Safeco Insurance Company of Illinois v. Harleysville Insurance Company

Filing 35

MEMORANDUM OPINION AND ORDER: It is ORDERED that Safeco's 26 motion for summary judgment is GRANTED on Counts I and II and that Harleysville's 24 motion for summary judgment is DENIED on Counts I and II and GRANTED on Count III; Final judgment will be entered separately. Signed by Honorable Judge William Keith Watkins on 1/10/2022. (bes, )

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IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF ALABAMA
NORTHERN DIVISION
SAFECO INSURANCE
COMPANY OF ILLINOIS,
Plaintiff,
v.
HARLEYSVILLE INSURANCE
COMPANY,
Defendant.

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CASE NO. 2:20-CV-633-WKW
[WO]

MEMORANDUM OPINION AND ORDER
I. INTRODUCTION
This diversity action arises out of an insurance dispute between Safeco
Insurance Company of Illinois (“Safeco”) and Harleysville Insurance Company
(“Harleysville”) concerning a motor vehicle accident. Safeco and Harleysville each
provided insurance coverage for the same vehicle. Harleysville covered the vehicle
under an employer’s business automobile liability policy as a non-owned auto, while
Safeco insured the owner of the vehicle under an automobile liability insurance
policy.
The owner of the vehicle, while on a business trip for her employer, allegedly
was at fault for a traffic accident with a motorcyclist. The motorcyclist demanded
payment from Safeco and Harleysville for his injuries.

Safeco settled the

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motorcyclist’s claim for less than its policy limits and, in this action, seeks
reimbursement on a pro rata basis from Harleysville. Harleysville contends that,
under its policy’s excess insurance clause, it is not liable until Safeco’s coverage is
exhausted. Safeco contends that, because its policy contains a similar excess
insurance clause, each insurer is liable for a pro rata share of the settlement based
upon the applicable limits contained in each policy.
Safeco brought this action seeking a declaratory judgment that Harleysville
wrongly denied coverage (Count I) and that it is entitled to reimbursement from
Harleysville for two-thirds of the settlement amount under equitable contribution
(Count II) or under equitable or contractual subrogation (Count III).
The parties raise purely legal issues, which are governed by Alabama law, in
cross-motions for summary judgment on undisputed facts.1 (Docs. # 24, 26.) For
the reasons that follow, Safeco’s motion for summary judgment is due to be granted
on Counts I and II, and Harleysville’s motion for summary judgment is due to be
denied on Counts I and II and granted on Count III.

1

Safeco moves for summary judgment on Counts I and II; Harleysville moves for summary
judgment on all counts.
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II. JURISDICTION AND VENUE
In this removed action, subject matter jurisdiction is proper on the basis of
diversity jurisdiction. See 28 U.S.C. §§ 1332(a), 1441(a). Personal jurisdiction and
venue are not contested.
III. STANDARD OF REVIEW
To succeed on a motion for summary judgment, the moving party must
demonstrate that “there is no genuine dispute as to any material fact and the movant
is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). The court views
the evidence, and all reasonable inferences drawn therefrom, in the light most
favorable to the nonmoving party. Jean-Baptiste v. Gutierrez, 627 F.3d 816, 820
(11th Cir. 2010).
Cross-motions for summary judgment “will not, in themselves, warrant the
court in granting summary judgment unless one of the parties is entitled to judgment
as a matter of law on facts that are not genuinely disputed.” United States v. Oakley,
744 F.2d 1553, 1555 (11th Cir. 1984) (citation omitted). Here, the material facts are
not in dispute; hence, the court must decide whether either party is entitled to
judgment as a matter of law.
IV. BACKGROUND
The parties agree that there are no material facts in dispute. The only issues
concern a legal interpretation of the insurance policies.
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A.

