On November 1, 2017, in Great Divide Insurance Company v. Lexington Insurance Company (“Great Divide” and “Lexington,” respectively), the Supreme Judicial Court entered a ruling on a question of first impression certified to it by the United States District Court for the District of Massachusetts.
In a suit before him, a Federal District Court judge had found there was no controlling Massachusetts legal authority on the priority of coverage between a primary auto policy with an excess “other insurance” clause and a “true excess” umbrella policy that also contained an “other insurance” clause. The question of first impression arose because one of the two policies was a “hybrid” policy that had primary coverage for an incident where its insured was driving a vehicle owned by the insured, but excess coverage for an accident where its insured was the driver but driving a vehicle owned by someone else.
Recently married bicyclist run over and killed by garbage truck
The coverage dispute between Lexington and Great Divide began on April 3, 2014, when an employee of EZ Disposal Service, Inc. (EZ), driving a borrowed garbage truck leased by Capitol Waste Services, Inc. (Capitol) on his route.
Just outside of Sullivan Square, Charlestown, Owen McGrory (30), married five months before, was riding his bicycle back to his home in Chelsea in a marked bike lane pedaling normally. The garbage truck operator passed Mr. McGrory, took a sharp right turn into a side street and ran over and killed Mr. McGrory.
The driver of the garbage truck left the scene but was apprehended by the police who were told by the driver he thought he had “run over a pothole.” The driver was charged with leaving the scene of an accident causing death, but a Suffolk County grand jury, after hearing seven witnesses and reviewing 19 exhibits issued a “no bill”—refusing to indict.
After the grand jury refused to indict, the Boston police turned over their full investigative file to Mr. McGrory’s widow in case she wished to file a civil suit. Soon after receipt of the file, she commenced a wrongful-death action in the Suffolk Superior Court against EZ and Capitol, and the leasing company owner of the truck.
Insurance policies providing $12 million in coverage
The suit for Mr. McGrory’s death had coverage under three insurance policies. The first policy, was issued by Commerce Insurance Company (Commerce) and provided Capitol with primary insurance, up to a limit of $1 million. The second policy, issued by Lexington, provided Capitol with excess insurance, and contained a limit of $10 million. The third policy, issued by Great Divide, provided EZ with primary insurance for a
While Commerce defended all the insureds in the underlying tort action, the nature of the claim and the possible damages for causing Mr. McGrory’s death caused the two excess carriers to disagree on whose policy first applied to any damages payable over Commerce’s $1 million limit.number of different risks, including accidents involving automobiles owned by EZ, up to a limit of $1 million.
The excess coverage dispute arose over an exception to Great Divide’s “Other Insurance” clause. The parties agreed Great Divide’s policy was primary in all instances except:
For any covered ‘auto’ you do not own, the insurance provided by this coverage form is excess over any other collectible insurance.”
Great Divide argued its coverage was not primary but excess because Capitol’s driver was using a truck EZ leased and had lent to Capitol because the truck Capitol ordinarily used on the driver’s route had broken down.
Coverage suit over priority of excess policies
In October 2015, Great Divide filed a complaint against Lexington in the Superior Court, seeking a declaration that its policy and Lexington’s policy were both excess policies covering the same level of loss and, therefore, each policy should apply proportionally based on the total available excess limits of $11 million: Great Divide paying 1/11th of every dollar paid over Commerce’s $1 million limit and Lexington paying the remaining 10/11th.
Lexington removed the case to the United States District Court for the District of Massachusetts on diversity grounds. In a decision on the parties’ cross motions for summary judgment, the Federal District Court judge identified the case presented a question of undecided Massachusetts law and deferred any ruling by certifying the a question of Massachusetts law to the Massachusetts Supreme Judicial Court asking:
Where there is a motor vehicle accident and the primary commercial automobile liability insurance policy issued to the owner of the vehicle involved in the accident is exhausted, what is the priority of coverage between:
(1) a second primary commercial automobile liability insurance policy insuring the driver of the vehicle, which has an ‘other insurance/nonowned vehicle’ clause providing—(a) that, with respect to motor vehicles the insured owns, this insurance is primary—(b) that, with respect to motor vehicles the insured does not own, this policy is excess and—(c) that ‘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;’ and
(2) a true excess liability insurance policy insuring the owner of the vehicle that contains an ‘other insurance’ clause providing that ‘if other valid and collectible insurance applies to damages that are also covered by this policy, this policy will apply excess of the ‘other insurance’?”
