Continental Casualty Company, a Corporation, Respondent, v. ZURICH INSURANCE COMPANY (1961)

This action was commenced to determine the liability of Continental Casualty Company, General Insurance Company of America and Zurich Insurance Company for a judgment rendered against Jack Hiatt in a personal injury action brought by Roderick P. Gudger. The cause also presented the question whether Continental Insurance Company could recover from the other insurance companies a portion of the costs and attorneys fees paid by it in defending the action brought by Gudger.

Simpson Redwood Company had purchased timber near Klamath, California, from the United States Forest Service. By the terms of the contract Simpson was required to cut, load, scale and haul the timber from the area. Hiatt, an independent logger, was hired by Simpson to assist in the performance of the contract. Hiatt received a certain sum for each one thousand feet of timber he cut. Hiatt did not have a sufficient number of trucks to haul the timber cut by him. In 1955 Simpson supplied Hiatt with additional trucks. In 1956, at the beginning of the logging season, Hiatt discussed the matter with Simpson's superintendent, Yingst. It was agreed that Hiatt could hire trucks owned by a man named Waldkirch to haul the timber which Hiatt cut. Waldkirch's trucks were used exclusively to haul Simpson's timber. The drivers received instructions from Simpson as to the size of the load, the manner of binding the load, and as to the use of the roads. Simpson also supplied the drivers with safety instructions. In some instances Simpson would instruct the drivers to deliver the logs to third persons. Waldkirch was paid by Hiatt.

On August 27, 1956, Gudger, one of the truck drivers, an employee of Waldkirch, drove a truck into the logging area and several employees of Hiatt began to load the truck. Due to the negligence of one of Hiatt's employees in the operation of the loading equipment one of the logs fell and injured Gudger.

Gudger brought an action against Hiatt and his employees. Only Hiatt and one employee appeared in the action. Continental Casualty Company, Hiatt's insurer, alone defended the action and satisfied the judgment of $20,000 against Hiatt. Both General Insurance Company, Simpson's insurer, and Zurich Insurance Company, Waldkirch's insurer, refused to defend the action after each had been given notice of Gudger's claim and each insurer refused to pay any part of the judgment.

This action was then brought to determine the liability of each of the insurers. The trial court found that the Waldkirch truck was a hired truck under the policy issued to Simpson by General; that the Waldkirch truck was an owned truck under the policy issued to Waldkirch by Zurich; and that Hiatt was an assured under all three policies. The court determined that Zurich, whose policy had a $15,000 limit, was liable for the first $15,000 of the judgment and that Continental and General were liable for the balance of the judgment on a pro rata basis. The costs and the attorneys fees incurred by Continental were also ordered to be prorated in the same manner as the judgment.

Zurich and General have appealed. Before the specific contentions of the appellants are set forth certain pertinent provisions of the policies will be set forth.

Zurich concedes that Hiatt was an additional assured under the policy it had issued to Waldkirch.

General's policy defined an insured to include ‘any person while using an automobile owned or hired by the named insured * * * provided the actual use is with the permission of the named insured. * * *’

General's ‘other insurance’ clause read: ‘If at the time of an occurrence there is any other insurance available to the insured * * * there shall be no insurance afforded hereunder as respects such occurrence except that if the applicable limit of liability of this policy is in excess of the applicable limit provided by the other insurance available to the insured this policy shall afford excess insurance over and above such other insurance in an amount sufficient to afford the insured a combined limit of liability equal to the applicable limit of liability afforded by this policy. It is further provided that with respect to loss arising out of the * * * use of any non-owned automobile the applicable insurance afforded by this policy shall be excess over and above such other available insurance. Insurance under this policy shall not be construed to be concurrent or contributing with any other insurance which is available to the insured.’

The General policy contained the following definitions: ‘The term ‘owned automobile’ shall mean an automobile owned in full or in part by or registered in the name of the named insured; and the term ‘non-owned automobile’ shall mean any other automobile. The term ‘hired automobile’ shall mean a non-owned automobile used under contract with the named insured * * *.'

Zurich's ‘other insurance’ clause read in part: ‘If the insured has other insurance against a loss covered by this policy the company shall not be liable under this policy for a greater proportion of such loss than the applicable limit of liability stated in the declarations bears to the total applicable limit of liability of all valid and collectible insurance against such loss; * * *.’

