Scottsdale Indemnity Company v. National Continental Insurance Company

(Insurance policy scheduling tractor and trailer is deemed primary to policy affording coverage for tractor and trailer but not scheduling such vehicles)

In Scottsdale Indem. Co. v. National Continental Ins. Co., _____ Cal.App.4th ___ (September 17, 2014), the California Third District Court of Appeal affirmed the trial court’s entry of judgment in favor of National Continental Insurance Company (“NCI”) in connection with a dispute with Scottsdale Indemnity Company (“Scottsdale”) regarding the order of coverage afforded for defense and settlement of an underlying fatal accident involving a tractor and trailer operated by the named insured, Manuel Lainez. Scottsdale had issued a trucker’s liability policy to Lainez specifically scheduling a 1999 freightliner (i.e., “power unit” or “tractor”) which also expressly covered any attached trailer.

Lainez also entered into a motor carrier agreement with Western Transportation Services (“Western Transport”) a non-asset based corporation that contracts exclusively with owner / operators and arranges for them to pick up and deliver loads to various customers in California and Nevada. Western Transport did not own tractors or trailers, but contracts with the owner/operators or drivers. The agreement with Lainez provided that he was an independent contractor and was responsible for all costs and expenses incidental to the performance of transportation services. He agreed to maintain liability insurance and to name Western Transport as an additional insured. Further, Western Transport, through the California Automobile Assigned Risk Plan (“CAARP”) purchased a commercial assigned risk policy from NCI. The policy stated: “Named Insured’s Business: (1) “Trucker for Higher-Excess” and named Mr. Lainez as a driver. The policy did not list, describe or rate any vehicle.

On January 10, 2007, Lainez was hauling goods on behalf of Western Transport and was involved in a fatal accident with another vehicle. Subsequently, the wife of the deceased driver involved in the accident filed a lawsuit against Lainez. In turn, Lainez tendered the defense of the lawsuit to Scottsdale which agreed to defend and indemnify him up to its primary limits. Initially, Scottsdale acknowledged that the NCI policy afforded excess coverage for the accident. Subsequently, Scottsdale took the position that Insurance Code Section 11580.9, subdivision (h), applied to the accident such that NCI was required to share in the defense and indemnity of Mr. Lainez for the accident. NCI declined to contribute to the defense of the underlying lawsuit. However, it did contribute on a pro-rata basis to the settlement of such lawsuit subject to a reservation of rights to recover its contribution to such settlement. In turn, Scottsdale reserved its rights to recover a pro-rata share of defense costs incurred in connection with the lawsuit on behalf of Mr. Lainez.

Thereafter, Scottsdale filed a declaratory relief and contribution action against NCI. Subsequently, the trial court granted NCI’s motion for summary judgment and denied Scottsdale’s cross-motion for summary judgment and held that Insurance Code Section 11580.9, subdivision (d), controlled the outcome of the parties’ coverage dispute and not Insurance Code section 11580.9, subdivision (h). As such, the Scottsdale policy afforded primary coverage to Mr. Lainez for the underlying accident and the NCI policy afforded excess coverage.

In affirming the trial court’s decision, the Court of Appeal reasoned as follows:

Under section 11580.9, a policy that specifically describes a vehicle involved in an accident is primary to a policy that does not describe any vehicle. Subdivision (d) of section 11580.9 (subdivision (d)) provides in relevant part: “[W]here two or more policies affording valid and collectible liability insurance apply to the same motor vehicle or vehicles in an occurrence out of which a liability loss shall arise, it shall be conclusively presumed that the insurance afforded by that policy in which the motor vehicle is described or rated as an owned automobile shall be primary and the insurance afforded by any other policy or policies shall be excess.”

The trial court found that subdivision (d) was the more specific subdivision. The court explained: “In this situation, subdivision (d) appears to be the more specific subdivision as it applies where ‘two or more policies affording valid and collectible liability insurance apply to the same motor vehicle or vehicles in an occurrence out of which a liability loss shall arise, it shall be conclusively presumed that the insurance afforded by that policy in which the motor vehicle is described or rated as an owned automobile shall be primary and the insurance afforded by any other policy shall be excess.’ A vehicle is described or rated when it is ‘particularized’ in a policy. (Ohio Casualty Ins. Co. v. Aetna Ins. Co. (1978) 85 Cal.App.3d 521, 524 [149 Cal. Rptr. 562].) Given these undisputed facts, Scottsdale's policy is primary under Insurance Code section 11580.9(d) and NCI's is excess.”

We agree. The application of subdivision (d) is quite straightforward and determined by an answer to a simple question. “Whether section 11580.9, subdivision (d) applies to an occurrence depends upon the existence of the simply stated condition. Do two or more insurance policies cover the same motor vehicle in ‘an occurrence out of which a liability loss shall arise?’ If the answer is ‘yes,’ the statute applies. If the answer is ‘no,’ the statute does not apply.” (Wilshire Ins. Co., Inc. v. Sentry Select Ins. Co. (2004) 124 Cal.App.4th 27, 36 (Wilshire).) Scottsdale and NCI agreed that both policies applied to the rig. As a consequence, Scottsdale's policy is primary because it describes the 1999 Freightliner tractor-trailer rig.

Scottsdale insists that section 11580.9, subdivision (h) (subdivision (h)) was designed to either supersede or trump subdivision (d) in all cases involving a power unit and a trailer. In other words, Scottsdale maintains that subdivision (h), rather than subdivision (d), is the more specific subdivision applicable to the instant facts.

Subdivision (h) states: “Notwithstanding subdivision (b), when two or more policies affording valid and collectible automobile liability insurance apply to a power unit and an attached trailer or trailers in an occurrence out of which a liability loss shall arise, and one policy affords coverage to a named insured in the business of a trucker, defined as any person or organization engaged in the business of transporting property by auto for hire, then the following shall be conclusively presumed: If at the time of loss, the power unit is being operated by any person in the business of a trucker, the insurance afforded by the policy to the person engaged in the business of a trucker shall be primary for both power unit and trailer or trailers, and the insurance afforded by the other policy shall be excess.” Because Scottsdale's policy describes the vehicle and NCI's does not, Scottsdale's is primary and NCI's is excess.

. . .

But we disagree with Scottsdale that we should force application of subdivision (h) to a situation, as here, that was not intended or contemplated by the Legislature rather than to apply subdivision (d), which clearly and unequivocally applies to the facts and establishes the priority of coverage as explained by the trial court at some length. Scottsdale's coverage is primary because Lainez's truck was particularized on the policy, whereas NCI is secondary because his rig was not identified at all on its policy.

. . .

Thus we conclude that subdivision (d) specifically applies where, as here, there are two policies “affording valid and collectible liability insurance … to the same motor vehicle or vehicles in an occurrence out of which a liability loss [arose].” (Subd. (d).) Although the conclusive presumption set forth in subdivision (h) was intended to resolve the coverage disputes between insurers of power units and insurers of trailers, there is nothing in the statute or the legislative history to suggest it applies when two trucker's policies provide coverage to the entire rig. As a result, subdivision (d) is the more specific subdivision that applies and thereby renders the Scottsdale policy primary and the NCI policy excess.