Appellate Court of Illinois,

First District, Third Division.

CANAL INSURANCE, Plaintiff-Appellee,

v.

A & R TRANSPORTATION AND WAREHOUSE, LLC., Defendant (Kenneth Boyd, Defendant-

Appellant).

April 6, 2005.

Appeal from the Circuit Court of Cook County, Richard A. Siebel, Judge Presiding.

Justice HOFFMAN delivered the opinion of the court:

The plaintiff, Canal Insurance (Canal), filed the instant action seeking a judicial declaration that it is not obligated to defend its insured, A & R Transportation and Warehouse, LLC. (A & R), in a tort action brought against A & R by Kenneth Boyd or to indemnify A & R from any judgment that might be entered against it in that action. Canal and Boyd filed cross-motions for summary judgment. The trial court granted summary judgment in favor of Canal and denied Boyd’s motion. Boyd filed a timely notice of appeal. A & R has not appealed from the trial court’s ruling and is not a party to this appeal. For the reasons which follow, we affirm the judgment of the circuit court.

The facts of this case are not in dispute. Canal issued a policy of liability insurance (hereinafter referred to as the “Policy”), pursuant to which it agreed, under specified circumstances, to pay all sums within the limits of the Policy that A & R might become legally obligated to pay as damages for bodily injury or property damage and to defend A & R in any action seeking such damages. The Policy covered the period from December 26, 1998, to December 26, 1999, and provides, in part, as follows:

“1. COVERAGE A–BODILY INJURY * * *

The company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of bodily injury or property damage to which this insurance applies, caused by an occurrence and arising out of the ownership, maintenance or use, including loading and unloading, for the purposes stated as applicable thereto in the declarations, of an owned automobile or of a temporary substitute automobile, and the company shall have the right and duty to defend any suit against the insured seeking damages on account of such bodily injury or property damage * * *.”

The Policy defines “automobile” as “a land motor vehicle, trailer or semi-trailer designed for travel on public roads (including any machinery or apparatus attached thereto) * * *.” An “owned automobile” is defined in the Policy as “an automobile which is owned by the named insured and described in the declarations * * *.”

In the space provided on the declarations page of the Policy for a description of “Owned Automobiles” is typed the phrase: “SEE ENDORSEMENT E69L ATTACHED.” That endorsement lists a number of tractors, identified by year, make, and vehicle identification number. There are no individual trailers listed or described in the endorsement. However, in the space provided on the endorsement form for the description of scheduled vehicles, it states: “ANY TRAILER WHILE SINGULARLY ATTACHED TO A SCHEDULED TRACTOR.”

Also attached to the Policy is Endorsement Form MCS-90, entitled “Endorsement For Motor Carrier Policies of Insurance for Public Liability Under Sections 29 and 30 of the Motor Carrier Act of 1980,” which provides, in part, as follows:

“PUBLIC LIABILITY means liability for bodily injury, property damage, and environmental restoration.

The insurance policy to which this endorsement is attached provides automobile liability insurance and is amended to assure compliance by the insured, within the limits stated herein, as a motor carrier of property, with Sections 29 and 30 of the Motor Carrier Act of 1980 and the rules and regulations of the Federal Highway Administration (FHWA) and the Interstate Commerce Commission (ICC).

In consideration of the premium stated in the Policy to which this endorsement is attached, the insurer (the company) agrees to pay, within the limits of liability described herein, any final judgment recovered against the insured for public liability resulting from negligence in the operation, maintenance or use of motor vehicles subject to the financial responsibility requirements of Sections 29 and 30 of the Motor Carrier Act of 1980 regardless of whether or not each motor vehicle is specifically described in the policy and whether or not such negligence occurs on any route or in any territory authorized to be served by the insured or elsewhere. Such insurance as is afforded for public liability does not apply to injury or death of the insured’s employees while engaged in the course of their employment, or property transported by the insured designated as cargo.