The Underlying Claim and Settlement
On September 20, 2018, Heidi Lee (“Lee”) was involved in a motor vehicle

accident during the scope of her employment with Jackson Thornton & Co., P.C.
(“Jackson Thornton”). (Statement of Lee, at 10 (Doc. # 26-1).)2 Lee owned the
vehicle, which was insured by her personal automobile liability insurance policy
through Safeco (“Safeco Policy”).3 The Safeco Policy provided $500,000 in liability
coverage on a per occurrence basis. (Safeco Policy, at 3 (Doc. # 26-3); Safeco Resp.
to Harleysville’s Interrogs. No. 7 (Doc. # 25-1).) Lee’s vehicle also was insured
under Jackson Thornton’s business automobile liability policy issued by
Harleysville (“Harleysville Policy”),4 which carried a liability limit of $1,000,000.
(Harleysville Policy (Doc. # 25-3).) It is undisputed that the Safeco Policy and the
Harleysville Policy insured Lee’s vehicle on the date of the accident. (See generally
Safeco Policy & Harleysville Policy; Harleysville Letter, dated Nov. 6, 2018, at 5–
9 (Doc. # 26-1).)
Safeco paid $200,000 to the motorcyclist to settle the automobile liability
claim against its named insured, Lee. The settlement agreement included a total

2

Pinpoint citations are to the page of the electronically filed document in the court’s
CM/ECF filing system, which may not correspond to pagination on the hard copy of the document
presented for filing.
3

The policy number is F1678863.

4

The policy number is BA00000058176C.
4

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release and discharge of all liability for both Lee and Jackson Thornton. (Safeco
Resp. to Harleysville’s Interrogs. No. 2; Aug. 29, 2019 Settlement and Release
Agreement (Doc. # 26-9).)
Safeco has sought proportional contribution from Harleysville; however,
Harleysville has denied any coverage on grounds that its coverage obligations apply
only on an excess basis over any coverage provided by Safeco. (Harleysville
Correspondence (Doc. # 26-7, at 3); Harleysville Claims Notes Production (Doc.
# 26-10).) Because the settlement payment of $200,000 did not exceed Safeco’s
policy liability limits, Harleysville argues that it owes nothing. Safeco seeks a
declaratory judgment that Harleysville wrongly denied coverage and that
Harleysville must reimburse Safeco proportionally for $133,333.33 (two-thirds of
the $200,000 settlement amount paid by Safeco). (Am. Compl., at 8.)
B.

The Safeco Policy
On the day of the accident, Lee was insured under the Safeco Policy, and the

Safeco Policy provided coverage to Lee for the accident. Under Part A—Liability
Coverage, the Safeco Policy set forth that “[Safeco] will pay damages for bodily
injury . . . for which any insured becomes legally responsible because of an auto
accident.” (Safeco Policy, at 19.) Under Part A, an “Insured” is defined, in pertinent
part, as
1. You or any family member for the ownership, maintenance or use of
any auto or trailer.
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...
3. For your covered auto, any person or organization but only with
respect to legal responsibility for acts or omissions of a person for
whom coverage is afforded under B.1. . . . above.
(Safeco Policy, at 19.) Under the Safeco Policy, Lee was the insured, and her vehicle
qualified as a “covered auto.” (Safeco Policy, at 18–19.)
The Safeco Policy also contained an “Other Insurance” clause under Part A,
which provided:
If there is other applicable liability insurance available[,] any insurance
we provide shall be excess over any other applicable liability insurance.
If more than one policy applies on an excess basis, we will bear our
proportionate share with other collectible liability insurance.
(Safeco Policy, at 22 (alteration added).) This clause is an excess insurance clause.
C.

The Harleysville Policy
On the date of the accident, the Harleysville Policy provided up to $1,000,000

in coverage to Jackson Thornton for Lee’s vehicle as a non-owned auto.
(Harleysville Policy, at 24–25.) Pertinent here, under the Harleysville Policy,
covered “autos” included non-owned “autos.” (Harleysville Policy, at 31.) The
policy defined non-owned “autos” as “[o]nly those ‘autos’ you do not own, lease,
hire, rent or borrow that are used in connection with your business. This includes
‘autos’ owned by your ‘employees’. . . .” (Harleysville Policy, at 31.) In the policy,
“you” and “your” referred to Jackson Thornton, the named insured. (Harleysville
Policy, at 31.)
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Lee owned the vehicle and was using it in connection with her work for
Jackson Thornton when the accident occurred. (Statement of Lee (Doc. # 26-1,
at 10).) Jackson Thornton did not own, hire, rent, or borrow Lee’s automobile.
Thus, Lee’s vehicle was a covered non-owned “auto” under the Harleysville Policy.
The Harleysville Policy also contained an “Other Insurance” provision:
For any covered “auto” you own, this coverage provides primary
insurance. For any covered “auto” you don’t own, the insurance
provided by this coverage form is excess over any other collectible
insurance.
...
When this coverage form and any other coverage form or policy covers
on the same basis, either excess or primary, we will pay only our share.
Our share is the proportion that the Limit of Insurance of our coverage
form bears to the total of the limits of all the coverage forms and
policies covering on the same basis.
(Harleysville Policy, at 39 (emphasis added).) This is an excess insurance clause.
See Sentinel Ins. Co. v. Ala. Mun. Ins. Corp., 188 So. 3d 640, 645–46 (Ala. 2015)
(concluding that the policy’s “other insurance” clause—“[f]or any covered ‘auto’
you don’t own, the insurance provided by this Coverage Form is excess over any
other collectible insurance”—was an excess insurance clause).
D.

