Barlett v. CNA

Green, J.,

concurring and dissenting: I concur with the majority’s decision that Barlett’s award should be modified to $275,000 and that Transportation is bound by the settlement agreement between Barlett and Singh, the underinsured tortfeasor. But I dissent from the majority’s decision mandating proration between tire policies of Transportation and American Family.

Ambiguity

The trial court determined that the pro rata clause under the “other insurance” clause was ambiguous. Transportation’s pro rata clause reads as follows:

“When this Coverage Form and any other Coverage Form or policy covers on the same basis, either excess or primary, we will pay only our share. Our share is tire proportion that the Limit of Insurance of our Coverage Form bears to the total of the limits of all the Coverage Forms and policies covering on the same basis.”

In determining that the pro rata clause was ambiguous, the trial court stated:

“Defendant computes their proportional share to be as follows: $300,000.00 total available less $25,000.00 of Progressive Insurance, $100,000.00 of American Family leaving $175,000.00 to be paid by the Defendant.
*532“Another way to consider this clause could be to assume the ‘total of tire limits of all coverage forms’ is $425,000.00, Defendant’s share would be 70% or $210,000.00.
“This clause may be considered to be unenforceable because, on its face, it is ambiguous as to how the proportional share is to be computed.”

I acknowledge that Transportation’s insurance policy is susceptible to these different interpretations and, therefore, ambiguous. Nevertheless, this ambiguity does not necessarily mean that the pro rata clause would fail. Quoting Brumley v. Lee, 265 Kan. 810, 812-13, 963 P.2d 1224 (1998), our Supreme Court in Narron v. Cincinnati Ins. Co., 278 Kan. 365, 369, 97 P.3d 1042 (2004), stated: “ If the language [in an insurance policy] is ambiguous, the construction most favorable to the insured must prevail.’ ”

The problem that I see with Transportation’s pro rata clause is that it can apply to insurance that is not “valid and collectible.” Thus, Transportation’s pro rata clause can be used to dilute its underinsured motorist coverage in contravention of statutory and case law in Kansas.

As discussed by the trial court, under Transportation’s pro rata clause, Progressive’s policy limits of $25,000 may be used to limit Transportation’s liability. For example, Transportation maintains in its brief that the total from all policies should be $425,000:

Transportation — $300,000;

American Family — $100,000; and

Progressive — $25,000.

Under Transportation’s pro rata clause, assuming that Barlett’s tort settlement figure is $300,000, Transportation’s policy would cover 70.58823 percent of the loss, or $211,765; Progressive’s policy would cover 5.88235 percent of the loss, or $17,647; and American Family’s policy would cover 23.52941 percent of the loss, or $70,588.

Here, under Transportation’s policy, Barlett receives coverage for only a fraction of the insurance coverage he purchased. “Insurers may not use unclear policy clauses to defeat the coverage reasonably expected by the insured.” Western Casualty & Surety Co. v. Trinity Universal Ins. Co., 13 Kan. App. 2d 133, 139, 764 P.2d 1256 (1988), aff'd 245 Kan. 44, 775 P.2d 176 (1989). An in*533sured is entided to no less than the total of the coverage purchased or bargained for. As a result, an insurer should not be allowed to use its pro rata clause to convert its liability into only partial coverage. Nevertheless, Transportations pro rata clause does just that.

Transportation’s pro rata clause establishes a negative limitation of underinsured motorist coverage. This is because Transportation failed to limit its pro rata clause to “valid and collectible insurance.” See Western Casualty & Surety Co., 13 Kan. App. 2d at 136. (“Pro rata clauses provide that the insurer will pay a prorated share of a loss, usually in the proportion the policy limits bear to the total limits of all valid and collectible insurance.”). Here, Transportation’s pro rata clause does not refer to “valid and collectible insurance.” As a result, Transportation’s pro rata clause applies whether the other insurance is valid and collectible or not.