It is understood and agreed that no condition, provision, stipulation, or limitation contained in the policy, this endorsement, or any other endorsement thereon, or violation thereof, shall relieve the company from liability or from the payment of any final judgment, within the limits of liability herein described, irrespective of the financial condition, insolvency or bankruptcy of the insured. However, all terms, conditions, and limitations in the policy to which the endorsement is attached shall remain in full force and effect as binding between the insured and the company. The insured agrees to reimburse the company for any payment made by the company on account of any accident, claim, or suit involving a breach of the terms of the policy, and for any payment that the company would not have been obligated to make under the provisions of the policy except for the agreement contained in this endorsement.” (Emphasis added.)

On October 5, 2000, Boyd filed an action in the circuit court of Cook County against Vickie O’Neal, A & R Transportation Trucking, Inc., and A & R Transport, seeking damages for injuries he is alleged to have received on April 21, 1999, when he lost control of a vehicle he was operating (hereinafter referred to as the “underlying action”). In his complaint in the underlying action, Boyd alleged that, prior to April 21, 1999, he contracted to haul refrigerated freight owned by “A & R Transportation Trucking, Inc., and/or A & R Transport” using a trailer provided by them. He also alleged that he rented a 1994 Volvo Tractor from O’Neal. According to Boyd’s complaint, while he was operating the tractor he rented from O’Neal and pulling the trailer he had contracted to haul, “the brakes on the tractor and/or trailer failed as * * * [he] applied them while descending a hill, causing him to lose control of the tractor/trailer.”

A & R, presumptively sued incorrectly in the underlying action as “A & R Transportation Trucking, Inc., and/or A & R Transport,” tendered the defense of Boyd’s underlying action to Canal. Canal, acting under a reservation of rights, undertook A & R’s defense and, thereafter, filed the instant action against Boyd and A & R, seeking a declaration that it owed no duty under the Policy to defend A & R in the underlying action or to indemnify it with respect thereto.

In its complaint in the instant action, Canal asserts that, because neither the tractor that Boyd was driving or the trailer he was pulling is described in the Policy’s declarations or scheduled in Endorsement E69L attached to the Policy, no coverage is afforded to A & R under the Policy for the occurrence alleged in Boyd’s underlying action.

Both Boyd and A & R were served with a summons and a copy of the complaint in the instant action. A & R failed to appear or plead to Canal’s complaint, and an order of default was entered against it. For his part, Boyd appeared and answered the complaint, affirmatively asserting that, by reason of the provisions of Endorsement Form MCS-90, Canal is required to pay any judgment that might be rendered against A & R in the underlying action, regardless of whether the tractor that he was driving or the trailer that he was pulling was specifically described in the Policy.

Boyd and Canal filed cross-motions for summary judgment. The trial court denied Boyd’s motion and granted Canal’s cross-motion, finding that Canal owed no duty under the Policy to defend A & R in the underlying action or to indemnify it with respect thereto. Boyd’s motion for reconsideration was denied, and this timely appeal followed.

Boyd urges us to reverse both the summary judgment granted in favor of Canal and the denial of his motion for summary judgment. Our resolution of this appeal turns on the question of whether, as a matter of law, the terms of the Policy either do or do not obligate Canal to defend A & R in the underlying action or to indemnify A & R from any damages that might be assessed against it therein. The issue is one of contract construction.

“The construction of an insurance policy and a determination of the rights and obligations thereunder are questions of law for the court which are appropriate subjects for disposition by way of summary judgment.” Crum & Forster Managers Corp. v. Resolution Trust Corp., 156 Ill.2d 384, 391, 189 Ill.Dec. 756, 620 N.E.2d 1073 (1993). Our review of a trial court’s order granting summary judgment is de novo. Sears, Roebuck & Co. v. Acceptance Insurance Co., 342 Ill.App.3d 167, 171, 275 Ill.Dec. 965, 793 N.E.2d 736 (2003).

Summary judgment is appropriate if there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. 735 ILCS 5/2-1005(c)(West 2002); Carruthers v. B.C. Christopher & Co., 57 Ill.2d 376, 380, 313 N.E.2d 457 (1974). When, as in this case, the parties file cross-motions for summary judgment, they invite the court to decide the issues presented as a matter of law. Allen v. Meyer, 14 Ill.2d 284, 292, 152 N.E.2d 576 (1958).

