RENDERED: AUGUST 25, 2016
TO BE PUBLISHED
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2014-SC-000265-DG
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COUNTRYWAY INSURANCE COMPANY
nAT 9/61//6g2e664,914
APPELLANT
ON REVIEW FROM COURT OF APPEALS
V. CASE NO. 2012-CA-002051-MR
WARREN CIRCUIT COURT NO. 10-CI-00689
UNITED FINANCIAL CASUALTY APPELLEES
INSURANCE COMPANY AND
SHARON BARTLEY
OPINION OF THE COURT BY JUSTICE HUGHES
REVERSING AND REMANDING
This Court granted the motion for discretionary review by Countryway
Insurance Company, a New York corporation, in its dispute with United
Financial Casualty Company,' over how to apportion damages between the
two, both insurers having provided uninsured motorist (UM) coverage to a
passenger injured in an automobile accident in Bowling Green, Kentucky. In
light of what it deemed mutually repugnant "other insurance" clauses in the
1 The record does not make clear where United Financial is registered and
headquartered. The original complaint named Progressive Casualty Insurance
Company, a Kentucky corporation, as the insurer of the accident vehicle, but during
the pendency of the action before the Court of Appeals the parties jointly moved to
"correct designation of appellee" by substituting United Financial for Progressive. The
.
joint motion does not explain the relationship between the two companies. The Court
of Appeals granted the motion whereby the appellee in that case came to be referred to
as United Financial.
two policies, the Warren Circuit Court ordered the companies to share the
damages pro rata, in proportion to their respective policy limits. Countryway
appealed from that decision to the Court of Appeals, contending that the
damages should not have been divided at all, but should have been
apportioned entirely to United Financial, the insurer of the accident vehicle. To
Countryway's dismay, the Court of Appeals panel decided that that argument
was half right: the Court agreed that the damages should not have been
divided, but in its view Countryway, the insurer of the injured passenger, bears
primary, and in this case full, responsibility for the passenger's UM claim. We
accepted review to consider the Court of Appeals panel's application of
Kentucky Farm Bureau Mut. Ins. Co. v. Shelter Mut. Ins. Co., 326 S.W.3d 803
(Ky. 2010) (Shelter), a case in which we addressed competing "other insurance"
clauses in two auto insurance liability policies. The Court of Appeals departed
somewhat from our approach in Shelter because of the different type of
coverage—uninsured motorist (UM)—involved in this case. Convinced that the
Court of Appeals needlessly distinguished the two types of coverage, we reverse
the decision of the Court of Appeals and remand the matter to the Warren
Circuit Court for entry of an appropriate order in favor of Countryway.
RELEVANT FACTS
As is often the case in insurance apportionment contests, the pertinent
facts are not in dispute and may be briefly stated. On about September 27,
2007, on Morgantown Road in Bowling Green, Sharon Bartley, a resident of
Barren County, Kentucky, was riding as a passenger in a semi-tractor owned
2
and operated by her son, Joey Bartley. The semi-tractor was involved in a
collision with a 1994 Pontiac Sunbird owned and operated by an uninsured
driver, that driver's negligence being the sole cause of the collision. Sharon
Bartley suffered significant injuries as a result of the accident.
Joey Bartley's semi-tractor was insured by United Financial. The United
Financial policy included uninsured motorist coverage of $50,000 per
person/$100,000 per accident. Sharon Bartley, as a "person occupying [the]
insured auto," was an additional insured under that portion of the policy. Ms.
Bartley's personal vehicle was insured by Countryway under a policy that also
included uninsured motorist coverage, the limits of which were $100,000 per
person/$300,000 per accident. As the family member and spouse of the
policy's named insured, Sharon Bartley was an insured under this portion of
Countryway's policy.
Although neither insurer denied that Bartley was an insured under its
respective policy, both denied her claim for UM benefits on the ground that the
other company's liability came first. As a result, Bartley brought suit in the
Warren Circuit Court in April 2010 seeking, among other things, a declaration
as to which carrier's coverage should apply. In June 2011, Countryway moved
for a "determination of priority," and while that motion was pending, in
December 2011 (more than four years after the accident), United Financial,
without waiving its position in the priority dispute with Countryway, settled
Bartley's claim for $22,500.
3
The UM provisions of both policies include "other insurance" clauses.
