In GuideOne Mutual Insurance Company v. Utica National Insurance Company (No. D059833, filed 2/28/13), a California Court of Appeal rejected a prorata allocation of liability to an employer’s insurer based on vicarious liability for an employee. Because the employer’s policy only covered vicarious liability, the insurer was deemed to be excess to other insurance, which had to be exhausted before coverage would apply.
GuideOne insured Crosswinds Community Church (Crosswinds) under primary commercial general liability and umbrella policies, each having limits of $1 million. An endorsement covered hired and non-owned autos, and made both Crosswinds and its employees insureds.
Utica insured Crosswinds’ parent, Christian Evangelical Assemblies (CEA), under primary commercial auto and umbrella policies, with limits of $1 million and $5 million, respectively. The policies had non-owned auto coverage that covered CEA for employees’ use of their own autos, but not the employees themselves.
West, a pastor trained and ordained by CEA, and working for its church, Crosswinds, collided with a motorcycle while performing his duties. There was no dispute that he was an employee of both Crosswinds and CEA. West’s auto was covered by his own insurance from State Farm, with limits of $100,000.
The motorcyclist settled the case for $4.5 million, consisting of State Farm’s $100,000 limit; the $2 million limits of both GuideOne policies; and $2.4 million from the Utica primary and umbrella policies. The insurers reserved their rights and GuideOne sued Utica for contribution, demanding a reallocation based on the respective policy limits.
The trial court agreed, finding first that State Farm was the sole primary insurer under Insurance Code section 11580.9(d), which makes the policy that describes or rates the accident vehicle primary to all other insurance.
The trial court then ruled that the other insurers were equals as primary and excess/umbrella insurers with respect to the $4.4 million balance of the settlement. Because both had prorata other insurance clauses, the court reallocated the $4.4 million based on the policy limits. First, the court found that both $1 million primaries were obligated to exhaust the full policy limits. As to the remaining $2.4 million, the court prorated based on policy limits and given Utica’s higher limits, the court found that GuideOne’s umbrella was only obligated for $400,000, rather than the full $1 million limit it had contributed to the settlement. As a result, the trial court ordered Utica to reimburse GuideOne $600,000.
The appeals court reversed. While agreeing that Insurance Code 11580.9(d) made State Farm the primary insurer, the court held that merely because the statute makes all other insurance “excess,” does not necessarily place all other insurers on equal footing. And because GuideOne covered the employee directly, while Utica was limited to covering the employer for vicarious liability because of the employee, the court held that GuideOne was primary and Utica’s coverage was secondary.
The GuideOne court cited United States Fire Ins. Co v. National Union Fire Ins. Co. (1980) 107 Cal.App.3d 456, where the court held that an employer’s coverage was secondary to that of a negligent pilot causing an accident, based on the fundamental principle that an employer may recoup his losses in an action against a negligent employee because, as between the employer and the employee, the obligation of the employee is primary and that of the employer secondary. The GuideOne court said this is also consistent with the general rule of indemnity that as between a primary tortfeasor and one who is only vicariously liable, the vicariously liable party has the right to pursue indemnity against the primary tortfeasor and/or any insurance policy that covers the primary tortfeasor. Thus, all of the GuideOne insurance was primary, and had to be exhausted before any Utica insurance applied.
While dealing specifically with priority of auto insurance, the GuideOne decision is not limited to auto insurance, and may have broad application in its declaration that vicarious liability effectively makes insurance excess by operation of law. The court stated that both GuideOne policies were primary to both Utica policies, based upon principles of vicarious liability and not more general rules governing primary and excess policies.
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