In Outboard Marine Corp. v. Liberty Mutual Insurance Co., 154 N.E.2d 90, 607 N.E.2d 1204 (1992), our supreme court held that:

“In construing an insurance policy, the court must ascertain the intent of the parties to the contract. [Citations.] To ascertain the meaning of the policy’s words and the intent of the parties, the court must construe the policy as a whole [citations], with due regard to the risk undertaken, the subject matter that is insured and the purposes of the entire contract [citation]. If the words in the policy are unambiguous, a court must afford them their plain, ordinary, and popular meaning. [Citations.] However, if the words in the policy are susceptible to more than one reasonable interpretation, they are ambiguous [citation] and will be construed in favor of the insured and against the insurer who drafted the policy [citations].” (Emphasis in original.) Outboard Marine Corp., 154 Ill.2d at 108-109, 180 Ill.Dec. 691, 607 N.E.2d 1204.

Canal argues, as it did in the trial court, that the Policy affords no coverage for the claims asserted against A & R in the underlying action as neither the tractor that Boyd was driving or the trailer that he was pulling falls within the Policy’s definition of an “owned automobile.” Although Boyd admits that neither vehicle is listed or described in either the declarations page of the Policy or Endorsement E69L attached thereto, he asserts that the provisions of Endorsement Form MCS-90 negate the limiting definition of an “owned automobile” contained within the body of the Policy and obligate Canal to indemnify A & R for any damages that might be awarded against it in the underlying action. As noted earlier, Endorsement Form MCS-90 obligates Canal to pay, within the limits of liability described in the Policy, any final judgment recovered against A & R for public liability resulting from negligence in the operation, maintenance, or use of motor vehicles subject to the financial responsibility requirements of Sections 29 and 30 of the Motor Carrier Act of 1980, regardless of whether or not each motor vehicle is specifically described in the Policy. Canal acknowledges the provisions of Endorsement Form MCS-90 relied upon by Boyd, but argues that the endorsement affords no coverage for the occurrence which is the subject of the underlying action.

As Canal correctly notes, Endorsement Form MCS-90 provides that the coverage afforded thereunder does not apply to injuries sustained by an employee of A & R while acting in the course of his employment. Canal argues that, for purposes of the application of the provisions of the Endorsement Form MCS-90, Boyd was an employee of A & R and, as a consequence, the endorsement affords A & R no coverage for the occurrence alleged in the underlying action. We agree with Canal in this regard.

Under the authority of the Motor Carrier Safety Act of 1980 (49 U.S.C. § 13906), the Secretary of Transportation promulgated regulations requiring that an MCS-90 Endorsement be attached to any liability policy issued to a certified interstate carrier (49 C.F.R. § 387.1). Perry v. Harco National Insurance Co., 129 F.3d 1072, 1074 (9th Cir.1997). By its very terms, the purpose of the MCS-90 Endorsement is “to assure compliance by the insured, * * *, as a motor carrier of property, with Sections 29 and 30 of the Motor Carrier Act of 1980 and the rules and regulations of the Federal Highway Administration (FHWA) and the Interstate Commerce Commission (ICC).” Because Form MCS-90 is a federally-mandated endorsement whose terms are specified by federal regulation, federal law governs its operation and effect. John Deere Insurance Company v. Nueva, 229 F.3d 853, 856 (9th Cir.2000).

The MCS-90 Endorsement excludes from coverage “the insured’s employees while engaged in the course of their employment.” In Perry v. Harco National Insurance Company, 129 F.3d 1072 (9th Cir.1997), the court addressed the meaning of the term “employee” as used in an MCS-90 Endorsement. The Perry Court noted that the term is defined in 49 C.F.R. § 390.5 as “a driver of a commercial motor vehicle (including an independent contractor while in the course of operating a commercial motor vehicle)” and concluded that it is that definition of an “employee” that is to be applied when interpreting an MCS-90 Endorsement. Perry, 129 F.3d at 1074-75; see also Consumers County Mutual Insurance Co. v. P.W. & Sons Trucking, Inc., 307 F.3d 362 (5th Cir.2002). Boyd argues, however, that adopting this definition of the term “employee” when interpreting the coverage afforded by an MCS-90 Endorsement would be “in direct conflict with the express purpose of the statute [Motor Carrier Act of 1980] and the express language of the statute’s liability insurance requirements.” This very argument, however, was rejected by the court in Consumers County Mutual Insurance Co., 307 F.3d at 366, which held that:

“The purpose of this insurance requirement is to ensure that a financially responsible party will be available to compensate members of the public injured in a collision with a commercial motor vehicle. Although the Motor Carrier Safety Act places an affirmative obligation on motor carriers with respect to the public, it does not require motor carriers to obtain coverage for ‘injury or death of [their] employees while engaged in the course of their employment.’ 49 C.F.R. § 387.15.”