United Financial's policy provides as follows:
If there is other applicable uninsured or underinsured motorist
coverage, we will pay only our share of the damages. Our
share is the proportion that our limit of liability bears to the
total of all available coverage limits. However, any insurance
we provide shall be excess over any other uninsured or
underinsured motorist coverage, except for bodily injury to
you [the named insured] and, if the named insured is a natural
person, a relative when occupying an insured auto or
temporary substitute auto.
(emphasis in original) The policy defines a "relative" as "any person living in
the household in which the named insured resides who is related to the named
insured by blood, marriage, or adoption, including a ward or foster child."
Sharon Bartley was not a named insured on her son's policy, and, since she
did not reside with her son, she was not his "relative" either, for policy
purposes. United Financial thus insisted that the UM coverage provided to
Bartley as a vehicle occupant was excess over other UM coverage.
The Countryway policy's "other insurance" clause provides that
[i]f there is other applicable insurance similar to the insurance
provided by this endorsement, we will pay only our share of the
loss. Our share is the proportion that our limit of liability
bears to the total of all applicable limits. However, any
insurance we provide with respect to a vehicle you do not own
shall be excess over any other collectible insurance similar to
the insurance provided by this endorsement.
Since Bartley was injured while a passenger in a vehicle she did not own,
Countryway's UM coverage was thus also "excess" according to the policy.
Coverage under both policies being "excess," United Financial argued
before the trial court that the rule of "mutual repugnance" applied. Under that
4
rule, competing excess clauses, such as these appear to be, effectively nullify
each other, leaving the two companies co-insurers with the obligation to
provide pro rata coverage with respect to any remaining liability up to the policy
limits. Progressive Northern Ins. Co. v. Conner, 2006 WL 318819 (E.D. Ky.
2006) (applying this rule in a similar case involving a claim for underinsured
motorist benefits and citing Hamilton Mut. Ins. Co. v. U.S. Fid. & Guar. Co., 926
S.W.2d 466 (Ky. App. 1996)).
Countryway argued against the pro rata result on the ground that United
Financial's attempt to limit its coverage of certain occupants of the insured
vehicle to excess coverage was contrary to an established practice in Kentucky
whereby vehicle insurers provided primary coverage to all vehicle occupants.
That practice is purportedly reflected in American Auto. Ins. Co. v. Bartlett, 560
S.W.2d 6 (Ky. 1977); Hamilton Mut. Ins. Co., supra; and Metcalf v. State Farm
Mut. Auto Ins. Co., 944 S.W.2d 151 (Ky. App. '1997).
United Financial's denial of primary coverage to an insured vehicle
occupant was also contrary, Countryway maintained, to this Court's then
recent decision in Shelter, supra, in which we discerned in the Motor Vehicle
Reparations Act (MVRA), Kentucky Revised Statute (KRS) Chapter 304,
Subchapter 39, a strong legislative policy favoring the expeditious settlement of
auto injury liability claims. That policy was being frustrated, the Court
explained in Shelter, by insurance company efforts to avoid primary coverage in
favor of excess coverage. To curtail those efforts, at least in the context of auto
liability insurance, the Court held that, notwithstanding an "other insurance"
5
clause, the insurer of the accident vehicle has primary responsibility for
liability coverage to the extent of its policy limits. Similarly, Countryway
argued, the accident vehicle insurer should be deemed primarily liable to
injured vehicle occupants for UM benefits. The trial court rejected these
arguments by Countryway and agreed with United Financial that the insurers'
competing excess provisions essentially cancelled each other, leaving the
companies liable for Bartley's damages on a pro rata basis.
Countryway, as noted above, appealed from that decision to the Court of
Appeals. That Court agreed with Countryway that the concerns this Court
expressed in Shelter, concerns about frequent, lengthy apportionment disputes
clogging the arteries of the accident-victim compensation process, applied no
less to UM-based compensation claims than they did to liability-based claims.
Accordingly, the panel concluded, "[a]bolishing the rule of apportionment for
UM coverage is a logical and natural extension of Shelter. It will undoubtedly
lead to quicker payment to injured victims of uninsured motorists, cut down on
the battle of the forms, and reduce litigation." Countryway Ins. Co. v. United
Fin. Cas. Co., No. 2012-CA-002051-MR, p. 13 (January 24, 2014).