The Claims in the Operative Pleading
The operative pleading is the Amended Complaint. (Doc. # 6.) Safeco brings

three claims. Count I is a claim for a coverage determination. In Count I, Safeco
seeks a determination that Harleysville wrongly denied coverage and that
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Harleysville and Safeco are “jointly obligated to provide coverage on a pro-rata basis
for Lee’s losses arising from the Accident.” (Am. Compl. ¶¶ 25–28.)
Count II is a claim for equitable contribution. In Count II, Safeco seeks
reimbursement from Harleysville for a pro rata share of the $200,000 settlement
payment. Based upon the respective policy limits under Safeco’s and Harleysville’s
coverages, Safeco contends that Harleysville is accountable for two-thirds of the
$200,000 payment Safeco paid under the settlement agreement, or $133,333.33.
Safeco seeks reimbursement from Harleysville in this amount. (Am. Compl. ¶¶ 29–
30.)
Count III is a claim for equitable or contractual subrogation. In Count III,
Safeco alleges again that Safeco is entitled to reimbursement from Harleysville for
$133,333.33 (two-thirds of the $200,000 settlement amount).
E.

Prior Ruling on Motion to Dismiss
Harleysville previously moved to dismiss Safeco’s amended complaint on

grounds that Safeco is not entitled to contribution because the two policies do not
cover the same insured. (Doc. # 8.) The court disagreed, finding that under Alabama
law the issue was whether the policies covered the same insurable interest, subject
matter, and risk. (Mem. Op. & Order, at 12 (Doc. # 16).) It found that, taking
Safeco’s allegations as true, both policies insured Lee’s vehicle at the time of the
accident, meaning “the two policies cover[ed] the same interest, subject matter, and
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risk as one another.” (Mem. Op. & Order, at 14.) Harleysville contends that this
“legal issue . . . has been preserved on the motion to dismiss” and that it need not be
revisited here. (Harleysville’s Mem. of Law, at 2 n.1 (Doc. # 25).) Harleysville
makes alternative legal arguments in its motion for summary judgment.
V. DISCUSSION
The cross-motions for summary judgment turn on whether the Harleysville
Policy obligates Harleysville to provide pro rata coverage for Safeco’s $200,000
settlement of the underlying suit. Harleysville argues that it does not owe any
coverage for three reasons: (1) Alabama follows the rule that primary coverage
follows ownership of the vehicle; hence, Safeco is primarily liable up to its policy
limits (which were not exceeded by the settlement); (2) alternatively, the “other
insurance” provisions are not mutually repugnant; and (3) the Safeco Policy does
not allow for contractual subrogation against Harleysville because Lee cannot
recover under the Harleysville Policy as she is not an insured under that policy.
Safeco concedes Harleysville’s third point, but otherwise takes a contrary
position. Safeco argues for summary judgment, contending that both its policy and
the Harleysville Policy are excess based on the “other insurance” provisions. It
contends that under Alabama law, because the language in the policies’ “other
insurance” clauses are effectively the same, the provisions are deemed “mutually
repugnant” and thus are disregarded in favor of pro rata apportionment between the
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two companies pursuant to the coverages provided. (Safeco Br. in Supp. of Summ.
J. Motion, at 9–10 (Doc. # 27) (citing State Farm Mut. Auto Ins. Co. v. Gen. Mutual
Ins. Co., 210 So. 2d 688 (Ala. 1968)).)
The interpretation of the insurance policies is a matter of state law, and the
parties do not dispute that Alabama law applies in this diversity action. “The
determination of which insurance coverage is primary and which, if any, is excess
or secondary depends on the exact language of the policy.” Nationwide Mut. Ins.
Co. v. Hall, 643 So. 2d 551, 558 (Ala. 1994). Additionally, “insurance contracts
give effect to the intention of the parties, and, when that intention is clear and
unambiguous, the insurance policy will be enforced as written.” Sentinel Ins. Co. v.
Ala. Mun. Ins. Corp., 188 So. 3d 640, 644 (Ala. 2015) (citation omitted). “If the
terms of an insurance policy are plain and unambiguous, the interpretation of the
contract and its legal effect are questions of law.” Id. (citation omitted).
The cross-motions readily resolve in Safeco’s favor based on the Alabama
Supreme Court’s decision in State Farm Mutual Auto Insurance Co. v. General
Mutual Insurance Co., 210 So. 2d 688 (Ala. 1968) (“State Farm v. General”). State
Farm v. General controls the outcome and requires proration between the two
insurance carriers for the settlement amount.
State Farm v. General involved a dispute between two insurers, each of which
covered a vehicle that was involved in a motor vehicle accident. State Farm covered
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the driver’s use of a non-owned automobile under an operator’s policy. State Farm
v. General, 210 So. 2d at 690, 694. General covered a family poultry company,
which owned the driver’s vehicle, under a commercial policy. Id. at 690. Both
General’s policy and State Farm’s policy contained operative excess insurance
clauses. The Alabama Supreme Court, aligning with the majority of courts, held
that the clauses were “mutually repugnant” and that each insurer must bear a portion
of the loss. Id. at 694. After examining the three methods of apportionment courts
had employed to allocate losses, the Alabama Supreme Court adopted the method
by which the loss is apportioned according to “the ratio which the limits of the
policies bear to the total coverage . . . .” Id. at 696 (quotation marks and citation
omitted).
The rationale behind the pro rata share rule adopted by the Supreme Court of
Alabama has been explained as follows:
Where two or more policies provide coverage for the particular event
and all the policies in question contain “excess insurance” clauses, the
“excess insurance” clauses cannot be given literal effect, because
neither policy would cover the loss and such a result would produce an
unintended absurdity. Thus, such clauses are generally considered
mutually repugnant and are disregarded, rendering each company liable
for a pro rata share of the judgment or settlement.
In most of these cases, proration has been ordered in accordance with
the proportionate policy limits afforded by the respective insurers.

