- Excess Carrier Blinded by Pennsylvania Supreme Court "Polestar"
- May 5, 2003 | Author: Daniel G. Sanders
- Law Firm: Marshall, Dennehey, Warner, Coleman & Goggin - Orlando Office
Based on a recent Pennsylvania Supreme Court decision, excess liability insurers who believe their coverage to be last in priority may find they are much closer to the action than they intended. Pledging that the terms of insurance policies are the "polestar of the court's inquiry" in resolving coverage issues, the Pennsylvania Supreme Court concluded that coverage provided by an excess liability insurer covering an auto involved in a one-car accident placed higher in priority than an auto policy covering the driver. Harleysville Ins. Co. v. Aetna Cas. & Surety Co., 795 A.2d 383 (Pa. 2002). In light of Harleysville v. Aetna, claim professionals and excess underwriters will be best served by revisiting their traditional notions of the "order of things" when it comes to the issue of the priority of coverage in auto losses.
In Harleysville v. Aetna, Lawrence May owned a pickup truck that he permitted his grandson, Eric Kolesar, to use. May purchased primary coverage for the truck from the Pennland Insurance Company. The Pennland policy had a liability limit of $300,000. May also purchased a Blanket Excess Liability Policy issued by Harleysville which had a liability limit of $1 million. At the time of the accident, Kolesar was a passenger in the truck that he had allowed his friend, Troy Stefko, to drive. While Stefko was driving, the truck left the road and struck a tree. Kolesar was seriously injured as a result of the accident. Stefko was covered by a personal auto policy purchased from Aetna by his mother. The Stefko's policy with Aetna had a liability limit of $250,000. When Kolesar sued Stefko, Aetna refused to participate in the litigation taking the position that its policy was last in priority among the three policies and would not be exposed until the Pennland and Harleysville policies were exhausted.
Following a settlement agreement and arbitration, Kolesar was awarded $550,000. Pennland paid its $300,000 policy limit and Harleysville paid the remaining $250,000 while reserving its right to pursue Aetna. Thereafter, Harleysville initiated a declaratory judgment against Aetna to recover the $250,000, as well as the fees and costs associated with defending Stefko. Both Harleysville and Aetna moved for summary judgment. The trial court determined that only Pennland provided primary liability insurance for the accident. The court also concluded that Harleysville's coverage was second in priority among the policies and Aetna was last in priority. In so concluding, the trial court also concluded that Harleysville and Aetna were not concurrent excess insurers, but Aetna was excess to all other coverage when a non-owned auto was involved. The Pennsylvania Superior Court affirmed this result.
In Harleysville's appeal, it argued that the Pennland and Aetna policies were primary auto policies that become excess only under limited circumstances. Citing the rule followed by a majority of courts when confronted with assigning priority to multiple coverages, Harleysville argued that the court should consider the design and intent of the policies by looking at the type and purpose of the coverage, not just the precise language of the policies. Harleysville argued its policy was designed and intended only to be excess of underlying primary policies, or at the very least, its policy should be concurrent with any other "excess" policy. The Pennsylvania Supreme Court disagreed citing distinctions in the "other insurance" clauses of the two policies.
The "other insurance" clause in the Harleysville policy, in relevant part, stated: "The insurance afforded by this policy shall be excess insurance over any valid and collectible primary insurance, whether or not shown in the Declarations." The "other insurance" clause in the Aetna policy, in relevant part, stated: "[A]ny insurance we provide for a vehicle you do not own shall be excess over any other collectible insurance." Although the court agreed that the Harleysville policy contained "some of the indicia of a traditional excess liability policy," (low premium/high coverage, reference to primary coverage), it found the limitation within the "other insurance" clause that referred to "primary" insurance did not include the Aetna policy because, by the terms of the Aetna policy, it was not primary insurance for non-owned autos. The court stated that the terms of the Harleysville "other insurance" clause failed to adequately specify what policies were primary, and noted that Harleysville could have easily remedied that shortcoming in its policy. As a result, the court affirmed the priorities assigned by the courts below finding that Harleysville's coverage held the second (and non-concurrent) position relative to the Kolesar loss.
Harleysville's coverage position followed the traditional notions of the relationship and priorities among multiple "primary" auto policies and an excess liability policy. Historically, these notions, reasonably held by an insurer and its claim professionals, were based on the principle that courts do not wear "blinders" when interpreting insurance policies, and that they consider the entire policy - including the type and purpose of coverage - when ascertaining the intent of the parties. In Harleysville v. Aetna, by opting to focus solely on the terms of the competing "other insurance" clauses, the Pennsylvania Supreme Court unsettled those traditional notions and the predictability they generally bring to the order of things. In light of Harleysville v. Aetna, excess insurers and claim professionals must closely review the language within competing "other insurance" clauses to be certain they have their priorities straight. As only the Supreme Court can, in Harleysville v. Aetna it has reminded insurers, claim professionals, and coverage lawyers that there are few unflappable "traditional notions" in the insurance coverage arena.