:49:31.077035+00
Date Added: 2024-06-11T15:11:16.012435
License: Public Domain

SUMMERS, Justice,
dissenting, and joined by LAVENDER, Justice and in part by SIMMS, Justice.
The question certified to us is as follows: Are the decisions in Hibbs v. Farmers Insurance Co., 725 P.2d 1232 (Okla.1985) and Smith v. Government Employees Insurance Co., 558 P.2d 1160 (Okla.1976) that when an insurance policy contains an excess insurance clause, primary coverage must be exhausted before the secondary insurer is liable, still good law in light of Buzzard v. Farmers Insurance Co., 824 P.2d 1105 (Okla.1991)?
The majority has “recast” the question asked by the Tenth Circuit to include questions not briefed by either party and not asked by the Tenth Circuit. The majority opinion reaches beyond the certified question in order to overrule long-standing case law, and in so doing invalidates any UM coverage which is contractually designated to be “excess.”
There is nothing wrong with the question asked by the Tenth Circuit. Indeed, the question goes to the very heart of the lawsuit. In Buzzard we refused to require the exhaustion of liability insurance limits before recovery of underinsurance benefits. Whether we would take a similar approach to exhaustion of primary UM coverage, contrary to the earlier Hibbs, was of understandable concern to the inquiring court. I respectfully dissent.
Primary insurance coverage is that coverage for which “under the terms of the policy, the insurer is liable without regard to any other insurance coverage available.” Equity Mut. Ins. Co. v. Spring Valley Wholesale Nursery, 747 P.2d 947, 954 (Okla.1987). Excess or secondary coverage is that coverage which comes into play after primary coverage has been exhausted. Buzzard v. Farmers Ins. Co., 824 P.2d 1105 (Okla.1991). An excess insurer is liable only for that amount of damage which is in excess of the coverage provided by the primary policy. Couch on Insurance, Section 62.48 at 484. This Court has long recognized the distinction and has permitted the two types of insurance to coexist. Keel v. M.F.A Ins. Co., 553 P.2d 153, 156 (Okla.1976); Niemeyer v. U.S. F. & G. Co., 789 P.2d 1318 (Okla.1990) (acknowledged the dichotomy in the uninsured motorist setting); Moser v. Liberty Mut. Ins. Co., 731 P.2d 406 (Okla.1986); Aetna Cas. & Sur. Co. v. State Bd. for Prop. & Cas. Rates, 637 P.2d 1251 (Okla.1981).
The terms “primary” and “excess” are not synonymous with “first party coverage” and “third party coverage.” First and third party coverage refer to the recipient of the money paid by the insurer. First party coverage, such as uninsured motorist coverage, requires payment by the insurance company to the insured person rather than to a person injured by the insured person. Uptegraft v. Home Ins. Co., 662 P.2d 681, 684 (Okla.1983). Third party coverage is purchased by the insured person, but is paid to an injured third party. Keeton & Widiss, Insurance law Section 4.10 at 411. The terms “first party coverage” and “third party coverage” refer to the person to receive payment from the insurance company, while “primary” and “excess” refer to the priority of payment. Keel v. M.F.A Ins. Co., 553 P.2d 153 (Okla.1976).
The majority opinion refuses to recognize these well-established definitions, instead appearing to equate primary coverage with first party coverage. The opinion states that the “other insurance” clause in the present case does not set the priority of payment. The majority goes on to conclude that all UM coverage must be primary. The first statement is incorrect and the latter a non sequi-tur.
The clause in question is clearly an excess insurance provision, which, contrary to the majority’s assertion, sets the priority of payment. The main purpose of such clauses is *538to set the priority of payment. Widiss, Uninsured and Underinsured Motorist Insurance, Vol. 1., Section 13.7; Farmers Ins. Co. v. Prudential Prop. & Cas. Ins. Co., 10 Kan.App.2d 93, 692 P.2d 393 (1984). The majority, while refusing to recognize that an insurer may contractually set the priority of payment and base its premiums on such priority, holds that such a purpose is contrary to the provisions of 36 O.S.1991 Section 3636. I disagree. We have stated that the purpose of Section 3636 is to “assure each person the full contracted coverage for personal injury damages caused by a financially irresponsible, tortious motorist for each premium paid.” Bohannan v. Allstate Ins. Co., 820 P.2d 787, 792 (Okla.1991). UM coverage is mandated unless expressly rejected by the insured. Section 3636 does not specify the priority of payment in eases such as this, and it is thus left to the parties to determine such priority.