In the panel's view, however, indemnity insurance (so-called first-party
insurance), such as UM coverage, is unlike the liability insurance at issue in
Shelter (so-called third-party insurance), in that indemnity insurance is
"personal to the insured," and has been said to "follow the person, not the
vehicle." The Court rejected, therefore, the Shelter rule fixing primary liability
coverage on the insurer of the accident vehicle, and held that primary UM
6
coverage would be fixed instead on the "UM policy covering the injured person,
in this case, Countryway's policy." Countryway v. United Fin., pp. 15-16.
It is this latter determination making the accident victim's insurer
primarily liable for UM compensation, rather than the accident vehicle's
insurer, that Countryway contests and has asked us to review. As Countryway
sees it, this part of the Court of Appeals' decision is both wrong and
unauthorized. It is wrong because it ignores a general rule, a rule at least
latent in our case law, which places primary UM liability on the insurer of the
owner of the vehicle involved. And it is unauthorized because it goes beyond
the questions asked by Countryway's appeal—did the trial court err by finding
both UM coverages excess and pro rating the liability instead of deeming
United Financial the primary insurer?—to address a different question—should
Countryway be deemed the primary insurer?—that United Financial could
have, but did not, ask by way of cross-appeal. Fischer v. Fischer, 348 S.W.3d
582, 594 (Ky. 2011) (citing Brown v. Barkley, 628 S.W.2d 616 (Ky. 1982),
concerning necessity of cross-appeal); and cf. Greenlaw v. United States, 554
U.S. 237, 244-45 (2008) (noting rule in federal courts that "it takes a cross-
appeal to justify a remedy in favor of an appellee."). Because we agree with
Countryway that the Court of Appeals erred by fixing primary liability for UM
coverage on the accident victim's insurer instead of on the insurer of the
accident vehicle, we need not address Countryway's latter, alternative ground
for relief.
7
ANALYSIS
Automobile insurance policies are contracts, and of course, generally the
contract's terms (including apportionment provisions) are to be enforced as
intended and reasonably understood by the parties unless such terms are
prohibited by statute or violate a clearly established public policy. York v. Ky.
Farm Bureau Mut. Ins. Co., 156 S.W.3d 291, 294 (Ky. 2005) ("The terms of an
insurance contract must control unless [they] contravene public policy or a
statute.") (citation and internal quotation marks omitted); Marcum v. Rice, 987
S.W.2d 789 (Ky. 1999). For the most part, moreover, while the General
Assembly has mandated certain automobile insurance coverages, it has not
expressly addressed whether a particular coverage is to be deemed primary ;_
The major exception to that silence is KRS 304.39-050(1) providing in pertinent
part (emphasis supplied) that "[t]tle basic reparation insurance applicable to
bodily injury to which this subtitle applies is the security covering the vehicle
occupied by the injured person at the time of the accident." Also to be noted,
although not a directive, KRS 304.39-110(2) provides in part (emphasis again
supplied) that "[s]ubject to the provisions on approval of terms and forms, the
requirement of security for payment of tort liabilities may be met by a contract
the coverage of which is secondary or excess to other applicable valid and
collectible liability insurance." This provision certainly allows for liability
policies with "other insurance" clauses and, at least prior to Shelter, may have
been thought to authorize, or even require, courts to "referee the battle of the
draftsmen" in the event of dueling excess clauses. 326 S.W.3d at 808.
8
The general rule favoring freedom of contract and the statutory allowance
of secondary liability coverage must be understood, however, in conjunction
with the fact that auto insurance is a business subject to extensive regulation
under the MVRA and other portions of the insurance code, and one deeply
pervaded by the MVRA's basic purpose of improving, simplifying, and
streamlining Kentucky's auto-accident reparations system. Mitchell v. Allstate
Ins. Co., 244 S.W.3d 59 (Ky. 2008). That fundamental purpose trumped
contract considerations, we held in Shelter, where a priority dispute between
the vehicle's and the permissive driver's liability insurers raised the specter of
uncertainty and delay at the expense of an accident victim in need of
reparations.
As we were in Shelter, therefore, we are again confronted by two
questions. First, should the contracts be the focus of analysis and their "other
insurance" clauses be given effect to the extent possible, as was the approach
of the trial court; 2 or is the "battle of the forms" with respect to UM
apportionment in this case as out of keeping with statutory goals and purposes
as we held it was in Shelter with respect to liability apportionment, so as to
require, as the Court of Appeals held, that the insurers' UM "other insurance"
provisions be disregarded in favor of a more bright-line rule? Second, if there
2 The trial court's approach was that of a (large) majority of other jurisdictions.
A. S. Klein, Uninsured motorist insurance: validity and construction of "other insurance
provisions, 28 A.L.R.3d 551 (1969, updated weekly); Scott M. Seaman and Jason R.
