SOUTH CAROLINA INSURANCE COMPANY, Plaintiff,
v.
FIDELITY AND GUARANTY INSURANCE UNDERWRITERS, INC. and United States Fidelity & Guaranty Company, Defendants.
Supreme Court of South Carolina.
*209 Robert E. Salane and Andrew E. Haselden, both of Barnes, Alford, Stork & Johnson, L.L.P., Columbia, for Plaintiff.
Stephen P. Groves, Bradish J. Waring and Stephen L. Brown, all of Young, Clement, Rivers & Tisdale, L.L.P., Charleston, for Defendants.
TOAL, Justice:
The United States District Court for the District of South Carolina has certified the following question to this Court:
When a blanket insurance policy and a specific policy provide coverage for the same peril to the same property and interest, does South Carolina require that the specific insurance policy coverage limits be exhausted first before application of the blanket policy or will the policies be pro rated according to the respective policy limits of each policy?
FACTUAL/PROCEDURAL BACKGROUND
For a period of time, plaintiff South Carolina Insurance Company ("SCIC") and defendant United States Fidelity and Guaranty Company ("USF & G") both insured certain buildings at Mike Smith Chevrolet, an automobile dealership located in Myrtle Beach, South Carolina. The USF & G policy was a comprehensive business insurance policy providing blanket property insurance covering three buildings at Mike Smith Chevrolet, as well as buildings at dealerships located in Florida and other states. The SCIC policy was a specific policy *210 providing insurance coverage for commercial property, general liability, and crime coverage for five separate buildings located at Mike Smith Chevrolet. The USF & G policy and the SCIC policy contained identical "other insurance" clauses providing their coverage would be "excess" to any other insurance on the property.
On September 21-22, 1989, Hurricane Hugo came ashore South Carolina, south of Myrtle Beach, and, as a result of Hurricane Hugo's winds and rain, Mike Smith Chevrolet's buildings sustained various degrees of damage. At the time of the hurricane, Mike Smith Chevrolet was insured by both SCIC and USF & G. The losses were reported to both insurance companies, and SCIC adjusted and paid the claim. USF & G has not paid any sums to SCIC as contribution for the damages or adjusting expenses incurred in connection with the claim by Mike Smith Chevrolet.
On September 14, 1992, SCIC filed suit in state court in Richland County against defendant USF & G. SCIC sought contribution from USF & G for the payments it made to Mike Smith Chevrolet. USF & G removed the case to federal district court on October 15, 1992. One day later, USF & G filed its answer to SCIC's complaint and alleged as an affirmative defense the fact that SCIC's policy provided specific coverage that must be exhausted before USF & G would be liable. The parties agree no facts are in dispute.
After filing a Stipulated Statement of Facts with the federal court, both parties moved for summary judgment. The federal district court determined that the action involved questions of South Carolina law for which there was no controlling precedent in the decisions of the South Carolina Supreme Court. The federal court therefore certified to this Court the question listed above. On November 9, 1995, we agreed to answer the certified question.
LAW/ANALYSIS
When judges first set about the task of interpreting insurance policies, we looked confidently to tried and true principles of contract law. After all, lawyers are taught in their earliest classes that the common law rules of contract are the bedrock of all Anglo-American jurisprudence, thus judges *211 clearly had at hand the perfect tools for crafting fair and lucid interpretations of insurance agreements. We failed utterly to anticipate the linguistic excesses to which the insurance industry would resort in order to avoid paying claims when "other insurance" may be available. This is an area in which hair splitting and nit picking has been elevated to an art form. "Other insurance" clauses have been variously described as: "the catacombs of insurance policy English, a dimly lit underworld where many have lost their way," [1] a circular riddle,[2] and "polic[ies] which cross one's eyes and boggle one's mind."[3]
"Other insurance" clauses are intended to apportion an insured loss between or among insurers where two or more policies offer coverage of the same risk and same interest for the benefit of the same insured for the same period. These clauses began their lives as an attempt to prevent fraud in the overinsuring of property. Now the clauses are widely used in many other types of insurance policies where fraud by overinsurance would not be a possibility. The four most common forms of "other insurance" clauses are:
(1) the "pro rata" clause, which provides that the insurer will pay its share of the loss in the proportion its policy limits relates to the aggregate liability coverage available; (2) an "excess" clause, which provides that an insurer will pay a loss only after other available primary insurance is exhausted; (3) an "escape" clause, which provides that an insurer is absolved of all liability if other coverage is available; and (4) an "excess escape" clause, which provides that the insurer is liable for that amount of a loss exceeding other available coverage and that the insurer is not liable when other available insurance has limits equal to or greater *212 than its own.[4]
Each type of clause has its own rules of construction and when these clauses compete with each other, the rules of interpretation become more complex.
