In an accident while test driving a car dealership automobile, whose insurance pays?
In a situation where the at fault vehicle in a car accident is a dealership’s vehicle that was being test driven by a customer at the time, whose insurance pays? The dealership’s insurance has denied liability because they state they do not cover an accident where a person is test driving one of their vehicles with the intent to buy. Instead, they believe the driver’s own insurance would be responsible. The driver’s insurance claims the auto dealer’s insurance is responsible. They cannot both be right. One of the two insurance companies or both may have to provide coverage. Coverage will depend upon the language in both policies. In Universal Underwriters Ins. Co. v. Allstate Ins. Co. 99 Md. App. 595 (1994) the Maryland Court of Special Appeals held: The excess clauses in the Universal and Allstate policies are mutually repugnant and so must be disregarded; each policy is to be treated as providing primary insurance. Universal and Allstate are, thus, obligated to share equally the costs of providing a defense and indemnification to Mr. Lynn.
The holding in Universal Underwriters Ins. Co. v. Allstate Ins. Co is limited to the facts of that case and the language in the two insurance policies. This case will not carry the day in every test driving dealership vehicle accident and the specific policies involved will have to be evaluated.
In Universal Underwriters Ins. Co. v. Allstate Ins. Co. 99 Md. App. 595 (1994) the situation presented in this case concerns “double or overlapping insurance,” which occurs when more than one insurance policy might cover damages arising from a claim involving a single vehicle. Nolt v. United States Fidelity and Guarantty Co 329 Md 52,60,617A2d 578 (1993). Because a literal reading of the excess clauses of each policy “would leave the insured without coverage,” we must determine which policy (or policies) is (or are) “primary” and which is (or are) “excess.”Ryder Truck Rental,Inc. v. Schapiro & Whitehouse Inc. 259 Md 354, 361 n.1 , 269 A.2d 826 (1970) (observing that no court has accepted the argument that conflicting excess provisions ought to preclude liability of the insurers).
In a footnote, the Ryder court Ryder, 259 Md.at 355, 269 A.2nd 826 distinguished this “true excess-excess conflict” from that between the “owner of an automobile insured with an omnibus clause and a driver whose policy covers the use of non-owned vehicles.” Id. at 365 n. 2, 269 A.2d 826. In the latter situation, the Ryder Court noted that “[t]he cases and the writers support … a rule” that “the owner’s insurer must pay when his insurance has an`other insurance’ clause and the driver’s insurance is `excess only’ with respect to non-owned vehicles.” Id.
This error may have arisen because neither party recognizes precisely when the “rule” referred to in the Ryder footnote is applicable. A review of the cases in which that “rule” has been followed makes it clear that the rule comes into play when the owner’s insurance policy provides that, when there is other valid and collectible insurance, there is only pro rata coverage and both the owner’s and driver’s policies contain similar excess clauses, which provide that coverage is excess as to non-owned vehicles. Since both policies provide that they are excess when a non-owned vehicle is involved, the excess clause of the driver’s policy is triggered; the similar excess clause in the owner’s policy, however, is not triggered because the owner’s car was, in fact, involved in the accident.
In this situation, the majority rule is that the driver’s insurance does not constitute “valid and collectible insurance” within the meaning of the pro-rata clause in the owner’s policy and so the owner’s insurance is primary and the driver’s insurance is only excess. See, e.g.,American Surety Co Of New York v. Canal Ins. Co. 258 F 2d.934,936 (4th circuit 1958) (cited in Ryder footnote);
The case at hand, however, is not such a case. It simply does not involve the situation governed by the rule alluded to in the Ryder footnote. It is, of course, true that here, as in the cases following that rule, there is a contest as to coverage between the owner’s insurer and the driver’s insurer, that both policies have excess clauses, and that the driver’s excess clause is applicable because it provides that it is excess for non-owned vehicles. The critical distinction between this case and the cases following the rule explicated in the Ryder footnote is that here the excess clause in the owner’s policy is also applicable. This is so because that clause does not simply provide that coverage is excess when liability arises out of use of “non-owned” vehicles. Rather, the owner’s policy provides that coverage is excess “for any person … who becomes an Insured … as required by law,” e.g., a test driver like Mr. Lynn.
Because in the instant case the owner’s excess clause is just as applicable as the driver’s excess clause, the two excess clauses directly conflict. In this — the current — situation, the majority rule is that the excess clauses “are to be disregarded (as mutually repugnant) and each of the coverages is treated as primary insurance (and the liability is prorated).” Robert E. Keeton & Alan I. Widiss, Insurance Law § 3.11(e)(2), at 263 (1988), and cases cited therein; accord 8A Appleman on Insurance, § 4909, at 399-408.
Indeed, the majority rule is the only one consistent with the Ryder holding. There, as here, both excess clauses were “fully operative” and so in direct conflict. Ryder, 259 Md at 364, 269 A.2d.826. The Ryder court noted that it had not found “any case presenting a genuine, clearcut conflict of excess clauses, in which the court did not require some kind of proration of the loss between the insurers involved.” Id. After reviewing various methods of proration, the Court of Appeals concluded that liability should be equally shared by the insurers. Id. at 365, 269 A.2d 826. See also Nolt, 329 Md. at 60, 617 A.2nd 578 (“[w]here both policies provide for excess coverage only, liability is shared equally by the insurers”);
In sum, it is the Ryder holding, not the “rule” discussed in the Ryder footnote, that is relevant here. Accordingly, the circuit court erred. The excess clauses in the Universal and Allstate policies are mutually repugnant and so must be disregarded; each policy is to be treated as providing primary insurance. Universal and Allstate are, thus, obligated to share equally the costs of providing a defense and indemnification to Mr. Lynn.
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