Schulze, Allocation of Losses in Complex Insurance Coverage Claims, Chapter 5.
Reallocation among Insurers Through "Other Insurance" Clauses, § 5:4 (2015)
(providing numerous citations to cases illustrating the various permutations of
competing "other insurance" clauses).
is to be a rule, on whom is it to fall: the insurer of the vehicle, as we held in
Shelter was appropriate as between vehicle and permissive-driver liability
insurers, or on the passenger's insurer, as the Court of Appeals deemed
appropriate in the UM context? Because these questions involve only issues of
law, whether contract construction or statutory interpretation, our standard of
review is de novo: while we appreciate and have benefited from the thoughtful
analyses of the courts below, we review them without deference. Dowell v. Safe
Auto Ins. Co., 208 S.W.3d 872, 875 (Ky. 2006).
I. The Competing "Other Insurance" Clauses Should Be Disregarded.
Turning first, then, to the question of whether the "other insurance"
clauses of the two policies need be grappled with (trial court) or should be
disregarded (Court of Appeals), we agree with the Court of Appeals that there is
no meaningful distinction between the clauses at issue here and those deemed
at odds with the MVRA statutory intent in Shelter. In both cases the "other
insurance" provisions were designed to narrow the insurer's primary coverage
and to broaden the circumstances in which its coverage would be excess. In
Shelter, we noted how at odds with the mandates of the MVRA is an insurer's
practice of collecting a primary-coverage premium "while hiding behind an
excess clause that purports to subvert its primary liability for that of another."
Shelter, 326 S.W.3d at 812. Similar concerns have led other courts to interpret
their state's compulsory coverage statutes as placing primary responsibility for
liability or UIM coverage on the vehicle owner's insurer. Bowers v. Alamo Rent-
A-Car, Inc., 965 P.2d 1274, 1277-81 (Haw. 1998) (liability); State Farm Mut.
10
Auto. Ins. Co. v. Clarendon Nat'l Ins. Co., 604 A.2d 384, 387-90 (Del. 1992)
(liability); State Farm Mut. Auto. Ins. Co. v. Enterprise Leasing Co., 549 N.W.2d
345 (Mich. 1996) (liability); State Farm Mut. Auto. Ins. Co. v. Safeco Ins. Co., 298
P.3d 452 (N.M. 2013) (citing, Branchal v. Safeco Ins. Co. of America, 738 P.2d
1315, 1316 (N.M. 1987) (UIM)).
We also discussed at length in Shelter the burden on courts, trial courts
especially, of having continually to construe such "other insurance" clauses as
they evolve in response to competitors and to court rulings, and we observed
the difficulty of providing a satisfactory remedy in the (not infrequent) event
that the clauses negate each other so that neither can be enforced. 326
S.W.3d at 807-811. 3 Those difficulties are no less present in the UM context
than they are in the context of liability coverage.
3 The problem of coordinating concurrent insurance coverage is by no means
new. By the middle of the twentieth century, with insurance coverages proliferating,
courts and commentators had become familiar with the conundrums posed by
competing "other insurance" provisions. Note, Concurrent Coverage in Automobile
Liability Insurance, 65 Colum. L. Rev. 319 (1965) (Note). Because such provisions
frequently apply only when there is "other valid and applicable coverage," one problem
that often arises with competing provisions is that one cannot tell whether provision A
applies without knowing whether provision B applies, but likewise provision B's
applicability depends on provision A's. As early as 1959, intractable problems such as
this led the Supreme Court of Oregon simply to disregard competing "other insurance"
clauses and to pro rate the affected coverages. Lamb Weston, Inc. v. Oregon Auto. Ins.
-
Co., 341 P.2d 110 (Ore. 1959) (citing Oregon Auto. Ins. Co. v. United States Fid. & Guar.
Co., 195 F.2d 958 (9th Cir. 1952)). While the so-called Oregon rule has been criticized
for riding rough shod over the parties' rights to contract, it has also attracted a fair
number of followers. Hasse, Is There a Solution to the Circular Riddle? The Effect of
"Other Insurance" Clauses on the Public, the Courts, and the Insurance Industry, 25
S.D. L. Rev. 37 (1980); Marcy Louise Kahn, The 'Other Insurance' Clause, 19 Forum
591 (1984); Susan Randall, Coordinating Liability Insurance, 1995 Wis. L. Rev. 1339
(1995) (Randall) (recognizing the problem inherent in applying a contract approach to
priority disputes between insurers that do not have a contractual relationship).