In the present matter we have two policies which (I) cover the same risk3 buildings at Mike Smith Chevrolet, (2) cover the same interestcommercial property, (3) are for the benefit of the same insuredMike Smith Chevrolet, (4) apply for the same time periodSeptember 21-22, 1989. Each policy's "other insurance" clause is identical, providing:
"If there is other insurance covering the same loss or damage .... we will pay only for the amount of covered loss or damage in excess of the amount due from that other insurance whether you can collect on it or not. But we will not pay more than the applicable limit of insurance."
Thus, in this matter we have a competition between two "excess" "other insurance" clauses, each of which attempts to make its policy excess to all other available coverage. Additionally, the USF & G policy styles itself as "blanket commercial property coverage" detailing coverage for specified properties at several different dealerships, including Mike Smith-Myrtle Beach, whereas the SCIC policy is a specific policy only for the Mike Smith Myrtle Beach location.
The question presented to us is framed as one involving blanket versus specific policies. For the reasons we outline in this opinion, we believe the more proper analytical framework to be that of resolving competing "excess" "other insurance" clauses.
That having been said, if the blanket/specific analysis is used, there are at least two schools of thought concerning the apportionment of losses covered under both blanket and specific policies. One school of thought finds that blanket policies are intended only to supplement specific policies and that, therefore, the policy limit of a specific policy must be exhausted before the blanket policy provides any coverage, without regard to any policy language concerning apportionment of *213 other insurance. See John A. Appleman & Jean Appleman, Insurance Law & Practice § 3912 (1972) ("A blanket or floating policy is only intended to supplement specific insurance, and it cannot become operative until the specific insurance has become exhausted."); see also, e.g., Hennes Erecting Co. v. National Union Fire Ins. Co.,
Prior South Carolina precedents suggest that if two or more policies insure the same entity against the same risk to the same object, the policies are concurrent and losses should be prorated between the insurers who issued the policies. In Lucas v. Garrett,
Similarly, in Murdaugh v. Traders & Mechanics Insurance Co.,
Lucas and Murdaugh suggest that the only prerequisite to proration of a loss among multiple insurers is that all policies concerned provide coverage for the same peril to the same property and interest, a condition that is indisputably satisfied here. Those cases, however, do not squarely address whether a distinction should be made between the kind of coverage provided by blanket and specific policies, such that a blanket policy should always be considered excess to more specific insurance. We must now address that issue.
We do not favor a rule that creates a wooden distinction between "blanket" and "specific" policies, because such a distinction will often fail to effectuate the intent of the insurer and the insured as to coverage. As we view it, courts faced with the distasteful chore of apportioning liabilities among multiple insurers should look to the language of the policies to ascertain whether the policies are intended to provide primary or secondary coverage. In other words, the relevant question is not whether a policy is blanket or specific, but what is the "total policy insuring intent" embodied within the policy. See, e.g., Allstate Ins. Co. v. Frank B. Hall & Co.,
One method insurance companies use to indicate whether they intend to provide primary, secondary, or other coverage is to include in their policies "other insurance" clauses that attempt to apportion liability among multiple insurers. An "excess" clause, the most common kind of "other insurance" clause, provides that a policy will cover only amounts exceeding the policy limits of other insurance covering the same risk to the same property. When two policies both contain "excess" clauses, most courts have regarded the clauses as mutually repugnant and have treated both policies as primary, ordering proration of the loss. See, e.g., Indiana Ins. Co. v. Mission Nat'l Ins. Co.,
However, this rule should not apply "when its use would distort the meaning of the terms of the policies involved." LiMauro,
*216 In LiMauro, the New York Court of Appeals was faced with the task of determining the priority of liability among three automobile insurance policies.[5] One of the policies indisputably provided primary coverage, so the New York court only had to resolve whether the amount of the loss exceeding the limits of the primary policy should be prorated between the other two insurers, Aetna and State Farm, or whether the limits of Aetna's policy had to be exhausted before State Farm's policy bore any liability.
One of the policies at issue was a "family automobile policy" with coverage of $100,000 per person and $300,000 per accident for accidents caused when the insured driver was driving a non-owned vehicle. This policy ("the Aetna policy") contained an "other insurance" clause providing that coverage for accidents involving non-owned or temporary substitute vehicles would be excess over any other valid and collectible insurance. Id.,
The New York Court of Appeals disagreed. It instead determined that the State Farm coverage should be excess to any coverage provided by the Aetna policy notwithstanding the "other insurance" provision in the Aetna policy. The court found that the following features of the State Farm policy *217 evinced an intent by State Farm and its insured that coverage was to be truly excess to other collectible insurance:
The State Farm policy specified that it provided coverage only in excess of the total limit of liability of any underlying insurance collectible by the insured.
