Owner of Vehicle Determines Who Defends Tort Action

By Barry Zalma on June 30, 2021

Who’s on First? By Reading the Full Policy 7th Circuit Refuses to Accept Meaning Different than the Wording of the Policy

In the aftermath of a serious collision between an ambulance and a semi-truck, a question lingered: Who owned the ambulance? In Continental Western Insurance Company v. Country Mutual Insurance Company, No. 20-2962, United States Court of Appeals For the Seventh Circuit (June 24, 2021) the Seventh Circuit determined who was on first.

This inquiry turned contentious as two insurance companies looked to sidestep primary coverage obligations arising from three post-accident lawsuits. The ambulance service’s formation through a joint enterprise and status as a separately insured party complicated the resultant ownership determination. The district court determined that defendant-appellant Country Mutual Insurance Company’s named insured owned the ambulance, holding Country Mutual responsible for primary coverage for the defense costs in question. The district court found that plaintiff-appellee Continental Western Insurance Company’s named insured did not own the ambulance such that Continental only owed coverage in excess of Country Mutual’s primary coverage. After granting summary judgment to Continental on these grounds, the court awarded Continental attorney’s fees and defense costs equal to the amounts that Country Mutual should have covered but that Continental, in fact, incurred to defend its insured in the three underlying lawsuits.

BACKGROUND

Alhambra and Hamel are two villages located in southern Illinois. In 1989, the Hamel Fire Protection District (“Hamel Fire”) and Alhambra Fire Protection District (“Alhambra Fire”) formed a joint venture called the Alhambra-Hamel Ambulance Service (the “Service”) to provide ambulance service to residents of both fire districts.

On September 17, 2012, a Service-operated ambulance driven by Theodore Berg, Jr., collided with a semi-truck owned by Specialized Transportation, Inc. (hereinafter, the “accident”). The semi-truck driver Daniel Eddinger and his codriver Rayburn Conway were seriously injured in the accident. Ambulance passengers, including Michelle Logue, were also severely injured.

The accident produced three lawsuits (hereinafter, the “underlying lawsuits”). Continental defended Hamel Fire in each of the underlying lawsuits but only after first tendering them to Country Mutual. Country Mutual ignored each tender. All three cases eventually settled, and Continental paid all attorney’s fees assessed for Hamel Fire’s defenses.

Several documents shed light on which entity owned the ambulance. On the one hand, the 2009 “Certificate of Title of a Vehicle” for the ambulance listed “Alhambra Hamel Ambulance Service” as its “owner.” Likewise, the 2009 “Bill of Sale” issued by Truck Centers, Inc. listed the ambulance as “Sold To: Alhambra-Hamel Ambulance Service.” Finally, the “Illinois Traffic Crash Report” that recorded the accident listed the ambulance “owner” as “Alhambra Hamel, Ambulance Service.”

THE POLICIES

Country Mutual issued a multiperil commercial lines insurance policy to the Service, its named insured (the “Country Mutual Policy”). The Country Mutual Policy included business auto coverage subject to a $1,500,000 limit of liability for any one accident or loss, but it only insured certain “covered autos.” Under “Item 3. – Schedule of Covered Autos You Own,” the Country Mutual Policy listed the “2010, Freightliner Ambulance, 1FVACWDU2ADAN8141,” specifying the ambulance was a covered auto.

The policy also circuitously covered Hamel Fire. In clarifying who was insured under the Country Mutual Policy, the “Liability Coverage” section stated that “insureds” span three categories: “[y]ou for any covered ‘auto,’” “[a]nyone else while using with your permission a covered ‘auto’ you own, hire or borrow,” and “[a]nyone liable for the conduct of any ‘insured’ described above but only to the extent of that liability.”

Under this framework, the Country Mutual Policy insured the Service (as the primary policy holder), Berg (as the driver of a covered auto with the Service’s permission), and Hamel Fire (as one allegedly liable for the conduct of its “agent and driver” or “employee”—Berg—who qualifies as an “insured”).