Despite this long-standing and widespread dissatisfaction with the policy-by-policy
approach to the problem of concurrent coverages, it is a problem that thus far has
11
In both Shelter and this case, moreover, the insurers' competing efforts to
shift primary liability led to litigation between them, and while in Shelter that
litigation apparently did not delay the accident victim's compensation, here it
appears to have done so—Bartley waited four years for compensation to which
both insurers agreed from the outset she was entitled. As we noted in Shelter,
such delay is clearly at odds with the MVRA's basic purpose of assuring
prompt victim reparation, and just as clearly it is a likely occurrence when
there is a priority dispute given dueling "other insurance" clauses.
Notwithstanding this sort of negative effect on the "quality" of mandatory
insurance coverage, several courts have held that because, ultimately, they do
not affect the "quantity" of coverage, "other insurance" apportionment clauses
do not contravene the public policy embodied in motor vehicle compensation
statutes. As those courts see them, "provisions that merely establish the
priority of coverage among insurers" do not compromise coverage for insureds.
State Farm Mut. Auto Ins. Co. v. Powers, 732 A.2d 730, 734 (Vt. 1999) (citing
cases); Shelter Mut. Ins. Co. v. Mid-Century Ins. Co., 246 P.3d 651, 659 (Colo.
2011) ("[T]he excess clause cannot properly be considered a reduction in
coverage.").
been left to the courts and, not surprisingly absent industry or legislative direction,
has defied general solution. Douglas R. Richmond, Issues and Problems in "Other
Insurance," Multiple Insurance, and Self-Insurance, 22 Pepp. L. Rev. 1373 (1995); J.
Stephen Berry, Jerry B. McNally, Allocation of Insurance Coverage: Prevailing Theories
and Practical Applications, 42 Tort Trial 8s Ins. Prac. L. J. 999 (2007).
12
As we explained in Shelter, however, under our statutory scheme, injured
insureds are entitled not just to compensation someday, but to prompt
payment without "the uncertainty and potential delays of the litigation
necessary to establish—and re-establish—the priority and coverage from which
reparations are to be made." Shelter, 326 S.W.3d at 807. Even when deciding
against the course we took in Shelter and attempting to give effect to "other
insurance" clauses, other courts have recognized this dilemma. The Supreme
Court of Colorado put the lament this way:
We are aware that because our decision today gives insurers
greater license to use other-insurance clauses, insurers may
increasingly turn to the courts to resolve conflicts between
more frequently used and sophisticated other-insurance
clauses; this is not desirable for several reasons, the principal
one being that other-insurance disputes may frustrate the
prompt payment of claims to insureds.
Shelter v. Mid-Century, 246 P.3d at 664 (citing Schoenecker v. Haines, 277
N.W.2d 782, 786-87 (Wis. 1979), and Hindson v. Allstate Ins. Co., 694 A.2d
682, 685-86 (R.I. 1997)).
This case illustrates the importance of that point, and makes clear that
our reasons in Shelter for "declin[ing] . . . to further embroil Kentucky courts in
unduly complicated two-step insurance policy interpretations of continually
emerging and changing insurance avoidance clauses," 326 S.W.3d at 805,
apply just as much to priority disputes between vehicle and passenger insurers
in UM cases as to similar disputes between vehicle and permissive-driver
insurers in liability cases. We agree with the Court of Appeals, accordingly,
that between such insurers, lalbolishing the rule of apportionment for UM
13
coverage is a logical and natural extension of Shelter." Countryway v. United
Financial, supra.
II. The Vehicle Owner's Insurer Bears Primary Responsibility For UM
Coverage.
Turning then to the second question this case raises—i.e., having
determined that a bright line rule of primary coverage is appropriate, upon
which insurer should that responsibility fall?—we do not agree with the Court
of Appeals that differences between the liability insurance at issue in Shelter
and the indemnity (UM) insurance at issue here require that primary
responsibility for UM coverage be assigned to the injured passenger's insurer
and not, as in Shelter, to the insurer of the accident vehicle. In insisting that,
unlike third-party liability coverage, first-party UM coverage is "personal" to the
insured, the Court of Appeals appears to have conflated the distinction between
liability and indemnity insurance, on the one hand, and that between insureds
of the first class—in personal policies, often the named insured and the named
insured's resident family members—and insureds of the second class—persons
covered only because of their use of or otherwise close involvement with the
covered vehicle.
