Contractor lent a vehicle to a sub, and the sub’s employee caused a fatal accident. The subcontract had an indemnity in favor of the contractor. Five insurance policies were in play: (1) sub’s auto policy, (2) sub’s GL, (3) sub’s umbrella, (4) contractor’s auto, and (5) contractor’s umbrella. The Virginia Supreme Court has analyzed the situation and provided a thoughtful road map, addressing the impact of the indemnity and the ranking of policies under the particular circumstances.
A wrongful death lawsuit was brought against the employee/driver of the sub, Rodriguez Construction, and against the contractor (owner of the vehicle), East Coast Insulators. Critical to the subsequent analysis, East Coast was dismissed from that lawsuit. Remember this point.
The second lawsuit was between the carriers, seeking a court determination of the ranking of exposure to the claim. The trial court put the five policies in the order noted above, with the three Rodriguez policies exposed in turn ahead of the two East Coast policies. But the Virginia high court has changed that order.
First, the court held that the Rodriguez GL policy specifically excluded coverage of any personal injury or property damage claim arising from use of an auto (which is, presumably, why the sub also had an auto policy), so the sub’s GL policy was removed from the line-up.
Second, Rodriguez had agreed to indemnify East Coast, but East Coast had been dismissed from the underlying lawsuit, and it was only the Rodriguez employee who was a defendant. The court noted “the indemnification agreement in the present case only required Rodriguez to indemnify East Coast from any claims against East Coast. As we previously stated, there are no claims against East Coast. Therefore, Rodriguez is not required to indemnify East Coast.” Thus, the issue was not to rank the policies to cover East Coast, but to identify the policies and order for covering the Rodriguez employee. Under the circumstances presented, the subcontract indemnity was of no effect.
With that revised framework, the court issued its ranking of coverage:
1. East Coast auto policy, based on this policy provision: "For any covered 'auto' you own, this Coverage Form provides primary insurance." And coverage applied to "[a]nyone else while using with your permission a covered 'auto' you own,” so it was primary even when used by the Rodriguez employee.
2. The Rodriguez auto policy, which provided "For any covered 'auto' you don't own, the insurance provided by this Coverage Form is excess over any other collectible insurance."
3. Pro rata for the East Coast and Rodriguez umbrella policies. Finding that both policies had effectively identical terms (each calling for another policy to be primary, and for itself to be excess), the court held that proper treatment of that situation is to assess both policies on a pro rata basis.
For the third step, the court noted its agreement with a New York Court of Appeal decision, when trying to reconcile two policies each trying to hide behind the other: “[W]e conclude that the provisions [concerning what is “primary” versus “excess” or “contingent”] are virtually identical in effect, and . . . they are irreconcilable and mutually repugnant. In this situation, therefore, pro rata distribution is appropriate.” The case is Nationwide Mut. Fire Ins. Co. v. Erie Ins. Exch., 2017 Va. LEXIS 48 (Apr. 13, 2017).