Personal Auto Policy Limited to Acts of Owner/Operator
Auto liability insurance policies promise to defend the insured. When more than one policy provides coverage the question of who owes a defense and indemnity to whom is often complex with multiple insurers pointing fingers at each other.
In United Financial Casualty Company v. Princeton Excess And Surplus Lines Insurance Company, No. 17-2909, United States Court Of Appeals For The Third Circuit (August 30, 2018) one, of multiple insurers, provided a defense and indemnity to all defendants (because the other insurers refused) and then sought indemnity or contribution from the other insurers.
The District Court granted United Financial Casualty Company’s Motion for Summary Judgment, and denied Princeton Excess and Surplus Lines Insurance Company’s Motion for Summary Judgment, which determined the parties’ respective duties to defend claims of direct and vicarious liability arising from a settled state court bodily injury lawsuit.
In January 2014 Joseph Nice—a delivery driver for courier service Prestige Delivery Services, Inc. (“Prestige”)—injured a mechanic, Kenneth Dunbar, in the course of delivering goods on behalf of Staples. In the wake of the accident, Dunbar filed a negligence suit in state court, asserting claims not only against Nice, but also against Prestige and Prestige’s client, Staples. Dunbar alleged that Nice was directly liable for his negligence. He also alleged that Prestige and Staples were (1) vicariously liable for Nice’s negligence under the doctrine of respondeat superior and (2) directly liable through theories of negligent hiring, supervision, and entrustment. United Financial Causality Company (“United”)—Nice’s insurance company—elected to provide a defense for all three defendants in the lawsuit.
United settled all claims with Dunbar.
United sued Princeton—Prestige’s insurance company—seeking (1) contribution on the vicarious liability claims and (2) a declaratory judgment as to which insurance policy (United’s or Princeton’s) was primary for the direct liability claims against both Prestige and Staples. United conceded that it was responsible for all costs of defending the direct claims against Nice and the vicarious liability claims against Prestige.
The parties cross-moved for summary judgment. Regarding the vicarious liability claim against Staples, the District Court found that Princeton was ninety-one percent responsible and United was nine percent responsible. Regarding the direct liability claims, the District Court found Princeton was primary and solely responsible for the cost of defending these claims. The District Court granted summary judgment in favor of United, awarding United $227,448.68 on the vicarious liability claim against Staples, and declaring Princeton solely responsible for the costs of defending the direct liability claims.
Princeton only appealed the District Court’s order with respect to its ruling on the direct liability claims. Princeton argues that the District Court erred in two ways: (1) by failing to recognize that United’s policy should have been primary with regard to the direct liability claims; and (2) by relying on the reasonable expectations doctrine to bolster the conclusion that United’s policy covered vicarious liability claims only.
The District Court held that United was explicitly relieved of responsibility for these claims by the policy’s own language. The United policy contains a definitions section that explicitly limits responsibility of the insured, i.e., Joseph Nice, to injuries that arise out of Nice’s direct conduct. Specifically, the policy states: “we will pay damages, other than punitive or exemplary damages; for bodily injury, property damage, and covered pollution cost or expense, for which an insured becomes legally responsible because of an accident arising out of the ownership, maintenance or use of that insured auto.”
Thus, as the District Court pointed out, “[t]he trigger for coverage is conduct on the part of the policy holder or an authorized driver. As a matter of simple logic, there is no coherent factual scenario where Nice, the delivery man, can be deemed negligent for hiring, or failing to supervise, himself.”
Both policies here [United and Princeton] are automobile policies, and the policy issued by Princeton was a commercial auto policy explicitly meant to protect Prestige from liability connected to the operation of vehicles in its business. Princeton was obligated to cover the direct liability claims asserted against Prestige.
With regard to the direct liability claims against Staples, we note that Princeton’s policy states that its coverage will be considered “primary” for any liability assumed under an “Insured contract.” An “Insured contract” is defined by Princeton’s Policy as: “That part of any other contract or agreement pertaining to your business . . . under which you assume the tort liability of another to pay for “bodily injury” or “property damage” to a third party or organization. Tort liability means a liability that would be imposed by law in the absence of any contract or agreement[.]”
The Delivery Service Agreement negotiated between Prestige and Staples states requires Prestige to indemnify and hold harmless Staples. Therefore, the contract between Prestige and Staples was an “Insured contract.” Accordingly, Prestige bears primary coverage for claims of direct liability against Staples.
The District Court found it persuasive that United’s policy extended only to acts which were the sole responsibility of Nice himself, making it “difficult to believe that United reasonably expected it was issuing coverage protecting third parties for the decision to hire him.” Since the wording of United’s policy suggests that it would not cover acts of a third party, it is more “reasonable” to assume that the courier service, in this case Prestige, would be held responsible for its own actions of hiring its workers—therefore, laying liability on Princeton and not United.
It should be logical and intelligent when more than one insurer potentially covers a loss for the insurers to work together to provide a defense or indemnity by sharing the costs of defense and indemnity. Then, after the insureds’ rights are protected, the insurers can resolve their differences by mediation, arbitration or suit. In this case only United stepped up to its obligation and obtained a judgment against the non-performing insurer.
© 2018 – Barry Zalma
This article, and all of the blog posts on this site, digest and summarize cases published by courts of the various states and the United States. The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.
Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. He is available at http://www.zalma.com and email@example.com.
Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.
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