As this Court noted in Ohio Cas. Ins. Co. v. Stanfield, 581 S.W.2d 555,
557 (Ky. 1979), a UM stacking case, "[t]he protection afforded the first class is
broad. Insureds of the first class are protected regardless of their location or
activity from damages caused by injury inflicted by uninsured motorists." 581
S.W.2d at 557. See KRS 304.20-020, "Uninsured vehicle coverage." As Shelter
illustrates, of course, a first-class insured's liability coverage is likewise
14
"personal" in this sense, following him or her as a permissive operator of
another owner's vehicle. And so too a first-class insured's UIM coverage
applies to the insured's use, as a passenger, say, of non-owned vehicles.
James v. James, 25 S.W.3d 110 (Ky. 2000).
"As to the second class of insureds, however, . . . it is clear that their
protection is confined to . . . [claims arising] while they are 'occupying an
insured . . . vehicle."' Stanfield, 581 S.W.2d at 557. See also, Shelter and
James. 4
Thus, in Dupin v. Adkins, 17 S.W.3d 538 (Ky. App. 2000), a case the
Court of Appeals panel relied on in making its purported distinction between
the liability coverage at issue in Shelter and the "personal" indemnity coverage
at issue here, the Court did indeed note that the UIM coverage at issue in that
case was "personal" to the insured, but it was so not because it was indemnity
insurance as opposed to liability insurance, it was "personal" rather because
the claimant was a named, premium-paying insured claiming under his own
policy, i.e., an insured of the first/class. The Dupin Court rejected, as
inconsistent with the UIM statute, an insurance company contention that
insureds of the first class, like those of the second, were only covered when
,
injured while occupying one of the insured's covered vehicles. Dupin did not
4 And see Note, supra, at 319-20, explaining that concurrent coverage issues
commonly arise where, as in this case, a non-owner has used another's vehicle and
coverage is provided by both an "omnibus" clause in the vehicle owner's policy,
providing coverage, whether liability or indemnity, to anyone—second-class insureds—
using the described automobile with permission of the named insured, and a "use
other car" clause in the claimant's own policy—first-class insured.
15
address a concurrent-coverage priority issue, or suggest in any way how such
an issue might be decided, much less that it should be decided at the expense
of the injured person's "personal" insurer. We reject, therefore, the Court of
Appeals panel's distinction between indemnity coverage and liability coverage
and its conclusion that because the former is "personal" to the insured (the
latter is just as "personal" for first-class insureds), a priority dispute between
the "personal" insurer and the vehicle owner's insurer should henceforth be
resolved against the injured person's own insurer.
In Shelter, we held that the liability coverage a vehicle owner's policy
extended to permissive drivers should be deemed primary vis-à-vis the driver's
policy's "non-owned vehicle" coverage. That holding, we explained, was in
accord with the MVRA's requirement that every vehicle owner procure liability
insurance covering use of the vehicle, and with the General Assembly's express
intent that the MVRA provide a system wherein, "in the event of an accident,
the liable insurer will be readily identifiable and will promptly pay, up to its
policy limits, for the injuries suffered." Shelter, 326 S.W.3d, at 811. Cf.
Bowers v. Alamo Rent-A-Car, Inc., supra; State Farm Mut. Auto. Ins. Co. v.
Clarendon Nat'l Ins. Co., supra; and State Farm Mut. Auto. Ins. Co. v. Enterprise
Leasing Co., supra (all holding that statutes requiring vehicle owners to obtain
liability insurance coverage for permissive users of their vehicles implicitly
required that such coverage be primary notwithstanding policy provisions
attempting to shift primary responsibility to the insurer of the permissive user).
The General Assembly's apparent intent, we also noted, was in keeping with a
16
"'general rule which places primary liability on the insurer of the owner of the
automobile involved rather than on the insurer of the operator, where we are
dealing with the standard automobile liability policy."' Shelter, 326 S.W.3d at
810 (quoting U.S. Fid. & Guar. Co. v. Safeco Ins. Co. of America, 522 S.W.2d
809, 821 (Mo. 1975)).