Continental's ‘other insurance’ clause provided: ‘If the insured has other insurance against a loss covered by this policy the company shall not be liable under this policy for a greater proportion of such loss than the applicable limit of liability stated in the declarations bears to the total applicable limit of liability of all valid and collectible insurance against such loss; provided, however, the insurance under this policy with respect to loss arising out of the maintenance or use of any non-owned or hired automobile shall be excess insurance over any other valid and collectible insurance available to the insured, * * *.’

Both Continental and Zurich defined use of an automobile to include loading and unloading.

It is clear, and Zurich does not deny, that it is liable under its policy issued to Waldkirch. The accident occurred during the loading of the Waldkirch truck, and under the policy provisions Hiatt qualified as an additional insured.

We also believe that Continental too was liable under its policy issued to Hiatt. It agreed to pay on behalf of Hiatt all sums which the insured became legally obligated to pay as damages because of bodily injury caused by an occurrence. An ‘occurrence’ was defined to mean an event which unexpectedly causes injury. The injury which occurred as the result of the negligence of Hiatt's employees in the use of Hiatt's loading equipment was clearly an ‘occurrence’ within the meaning of the Continental policy. We do not believe that that portion of the other insurance clause relating to excess insurance when the loss arises out of the use of a non-owned or hired automobile ever comes into play. Continental is liable according to the terms of its policy because it provided insurance covering the use of Hiatt's loading equipment, and as to an accident so occurring the use of an automobile provision does not come into play.

Assuming, for the purpose of this opinion, that the Waldkirch truck was a hired truck under the terms of Simpson's insurance policy issued by General, the policy provision as to ‘other insurance’ would make General's insurance excess insurance only. General's policy provided that as to a non-owned vehicle the applicable insurance afforded by the policy would be excess insurance only. General defined a non-owned automobile as any other than an owned automobile. The term ‘hired automobile’ was defined as a non-owned automobile used under contract with the insured. Waldkirch's truck would be a non-owned vehicle, and in such case the excess insurance provision would apply. The rule is stated in American Automobile Ins. Co. v. Republic Indemnity Co., 52 Cal.2d 507, 513, 341 P.2d 675, 678 as follows: ‘* * * The only construction of the ‘other insurance’ clause under which both its parts will be meaningful is that the excess provision alone controls in every situation which falls within its terms, such as when a person is driving the car of another and both the driver and the owner have insurance, and that the prorate provision alone governs in all other situations, for example, when more than one policy has been issued to the same person. When the driver's insurance is excess, it necessarily follows that the insurance of the owner is primary, and therefore the owner's insurer must bear the entire loss to the extent of the limits of the policy.'

The rule would be applicable here. Because of the fact that Continental and Zurich coverage exceed the claim of Gudger, General's excess insurance is never reached.

As between Continental and Zurich the loss should be apportioned in proportion to the policy limit of each. Both Continental's policy and Zurich's policy provided that ‘If the insured has other insurance against a loss covered by this policy the company shall not be liable under this policy for a greater proportion of such loss than the applicable limit of liability stated in the declaration bears to the total applicable limit of liability of all valid and collectible insurance against such loss * * *.’ Both policies covered the loss. In the case of two prorate clauses each clause is given effect and the loss is apportioned. 5 Stanford L.Rev. 150; Consolidated Shippers v. Pacific E. Ins. Co., 45 Cal.App.2d 288, 114 P.2d 34.

The only other point that requires discussion is the fact that the trial court ordered apportionment of the costs of defending the action. This was error. The entire cost should be borne by Continental, the insurer who incurred such costs in defending the action brought by Gudger against Hiatt. The rule is aptly stated in Pacific Indemnity Co. v. California State Automobile Ass'n, 190 Cal.App.2d 293, 12 Cal.Rptr. 20, 22: ‘* * * [I]t is well settled that where two companies insure the same risk and the policies provide for furnishing the insured with a defense, neither company can require contribution from the other for the expenses of the defense where one denies liability and refuses to defend. [Citation.] It has been stated that the duty to defend is personal to both insurers, thus neither is entitled to divide that duty with the other * * *.’

The judgment is reversed with directions to the trial court to enter judgment in accordance with this opinion. Each party shall bear its own costs on this appeal.

SCHOTTKY, Justice.

VAN DYKE, P. J., and PEEK, J., concur.