The policy required the insured to maintain underlying automobile liability insurance in minimum amounts of $100,000/$300,000.
The policy contained an "other insurance" clause providing that its coverage would be excess to all insurance except insurance purchased to apply "in excess of the sum" of the coverage provided by both the underlying insurance and the State Farm policy.
The State Farm policy provided $1,000,000 coverage at a premium of $144 as compared to Aetna's policy, which provided $100,000/$300,000 coverage for a premium of $119. The court found that the small premium for the large amount of coverage provided by State Farm indicated State Farm intended to insure "at a lesser level of risk than did Aetna."
Id.,
When we examine the commercial property portions of the policies at issue in this case, it is clear that the SCIC policy and the USF & G policy provide the same kind of coverage. As we view it, both policies (absent their "excess" clauses) appear to provide primary coverage. Most significantly here, neither policy requires the insured to possess "underlying insurance" as to the commercial property coverage, which *218 many strictly "excess" policies require. In fact, the coverage terms of the two policies are quite similar. The commercial property portions of the policies differ primarily in that the USF & G policy covers more buildings at more locations. We do not think this difference should free USF & G from its obligation to its insured.
The SCIC and USF & G policies contain identical "excess" "other insurance" clauses. Like the "excess" clause in the Aetna policy in LiMauro, the "excess" clauses in the SCIC and USF & G policies evince only an intent that coverage be excess to that of other inherently primary policies. Obviously, it is impossible to give effect to both "excess" clauses, and given that there is nothing else in the policies that differentiates the kind of coverage they provide, the clauses should be disregarded as mutually repugnant and the loss should be prorated between SCIC and USF & G according to their respective policy limits. See 44 Am.Jur.2d Insurance § 1791 (1982 & Supp.1995) ("Proration has not been universally compelled between liability insurers both of whose policies contain `excess insurance' provisions, although it has been compelled in a great majority of cases."); see also, e.g., Home Ins. Co. v. Certain Underwriters,
Accordingly, under South Carolina law, the policies'"excess" clauses are mutually repugnant, both policies provide primary coverage, and the loss with regard to the three buildings covered by both policies should, therefore, be prorated between SCIC and USF & G according to their respective policy limits.
*219 CONCLUSION
We find that in determining whether a loss covered by multiple insurers should be prorated, or whether one policy should be treated as an "excess" policy, courts in South Carolina should consider the "total policy insuring intent" based on all the language of the insurance policies at issue. If two policies both contain "excess" clauses, but otherwise appear to provide for primary coverage, the excess clauses should be disregarded, and the concurrently covered loss prorated according to the policy limits of the respective policies.
We would be hard pressed to improve upon this conclusion penned by the Kentucky Court of Appeals:
This opinion represents our honest effort to make detailed answers to the conflicting arguments of the parties relative to the construction of an insurance policy. It would be somewhat ludicrous for us to say this policy is not ambiguous. It is. But no more so than most others. Ambiguity and incomprehensibility seem to be the favorite tools of the insurance trade in drafting policies. Most are a virtually impenetrable thicket of incomprehensible verbosity. It seems that insurers generally are attempting to convince the customer when selling the policy that everything is covered and convince the court when a claim is made that nothing is covered. The miracle of it all is that the English language can be subjected to such abuse and still remain an instrument of communication. But, until such time as courts generally weary of the task we have just experienced and strike down the entire practice, we feel that we must run with the pack and attempt to construe that which may well be impossible of construction.
Universal Underwriters Insurance Company v. Travelers Insurance Co.,
CERTIFIED QUESTION ANSWERED.
FINNEY, C.J., and MOORE, WALLER and BURNETT, JJ., concur.
NOTES
Notes
[1] Insurance Co. of North America v. Home & Auto Ins. Co.,
[2] Linda 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).
[3] Columbia Cas. Co. v. Northwestern Nat'l Ins. Co.,
[4] Douglas R. Richmond, Issues and Problems in "Other Insurance," Multiple Insurance, and Self Insurance, 22 Pepp.L.Rev. 1373, 1381 (1995), an excellent, comprehensive analysis of this topic in the context of property as well as liability insurance.
[5] Although there are some jurisdictions in which the rules for interpreting "other insurance" clauses in automobile insurance policies are different from those applicable to other types of liability and property insurance policies, the framework we adopt here of examining "total policy insuring intent" will apply to all "other insurance" clauses without regard to policy type.