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7A Am. Jur. 2d Automobile Insurance § 543 (internal footnotes omitted). The
Alabama Supreme Court’s method of proration falls in line with “most of these
cases.” Id.
Here, as in State Farm v. General, there was concurrent coverage: Both the
Safeco Policy and the Harleysville Policy covered Lee’s vehicle at the time of
accident. Neither policy designated its coverage as “primary,” and each policy
contained an excess insurance clause. If read literally, the clauses would preclude
any coverage for the accident and that cannot be the intention of the parties. Because
the clauses are irreconcilable, they effectively are set aside. Under State Farm v.
General, Safeco and Harleysville must split the loss in accordance with the limits of
their respective policies. As a result, Safeco is liable for one-third of the total
settlement payment, and Harleysville bears two-thirds of the total, or $133,333.33.
This result is straightforward based on the teachings of State Farm v. General,
a decision that Harleysville’s arguments fail to consider. Without mention of State
Farm v. General, Harleysville contends that the general rule under Alabama law is
that “the owner’s policy owes primary coverage” up to its policy limits; therefore,
the Safeco Policy, as the owner’s policy, is the primary coverage, and, consequently,
Safeco must bear the total cost of the settlement because it was within the policy
limits. (Harleysville Br. in Opp. to Pl. Summ. J. Mot., at 7–8 (Doc. # 28).) This
argument is not persuasive.
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State Farm v. General illustrates that this general rule is not applicable in
concurrent coverage cases where the policies encompass competing excess
insurance clauses and where neither policy contains an express provision that its
coverage is primary. There, General’s insured owned the vehicle at issue, yet
General only had to pay a proportion of the loss. Alabama’s highest court did not
hold that General’s policy was primary up to its policy limits after which State
Farm’s non-owned/operator’s policy provided excess coverage.

