Mission Insurance v. Hartford Insurance

On September 25, 1979, one Tommie Leon Childers died in a collision with a 1973 Freightliner tractor and trailer rig driven by Kenneth Joseph Dixon on State Route 33 near Ike Crow Road in Stanislaus County.

Faria Trucking, a copartnership, owned the Freightliner tractor and Dixon was driving the vehicle in the course and scope of his employment with the partnership. Joseph E. Smith & Son owned the semitrailer and pull trailer attached to the tractor and had leased the trailers to CLT, Inc. pursuant to a written agreement.

Prior to the accident Hartford had issued a policy of insurance, policy number 51 C 226370 , with Manuel J. Faria and Patrick J. Faria, doing business as M & P Faria Farm Trucking, as named insureds. This policy covered the Freightliner tractor and any trailers attached to the tractor at the time of the accident. Prior to the accident Mission had issued an insurance policy, policy number HAC 26319, with the following named insureds: “Milton Parrish and Joseph E. Smith, Jr., DBA: Smith and Parrish Farms; Joseph E. Smith, Joseph E. Smith, Jr., and Sheldon Smith, DBA: Joe Smith and Sons; Smith and Sons Trucking; and CLT, Inc.” That policy incorporated by reference certain insurance company records describing the semitrailer and pull trailer attached to the Freightliner tractor at the time of the accident.

As a result of the collision, Childers’ widow and children filed a wrongful death action in Stanislaus County Superior Court against Dixon, Faria Trucking, and J.E. Smith & Son, a partnership. The Childers’ claim was subsequently settled and the action dismissed pursuant to an agreement with Hartford. Hartford agreed to make a lump sum payment of $200,000 to the claimants and to make semiannual payments of $50,000 each until the total sum of $450,000 had been paid.

The defendants in the wrongful death action filed a series of cross-complaints against one another seeking indemnity and alleging breach of contract as to the subhaul agreement. The superior court joined these actions with a declaratory relief action filed by Mission. The trial court ruled both the Hartford and Mission policies provided primary coverage and both insurance companies should share equally in the settlement made by Hartford with the Childers.

Subdivision (a) of that section pertains to a named insured engaged in the business of selling, repairing, delivering, testing, or storing motor vehicles. Subdivision (b) pertains to a named insured engaged in the business of renting or leasing motor vehicles without operators. Subdivision (c) pertains to a loss arising out of the loading or unloading of a motor vehicle. From the facts before us, it does not appear that subdivisions (a), (b) or (c) apply to the instant case.

The First District Court of Appeal has defined the insurance terms relevant to this issue as follows: “Primary coverage is insurance coverage whereby, under the terms of the policy, liability attaches immediately upon the happening of the occurrence that gives rise to liability. (Oil Base, Inc. v. Transport Indem. Co. (1956) 143 Cal.App.2d 453 , 467 . . . .) Primary insurers generally have the primary duty of defense.

“ ‘Excess' or secondary coverage is coverage whereby, under the terms of the policy, liability attaches only after a predetermined amount of primary coverage has been exhausted. It is not uncommon to have several layers of secondary insurance .... Secondary insurance is sometimes referred to as ‘umbrella’ insurance. When secondary insurance is written to be excess to identified policies, it is said to be ‘specific excess.’

“A problem arises when two or more policies apply at the same level of coverage. Most insurance contracts include some provision attempting to limit the insurer’s liability in the event that another insurance policy covers the same loss.

“1. Pro rata. This clause provides that if there is other valid and collectible insurance, then the insurer shall not be liable for more than his pro rata share of the loss.

“2. Excess. This clause provides that if there is other valid and collectible insurance, then the insurer shall not be liable except to the extent that the loss exceeds such other valid and collectible insurance (i.e., this policy shall be excess to other valid and collectible insurance).

“3. Escape. This clause provides that the insurer is not liable for any loss that is covered by other insurance (i.e., the existence of other insurance extinguishes insurer’s liability to the extent of such other insurance).” (Olympic Ins. Co. v. Employers Surplus Lines Ins. Co. (1981) 126 Cal.App.3d 593 , 597-598 [ 178 Cal.Rptr. 908 ].)