Transportation’s pro rata clause must fail under statutory and case law in Kansas. Under K.S.A. 40-284, an insured’s coverage must be no less than if the insured had been protected by only one policy. The pro rata clause is not among the six permissible exclusions or limitations of coverage under K.S.A. 40-284(e). Moreover, in Tyler v. Employers Mut. Cas. Co., 274 Kan. 227, 233, 49 P.3d 511 (2002), our Supreme Court stated: “Insurance policy provisions which purport to condition, limit, or dilute the broad, unqualified uninsured motorist coverage mandated by K.S.A. 40-284 are void and uneforceable.” Accord Ball v. Midwestern Ins. Co., 250 Kan. 738, 740-41, 829 P.2d 897 (1992); Stewart v. Capps, 247 Kan. 549, Syl. ¶ 3, 802 P.2d 1226 (1990). Because Transportation’s pro rata clause does not apply to only valid and collectible insurance, it seeks to dilute its uninsured motorist coverage. As a result, the pro rata clause is unenforceable.

Although the majority’s opinion prohibits Transportation from prorating its policy with Progressive’s policy, this is improper. To disallow proration between the two policies, the majority would have to read the phrase “valid and collectible insurance” into Transportation’s policy. A court “may not rewrite a contract or make a new contract for the parties under the guise of construction. [Citation omitted.] Words cannot be written into a contract which import an intent wholly unexpressed when it was executed. [Cita*534tion omitted.]” Quenzer v. Quenzer, 225 Kan. 83, 85, 587 P.2d 880 (1978).

Judicial Economy

One of the reasons that the trial court gave for not enforcing Transportation’s pro rata clause was because of judicial economy. The trial court pointed out that these coverage issues could have been resolved if Transportation had intervened in the BarlettSingh action, “joined other contingently liable carriers, or sought a cross claim for contributions.” I agree. Nevertheless, as the majority correctly points out, Ramsey v. Chism, 249 Kan. 299, 817 P.2d 198 (199l), would preclude the joining of an underinsured motorist insurer as a party in an action against an underinsured tortfeasor. To prevent the possibility of a third lawsuit, however, Transportation should have impleaded American Family in the current action. See Guillan v. Watts, 249 Kan. 606, 616, 822 P.2d 582 (1991) (“As a general rule, multiple litigation is never desirable, and there is a public interest economically in avoiding it whenever possible.”). Moreover, die burden to implead American Family should be placed on Transportation.

Authority for this position is found in the case of Wilks v. Allstate Insurance Company, 195 So. 2d 390, 399 (La. App. 1967). In determining that before an insurer can apply its other insurance provisions, die validity and collectibility of die other insurance must be determined in an action where the alleged other insurer is a party, the Louisiana Court of Appeals stated:

“If this other alleged insurer is not impleaded in the suit, any holding that this other insurance is Valid and collectible’ is not binding upon the other company in different proceedings by the insured against such other company to enforce such other alleged coverage. Thus a defendant insurer’s protection of its insured might be reduced to below policy limits in present litigation, but the insured nevertheless denied recovery against the other insured in subsequent litigation. To effectuate the policy intention we believe that ordinarily the other insurance cannot be regarded as Valid and collectible’ so as to reduce an insurer’s liability below policy limits, unless the validity and collectibility of the other insurance is determined by proceedings to which the alleged other insurer is a party.” 195 So. 2d at 399.

*535Further, finding that the burden of proving the validity or collectibility of any other insurance should be borne by the insurer which seeks to reduce its obligations under its pro rata clause, the Wilks court stated:

“If we adopt Allstate’s present contention, then where other insurance is potentially available, even under farfetched circumstances such as the present . . . , the insured would be required to retain counsel independent of his insurer’s in order to implead the alleged other insurer or else to prove the invalidity or uncollectibility of such coverage. Within the contemplation of the parties and of the purpose of die insurance contract, tiiis burden should instead be on the insurer, which can more readily and efficientiy investigate the potential liability of the other insurer and, if so indicated, implead it as a party to the litigation.” 195 So. 2d at 399.

