United States: Illinois Appellate Court: A Contingent Automobile Liability Policy Is Not An Excess Policy

In Bartkowiak v. Underwriters at Lloyd's, London, 2015 IL App (1st) 133549, the Appellate Court of Illinois, First Judicial District, was confronted with the interpretation of a Contingent Automo­bile Liability insurance policy and the coverage available to the insured where the policy stated that coverage "shall not apply" if the insured has "valid and collectible Automobile Liability insurance of any nature." The Appellate Court held that the defendant insurer had no duty to defend or indemnify because the insured had other automobile liability insurance that, although it did not cover the full amount of the insured's loss, was "valid and collectible" such that the contingent policy was never triggered.

BACKGROUND

On October 31, 2009, a truck delivering road-resurfacing materials struck and killed road-construction flagger Joseph Bartkowiak. The plaintiff, decedent's wife, brought a wrongful death action against (1) the truck driver, Stan Wdowikowski; (2) the driver's employer, trucking company Denise Wdowikowski Trucking, Inc. (DWT); and (3) the truck broker that assigned the job to DWT, Jack Gray Services, Inc. (Jack Gray).

The truck driver had a $1 million automobile liability policy through Northland Insurance (Northland). Truck broker Jack Gray was an additional insured on the Northland policy for the delivery at issue. In addition, Jack Gray had a separate insurance policy with defendant titled "Contingent Automobile Liability." Under this policy, the insurer agreed to pay "damages resulting from automobile liability that may arise on a contingent basis" because of an individual's bodily injury and death "caused by an occurrence and arising out of the transportation of merchandise" as part of Jack Gray's truck brokerage. Underwriters' policy required Jack Gray to obtain a current Certificate of Automobile Liability Insurance for any vehicles brokered by it. Jack Gray obtained a Certificate of Insurance that indicated Northland provided automobile liability coverage for the involved motor carrier and Jack Gray was named an additional insured on that policy.

There was no dispute that the Northland policy was the primary insurance here. Northland, in fact, defended Jack Gray in the underlying action and ultimately paid out its policy limit to settle the underlying action (discussed below).

In the fall of 2010, Jack Gray tendered its defense of the underlying action to the defendant, seeking coverage under the contingent policy. The defendant denied coverage on the basis of the policy's Condition IV, which stated:

APPLICATION OF CONTINGENT LIABILITY. It is expressly understood and agreed that the coverage provided under this Certificate of Insurance shall not apply if there is valid and collectible Automobile Liability insurance of any nature.

Defendant's position was that Jack Gray had "valid and collectible" insurance through Northland.

On February 28, 2012, the court presiding over the underlying action entered an order approving the parties' settlement agreement. Pursuant to the agreement, the plaintiff received $7.8 million, including $1 million from Northland. Jack Gray remained exposed in the amount of $4.2 million, and thus agreed to assign to plaintiff its rights under the defendant's policy.

The plaintiff (standing in Jack Gray's shoes) filed a declaratory judgment action seeking a declaration that the defendant (1) owed a duty to defend and indemnify Jack Gray for its liability stemming from the truck accident, (2) was required to cover the excess $4.2 million referenced in the settlement and (3) acted in bad faith in denying coverage. The plaintiff asserted that Condition IV did not preclude coverage for her underlying action because the Northland policy did not constitute "valid and collectible" insurance because it failed to wholly cover the loss.

The trial court granted the defendant's motion to dismiss on two grounds: First, the defendant's policy was a "contingent automobile liability policy, and the specific contingency it covered – the complete failure of the primary coverage – never occurred." Second, the Northland policy was "valid and collectible" because Northland defended Jack Gray in the underlying action and the plaintiff had, in fact, collected that policy's $1 million limit when the underlying action settled. The trial court concluded that "to accept the proposition that Northland's policy was not collectible because the policy limits have been exhausted leaving a portion of the underlying settlement unsatisfied would require the court to transform the Contingent Automobile Liability coverage into excess coverage – something this court cannot do."

ANALYSIS

The Appellate Court affirmed, reasoning as follows:

  • The court noted first that the parties' dispute centered on the word "collectible" in Condition IV of the defendant's policy. According to the plaintiff, "collectible" implies a monetary limit: "In plaintiff's view, if the insured has a valid policy but it does not wholly cover the insured's loss, that policy is 'collectible' only to the extent it covers the loss and is otherwise 'uncollectible.'"
  • "[A] more fundamental way to look at plaintiff's position is that plaintiff views Condition IV as 'excess' coverage – coverage for any loss that exceeds the limit of the underlying insurance's coverage."
  • "In defendant's view," by contrast, a policy is "collectible" if "the insured is capable of collecting on it – even if the policy does not wholly cover the insured's loss."
  • As the court explained, "defendant views Condition IV (and indeed the heading of Condition IV suggests as much) as providing only 'contingent' coverage – coverage only if a certain event does or does not happen, here if the insured has other 'valid and collectible' automobile liability insurance. That provision is sometimes referred to as an 'escape clause.'"

Because the policy did not define "collectible," the court looked to dictionary definitions for its "plain, ordinary, and popular" meaning. The court determined that these definitions supported both sides, but found that this did not "necessarily render it ambiguous. Among our commands in interpreting insurance policies is not only to examine the words in controversy but to examine them in light of the policy as a whole." In so doing, the court looked to the policy's "other insurance" provision at Condition VIII:

OTHER INSURANCE. The coverage provided herein is excess over and above any other valid Contingent Automobile Liability Insurance that provides coverage for any loss that otherwise would be covered by the terms and conditions of this Certificate.

Because Condition VIII specifically referred to excess insurance while Condition IV contained no such reference, the court concluded that the parties knew how to express their desire to contract for excess liability coverage as they clearly did in Condition VIII with the language "excess over and above."

"If the intent of the policy was to provide excess coverage above and beyond any standard automobile liability insurance that the insured procured, we can think of no reason why the policy would not have expressed that intent in Condition IV in precisely the same way it expressed that concept in Condition VIII, concerning other contingent liability insurance."

The court thus held that the parties' intent was clear: "Pursuant to Condition IV, defendant undertook to provide primary coverage where, for some reason, the automobile liability insurance for the trucks brokered by the insured, Jack Gray, completely failed due to invalidity or insolvency. If Jack Gray could collect at all from that primary insurance, then defendant's policy would not apply. A complete reading of the policy does not permit us to convert Condition IV into an excess coverage provision."

Finally, the appellate court rejected the plaintiff's contention that this interpretation of the policy rendered it illusory. "We agree with defendant that the point of the policy was to cover the insured's loss in the very specific contingency that the underlying insurance failed, either because it was invalid for some reason or because it had become uncollectible for some reason such as the insurance company's insolvency... That is the deal the parties struck, and we will not alter it."

Plaintiff filed a petition for leave to appeal to the Illinois Supreme Court in late fall 2015 which, on January 20, 2016, was denied.

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