Appellants contend the Hartford policy provides primary coverage for both the owned tractor and nonowned trailers while the Mission policy provides only excess coverage for the tractor. Respondents agree the Hartford policy is a primary policy of insurance extending coverage to the trailers as well as to the tractor. However, they contend the Mission policy is also one of primary insurance which extends coverage to the operation of the tractor and makes respondents additional insureds by virtue of their permissive use of the trailers. Respondents contend this conclusion is mandated by interpretation of the permissive use sections of the policy as well as Insurance Code section 11580.1, subdivision (b)(4). That code section provides in relevant part: “(a) No policy of automobile liability insurance described in Section 16054 of the Vehicle Code covering liability arising out of the ownership, maintenance, or use of any motor vehicle shall be issued or delivered in this state on or after the effective date of this section unless it contains the provisions set forth in subdivision (b). However, none of the requirements of subdivision (b) shall apply to the insurance afforded under any such policy (1) to the extent that such insurance exceeds the limits specified in subdivision (a) of Section 16056 of the Vehicle Code, or (2) if such policy contains an underlying insurance requirement, or provides for a retained limit of self-insurance, equal to or greater than the limits specified in subdivision (a) of Section 16056 of the Vehicle Code.

“(b) Every policy of automobile liability insurance to which subdivision (a) applies shall contain all of the following provisions:

“(4) Provision affording insurance to the named insured with respect to

any motor vehicle covered by such policy, and to the same extent that insurance is afforded to the named insured, to any other person using, or legally responsible for the use of, such motor vehicle, provided such use is by the named insured or with his permission, express or implied and within the scope of such permission, ...”

Joseph E. Smith and Son owned and CLT, Inc. leased the semitrailer and pull trailer connected to Faria’s tractor. The trailers were covered by the Mission policy. That policy afforded coverage to permissive users of the trailers. However, with respect tó a nonowned automobile, such as the Faria tractor, the Mission policy by its terms was excess. The language of the respective policies reveals that Hartford provided primary coverage for both the owned tractor and the nonowned trailers while Mission provided primary coverage for the owned trailers and only excess coverage for the nonowned tractor. To summarize graphically:

Contrary to respondents’ assertion, Insurance Code section 11580.1, subdivision (b)(4) does not compel a different conclusion. In the context of the instant case, the latter section merely required Mission to provide Faria, a permissive user of the trailers, with the same insurance coverage as that afforded to Smith and other named insureds, with respect to the trailers. Appellants have not denied the Mission policy provides primary coverage for the trailers. However, they have correctly noted their policy is excess as to the nonowned automobile which pulled those trailers at the time of the collision.

Generally, courts will give heed to “primary” and “excess” provisions of insurance policies. This rule is particularly applicable where the dispute is between two or more insurance carriers and the rights of policyholders or their accident victims will be unaffected by its application. (National American Ins. Co. v. Insurance Co. of North America (1977) 74 Cal.App.3d 565 , 574 [ 140 Cal.Rptr. 828 ].)

For purposes of automobile liability coverage, any auto constitutes a “covered auto” within the meaning of the Hartford policy. The policy defines “auto” to include a trailer or semitrailer designed for travel on public roads. The Mission policy also defines “automobile” to include trailers or semitrailers designed for travel on public roads.

The trial court concluded Travelers was not obligated to defend or pay any sum toward the liability arising from the accident. The court concluded no liability attached under, the Travelers’ policy in connection with the horse trailer, although the policy covered its operation and use. The court held there was no evidence of negligent conduct by Linda in the operation of the trailer nor was any such negligence a proximate cause of the accident. This court disagreed, reversed the judgment and directed Travelers to pay a pro rata share of the settlements and costs. The court held the accident arose out of the use of the trailer; that Linda used the trailer by towing it behind the pickup; and that her negligent operation of the combined rig caused the accident. Because the third party plaintiffs were injured as the result of Linda’s use of the trailer, the court held Travelers’ excess insurance provision for nonowned automobiles did not come into play. Therefore, Travelers’ coverage was primary as to the loss arising out of Linda’s use of the trailer.

The Smith case did not cite or discuss Miller. In addition, Smith did not address or apply Insurance Code section 11580.9. That section applies only to insurance policies issued or renewed on or after November 23, 1970. (See Stats. 1970, ch. 300, § 8, p. 577; Argonaut Ins. Co. v. Colonial Ins. Co. (1977) 70 Cal.App.3d 608 , 618 [ 138 Cal.Rptr. 855 ].) The policies in Smith were issued several years before the effective date of that statute.