As Barlett’s insurer, Transportation was in a better position to investigate and to determine the potential liability of other under-insured motorist insurers. Once Transportation had determined that Barlett had other valid and collectible insurance, it was Transportation’s responsibility to implead the other insurer as a party to this litigation. In reversing and remanding this case, the majority instructs the trial court to determine “whether American Family’s UIM coverage was applicable to this accident” and to recalculate “Transportation’s share of the loss.” Without American Family as a party to this action, however, the trial court cannot adequately determine whether American Family’s underinsured motorist coverage was “valid and collectible” in order to reduce Transportation’s liability under its policy. See Wilks, 195 So. 2d at 399. Because Transportation failed to implead American Family as a party to this action, Transportation should be precluded from enforcing its pro rata clause.

Finally, it is important to point out that Barlett no longer possesses a valid and collectible claim against Progressive. The Wilks court recognized the potential claim against the other insurer was tenuous. In acknowledging that the claim against the other insurer was doubtful, the court stated: “[Rjecovery against it [Employers] is far from assured, if indeed possible at all.” 195 So. 2d at 399. The same problem exists in this case. Barlett previously settled with and released American Family from further liability for a payment *536of $5,000. As a result, Transportation is the only underinsured motorist insurer still liable for coverage.

Subrogation

In determining that Transportation had waived the right to enforce its pro rata clause, the trial court stated:

“Defendant, at tire time of Plaintiff s case against the tort feasor had an opportunity to join contingently necessary parties under its other insurance provisions to resolve in one suit its affirmative defenses to coverage. . . .
“This Court has been unable to find Kansas authority which deals with the coverage questions, after suit against the tort feasor, where the carrier failed to intervene. A strong argument exists that in die interest of judicial economy, tire carrier here, if it anticipated coverage issues could have intervened, joined odier contingently hable carriers, or sought a cross claim for contributions. If necessary, die trial court could have bifurcated die case to decide the issues of liability and damages against die tort feasor, and dien the Court would have had jurisdiction to apportion the judgment against existing carriers if die audiority existed.
“Therefore, diis Court finds that by not intervening in the action against die tort feasor, the Defendant is now precluded from raising or has waived its affirmative defenses of apportionment, if any, under its ‘Odier Insurance’ provisions of its contract.”

The trial court determined that because Transportation had failed to intervene in Barlett’s suit against Singh, Transportation lost the right to enforce its pro rata clause.

K.S.A. 40-284(f) states:

“If the underinsured motorist coverage insurer fails to pay die insured die amount of the tentative tort settlement within 60 days, the underinsured motorist coverage insurer has no right of subrogation for any amount paid under the underinsured motorist coverage.” (Emphasis added.)

Subrogation is the substitution of one person to the rights of another. Because Barlett is an insured under both Transportation’s and American Family’s policies, Transportation and American Family received the right to enforce their pro rata clauses. As a result, Transportation’s right to enforce its pro rata clause is directly derived from Barlett’s right as an insured under concurring insurers.

Barlett’s judgment against Singh established his legal entitlement to underinsured motorist coverage and determined the *537amount he was entitled to recover. See Pickens v. Allstate Ins. Co., 17 Kan. App. 2d 670, 674, 843 P.2d 273 (1992). Because Transportation has lost its subrogation rights to any underinsured motorist coverage, it no longer has the right to seek enforcement of its pro rata clause.

In Cabral v. State Compensation Ins. Fund, 13 Cal. App. 3d 508, 511, 91 Cal. Rptr. 778 (1970), the court stated:

“[W]here there is ‘other insurance’ covering the same liability as the basic or comprehensive policy, the defense by one insurer inures to the benefit of the nondefending carrier. Thus the equitable principle of subrogation entitles the defending carrier to contribution from the carrier that refused to defend.” (Emphasis added.)

The reverse should also be true. If an insurer loses its right of subrogation, it should be denied the right to contribution. Because Transportation failed to intervene in Barlett’s suit against Singh, Transportation lost its subrogation rights to any settlement that Barlett had to underinsured motorist coverage. Consequently, Transportation should be barred from seeking enforcement of its pro rata clause.

As a result, I would affirm the trial court’s decision not to enforce Transportation’s pro rata clause.