At the time of the occurrence alleged in his complaint in the underlying action, Boyd was hauling a load of refrigerated freight in furtherance of a contract he had entered into with A & R. He was driving a tractor which he had leased from O’Neal and was pulling a trailer which was the property of A & R. Boyd asserts that he was acting as an independent contractor. However, the definition of an employee as set forth in 49 C.F.R. § 390.5 includes independent contractors. Because Boyd was a statutory employee of A & R at the time of the occurrence alleged in the underlying action, the coverage afforded to A & R by reason of the Form MCS-90 Endorsement attached to the Policy “does not apply.”

Boyd also contends that a finding that he was an employee of A & R in the context of this declaratory judgment action is inappropriate as it will be binding upon him in the underlying action. See American Family Mutual Insurance Co. v. Savickas, 193 Ill.2d 378, 387, 250 Ill.Dec. 682, 739 N.E.2d 445 (2000); Murphy v. Urso, 88 Ill.2d 444, 455-57, 58 Ill.Dec. 828, 430 N.E.2d 1079 (1981). Canal argues, and we agree, that a finding in this regard is applicable only to a determination of coverage under the MCS-90 Endorsement and for no other purpose. See Perry, 129 F.3d at 1075.

Finally, Boyd argues that “Illinois public policy requires that Canal insure A & R” for the occurrence alleged in the underlying action. He asserts that “[t]he Illinois Commercial Transportation Law requires that all motor carriers maintain insurance coverage and that ‘all motor vehicles operated by or under authority of the carrier will be covered, whether or not such vehicles have been reported to the insurance, surety, or other company.’ “

Section 18c-4901 of the Illinois Commercial Transportation Law (Transportation Act) (625 ILCS 5/18c-4901 (West 2002)) provides that “[n]o motor carrier of property shall operate within this State unless it has on file with the [Illinois Commerce] Commission or its agent proof of continuous insurance or surety coverage in accordance with Commission regulations.” Section 18c-4903 states that “[e]ach certificate or other proof of insurance or surety coverage shall have, as an implied term, that * * * all motor vehicles operated by or under authority of the carrier will be covered, whether or not such vehicles have been reported to the insurance, surety, or other company.” 625 ILCS 5/18c-4903 (West 2002). However, these provisions of the Transportation Act upon which Boyd relies are inapplicable to the facts of this case.

Section 18c-1201 of the Transportation Act specifically states that the jurisdiction of the Illinois Commerce Commission “shall extend to for-hire transportation by motor carrier * * * within the State of Illinois, and except as otherwise provided elsewhere in this Chapter shall extend only to intrastate commerce.” (Emphasis added.) 625 ILCS 5/18c-1201 (West 2002). It is undisputed that, at the time of the occurrence alleged in the underlying action, Boyd was hauling a load of refrigerated freight for A & R from Illinois to Pennsylvania. As a consequence, Boyd was engaged in “interstate commerce” (see 625 ILCS 5/18c-1104(16) (West 2002)), and the provisions of the Transportation Act upon which he relies are inapplicable to the occurrence alleged in the underlying action. As such, they do not give rise to any obligation on the part of Canal to provide coverage under the Policy for any vehicle which is not described in the declarations or listed in Endorsement E69L.

Based upon the foregoing analysis, we find that the occurrence alleged in the underlying action does not fall within the coverage afforded to A & R under the Policy because: 1) the vehicles which Boyd was operating do not fall within the Policy definition of an “owned automobile”; and 2) the Form MCS-90 Endorsement does not apply to Boyd’s injury as he was a statutory employee of A & R at the time of the occurrence. We, therefore, affirm the circuit court’s order denying Boyd’s motion for summary judgment and granting summary judgment in favor of Canal.