The parties to the instant case devote substantial portions of their briefs to applying and distinguishing Smith. Appellants argue the Smith case is distinguishable on two points. First, the relationship between the tractor owner and trailer owner is different in each case. In Smith, the owner of the trailer provided the driver and no commercial relationship was involved. In the instant case a commercial relationship existed between Faria and CLT, Inc. and Faria provided the driver and exercised control over the

Appellants cite American Motorcycle Assn, in support of CLT, Inc.’s cross-complaint for equitable indemnity against Faria. Appellants ignore the Supreme Court’s holding that a tortfeasor who has entered into a good faith settlement with the plaintiff must also be discharged from any claim for partial or comparative indemnity that may be pressed by a concurrent tortfeasor. (American Motorcycle Assn. v. Superior Court, supra, 20 Cal.3d 578 , 604.) Furthermore, appellants’ assertion of comparative negligence principles is misplaced. In the lower court appellants stated they were “suing in contract on the express indemnity agreement. ” A party on appeal is not permitted to change his position by adopting a new and different theory on appeal. Such conduct is unfair to the trial court and unjust to the opposing litigant. However, an exception to this doctrine of the theory of the case arises when there is no dispute as to the facts and questions of law alone are presented. (6 Witkin, Cal. Procedure (2d ed. 1971) Appeal, §§ 281-288, pp. 4269-4275.) Respondents do not challenge appellants’ change of theory on appeal as it is raised for the first time in appellants’ closing brief.

Respondents contend the Smith decision controls the facts of the instant case. They argue the language of the policies controls coverage priority and not the activities of the truck and trailer owners. They assert the respective insurance coverages for both tractor and trailer should be deemed to provide reciprocal, primary coverage for the entire truck/trailer unit.

Resolution of the question at issue turns upon construction of the statutory phrase “. . . same motor vehicle in an occurrence out of which a liability loss shall arise . . . .” (Ins. Code, § 11580.9, subd. (d).) As noted above, the Fourth District in Miller deemed the tractor with attached trailer a “motor vehicle” within the meaning of the Vehicle Code but did not hold the trailer owner liable for the tractor owner’s negligence. This court in Smith implicitly held a pickup truck towing a horse trailer constituted a single unit and subjected the insurance carriers of both truck and trailer to

The record in the instant case established a “minimal causal connection” between the two trailers and the accident involving Childers. In light of this causal connection, and the number of jurisdictions adhering to the Smith view, the Mission policy should be deemed a primary policy of insurance with respect to the accident. As one federal court has aptly noted: “Where a truck and towed trailer are involved in an accident, the courts are well-advised to avoid the metaphysics and hold that the accident arose out of the use of each.” (Blue Bird Body Co. v. Ryder Truck Rental (5th Cir. 1978) 583 F.2d 717 , 727; quoting 7 Risjord and Austin, Automobile Liability Insurance Cases 9540.)

Since the Hartford policy describes the Freightliner tractor as an owned automobile, it shall be conclusively presumed the insurance afforded by that policy is primary and the coverage by the Mission policy is excess. Since the Mission policy describes the semitrailer and pull trailer as owned automobiles, it too shall be conclusively presumed the insurance afforded by that policy is primary and the coverage afforded by Hartford is excess. (Ins. Code, § 11580.9, subd. (d).)

Both the Hartford and Mission policies contain identical conditions relating to “other insurance.” Pursuant to these conditions, each insurer must contribute toward settlement expenses in equal shares until the share of each insurer equals the lowest applicable limit of liability under any one policy or the full amount of the loss is paid. Accordingly, each insurer is liable for an equal (50 percent) share of the total settlement expense and the judgment of the trial court was correct.

Appellant argues the judgment is contrary to the only evidence of insurance industry practice regarding the effect of subhaul agreements. Appellant further contends Faria, Hartford and its agent breached the subhaul agreement thereby resulting in actual damage to both CLT, Inc. and Mission.

With respect to industry practice, the weight to be given the evidence is a matter committed exclusively to the trial court. When a finding of the trial court is attacked as unsupported by the evidence, the power of the appellate court begins and ends with the determination whether there is any substantial evidence, contradicted or uncontradicted, which will support the finding. Where the evidence is conflicting or gives rise to conflicting inferences, the findings of the trial court will not be disturbed on appeal. (Northwestern Mut. Ins. Co. v. Farmers’ Ins. Group (1978) 76 Cal.App.3d 1031 , 1053 [ 143 Cal.Rptr. 415 ].) In the instant case, the testimony of Larry Manning, Hartford casualty underwriting manager, and William LeFay, Mission claims manager, gave rise to conflicting inferences concerning the policies and the subhaul agreement. Therefore, this court may not disturb the trial court’s findings in this regard on appeal.