Clauses such as the one in question do not dilute the strength of § 3636. The provisions have no effect unless there is other collectible insurance. If there is other collectible insurance there is no risk that the injured insured will be completely uncompensated; the other insurance company is primarily responsible for payment. If there is other collectible insurance the injured insured is protected, as are the goals of Section 3636. “Statutory policy is implicated only when insurers deny liability, not when they are in dispute as to which will provide primary coverage.” Equity Mutual, at 955.
The real issue here, as certified by the Tenth Circuit, is whether Buzzard v. Farmers Ins. Co., supra, affected the viability of excess insurance provisions in the arena of UM coverage. The answer should be yes. But its effects should not near as drastic as those chosen by the majority. In Buzzard we refused to require the exhaustion of liability insurance limits before recovery of under-insurance benefits. Buzzard did not involve an “other insurance” clause. There the insured brought a bad faith claim against the insurer for refusal to pay policy limits on underinsured motorist coverage. One of the insurer’s defenses was the failure to exhaust policy limits of the liability policy. We held that liability policy limits did not need to be exhausted before an underinsurer was required to investigate a claim. If the claimant’s damages exceeded the amount of primary liability insurance, we held that the UM insurer would be responsible for the amount above the policy limits of the liability insurer. If the insured had settled with the liability carrier for less than the liability policy limits, the underinsurer was not relieved of liability completely, but its responsibility did not include the “gap” between the settlement amount and the liability policy limits.
Buzzard ⅛ effect, if applied to this case, is to permit recovery of secondary or excess benefits without first exhausting the limits of primary benefits. To the extent of their policy limits the plaintiffs here should recover, from the excess UM carrier, the amount of their established damages in excess of the policy limits carried by the primary UM insurer. This rule avoids the possibility of the primary insurer making a token settlement and thereby shifting the main burden to the excess insurer. It also furthers this Court’s policy of permitting an insured to recover for all losses for which he or she has paid a premium. Furthermore, it is in line with the majority of sister jurisdictions which permit “excess” clauses to set the priority of payment without allowing an insurer to escape liability based on an “exhaustion of limits” requirement. In fact I have found no state which has completely invalidated “excess” insurance clauses. See Rucker v. Nat'l General Ins. Co., 442 N.W.2d 113 (Iowa 1989) (followed a Buzzard-like approach and upheld the “excess” provision while invalidating the “exhaustion of limits” requirement); Amer. States Ins. Co. v. Tollari, 362 N.W.2d 519 (Iowa.1985); Schultz v. Farmers Ins. Group, 167 Ariz. 148, 805 P.2d 381 (1991) (provision enforced to the extent necessary to avoid double recovery); Rossi v. State Farm Auto. Ins. Co., 318 Pa.Super. 386, 465 A.2d 8 (1983).
Most states, like Oklahoma, seem concerned with the insurer’s attempt to escape liability altogether by relying on the “exhaustion of limits” argument. The majority is concerned that if the “excess” clause is validated, Mustain’s UM carrier will escape lia*539bility even though Mustain has presumably paid for UM benefits. That company’s position with regard to its escape from liability is not consistent with the law in Oklahoma. Equity Mutual made clear that “other insurance” clauses cannot be used to cancel the liability of each insurer by leaving no primary coverage or by disclaiming liability if there is other available insurance. Id. at 954. Buzzard foreshadowed that such “escape” attempts will be futile. Oklahoma, through these rulings, has protected the insured in compliance with Section 3686. To that extent, Buzzard should be considered to have altered the consequences of Hibbs.
There is no reason to make the drastic leap made by the majority to invalidate “excess” clauses. These clauses serve valid functions. They establish which insurer has the duty to investigate and defend. The primary insurer has the first duty to defend. Appleman, Insurance Law and Practice, Section 4682. The excess insurer does not expect to be called on for these costs, and charges the insured accordingly. Id. Second, the clause guards against the duplication of benefits. Rossi, 465 A.2d at 9. Third, these clauses help keep the costs of premiums down.
For these reasons I agree with the majority’s conclusion that a UM insurer cannot be permitted to escape liability altogether through the use of an “other insurance” clause. However, I dissent from its reasoning that all UM coverage must be primary. Our prior case law has permitted the use of “excess” provisions to set the priority of payment. This use is consistent with Section 3636 and protects the uninsured motorist to the fullest extent without allowing a double recovery or forcing insurer to charge a larger premium for coverage. I would hold valid the “excess” insurance provision, but would follow Buzzard in doing away with the “exhaustion of limits” requirement. In so holding, the interests of all parties would be protected.