February 22, 1993
In this subrogation action, plaintiff Maryland Casualty Co. (Maryland) seeks indemnification from the defendant, City Delivery Service, Inc. (City Delivery) for claims arising out of a motor vehicle accident which occurred in Lackawanna County, Pennsylvania on March 11, 1988.
A tractor-trailer operated by an employee of Maryland's insured, E.C. Keller, Inc. (Keller), collided with a vehicle operated by Nelson Douaihy.
Maryland paid the Douaihys $ 207,141.75 in an out-of-court settlement.
Maryland filed this action to recover the settlement amount and its legal expenses
from City Delivery under an indemnity clause in a lease agreement which City Delivery had with Maryland's insured.
City Delivery is an interstate contract carrier licensed by the Interstate Commerce Commission (ICC) to transport goods over authorized routes. Maryland's insured, Keller, is an independent trucking company, which leases trucks and supplies drivers to authorized ICC carriers such as City Delivery. Keller is not an authorized ICC carrier.
City Delivery and Keller entered into a master lease agreement on July 14, 1987.
Keller, the lessor, supplied the tractors and drivers. City Delivery, the lessee, supplied the trailers and the loads to be transported. Without City Delivery's ICC authorization, Keller had no right to transport goods in interstate commerce. When transporting goods for City Delivery, Keller displayed on its tractor a placard bearing City Delivery name. The truck which collided with the Douaihy vehicle was leased to City Delivery, was transporting goods under the City Delivery lease and displayed a City Delivery placard at the time of the accident.
Under its lease agreement with Keller, City Delivery assumed the obligation of providing primary insurance coverage for injuries arising out of the operation of Keller tractors operated by Keller drivers while under lease to City Delivery. In exchange for that promise, Keller paid City Delivery 3% of its gross revenues from lease operations.
City Delivery does not dispute that it had an obligation under the lease to provide coverage for Keller tractors and drivers under lease to it. City Delivery's carrier is American Casualty of Reading, (American), a CNA company.
American has consistently denied any obligation to insure Keller tractors under lease to City Delivery as a primary insurer. American refused Maryland's request that it defend the action filed by the Douaihys
and fund the settlement.
When Maryland filed this action to recover as Keller's subrogee under the insurance provision clause of Keller's lease agreement, City Delivery joined American as a third party defendant. It alleges that American's failure to defend the action filed by the Douaihys and fund the settlement is a breach of its policy.
This action is before the court on cross motions for summary judgment. All parties have moved for judgment in their favor.
Subsequent to the filing of its motion, Maryland filed a supplemental motion for partial summary judgment requesting that the court dispose of liability issues only on summary judgment, because of American's unwillingness to stipulate to the reasonableness of the settlement amount.
All relevant facts necessary to determine liability issues are undisputed. For the reasons discussed below, we find that 1) City Delivery had a contractual obligation to provide primary liability coverage for Keller drivers and tractors while under lease to it; 2) City Delivery fulfilled that obligation by purchasing coverage from American; 3) primary coverage exists under the American policy; 4) coverage under the Maryland policy for injuries sustained while Keller drivers and tractors were operating under the lease with City Delivery is excess; 5) the settlement and defense costs incurred by Maryland are less than American's policy limits; 6) Maryland's obligation as excess insurer does not come into play; 7) Maryland has a right of recovery against City Delivery, which in turn has a right of recovery against American for all sums recoverable against it.
We dispose of the outstanding motions as follows. Maryland's motion for summary judgment is deemed withdrawn. Maryland's supplemental motion for partial summary judgment against City Delivery on liability issues only will be granted. City Delivery's motion for summary judgment against American will be granted on liability issues only. American's motion for summary judgment will be denied.
Motion for summary judgment standard
Summary judgment is appropriate if the "pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. " Fed.R.Civ.P. 56(c) (Emphasis supplied).
. . . The plain language of Rule 56(c) mandates the entry of summary judgment, after adequate time for discovery and upon motion, against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial. In such a situation, there can be 'no genuine issue as to any material fact,' since a complete failure of proof concerning an essential element of the nonmoving party's case necessarily renders all other facts immaterial. The moving party is 'entitled to judgment as a matter of law' because the nonmoving party has failed to make a sufficient showing on an essential element of her case with respect to which she has the burden of proof.
Celotex v. Catrett, 477 U.S. 317, 323-24, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986).
The moving party bears the initial responsibility of stating the basis for its motions and identifying those portions of the record which demonstrate the absence of a genuine issue of material fact. He or she can discharge that burden by "showing . . . that there is an absence of evidence to support the nonmoving party's case." Celotex, supra at 323 and 325.
Issues of fact are "genuine" only if a reasonable jury, considering the evidence presented, could find for the non-moving party. Childers v. Joseph, 842 F.2d 689, 693-694 (3d Cir. 1988), citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986). Material facts are those which will affect the outcome of the trial under governing law. Anderson, supra, 477 U.S. at 248. In determining whether an issue of material fact exists, the court must consider all evidence in the light most favorable to the non-moving party. White v. Westinghouse Electric Company, 862 F.2d 56, 59 (3d Cir. 1988).
City Delivery does not dispute that it had an obligation under the terms of the lease agreement to provide primary insurance coverage for Keller drivers and tractors while operating under its lease. The lease provides that City Delivery "shall maintain insurance coverage for the protection of the public pursuant to I.C.C. regulations under 49 U.S.C. 10927." In exchange for City Delivery's agreement to provide such coverage, City Delivery retained 3% of the gross revenue due Keller for the lease of its equipment and drivers.