With respect to the allegations of breach, the provision in question is article 4, which states: “(4) Sub-Haulers shall maintain public liability, property damage, and cargo insurance at all times. A minimum of $100,000.00 each person and $300,000.00 each occurrance [s/c] bodily injury liability, $50,000.00 property damage liability, and $2000.00 cargo insurance will be required. Carrier must be named as additional insured in these policies. Further, Sub-Hauler agrees to require his insurance carrier to place a ‘Hold Harmless’ clause in all policies naming Carrier, covering any incident which might arise from operations as a Sub-Hauler under the terms of this agreement.” Thus, the questioned provision consists of three components. First, the subhauler must maintain specified types of insurance in particular amounts. Second, the subhauler must name CLT, Inc. as an additional insured in the specified policies. Third, the subhauler must require his insurance carrier to place a “Hold Harmless” clause in all policies naming CLT, Inc. The trial court found no breach of the subhaul agreement resulting in damages to CLT, Inc.

Appellants have not shown and we have been unable to find any failure to comply with the maintenance of specified types and amounts of insurance. Although the policy issued by Hartford did not describe CLT, Inc. as an additional insured, CLT, Inc. was clearly covered under paragraph D 3 of part 4 which states: “D. Who is insured, [¶] 3 The owner or anyone else

Therefore, the only remaining basis for establishing a material breach of the agreement is the last component, the “Hold Harmless” clause. Appellants raise a number of arguments to show the “Hold Harmless” provision affected the insurance coverage in the instant case. However, for reasons to be stated herein, it is unnecessary and would serve no purpose to individually address these arguments. All of appellant’s arguments in this regard center upon the premise that had the subhauler, Faria, complied with the “Hold Harmless” provision in the contract, CLT, Inc. and its insurer, Mission, would have been insulated from any liability arising from injuries to third parties such as Childers or his heirs. While we are not swayed by respondent’s contention that the agreement was an unenforceable adhesion contract, we fail to see how the contract could be enforced as to Hartford, a “non-party” to the agreement. In fact, it would appear that neither Hartford nor Mission was made aware of the “Hold Harmless” provision until after the subject accident occurred. Appellant does not enlighten us in this regard.

More importantly, however, is the effect of application of the express terms of Insurance Code section 11580.9, subdivision (f) to the “Hold Harmless” clause of the subhaul agreement.

Insurance Code section 11580.9, subdivision (f) requires insurers to sign a written agreement before their relationships can be altered. This code section provides: “(f) The presumptions stated in subdivisions (a) to (d), inclusive, may be modified or amended only by written agreement signed by all insurers who have issued a policy or policies applicable to a loss described in these subdivisions and all named insureds under these policies.” This section has been cited and discussed in relatively few cases. (Ross v. Canadian Indemnity Insurance Company (1983) 142 Cal.App.3d 396 , 402 [ 191 Cal.Rptr. 99 ]; Zurich-American Ins. Co. v. Liberty Mut. Ins. Co., supra, 85 Cal.App.3d 481 , 489.) Here, only CLT, Inc. and Faria signed the subhaul agreement.

Appellants contend it is not mandatory that insurers sign a written agreement before their relationships can be altered. They cite to the Zurich-American case which states: “ . . . ‘Questions of contribution between coin

Appellants apparently misunderstand the preceding quotation and the code section in the context of the instant case. Section 11580.9, subdivision (f) clearly requires a written agreement signed by all insurers who have issued policies applicable to a loss and by all named insureds under those policies. Both the Hartford policy and the Mission policy excluded coverage for liability assumed under any contract or agreement and precluded changes to the policy except by insurance company indorsement.

Neither Hartford nor Mission entered into an agreement modifying or changing the presumption created by Insurance Code section 11580.9, subdivision (d). The subhaul agreement is inadequate to change or modify this conclusive presumption because it was not signed by the insurers and by all of the insureds named in the policies. Mission cannot now complain, particularly where its policy excludes coverage for a liability assumed under any contract or agreement; it is not a party to the collateral subhaul agreement, an employee of its insured drafted the collateral agreement with an ambiguous hold harmless clause, and CLT, Inc. failed to notify its insurer of an agreement affecting policy coverage.

The subhaul agreement did not affect the Hartford and Mission coverage because of noncompliance with Insurance Code section 11580.9, subdivision (f).

The judgment is affirmed. Defendant and respondent Hartford Insurance Company shall recover its costs of appeal as against plaintiff and appellant Mission Insurance Company.

Zenovich, Acting P. J., and Hanson (P.D.), J., concurred.