Relying on American Auto. Ins. Co. v. Bartlett, 560 S.W.2d 6 (Ky. 1977),
Metcalf v. State Farm Mut. Auto. Ins. Co., 944 S.W.2d 151 (Ky. App. 1997), and
Hamilton Mut. Ins. Co. v. United States Fid. & Guar. Co., 926 S.W.2d 466 (Ky.
App. 1996), Countryway contends that under Kentucky law a similar "general
rule" also places primary liability on the insurer of the accident vehicle with
respect to UM coverage. Indeed, high courts in other states have recognized
the "rule" that "the insurer of a vehicle involved in a collision has primary UIM
[or UM] coverage for the passengers of that vehicle, while the insurer of a
passenger in that vehicle has excess coverage for that passenger." Elrod v.
General Cas. Co. of Wisconsin, 566 N.W.2d 482, 486 (S.D. 1997) (citing cases
and treatises). This "rule," however, is not, as Countryway would have it, a
constraint on insurance practice (Countryway does not tell us whence such a
constraint would arise), but is an acknowledgment rather of what that practice
very often was and is. A great many automobile insurance policies, liability
policies as well as those providing UM or UIM coverage (such as Countryway's
UM policy in this case, for example), extend primary coverage, through some
sort of omnibus provision, to permissive users or occupants of the covered
vehicle, and excess coverage, through some sort of "non-owned-vehicle" "other
17
insurance" clause, to named insureds operating or using the vehicles of others.
Where two such policies compete, the vehicle owner's policy is regularly held to
provide—by its terms—the primary coverage. Randall, 1995 Wis. L. Rev., at
1376-77 (offering an underwriting account of this "standard auto policy").
The trilogy of cases to which Countryway refers us illustrates this "rule,"
for in each of these cases persons injured while occupying non-owned vehicles
were found to have primary UM (or UIM) coverage by virtue of a provision
providing for such in the vehicle owner's policy, 5 and excess UM coverage
through the non-owned vehicle provisions of their own policies. Those cases do
not say, however, that auto insurance policies may never deviate from that
common pattern, and when they do the "general rule" does not, at least not by
itself, provide much guidance. Shelter Mut. Ins. Co. v. American Family Mut.
Ins. Co., 210 S.W.3d 338, 341 (Mo. App. 2006) (noting that the "general rule"
referred to in United States Fid. & Guar. Co. v. Safeco Ins. Co., supra, of primary
liability coverage falling on the vehicle owner does not apply where the policy at
issue is "not standard" and "avoids the general rule"). United Financial's
policy here, of course, is not "standard" in that, by its terms at least, it does not
provide primary coverage to all permissive users of the covered vehicle, but
purports, rather, to limit primary coverage to named insureds and to provide
other permissive users of the vehicle excess coverage only.
5 In Bartlett, to be sure, the Court presumed the vehicle owner's policy provided
primary coverage, but it did so, it appears, because that policy had not been made a
part of the record and the presumption was appropriate in light of the parties'
positions and burdens of proof.
18
We made reference to the (liability coverage) "general rule" in Shelter, not
so much as a rule of law dictating the outcome, but rather as a "rule" of
insurance practice that shed valuable light on the General Assembly's likely
intent in making vehicle owners responsible for providing liability coverage, not
only for themselves, but also for others who use the covered vehicle with
permission. Given the MVRA's insistence that vehicle owners provide liability
coverage for the use of their vehicles, and its emphatic aim that that coverage
be effective at providing assistance to persons injured by automobiles, we had
little trouble viewing with scepticism "other insurance" clauses departing from
the "general rule" by attempting to shift primary coverage to permissive drivers.
Such "other insurance" clauses complicate and delay the determination of
primary coverage, and thus impair, or at least threaten, the effectiveness of the
mandated coverage contrary to the "simpler [and less litigious] is better" spirit
and intent of the MVRA. Shelter, 326 S.W.3d at 810 (citing Mitchell v. Allstate
Ins. Co., 244 S.W.3d at 63).
( In attempting to discern whether a similar legislative intent informs the
UM statutory provisions, our attention is drawn initially to some apparent
differences in the two statutory schemes. For one, vehicle owners are not
required to obtain UM coverage as they are required to maintain liability
coverage. UM coverage is strongly encouraged, however, for it must be offered
to vehicle owners in conjunction with the mandatory liability coverage, and UM
coverage will be deemed included in the contract unless rejected in writing by
19
the owner. 6 Meridian Mut. Ins. Co. v. Siddons, 451 S.W.2d 831 (Ky. 1970)
(holding that implied UM coverage in a liability policy that did not mention it
was available for stacking).