Lexington argues intent of the parties to insurance contract shows Great Divide’s policy primary
Before the Supreme Judicial Court, each insurer agreed the Lexington policy and the Great Divide policy covered the loss excess policies. Lexington argued though the primary limit of $1 million in the policy issued by Great Divide had to be exhausted before Lexington’s “true excess” policy was triggered. Great Divide argued both policies were applicable to the same extent for the loss in excess of the Commerce limits because its policy contained an “other insurance” clause exception for its insured’s use of the nonowned vehicle involved in Mr. McGrory’s death.
To support its position, Lexington argued the Great Divide was intended to be primary because:
- the “other insurance” language in the Great Divide policy did not change the inherently primary nature of that policy because in nearly every other instance, the Great Divide policy functions as primary insurance for EZ;
- the Great Divide policy was earlier in priority than the Lexington policy because the Great Divide policy had high premiums and a low coverage limit—attributes usually contained in primary policies, and
- the Great Divide policy is earlier in priority than the Lexington policy because the Great Divide policy is not labeled as an “excess” or “umbrella” policy, while Lexington’s policy is called a “commercial umbrella liability” policy.
Supreme Judicial Court rules intent does not matter where language “clear and unambiguous”
To the Supreme Judicial Court, the language in the Great Divide “excess” provision clearly stated that it was “excess over any other collectible insurance” for nonowned automobiles.
The Court noted, however, “…both parties essentially urge an interpretation based on what would have been the likely intent of the parties.” But, rather than seeking to discern the intent of the parties as Lexington and Great Divide argued, the Supreme Judicial Court reaffirmed that under Massachusetts law that in interpreting an insurance policy:
If the language is clear and unambiguous, [the court] must give effect to that language, without considering the underlying intent of the parties.”
The court noted that it would not give its own ideas about the language of the contract but, rather, only look to the actual contract language quoting from a legal treatise, “the question whether a bargain is smart or foolish, or economically efficient or disastrous, is not ordinarily a legitimate subject of judicial inquiry”.
Court’s rejects Lexington’s claims Great Divide’s policy is primary
On Lexington’s arguments, as to why Great Divide’s policy was primary, the court rejected them based on its ruling that absent unclear or ambiguous wording the language of the contract applied and not the intent of the parties controlled. The court found against Lexington’s points finding:
- although other states have found primary policies such as Great Divide’s with an “other insurance” clause were essentially primary policies whose limits had to exhausted before a “true excess” policy was triggered, those decisions looked to the intent of the parties. Instead, the Supreme Judicial Court sided with other State courts that had determined that primary insurance policies with “other insurance” clauses were excess policies based on the actual language of the contract. The court stated, “We conclude that the approach adopted by the courts in these other cases, which gives effect to all the words in the policy, is the better approach.”
- the ratio of higher premiums to lower coverage limits in the Great Divide policy as compared to the Lexington policy did not evince an intent that is contrary to the plain language of the Great Divide policy itself. The plain language of the Great Divide policy did not give or suggest any reason to look beyond that language.
- The distinction between the names of the policies alone was not dispositive. Instead, the inquiry turned on the “terms of the respective policies.” Though the Lexington policy was labeled an “umbrella policy” and the Great Divide policy was not, the terms of the Great Divide policy clearly stated that it covered the same level of excess risk for “nonowned vehicles” as did the “excess” provision in the Lexington policy.
The Supreme Judicial Court’s decision then stated:
Therefore, we conclude that both policies cover the loss at issue as excess insurers, and neither has priority over the other.”
Answer: Both policies insure same level of risk notwithstanding different policy language
Based on its decision, the Supreme Judicial Court advised the United States District Court the answer to the certified question as follows:
Where neither insurer is the primary insurer in the circumstances of this case, Great Divide and Lexington insure the same level of risk, notwithstanding the noted differences in the language of each insurance policy.”
On November 6, 2017, the District Court ruled:
Given the ruling of the Commonwealth’s highest court, the task remaining before this court requires no heavy lifting. Because both policies apply “to the extent of their respective policy limits…the only question is how a potential damages award or settlement should be apportioned between the two policies.
Here the sum of both excess policies, Great Divide’s $1 million plus Lexington’s $10 million is $11 million. Great Divide will therefore be responsible, up to the limit of its $1 million policy, for 1/11th (or 9.09 per cent) of any settlement or damages award in the wrongful-death action. Lexington, in turn, will pay 10/11ths (or 90.90 per cent).”
If the Supreme Judicial Court had ruled against Great Divide’s position, Great Divide would have had to have paid its full $1 million limit before Lexington would have paid dollar one.