Affirmed.

KARNEZIS, P.J., and SOUTH, J., concur.

Court of Appeals of New York.

GENERAL MOTORS ACCEPTANCE CORPORATION, et al., Respondents,

v.

NATIONWIDE INSURANCE COMPANY, Appellant.

March 31, 2005.

 

CIPARICK, J.

We are called upon to determine whether an allocation of defense costs between a primary and excess insurer is warranted. We conclude that where, as here, two coincidental primary policies exist–one excess to the other by reason of competing “other insurance” provisions–and where the excess carrier has voluntarily assumed and marshaled the insured’s defense, an allocation of defense costs based on primary policy limits is appropriate. Here the primary policy limits are identical, warranting a 50-50 split.

In 1994, John C. Sabin, not a party to this action, leased an SUV from plaintiff General Motors Acceptance Corporation (GMAC). The lease agreement required Sabin to obtain an automobile insurance policy and include GMAC as an additional insured under the policy. Sabin procured a suitable primary insurance policy through defendant Nationwide Insurance Company. This policy limited liability to $100,000 per person and $300,000 per occurrence. Nationwide’s policy made explicit that it would “defend at [its] expense, with attorneys of [its] choice, any suit against the insured.”

In order to cover its potential liability in the event the lessee failed to fulfill its obligation to obtain insurance, and to obtain excess coverage in the event of catastrophic injury, GMAC purchased two distinct policies from plaintiff Fireman’s Fund Insurance Company. Fireman’s issued both a primary “Business Auto Policy,” with liability limits comparable to Nationwide’s policy, and an “Excess Liability Policy,” or an “umbrella” policy, with a substantially greater limit of $9,000,000 per occurrence. The primary business auto policy stated that Fireman’s had “the right and duty to defend any suit asking for [ ] damages.” As to other insurance, the policy stated that the primary policy’s insurance coverage was “excess over any other collectible insurance, whether primary, excess, or contingent.” There was no similar limitation on Fireman’s duty to defend. Fireman’s true excess or umbrella policy, by contrast, specifically limited the duty to defend to instances where no primary policy or other insurance applied, stating that it would “assume charge of the settlement or defense of any claim or suit against the Insured seeking damages to which this policy applies and to which no Primary Insurance or Other Insurance applies …” (emphasis in original).

On April 5, 1995, Sabin drove his leased vehicle through an intersection, colliding with a dump truck and another passenger vehicle. Two individuals were seriously injured and a third died in the accident. The injured parties, and decedent’s estate, commenced three separate lawsuits against, among others, GMAC as owner of the offending vehicle. Jeanette Mammano, whose injuries left her in a permanent vegetative state, commenced the action that exposed GMAC to the greatest potential liability. Nationwide’s primary policy and both Fireman’s policies were in effect on the date of the accident. Prior to commencement of this action, Nationwide–reasonably expecting any award to exceed policy limits–tendered its entire policy to Mammano’s attorney in exchange for a general release. Counsel refused the tender and the case proceeded.

Nationwide originally undertook GMAC’s defense of the Mammano action. In a letter dated October 24, 1997, however, Nationwide wrote that it was tendering the defense to Fireman’s. “As our available liability limit is only $100,000 it represents only 1% of the total indemnification potential considering [Fireman’s] limits of nine million.” Nationwide further wrote that “[i]t only makes sense therefore that [Fireman’s] designate counsel that should continue with the defense of the matter, under your direction.” In a letter dated November 25, 1997, Fireman’s voluntarily agreed that it would “assume the defense of … GMAC, but it [would] do so while reserving its rights to pursue collection of all defense costs from Nationwide expended in Fireman’s Fund’s defense of these actions.” Thereafter Fireman’s retained counsel vigorously defended the action in an effort to reduce the enormous exposure of GMAC and Fireman’s.

In January 1999, the parties settled the Mammano action. The settlement agreement provided for a one-time payment of $4.5 million, of which Fireman’s paid $3.3 million and provided an annuity of $10,000 a month for life with guaranteed payments for ten years. The settlement nearly exhausted the $9.1 million limit provided under both Fireman’s policies. Nationwide contributed its entire $100,000 policy to the settlement. Prior to settling, Fireman’s amassed over $200,000 in legal fees defending the action.

