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Commercial Auto |
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Primary Versus Excess
Coverage |
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Indiana Lease Statute |
In January 2004, Debra
Boboruzian was driving her minivan on the highway when it lost power and
stalled. Michael Laux, who was driving a tractor-trailer, collided with the
minivan, killing Debra's 8-year-old son and severely injuring Debra. Debra
filed suit against Laux, who owned the tractor involved in the accident. She
also sued Quickway Express, Inc., the organization that hired Laux to drive the
trailer. The Kroger Company owned the trailer.
Kroger had business auto
insurance with Old Republic Insurance Company (Old Republic) with a $5 million
per-occurrence limit. The policy had an "Other Insurance" section
providing that the liability coverage for the trailer was excess while the
trailer was connected to a motor vehicle not owned by the insured and primary
while the trailer was connected to a covered vehicle that Kroger owned.
Quickway had four different
policies issued by RLI Insurance Company (RLI), the Insurance Company of the
State of Pennsylvania (ISOP), and First Specialty Insurance Corporation
(First). The two RLI policies were a commercial auto policy with a $1 million
limit and a $100,000 deductible, and an excess liability policy with a
per-occurrence limit of $2 million. The ISOP policy was a commercial umbrella
policy with a per-occurrence limit of $1 million. The First policy was an
excess liability policy with a $1 million per-occurrence limit that applied
only "in excess of the limits of 'Underlying Insurance.'"
Old Republic filed a
declaratory judgment asking an Indiana court to determine the insurance
coverage that had priority. The court found that Old Republic's was the primary
policy and that it provided excess coverage only by operation of the policy's
"Other Insurance" provision. The court also found that the RLI excess
policy, the ISOP policy, and the First Specialty policy were the true excess or
umbrella policies. Old Republic appealed.
On appeal, Old Republic
argued that Indiana's Lease Statute applied to determine the priority of
insurance coverage and that the Old Republic policy was last in priority. The
Lease Statute provided: "(a) When a claim arises from the operation of a
motor vehicle leased under a written lease agreement, if under the agreement
the lessee agrees to provide coverage for damage resulting from his operation
of the vehicle, then the motor vehicle insurance coverage of the lessee is
primary. No claim may be made against any coverage available for the vehicle by
the lessor until the limits of the motor vehicle insurance coverage provided by
the lessee for the vehicle are exhausted. (b) When a claim arises from the
operation of a motor vehicle that is used in the business of transporting
property for hire and leased under a written lease agreement, if under the
agreement the lessor and lessee agree as to which coverage of the parties'
motor vehicle insurance is primary coverage, then the policy of insurance providing
that coverage is primary and no claim may be made against any other coverage
for the vehicle until the limits of that policy are exhausted."
The Indiana Court of Appeals
analyzed this statute and determined that it applied only to determine priority
between policies that provided the same level of coverage, as opposed to
policies that provided primary and secondary coverage. The court noted that,
"it [was] clear the legislature in enacting the [statute] wished to
simplify coverage disputes where competing primary insurers [had] conflicting
"other insurance" clauses that threaten[ed] to leave an injured party
without access to insurance coverage for an accident." The court also
noted: "We do not think the statute was intended to force an umbrella insurer
to pay ahead of a primary insurer."
The court then concluded
that the Old Republic policy provided primary coverage, while the ISOP umbrella
policy and the First excess policy each provided true excess coverage. The
Lease Statute could not be applied to place the excess insurers' policies ahead
of Old Republic's in priority.
The lower court's decision
was affirmed.
Old Republic Insurance
Company vs. RLI Insurance Company-No. 49A04-0709-CV-523-Court of Appeals of
Indiana-June 6, 2008-887 North Eastern Reporter 2d 1003