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Court finds no pro rata coverage in insurance dispute

A federal judge has resolved a priority dispute between two insurance policy carriers that both provided coverage for an at-fault driver acting within the scope of his employment while driving his own vehicle.

The driver had personal policy with MMG Insurance and was also covered by his employer’s commercial policy with Progressive National Insurance.

Progressive took the position that it only provided excess coverage, while MMG argued that coverage should be apportioned pro rata between the two insurers.

Judge Thomas T. Cullen of the Western District of Virginia sided with Progressive, concluding that “the plain language of both policies indicates that, regarding the Accident, MMG’s coverage is primary, while Progressive’s is secondary.”

The decision is MMG Insurance Company v. Progressive Northern Insurance Company (VLW 022-3-486).

Simultaneous coverage

In January 2021, Kevin VanPelt was running errands while driving his personal vehicle within the scope of his employment for Heritage Memorials when he stopped for gas at a 7-Eleven in Harrisonburg.

When VanPelt drove away, he struck and dragged a man who was servicing the gas pump intakes. The man was hospitalized. He subsequently indicated his intention to sue.

VanPelt was insured by a personal auto policy issued by MMG, which listed his vehicle as a covered auto. Heritage was the named insured on a commercial auto policy issued by Progressive.

As the named insured, VanPelt was covered under the MMG policy for any vehicle he drove. The policy also provided that if any person or person acting on behalf of a corporation incurred liability while driving VanPelt’s truck, then they were considered to be an “insured” and covered under his personal policy.

MMG’s “other insurance” provision, which is commonly known as a pro rata clause, provided that if other insurance was available, “we will pay only our share of the loss [which] is the proportion that our limit of liability bears to the total of all applicable limits.”

Under the Progressive policy, Heritage was the named insured and four vehicles owned by the company were covered.

Progressive defined an insured as a person using an automobile owned, hired or borrowed by Heritage with permission from Heritage, except “[t]he owner or anyone else from whom the insured auto is leased, hired, or borrowed.”

The Progressive “other insurance” provision said that it would only provide excess coverage for an auto not specifically described in the declarations.

Additionally, Heritage paid for a non-owned auto endorsement that modified the definition of “insured auto” to include those owned by its employees if they were being used for company business, but limited coverage to the excess over any other insurance.

MMG sought a declaratory judgment that that coverage should be allocated pro rata. Both parties moved for summary judgment.

Primary coverage

MMG contended Progressive should share the cost of covering the claims pro rata because both policies primarily insured VanPelt or his vehicle and, alternatively, that the “other insurance” clauses in both policies were mutually repugnant.

Progressive countered that its obligation was limited to the excess clause in Heritage’s non-owned auto endorsement, which was triggered by MMG’s primary liability coverage.

Cullen agreed, finding that the Progressive policy “extends primary liability coverage only to the four specific vehicles owned by Heritage.”

MMG argued that Progressive still held priority because Heritage was, in effect, borrowing VanPelt’s vehicle at the time of the accident.

But the judge rejected that argument. The Progressive policy expressly defined an insured as anyone except the owner of a vehicle that was borrowed.

“Because VanPelt owned the [vehicle] …, the exception applies to bar coverage even if Heritage was borrowing [it] at the time,” the judge wrote.

Not mutually repugnant

“Because policyholders may purchase overlapping coverage, insurance policies ‘generally contain other insurance clauses that attempt to define the insurer’s responsibility for payment when other insurance coverage is available,” Cullen explained.

And where two policies have clauses with the same effect, “neither provides purely primary coverage and pro rata apportionment of coverage is appropriate,” he added. “But when dissimilar Other Insurance clauses exist, as here, the weight of authority indicates that the court can reconcile the two clauses and enforce them according to their terms.”

MMG claimed courts have voided such clauses if they are virtually identical in effect as “irreconcilable and mutually repugnant,” because they cancel each other out.

“But here, the Progressive and MMG Other Insurance clauses are not mutually repugnant,” Cullen said. “The Other Insurance clauses contain dissimilar provisions — an excess clause and pro rata clause, respectively — which the court can reconcile.”

In resolving a dispute over the effect of dissimilar insurance clauses, the 4th U.S. Circuit Court of Appeals held in Medical Protective Co. & St. Paul Fire and Marine Insurance Co. v. National Union Fire Insurance Co. that “National Union’s excess clause provided secondary coverage to St. Paul’s policy, which contained a pro rata clause that provided primary coverage.”

The federal appellate court relied on an earlier ruling from the Virginia Supreme Court — GEICO v. Universal Underwriters Insurance Co. — “declined to follow cases concluding that dissimilar ‘other insurance’ clauses are mutually repugnant.”

“Availability of the MMG Policy to Heritage, therefore, triggers the excess insurance clause contained in the non-owned auto endorsement of the Progressive Policy which… provides that coverage ‘is excess over any other valid and collectible insurance’ in relation to insured non-owned autos used for Heritage business purposes.”

— U.S. District Court Judge Thomas T. Cullen

Here, MMG made no attempt to distinguish GEICO or Medical Protective Co; instead, it merely argued that a contrary decision from the Fairfax County Circuit Court should guide the court.

Cullen disagreed

“The cases on which the circuit court relied do not stand for the proposition that dissimilar Other Insurance clauses are mutually repugnant, but that similar other insurances clauses are mutually repugnant,” he wrote.

Having determined that MMG’s coverage was primary and that Progressive must provide excess coverage, Cullen then found that Heritage was a “person or organization” covered under MMG’s policy while VanPelt was acting within the scope of his employment when the accident happened.

“Since Heritage is an ‘insured’ under an express provision of the MMG Policy, MMG’s primary liability coverage is available to Heritage for claims stemming from the Accident,” Cullen wrote. “Availability of the MMG Policy to Heritage, therefore, triggers the excess insurance clause contained in the non-owned auto endorsement of the Progressive Policy which… provides that coverage ‘is excess over any other valid and collectible insurance’ in relation to insured non-owned autos used for Heritage business purposes.”

Finally, the judge concluded that Progressive was bound to provide Heritage with coverage only after any other available insurance had been exhausted.