Following settlement, Fireman’s sought to recover all its legal expenses from Nationwide. When Nationwide refused to contribute, Fireman’s and GMAC commenced the underlying action to recover the defense costs. Supreme Court granted plaintiffs Fireman’s and GMAC summary judgment and awarded them full reimbursement of defense costs, and the Appellate Division affirmed.. We granted defendant Nationwide leave to appeal and now reverse.

FN Supreme Court approved a total award to Fireman’s of $289,052.18, representing reasonable attorneys’ fees and costs, with statutory interest from January 1999.

A primary insurer “has the primary duty to defend on behalf of [its] insureds” (General Accident Fire & Life Assurance Corp., Ltd. v. Piazza, 4 N.Y.2d 659, 669 [1958]; see also Ostrager and Newman, Handbook on Insurance Coverage Disputes § 6.03[a] [12th Ed.] ). Moreover, a primary insurer has a duty to defend “without any entitlement to contribution from an excess insurer” (Fireman’s Ins. Co. of Washington v. Federal Ins. Co., 233 A.D.2d 193, 193 [1st Dept 1996] ). An excess carrier may, in its discretion, “protect its interest … by participating in the defense” (General Accident Fire & Life, 4 N.Y.2d at 669). Unlike a primary insurer, however, there is no obligation to do so.

We have liberally construed an insurer’s general duty to defend in order to ensure the adequate and timely investigation of a claim and defense of an insured, regardless of the insured’s ultimate likelihood of success on the merits. Consequently, an insurer’s duty to defend is broader than its duty to indemnify (see Fitzpatrick v. American Honda Motor Co., Inc., 78 N.Y.2d 61, 65-66 [1991] ).

Here, Fireman’s issued two distinct policies–a primary policy deemed excess by the competing “other insurance” provisions and a true excess, or “umbrella,” policy where the duty to defend and the duty to indemnify came into effect only after the limits of the underlying primary coverage were exhausted. Furthermore, Fireman’s accepted the defense of the action and conducted it in a most thorough manner suitable to protect its own interests and that of its insured. The circumstances of this case thus allowed both Nationwide and Fireman’s to defend the action on behalf of GMAC. Moreover, insofar as both Nationwide and Fireman’s shared this obligation, and each participated in the defense, they are both liable for the defense costs, here in equal shares as the policy limits of the coincidental primary auto liability policies are identical.

Both primary insurance policies contain specific language reaffirming their duties, as primary insurers, to defend the insured. While Fireman’s primary policy coverage is deemed “excess” by virtue of other collectible insurance, the limiting language is directed to its obligation to contribute to a settlement or judgment, not to its duty to defend. Moreover, when Nationwide tendered the defense, Fireman’s accepted and proceeded to defend the action in a manner that it deemed most appropriate–albeit reserving its rights to collect defense costs from Nationwide. In essence, Fireman’s, in accepting the defense here, embraced the specific language of its primary policy requiring it to “defend any suit asking for [ ] damages.” In assuming the defense, Fireman’s triggered its own duty to defend the action, a duty that overlapped with Nationwide’s same obligation.

Fireman’s reservation of rights put Nationwide on notice that Fireman’s acceptance did not relieve Nationwide of its policy obligations. At a minimum, Nationwide knew that it would be liable for a share of the defense costs. Consequently, insofar as the primary insurers’ respective policy limits were identical, an allocation in this case requires that the total defense costs be shared equally.

We are mindful of the fact that these policies were both coincidental primary policies. Primary insurance premiums are based, at least in part, on the insurers’ consideration that it may be liable to defend an action. In this sense, “primary” policy premiums are higher, relatively speaking, than “excess” premiums, because the primary insurer contemplates defending a potential lawsuit when it contracts with the insured. A primary insurer’s duty to defend is not diminished, however, nor is it entitled to defend an action less vigorously, simply because its policy limits are more easily exceeded in any given case. Relieving primary insurers of this duty to defend would provide a windfall to the carrier insofar as the costs of defense–litigation insurance– are contemplated by, and reflected in, the premiums charged for primary coverage. This is in contrast to a true excess, or “umbrella,” policy, where the duty to defend is not as readily triggered.