Instead, the

competing excess insurance clauses canceled each other out, and the insurance
carriers bore the loss proportionally. The result for which Harleysville advocates
finds no support in State Farm v. General.
Moreover, the cases upon which Harleysville rely are distinguishable because
none addressed competing excess insurance clauses. See, e.g., State Farm Mut.
Auto. Ins. Co. v. Auto-Owners Ins. Co., 252 So. 2d 631 (Ala. 1971); Cont’l Nat’l
Am. Grp. v. Burleson, 220 So. 2d 611 (Ala. 1969). In State Farm Mutual Automobile
Insurance, the Alabama Supreme Court was confronted with one policy with an
“escape” clause and another policy with an “excess” clause. 252 So. 2d at 638. It
held that “where one policy contains an ‘escape clause,’ and the other contains an
‘excess clause,’ the primary insurer is the company issuing the policy with the escape
clause because excess insurance simply is not other valid and collectible insurance.”
Id. at 640. In Burleson, the Alabama Supreme Court reconciled a pro rata clause in
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one policy with an excess clause in another policy. See 220 So. 2d at 614. Burleson
held that the policy with the pro rata clause was primarily liable; the policy with the
excess clause provided secondary coverage and was not liable until exhaustion of
the coverage by the policy with the pro rata clause. See id. at 614–15. In fact, the
Burleson court distinguished the policies before it from those in State Farm v.
General, “where two policies covered the same accident and both contained ‘excess’
clauses”: The clauses “were held to be mutually repugnant[,] and thus, in State Farm
v. General, “[w]e adopted proration according to the policy limits.” Id. at 615 (citing
State Farm v. General, 210 So. 2d at 688). “But, in the case at bar, the clauses do
not conflict.” Id.
As Burleson and State Farm Mutual Automobile Insurance illustrate, different
rules apply depending upon the type of clauses at issue. See also Scott M. Seaman
& Jason R. Schulze, Resolving conflicts in “other insurance” clauses, Allocation of
Losses in Complex Insurance Coverage Claims § 5:4 (Dec. 2021) (detailing the rules
courts have formulated to resolve coverage issues where policies contain competing
“other insurance” clauses). Because the conflicts in the insurance provisions in
Burleson and State Farm Mutual Automobile Insurance involved different kinds of
clauses, these cases are distinguishable.
Harleysville has cited no cases in which the general rule it advocates was
applied to a situation where, as here, two insurers covered the same auto accident
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through policies that featured conflicting excess other-insurance clauses.
Harleysville’s insistence that the other-insurance provisions here can be reconciled
relies on a faulty premise: Harleysville asserts that, “while Safeco’s policy is excess
over ‘other applicable insurance,’ there is not ‘applicable insurance’ provided by
Harleysville’s policy because it is excess in all instances for liability based on
vehicles that Jackson Thornton does not own.” (Harleysville Br. in Opp. to Pl.
Summ. J. Mot., at 7.) The argument is unavailing because it cuts both ways. Under
Harleysville’s rationale, Safeco likewise could argue that, by operation of Safeco’s
excess clause, the Safeco Policy does not constitute “other collectible insurance”
within the meaning of Harleysville’s other-insurance clause, rendering
Harleysville’s policy primary. This point underscores how the excess clauses are
mutually repugnant and incapable of reconciliation: They are irreconcilable because
they work together to preclude any underlying primary insurance. Thus, if the excess
clauses of both policies were given effect, there would be no primary insurance, a
result that clearly the insureds did not intend. See Sentinel Ins. Co., 188 So. 3d
at 644. State Farm v. General Mutual held, that in such a situation, the insurers will
share in resulting coverage obligations on a pro rata basis. Safeco and Harleysville
will share the loss on a pro rata basis here as well.

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VI. CONCLUSION
The undisputed facts show that both the Safeco Policy and the Harleysville
Policy provided liability coverage for the vehicle and accident at issue. Under the
other-insurance clauses, each policy contends to be “excess” over the other. Because
the excess clauses are mutually repugnant, Safeco and Harleysville are responsible
for sharing liability coverage for the accident and the ensuing settlement on a pro
rata basis under the holding of State Farm Mutual Auto Insurance Co. v. General
Mutual Insurance Co., 210 So. 2d 688 (Ala. 1968).
It is ORDERED that Safeco’s motion for summary judgment (Doc. # 26) is
GRANTED on Counts I and II and that Harleysville’s motion for summary judgment
(Doc. # 24) is DENIED on Counts I and II and GRANTED on Count III.
Final judgment will be entered separately.
DONE this 10th day of January, 2022.
/s/ W. Keith Watkins
UNITED STATES DISTRICT JUDGE

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