Another seeming difference between the two statutes, is that the UM
statute, which appears in subchapter 20 of the Insurance Code (the "casualty
insurance contracts" subchapter), is not technically a part of the MVRA-
subchapter 39—and so not directly within the MVRA's declarations of purpose,
which figured so prominently in Shelter. This difference, however, reflects
historical accident rather than legislative intent, 7 and we have observed that no
less than its MVRA sibling, the UIM statute (KRS 304.39-320), the UM statute
must be construed in light of and in accord with the MVRA. State Farm Mut.
Auto. Ins. Co. v. Fletcher, 578 S.W.2d 41, 43 (Ky. 1979) (explaining that UM and
MVRA provisions "are in pari materia and must be harmonized"); Coots v.
Allstate Ins. Co., 853 S.W.2d 895, 898 (Ky. 1993) (noting that UM and UIM
coverages serve, basically, "the same purpose and follow[] the same pattern").
6 KRS 304.20-020 provides in pertinent part that "[n]o automobile liability or
motor vehicle liability policy of insurance insuring against loss resulting from
liability . . . shall be delivered or issued for delivery in this state with respect to any
motor vehicle registered or principally garaged in this state unless coverage is provided
therein or supplemental thereto, . . . for the protection of persons insured thereunder
who are legally entitled to recover damages from owners or operators of uninsured
motor vehicles because of bodily injury, sickness or disease, including death, resulting
therefrom; provided that the named insured shall have the right to reject in writing
such coverage."
7 See Cooper, Uninsured Motorist Coverage—Charting the Kentucky Course, 62
Ky. L. J. 467 (1973-74), and Note, Kentucky No-Fault: An Analysis and Interpretation,
65 Ky. L. J. 466 (1976-77), for accounts of the statutory beginnings.
20
We are left, then, with the close conjunction of insurer-mandated UM
coverage and insurer-and owner-mandated liability coverage. This conjunction
readily suggests a legislative awareness of the "general rule" whereby the
vehicle owner's primary responsibility for liability coverage is coupled with an
understanding that his or her provision of UM coverage will also be primary. It
may well be that the General Assembly did not initially envision this "general
rule" as an actual rule. Cf. KRS 304.39-110 (1974) (providing that secondary
coverage could satisfy some coverage requirements). As we indicated in
Shelter, however, given the increasing demise of the "general rule" as an
industry standard, and given the proliferation of "other insurance" clauses and
the inevitable litigation they spawn, any contrary result runs directly counter
to the MVRA's basic purposes of minimizing insurance litigation and
"encourag[ing] . . . prompt payment of needed medical care and rehabilitation"
to accident victims. KRS 304.39-010(3). As in Shelter, therefore, we find in the
stated purposes of the MVRA a legislative intent to the effect that in instances
where both the vehicle owner and a non-owner passenger are separately
insured with UM coverage, the vehicle owner's coverage shall be primary.
CONCLUSION
In sum, in Shelter we departed from the approach of most courts when
confronted by an "other insurance" priority dispute between liability carriers for
the owner of the accident vehicle and for a permissive driver. We found implicit
in the MVRA both a rejection of the increasingly byzantine litigation such
disputes require and a fixing of primary coverage on the insurer of the vehicle.
21
Given Shelter's departure from the norm, the trial court and the Court of
Appeals in this case had the unenviable task of trying to choose between norm
and departure therefrom in a slightly different priority dispute context. Neither
court's choice quite comports with what we believe the MVRA requires. In our
view, much as in Shelter, the MVRA generally obviates priority disputes
between the UM insurers of the vehicle and an injured passenger by implicitly
fixing primary UM coverage on the vehicle's insurer. Accordingly, we reverse
the decision of the Court of Appeals and remand the matter to the Warren
Circuit Court for entry of an order consistent with this Opinion and granting
Countryway's motion for a determination that United Financial has primary
coverage of Sharon Bartley's uninsured motorist claim.
All sitting. All concur.
COUNSEL FOR APPELLANT:
Brian Keith Pack
Herbert, Herbert 86 Pack
COUNSEL FOR APPELLEE
UNITED FINANCIAL CASUALTY
INSURANCE COMPANY:
Tracey C. Smith
Gwin Steinmetz 86 Baird PLLC
COUNSEL FOR APPELLEE
SHARON BARTLEY:
Brian M. P. Driver
Rogers 86 Driver, LLP
22