Settlement sheets between Keller and City Delivery reflect deductions for the premiums as agreed. City Delivery maintains that it fulfilled its obligation by obtaining primary coverage on the leased equipment from American.
The lease also requires Keller, as lessor, to indemnify and hold harmless City Delivery from losses, judgments or other expenses incurred because of injury to third persons sustained as a result of negligence or alleged negligence on the part of Keller its agents, servants or employees. (Complaint, exhibit "A", Part II, para. 5.)
American denies coverage on two grounds. It contends that the driver (Greg Keller) was not an insured under its policy and that even if he were, the coverage afforded is excess, not primary coverage, and does not come into play because Maryland is the primary insurer and it defended and settled the Douaihys' claims for less than its policy limits of $ 750,000.00.
Maryland and City Delivery dispute American's contention that it has no duty to provide coverage. Both contend that its policy affords primary coverage, although each offers a different theory of liability. City Delivery bases its argument on the terms of American's policy; Maryland's theory is premised on obligations imposed by ICC regulations and required motor carrier policy endorsements. We base our decision on the obligations undertaken by American under the terms of its policy.
City Delivery is the named insured under the American policy. Coverage is defined by the policy to include liability insurance on "hired autos"--autos which City Delivery "lease(s), hire(s), rent(s) or borrow(s)." (Record Document No. 23, exhibit "C", Truckers Coverage Form, Section 1-Covered Autos-symbol 47) By definition, the tractor leased from Keller is a covered "auto". The policy obligates American to pay all sums that City Delivery is legally required to pay as damages for bodily injury or property damages resulting from the use of a covered "auto". (Record Document No. 23, exhibit "C", Liability Coverage of the Truckers Coverage Form, Section II (page 2 of 10).
The applicable policy section defining who qualifies as an insured contains a standard omnibus clause which extends coverage to anyone who, with the permission of City Delivery, uses a covered auto owned, hired, or borrowed by City Delivery. Three conditions apply to this definition: the auto hired, leased or borrowed 1) cannot be a "trailer"; (2) must be used exclusively in City Delivery's business as a "trucker"; and 3) must have been used pursuant to City Delivery's operating rights as a public authority.
All of the conditions necessary for the Keller driver to qualify as an insured have been met. At the time of the accident, City Delivery was leasing the driver's services from Keller. The driver was using a hired auto--a covered auto as defined by the policy--with City Delivery's permission, (Record Document No. 23, exhibit "C", Truckers Coverage Form, page 1 of 10). The auto leased, i.e., Keller's tractor, is not a trailer. At the time of the accident, it was being used exclusively in City Delivery's business as a trucker. The truck displayed a placard bearing City Delivery's name, was operating under City Delivery's lease pursuant to its ICC authorization, and was, under the terms of the lease, under the exclusive possession and control of City Delivery.
American argues that an exclusionary clause in section II of the Truckers Coverage Form limits the general provisions defining coverage and operates to preclude coverage of Keller's tractor and driver. The section it cites provides that the following do not qualify as insureds:
Any trucker or his or her agents or employees, other than you [City Delivery] and your employees, . . . (2) if the 'trucker' is insured for hired 'autos' under an 'auto' liability insurance form that does not insure on a primary basis the owners of the 'autos' and their agents and employees while the 'autos' are being used exclusively in the 'truckers' business and pursuant to operating rights granted to the 'trucker' by a public authority.'
American argues that because Keller admittedly had primary coverage under the Maryland policy for hired autos, it cannot qualify as an insured under American's policy.
We do not follow the logic of this argument. Applied to the facts of this case, the quoted exclusion provides that Keller, its agents or employees (other than City Delivery employees) are not insured under American's policy if Keller is insured "for hired autos" under a policy "that does not insure on a primary basis the owners of the 'autos' and their agents and employees while they are being used exclusively in the Keller's business and pursuant to operating rights granted to Keller by a public authority. (Emphasis added.)
American's argument that Maryland's policy provides primary coverage for Keller, its drivers and its equipment is contrary to the conditions necessary for the exclusion to apply. The quoted exclusion states that truckers lacking primary coverage do not qualify as insureds. Maryland's policy with Keller provides for primary coverage of Keller tractors and drivers while being used exclusively in Keller's business as a trucker. It does not provide such coverage for tractors and drivers while operating under lease to another trucker. In such cases, coverage provided by the Maryland policy is excess, not primary. American's position does not conform to the conditions specified by the "trucker" exception in the American policy. It does not apply and does not operate to preclude coverage.
We have determined that the Keller tractor was an insured vehicle and the Keller driver an insured person under American's policy at the time of the accident. The only American coverage issue remaining is the nature of the coverage provided. Under the terms of American's policy its coverage is primary because the accident occurred while the tractor was under lease to City Delivery and being used exclusively in City Delivery's business as a trucker. Section V--Truckers Conditions of the policy provides in relevant part under the heading "Other Insurance--primary and excess insurance provisions" (page 8 of 10):
a. This Coverage Form's Liability Coverage is primary for any covered 'auto' while hired or borrowed by you and used exclusively in your business as a 'trucker' and pursuant to operating rights granted to you by a public authority. This Coverage Form's Liability Coverage is excess over any other collectible insurance for any covered 'auto' while hired or borrowed from you by another 'trucker.'