Both Fireman’s and Nationwide issued primary policies commensurate with their respective expectations and bargained-for rights and obligations. Therefore, requiring both Fireman’s and Nationwide, as coincidental primary insurers having the same policy limits, to contribute equally to defense costs is consistent with the requirement that insurance contracts be interpreted “according to the reasonable expectation and purpose of the ordinary businessman when making an ordinary business contract” (Atl. Cement Co., Inc. v Fidelity & Cas. Co. of New York, 91 A.D.2d 412, 418 [1st Dept 1983], affd 63 N.Y.2d 798 [1984] ). It is also consistent with our general reluctance to relieve a primary insurer of its duty to defend (see generally Fitzpatrick, 78 N.Y.2d 61). In this instance, it is apparent that both Fireman’s and Nationwide, by virtue of their status as primary insurers, and additionally through their course of conduct, could reasonably have expected to share the expense of the defense.

Thus, we reject Nationwide’s position, followed in only a minority of jurisdictions, that an equitable allocation between a primary and excess insurer must be realized and hold only that, under the circumstances of this case, both insurers should be required to share defense costs. Here, the policy limits of the coincidental policies lead to a 50-50 split (cf. Fed. Ins. Co. v. Atl. Natl. Ins. Co., 25 N.Y.2d 71 [1969] ).

Accordingly, the order of the Appellate Division should be reversed, with costs, and the case remitted to Supreme Court for further proceedings in accordance with this Opinion.

R.S. SMITH, J. (Concurring):

I agree with the result reached by the majority, and I agree in part with its reasoning. I think the majority is correct in rejecting a general doctrine of “equitable allocation” between primary and excess insurers. I also agree that, since Fireman’s chose to take over the defense in this case, it is liable under its policy for a fair portion of defense costs. Indeed, I think the facts here would support allocating to Fireman’s more than 50 percent of the burden, but allocations like this are not an exact science, and the majority’s 50-50 division is not unreasonable.

I differ with the majority, however, in its reliance on the existence of two “coincidental” defense policies. As the majority notes, the terms of Nationwide’s policy and Fireman’s “Business Auto Policy” render the latter “excess” with respect to the former. The relevant language in the Fireman’s Business Auto Policy–“The insurance provided by this policy is excess over any other collectible insurance, whether primary, excess, or contingent”–is on its face equally applicable to defense costs and damages. The majority seems to suggest that, as to defense costs, the Nationwide policy and the Fireman’s Business Auto Policy were both primary, but I see no valid reason for reaching that conclusion.

I believe the Fireman’s “true excess” policy, the “Excess Liability Policy”, provides a sounder basis for compelling Fireman’s to share defense costs. That policy provided nine million dollars in coverage–many times the amount provided by the other two policies. This large exposure obviously furnished the motivation for Fireman’s to assume, as it did, control of the defense of the case.

The Excess Liability Policy also gave Fireman’s the right to defend the case– at its own expense. The policy provided that Fireman’s “will have the right and opportunity, although not the obligation, to associate with the Primary Insurer in the defense and control of any claim or Suit….” The policy also provided that “[w]ith respect to any claim or Suit of which We [Fireman’s] assume charge of the settlement or defense, We will pay … All expenses We incur.”

Fireman’s did assume charge of the defense of the Mammano case, and thus it became obligated to pay the expenses it incurred. That did not release Nationwide from its own obligation under the primary policy. Nationwide’s policy excused it from defending claims only “[a]fter the limits of this coverage have been paid,” and I agree with the majority that that never occurred.

Thus, the terms of the Fireman’s Excess Liability Policy and the terms of the Nationwide policy both rendered the insurers liable for defense costs on the facts of this case. It is only these policy clauses that, in my view, make an allocation between the two insurers appropriate.

 

Order reversed, with costs, and case remitted to Supreme Court, New York County, for further proceedings in accordance with the opinion herein.

Chief Judge KAYE and Judges G.B. SMITH, GRAFFEO and READ concur. Judge R.S. SMITH concurs in result in a separate opinion in which Judge ROSENBLATT concurs.