North American Specialty Insurance Co. v. Liberty Mutual Insurance Co.

FIFTH DIVISION
June 19, 1998

1-97-3887

NORTH AMERICAN SPECIALTY INSURANCE ) Appeal from the
COMPANY, a/s/o R.O.D. LEASING, INC., ) Circuit Court of
d/b/a DOLLAR RENT-A-CAR, ) Cook County.
)
Plaintiff-Appellee, )
)
v. )
)
LIBERTY MUTUAL INSURANCE COMPANY, ) The Honorable
) Robert V. Boharic,
Defendant-Appellant. ) Judge Presiding.

JUSTICE HARTMAN delivered the opinion of the court:
Plaintiff, North American Specialty Insurance Company (North
American), filed suit for declaratory judgment against defendant,
Liberty Mutual Insurance Company (Liberty), seeking indemnification
or, in the alternative, contribution from Liberty for a settlement
made pursuant to an insurance policy it had issued. On cross-
motions for summary judgment, the circuit court entered judgment
for North American in the amount of $29,738.10, apportioning
liability between the insurers in proportion to their policy
limits. Liberty appeals, contending that the court erred in using
the "policy limits" method of apportioning loss, instead of the
"equal shares" method, to calculate Liberty's contribution.
On July 10, 1994, Charlotte Coble rented a car from R.O.D.
Leasing, Inc. d/b/a Dollar Rent-a-Car (Dollar), North American's
policyholder, for use while on a business trip for her employer,
Modern Business Systems, Inc. (MBS), Liberty's policyholder.
Pursuant to MBS's policy with Liberty, Coble was an "additional
insured," covered up to $2 million for a single accident. Coble
also was covered by Dollar's policy with North American in the
amount of $50,000 for a single accident.
On July 11, 1994, Coble was involved in a collision with
another vehicle, causing damage to the other vehicle. At the time,
both the North American and the Liberty policies were in effect and
contained the same coverage form, entitled "Business Auto Coverage
Form." Both forms contained an "other insurance" clause, which
provided that the coverage was primary for any automobile the
policyholder owned, and excess for any non-owned vehicle. Both
"other insurance" clauses also provided that, when sharing losses
with other policies, the "policy limits" method was to be used:
"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 the 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."
The policies were endorsed, however, with amendatory provisions
that deleted the "other insurance" clauses in their entireties,
including the methods of sharing provisions, replacing them with
language designating both policies as "excess" over other insurance
policies. Neither policy, however, readopted the "policy limits"
method of sharing; rather, each was silent as to the method of
sharing.
After paying the owner of the vehicle struck by Coble
$30,481.55 for his losses, North American filed suit against
Liberty, seeking indemnification from Liberty or, in the
alternative, contribution from Liberty in the amount of its
proportionate share. In its motion for summary judgment, North
American sought contribution from Liberty, using the "policy
limits" method, where each insurer contributes to the loss, up to
the amount of its limit of liability, based on the ratio of its
policy limit to the aggregate of available coverage. In its cross-
motion, Liberty sought to contribute using the "equal shares"
method, where each insurer contributes the same amount until the
limit of liability of one is exhausted.
Finding that the "better" method of calculating the manner of
sharing the loss between the two insurance providers to be the
"policy limits" method, the circuit court granted North American's
motion for summary judgment. Liberty appeals, contending that the
court erred, as a matter of law, in using the "policy limits"
method to apportion liability.
Review of the circuit court's disposition under the
circumstances presented here is de novo. Mobil Oil Corp. v.
Maryland Casualty Co., 288 Ill. App. 3d 743, 751, 681 N.E.2d 552
(1997).
Two insurers, both having mutually repugnant "other insurance"
clauses establishing "excess" coverage, must divide the liability
equally where neither policy specifies the method of apportionment.
U.S. Fidelity & Guaranty Co. v. Alliance Syndicate, Inc., 286 Ill.
App. 3d 417, 419, 676 N.E.2d 278 (1997). "[E]quity requires that
both companies be on equal footing requiring an equal apportionment
of the settlement which is within the limits of the respective
policies." Continental Casualty Co. v. Travelers Insurance Co., 84
Ill. App. 2d 200, 207, 228 N.E.2d 141 (1967). A loss covered
solely by two excess carriers forces "the insurers to divide the
liability equally between themselves." Continental National
American Insurance Co. v. Aetna Life & Casualty Co., 186 Ill. App.
3d 891, 898, 542 N.E.2d 954 (1989).
In the instant case, although both North American and
Liberty's policies initially specified the use of the "policy
limits" method, amendatory endorsements specifically deleted those
provisions. Neither insurer chose to readopt the "policy limits"
method; instead, both policies remained silent as to the method of
apportionment. Although North American urges application of the
deleted method, to apply that method now contravenes the purpose of
the endorsements. See Manchester Insurance & Indemnity Co. v.
Universal Underwriters Insurance Co., 5 Ill. App. 3d 847, 853, 285 N.E.2d 185 (1972).
Notwithstanding its failure to readopt the deleted
apportionment language, North American maintains that the "policy
limits" method is the more equitable in the instant case and urges
its use, relying upon Universal Underwriters Insurance Group v.
Griffin, 287 Ill. App. 3d 61, 677 N.E.2d 1321 (1997) (Griffin).
There, however, both insurance carriers agreed to share the loss in
proportion to their policy limits; moreover, language in one of the
policies specified that the insurer would be liable for a
"proportionate share with other collectible liability insurance."
Griffin, 287 Ill. App. 3d at 75-76. The Griffin court, in using
the "policy limits" method to calculate liability, therefore
enforced a valid, uncontradicted provision in one insurance policy
and also implemented the parties' express intentions.
Unlike the insurance carriers in Griffin, in the case sub
judice, North American and Liberty do not agree as to the method of
apportioning loss. Moreover, neither insurance policy specifies
the method to be used in apportioning loss. Significantly, both
policies deliberately deleted express language specifying the use
of the "policy limits" method.
Notwithstanding the distinguishable facts of Griffin, North
American relies upon the reasoning of the Griffin court. Pointing
to language in the Griffin opinion suggesting that the insurance
carrier who receives the higher premium for the greater coverage
should bear the majority of the loss, North American argues that
the "policy limits" method is more equitable because "it is
reasonable to assume that Liberty collected higher premiums for its
higher liability limit."
North American's presumption and reasoning, however, ignore
the fact that North American contracted to cover a loss up to the
limits of the policy, or $50,000. Until that point is reached,
application of the "policy limits" method amounts to a subsidy from
the high-coverage to the low-coverage carrier. The insurer
providing higher coverage has undertaken to protect an insured
against accidents incurring high losses; when high losses, above
the limit of the smaller insurer, result, the larger insurer will
pay a greater portion. In cases of low losses, however, the larger
insurer is in an inequitable position compared to an insurer
providing lesser coverage if the "policy limits" apportionment
method is used. The Griffin court did not consider this facet of
the issue.
North American justifies what would amount to a subsidy by
pointing to the theoretically higher premiums received by Liberty.
Even if the premiums charged by Liberty were greater, however, this
alone does not justify application of the "policy limits" method.
North American contracted to provide $50,000 in coverage and
charged a premium commensurate with that risk. Until the coverage
amount is surpassed, North American is liable for an equal share of
the loss.
For the forgoing reasons, the judgment of the circuit court is
reversed and the cause is remanded with instructions to enter
summary judgment for Liberty, apportioning loss by utilizing the
"equal shares" method as the predicate.
Reversed and remanded with instructions.
HOFFMAN, P.J., and HOURIHANE, J., concur.