Continental’s policy, which Continental issued to Hamel Fire, its named insured (the “Continental Policy”). The Continental Policy included business auto coverage subject to a $5,000,000 limit of liability for any one accident or loss. Unlike the Country Mutual Policy, the Continental Policy did not list the ambulance. Nevertheless, the ambulance was still an “auto” covered by virtue of the Continental Policy’s declarations, which stated that any “auto” enjoyed coverage. All told, both parties do not dispute that the ambulance was a covered auto under both the Continental Policy and Country Mutual Policy.

Both policies also spelled out coverage priority in comparably worded “Other Insurance” provisions. Thus, both policies provided primary coverage for owned autos and excess coverage for non-owned autos.

THE ISSUE

The question to the court was which insurance company—Continental or Country Mutual—is responsible for paying the defense fees that Continental incurred to defend Hamel Fire in the underlying lawsuits. The parties agree this question turns exclusively on who owned the ambulance involved in the accident, a 2010 Freightliner Ambulance with a vehicle identification number 1FVACWDU2ADAN8141 (hereinafter, the “ambulance”).

ANALYSIS

The insurance policies issued by Continental and Country Mutual, both in effect during the accident, also speak to ambulance ownership and coverage priority. At a high level, there were four insurance policies implicated by the accident. Of those, only the ones issued by Country Mutual (to its insured, the Service) and Continental (to its insured, Hamel Fire) were relevant to the issue presented to the court.

The outcome determinative question to the court was which entity owned the ambulance. The “Other Insurance” provisions expressly dictate that the insurer for whichever entity owned the ambulance owed primary coverage for defending Hamel Fire in the underlying lawsuits. The record evidence indicates that the involved parties intended for the Service to be the sole ambulance owner.

Both the Country Mutual Policy and the Continental Policy reflect the view that the parties intended the Service, not Hamel Fire, as the ambulance owner. To begin, the Country Mutual Policy designated the Service as the ambulance owner. The Country Mutual Policy unambiguously included the ambulance under the “Item 3. – Schedule of Covered Autos You Own.” Alone, this schedule evidences the Service’s intended ownership of the ambulance and, therefore, Country Mutual’s primary liability because Illinois courts generally place primary liability on the insurer of the automobile owner. In addition the Country Mutual Policy’s “Other Insurance” provision adds that “for any covered ‘auto’ you own”—and the above-referenced schedule lists the ambulance as one such covered auto owned by the Service—the Country Mutual Policy “provides primary insurance.”

Essentially, Country Mutual argues that one of its own insurance policies means the exact opposite of what it says. The court declined to adopt a view so contrary to the plain language found in the Country Mutual Policy. Regardless of Country Mutual’s intent, the Country Mutual Policy is still highly relevant to show the Service’s own intention of ownership of the ambulance.

Beyond the insurance policies, three other documents reinforced the court’s view that the Service, and not Hamel Fire, owned the ambulance. First, in 2009, the Service, not Hamel Fire, purchased the ambulance. Per the ambulance’s Bill of Sale, Truck Centers, Inc. “sold” the ambulance to “Alhambra-Hamel Ambulance Service.” Second, the Service, not Hamel Fire, memorialized its ownership of the ambulance by securing the 2009 Certificate of Title, which listed “Alhambra Hamel Ambulance Service” as the “owner.”

Because there was not a genuine issue of material fact as to which entity owned the ambulance the district court’s grant of summary judgment was affirmed.

ZALMA OPINION

It makes no sense for an insurer, who specifically identified by VIN number the ambulance involved in the accident including an “other insurance” clause that establishes it as a “primary” policy to claim they owed nothing to defend or indemnify its insured. The arguments made by Country Mutual were interesting but not convincing since it ignored the clear and unambiguous nature of its own policy and tried to argue it did not mean what it wrote. The Seventh Circuit slapped down the argument and agreed with the District Court that it should apply the contracts as written, always.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 52 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

Over the last 53 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

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