Insurance – primary and excess clauses: STANDARD FIRE INS. CO. V. EMPIRE FIRE AND MARINE INS. CO. (COA 8/31/2007)

DATE RENDERED: 8/31/2007

The Standard Fire Insurance Company appealed from a summary judgment in which Standard was ordered to indemnify Empire Fire and Marine Insurance Company in the amount of $19,870.44, plus attorney fees and costs incurred in the settlement of third-party personal injury claims arising from an automobile accident. COA affirmed.

Standard had issued an insurance policy to the Kaelins on a 1999 Honda Accord, which the Kaelins had leased from Wells Fargo. When the Kaelins defaulted on the lease, Imperial Recovery went out to repossess it.  However, the Kaelins gave Imperial the keys to Richardson, the Imperial’s driver, who  had an accident on the way back to the storage facility.  Empire issued a garage policy to Imperial R which provided coverage for any “non-owned autos used in your garage business,” which business included the repossession of automobiles.

Richardson was at fault in causing the two-vehicle collision, and both insurance policies, that issued by Standard to the Kaelins and that issued by Empire to Imperial, remained infull force and effect on the date of the accident.  Empire settled with the injured driver and sought indemnity from Standard.

COA addressed three separate issues. First, did Standard’s policy provide coverage to Richardson for this accident? Second, did Empire’s policy provide such coverage? Third, if both policies apply, which policy is primary?

First, Richardson clearly had “a reasonable belief” that he was entitled to drive the Honda, and, in fact, he had implied permission from both Imperial and the Kaelins to drive the car. Imperial had given him clear instructions to repossess the automobile, and there is no evidence that he varied from his instructions by driving the vehicle instead of transporting it on the truck. Once he arrived at the Kaelin residence, they gave him the keys.  Therefore, Richardson had a “reasonable belief” that he was entitled to drive the 1999 Honda and that Standard’s insurance policy did apply and
provided liability coverage to Richardson at the time of this accident.

Empire admits that its policy provided coverage for this accident. Such coverage is the reason Empire paid the settlement claims in the first place. Therefore, both the Standard and the Empire policies apply in this case.

Kentucky law is well established that, “[w]hen the contest is between two insurers, the liability for a loss should be determined by the terms and provisions of the respective policies. . .” Chicago Ins. Co. v. Travelers Ins. Co., 967 S.W.2d 35, 37 (Ky.App. 1997) (quoting State Farm Mutual Automobile Ins. Co. v. Register, supra., at 706-707.)  “Furthermore, where the terms of an insurance policy are clear and unambiguous, the policy should be enforced as written.” Chicago Ins. Co., supra, at 37. Thus, this Court will look to the strict language of the insurance policies in determining which coverage is primary, rather than to public policy.

Although the Kaelins could have cancelled the policy at time of repossession, they had not.  Thus the vehicle was an "owned" rather than a "non-owned" vehicle with coverage provided by Standard.

Kentucky law is well settled that when a policy containing a pro rata “other insurance” clause conflicts with a policy having an excess “other insurance” clause, the policy with the pro rata provision should be applied first and the policy with the excess clause would become effective only when the first policy is exhausted. Hartford Ins. Co. v. Kentucky Farm Bureau Ins. Co., 766 S.W. 2d 75 (Ky. App. 1989).

Pursuant to the terms of the two insurance policies, Standard’s policy provides the primary liability insurance for this accident and Empire’s policy provides only excess coverage. Therefore, Empire is entitled to reimbursement from Standard for the sums it paid on behalf of its insured to the injured parties.    Therefore, Empire is entitled to reimbursement from Standard for the amount of its settlement of those claims, as well as its costs and fees incurred.

As an FYI, Judge Tom Wine was the trial judge who granted summary judgment in this matter.

By Michael Stevens

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