Common Carrier Gets Benefit of Two Coverages
May 05, 2010
The 1st District Appellate Court recently held that a common carrier's own liability insurer, and the insurer of a vehicle lessor, each provided primary coverage for an accident involving a driver of the common carrier using a leased vehicle. American Service Insurance Co. v. Jones, 2010 WL 1254856 (1st Dist. March 31, 2010).
James P. Newman of Newman, Raiz LLC, Chicago, represented the common carrier's insurer, AIS. Stephen A. Kolodziej of Brenner, Ford, Montroe & Scott Ltd., Chicago, represented the vehicle lessor, Elite, and its insurer, National. Acosta & Shawski P.C., Wheaton, and the Law Offices of Michael Murphy Tannen P.C., Chicago, represented the underlying plaintiff, Torres.
The common carrier, Ramos Movers, a moving company, rented a truck from Elite to complete a scheduled move from Crystal Lake, Ill., to Crown Point, Ind. During the journey, the Ramos driver was involved in a collision with Torres while still in Illinois, resulting in injuries to Torres. Torres sued.
Ramos had direct liability coverage with ASI for trips within a 50-mile radius of Chicago, and this trip was within that limit. The policy was subject to a $750,000 limit and covered vehicles specifically identified in the policy, but also provided coverage for "temporary substitute automobiles" which were defined those used as a substitute when one of Ramos's own vehicles was withdrawn from normal use.
The coverage for temporary substitutes was stated in the policy to be excess to other valid and collectible insurance. The ASI policy, however, had been certified by the Illinois Commerce Commission as in compliance with Illinois law, and it also contained a provision stating that when so certified, it provided coverage to the extent of the coverage and limits required by such law.
National's policy issued to Elite extended coverage to "insureds" who included anyone renting from Elite. One endorsement in the policy, by use of the symbol "10," established a $1 million limit for persons renting for less than a year. Another endorsement, however, purported to limit coverage for "rentees," who were defined as holders of rental agreements for less than one year, to a $50,000 per person bodily injury limit.
The "other insurance" condition in the National policy stated that the coverage was primary unless stated otherwise in the rental agreement with a customer. The rental agreement with Ramos indicated that the National coverage was excess over other coverage.
ASI and National filed declaratory judgment actions seeking a determination of their respective rights and obligations in regard to the Torres claim. Following summary judgment motions, the circuit court ruled that ASI provided primary coverage, that the National policy was excess, but that the limit under the National policy was $1 million. The court also entered a Rule 304(a) finding authorizing an immediate appeal, and ASI, National and Elite took this appeal.
In an opinion by Justice John Owen Steele, the 1st District affirmed in part and reversed in part. He first addressed ASI's argument that its policy did not apply to the loss, or alternatively, that its policy did not provide primary coverage. He cited initially to sections of the Illinois Commercial Transportation Law requiring motor carriers operating in the state to have continuous insurance coverage. 625 ILCS 5/18c-4901, 18c-4903.
Relying on Canal Insurance v. A & R Transportation & Warehouse, LLC, 357 Ill. App. 3d 305 (2005), however, ASI argued that the Transportation Law applied only to intrastate commerce, and the vehicle rented by Ramos was traveling interstate. Steele rejected the argument on the ground that Canal Insurance had not discussed the relevant sections of the Transportation Law. In particular it had not addressed section 18c-4101, which extends the jurisdiction of the Illinois Commerce Commission and applicable statutory provisions to all motor carriers operating within the state, subject to certain exceptions not here relevant.
He also distinguished Canal Insurance on the ground that that case involved a shipment between Illinois and Pennsylvania, while the case here involved a shipment to within 50 miles of Chicago, as provided for under the ASI policy. Acceptance of ASI's argument, moreover, said Steele, would frustrate the purpose of the Transportation Law that motor carriers of property carry insurance coextensive with the scope of their operations for the protection of the public.
Steele therefore concluded that the ASI policy provided coverage.
The next question was whether ASI provided primary coverage. ASI argued that it did not, relying on the general rule that where two policies provide only secondary coverage, the insurance of the vehicle's owner is deemed primary, and it relied on the section of the Illinois Vehicle Code, 625 ILCS 5/9-105, requiring Elite to provide coverage.
Steele turned to State Farm Mutual Automobile Insurance Co. v. Hertz Claim Management Corp., 338 Ill. App. 3d 712 (2003). That case acknowledged the rule relied on by ASI – that of two applicable secondary policies, the vehicle owner's policy is deemed primary – but found that the rule generally is not applied in Illinois in the context of rental cars, at least so long as coverage is available from another source.
Steele said the rental car exception was justified in the Hertz Claim Management case because the rental agency offered primary insurance to the driver who otherwise might not otherwise have been covered, and the driver declined coverage. In the instant case, however, Elite failed to offer primary insurance to Ramos, and it therefore cannot be said that Ramos chose to rely on its own insurance.
Based on this analysis, Steele concluded that the general rule that the insurance of the vehicle's owner is primary, would be applied to National and Elite, and that the exception for rental cars would not apply.
That conclusion did not mean, however, that ASI's policy was not also primary. Steele went a step further and applied the rule that where two primary policies both contain excess "other insurance" clauses, they cancel each other out and both policies are primary. Here, according to Steele, since both ASI and National purported to provide excess coverage, the loss would be prorated between the two policies.
As for the limit applicable under the National policy, Steele agreed with the circuit court that the $1 million limit would apply. He found an ambiguity between the symbol endorsement providing a $1 million limit, and the rental endorsement providing a lower limit, and he construed the ambiguity in favor of the higher limit.
The court therefore held that both policies were primary, that defense and indemnity would be prorated between the two, and that the National policy provided a $1 million limit.
