On Appeal from the United States District Court for the Western District of Pennsylvania, D.C. Civil No. 86-00103 E.
Higginbotham, Becker, Circuit Judges and Barry, District Judge*fn*
This appeal and cross appeal from the grant of summary judgment by the district court in a declaratory judgment action between two insurance companies requires us to determine whether an insurance policy term constitutes an "escape" clause. Generally, courts will not give effect to escape clauses and will instead render the would-be escaper's coverage primary. The appeals also require us to resolve a second coverage dispute that turns on whether two competing coverages are primary or excess. Jurisdiction is founded upon diversity of citizenship, 28 U.S.C. § 1332 (1982).
The two insurance carriers, appellant Old Republic Insurance Company and appellee St. Paul Fire and Marine Insurance Company, issued insurance policies that provided coverage on a tractor and trailer that became involved in an accident with another tractor-trailer. The owner and driver of the other rig sued Old Republic's and St. Paul's insureds. The district court granted summary judgment for St. Paul, declaring that a provision of the liability policy issued to Ryder Truck Rental by Old Republic is an escape clause, so that under Pennsylvania law Old Republic is primarily liable. Contrans, I nc. v. Ryder T ruck Rental, 648 F. Supp. 1461 (W.D. Pa. 1986). Old Republic and Ryder have appealed that adverse judgment. St. Paul has cross-appealed the district court's denial of its request that Old Republic bear the costs of the declaratory judgment suit.
We affirm the judgment in St. Paul's favor, although we expressly reject the reasoning of the district court. We hold that the Old Republic policy does not contain an escape clause, but that because St. Paul only contracted to provide excess insurance on the trailer, Old Republic under the terms of its policy must incur primary liability. Only if the limits of the Old Republic policy are exceeded will St. Paul be required to share in any loss. With respect to the cross appeal, we affirm the district court's denial of St. Paul's request for an award of costs and expenses.
The facts are not disputed. On December 12, 1983, a collision occurred on Interstate Route 80 in Clearfield County, Pennsylvania between two tractor-trailer rigs, one driven by Charles R. Toney and the other by David J. Early. The owner and driver of the Toney rig sued the owners and driver of the Early rig. All of the parties to this action are involved in that damage suit, which is still pending in the United States District Court for the Western District of Pennsylvania, either as named defendants or as their insurance carriers.
At the time of the accident, the tractor driven by Early was owned by Ryder and leased to Contrans, Inc.*fn1 Attached to the tractor was a trailer owned and leased to Contrans by Chancellor Leasing Corporation.*fn2 Pursuant to its lease, Ryder obtained insurance from Old Republic on the tractor and trailer with a combined single limit of $500,000 per occurrence. Contrans obtained liability coverage on the trailer in the same amount from St. Paul. Early operated both the tractor and trailer pursuant to an agreement between Driver's Pool, Inc., Early's employer, and Contrans. Early was a permissive user of both components of the rig when the collision occurred.
In the wake of the Toney suit, St. Paul initiated a declaratory judgment action in the same district court, seeking a determination that the liability coverage it provided to Contrans on the trailer was excess to the primary coverage issued by Old Republic. Old Republic responded that the two policies were in effect both primary and, consequently, should contribute on a pro rata basis. As we have already explained, the district court granted summary judgment for St. Paul, declaring that the Old Republic policy contained and "escape" clause, and hence, that Old Republic's coverage was primary and St. Paul's coverage excess.*fn3
Neither St. Paul nor Old Republic denies the applicability of its policy to the accident. Only the order in which the policies apply is disputed.
It is an accepted principle of insurance law that where an accident arises out of the use of a combined vehicle such as a tractor-trailer and where separate policies cover the tractor and the trailer, all insurance applicable to the combined vehicle comes into play, regardless of which part of the rig was physically involved in the accident. See, e.g., Blue Bird Body Co. v. Ryder Truck Rental, Inc., 583 F.2d 717, 726-27 (5th Cir. 1978) (holding that both tractor policy and trailer policy apply, no matter which component was actually involved in the accident, citing cases from various jurisdictions); Insurance Co. of North America v. Royal Indemnity Co., 429 F.2d 1014, 1017-19 (6th Cir. 1970) (trailer policy applies merely because trailer was in use at the time of accident); Liberty Mutual Insurance Co. v. Home Insurance Co., 432 F. Supp. 117, 120 (M.D. Pa. 1977) (same). In other words, coverage variously on the tractor or the trailer is merely a means of attaching insurance to the rig.
Thus both Old Republic and St. Paul necessarily concede the applicability of their policies to this accident. Nevertheless, each policy contains an "other insurance" clause purporting to declare the respective liabilities of the two insurers. As is explained in Insurance Co. of North America v. Continental Casualty Co., 575 F.2d 1070, 1072 (3d Cir. 1978), there are three general types of "other insurance" clauses -- excess, pro rata and escape. Excess insurance "kicks in" to provide additional coverage once the policy limits of other available insurance are exhausted. Pro rata provisions allocate financial responsibility between concurrent policies based upon the percentage of coverage each policy bears to the net amount of coverage under all applicable policies. An escape clause attempts to release the insurer from all liability to the insured if other coverage is available. Finding it unacceptable for an insurance company to provide no coverage under a policy for which it received premiums, the courts of Pennsylvania have treated escape clauses with disfavor. In Grasberger v. Liebert & Obert, Inc., 335 Pa. 491, 6 A.2d 925 (1939), the Pennsylvania Supreme Court held that when an escape clause of one policy conflicts with an excess clause of another policy, the escape clause will not be recognized and the primary loss will be borne by the company seeking to escape its liability.
Under Pennsylvania law, an "escape" clause is one that provides that "the company invoking it is relieved from any obligation to the insured if other coverage is available." Insurance Co. of North America v . Continental Casualty Co., 575 F.2d at 1072 (emphasis added). An insurance policy is a contract, and therefore, as with any contract, a provision of it must be read in the context of the policy as a whole. Monti v. Rockwood Insurance Co., 303 Pa. Super. 473, 450 A.2d24, 26 (1982); Restatement (Second) of Contracts § 202(2) (1981). Mere use of the magic words "shall not apply" does not necessarily create an escape clause. Given the rigor with which Pennsylvania law treats escape clauses, we must be careful not to label a limiting clause as an escape clause unless it truly provides a complete escape from liability to the insured. See, e.g., Maryland Casualty Co. v. Horace Mann Insurance Co., 551 F. Supp. 907, 910 (W.D. Pa. 1982), aff'd mem., 720 F.2d 664 (3d Cir. 1983) (because no attempt is made to escape liability entirely, court refuses to read clause as an escape clause).
The interpretation of an insurance policy when the facts are not in dispute is a question of law for the court. Pacific Indemnity Co. v. Linn, 766 F.2d 754, 760 (3d Cir. 1985); Young by Young v. Equitable Life Assurance Society, 350 Pa. Super. 247, 504 A.2d 339, 341 (1986). Against this background discussion, we turn first to the language of the Old Republic policy.
It is undisputed that the question at issue here is the proper scope of the limitation of coverage clause found in Endorsement # 19 of the Old Republic policy. That endorsement provides:
The insurance coverage to such lessee/renter applies only to the maintenance or use of (1) the automobile*fn4 so leased/rented and (2) trailers owned by the lessee/renter or for which he is legally liable, but only while attached to the leased/rented automobile, however, such insurance shall not apply if there is other coverage ...