TRAVELERS INDEMNITY COMPANY v. RELIANCE INSURANCE COMPANY (1973)

This is an action for declaratory relief and for money paid, brought by one liability insurance carrier against another insurer. The question presented in this appeal by defendant is whether the trial court adopted the proper method of prorating loss and defense costs between the two insurers.

Facts

The facts are set forth in a Stipulated Statement of Facts, summarized as follows: On June 24, 1964, on U.S. Highway 99 near the town of Madera, California, a charter passenger bus was transporting a group of members of Los Angeles Chinese Drum & Bugle Corps from Los Angeles to Sacramento, when an accident occurred, as a result of which three of the bus passengers were killed, some thirty others were injured, and property damage occurred to musical instruments. Various actions were brought for damages for wrongful death and personal injury, alleging, inter alia, negligence of the bus owner Bus & Truck Repair Co., and of City Bus System and Orange County Bus System (hereinafter referred to jointly as City Bus), as operator of the bus.

At the time of the accident there were in effect two liability insurance policies, the interpretation of which is involved in this action. Plaintiff, The Travelers Indemnity Company (hereinafter, Travelers) had issued a policy of liability insurance to City Bus as the named insured. Standard Accident Insurance Co. (hereinafter, Standard) had issued its policy of liability insurance to Bus & Truck Repair Co. as named insured. Standard has been succeeded by Reliance Insurance Company (hereinafter, Reliance), the defendant in this action. Both insurance polices were in effect at the time of the accident.

Defense of tort actions in behalf of City Bus was tendered to and refused by Reliance. In the course of events all the damage actions and claims were settled by compromise and paid in the total sum of $242,395.10. Firestone Tire & Rubber Co., whose insurance coverage is not involved here, paid five-eighths of this total ($151,496.94) and Travelers paid the balance of $90,898.16 in behalf of City Bus. Travelers also incurred and paid $16,627.57 in legal costs in connection with defense of the damage actions. Reliance did not pay any part of the settlements or defense costs. The amounts paid by Travelers varied with the individual claims from $33,750 as the highest amount down to $262.50 as the lowest. The exact sums paid in individual claims are itemized in Exhibit 1, and in the Court's Finding X, and are set forth in the accompanying footnote.¹

The trial court also concluded: ‘City School Bus System and Orange County Bus System were insured against the claims and expenses herein described and arising out of the accident of June 24, 1964, by both of the policies of the parties hereto; and the Court further finds in arriving at the proportion of the settlements and expenses paid and incurred in respect to the share of said insureds to be borne by the parties to this action as follows:’ (Then the court applied a formula which it obtained from what is no longer case authority, but which it considered itself bound to follow at that time.) It then expressed itself as to the formula it would have applied had it not considered itself bound by the stated case. Continuing, the court said it would apply the following formula if it felt free to do so:

‘That Reliance's available insurance would be on the basis of $100,000.00 and Traveler's available insurance on the basis of $310,000.00 or a total amount of insurance available for proration of $410,000.00; that Reliance would pay 10/41 and Travelers would pay 31/41; under which formula Travelers would be required to bear $68,727.87 on account of losses paid and Reliance ought to bear $22,170.28 thereof; and Travelers ought to bear $12,572.05 being its share of expenses for investigation and defense and Reliance ought to bear $4,055.50 thereof; under which formula plaintiff [Travelers] is entitled to judgment against defendant [Reliance] in the sum of $26,225.78, together with interest thereon at the rate of seven (7%) percent per annum from September 20, 1967, until the date of judgment herein and for its costs of suit herein incurred.’

Reliance argues that ‘while the Reliance policy provides less in monetary limits than the greater $310,000 monetary limits of the Travelers policy, Travelers, as to the $90,898.16, has been held responsible for but $34,574.24 or percentage-wise 37.106% thereof; and Reliance has been held responsible for the remaining or more than 60%; roughly an apportionment of 1/3 to Travelers and 2/3 to Reliance! Also, while the Reliance policy provides less in monetary limits than the greater $310,000 monetary limits of the Travelers policy, Travelers, as to the $16,627.57 expended for costs of defense, has been held responsible for but $1,992.34 or percentage-wise 12% thereof; and Reliance has been held responsible for the remaining or approximately 88%; roughly an apportionment of 3/25 (12/100) to Travelers and 22/25 (88/100) to Reliance! [¶] In other words, while the polices were to prorate and while Travelers' policy had the greater limits of $310,000 than Reliance's policy (which latter had limits of $100,000 per person, $300,000 per accident, and $100,000 property damage), Reliance has been held to be responsible for a pro rata share in amounts which far exceed that for which Travelers has been held responsible. The insure under the policy with the greater limits has been held responsible for a less proportion that the insurer under the policy with the lesser limits.’ We find no fallacy in the argument.

The trial court did not express itself on the method of proration based solely upon the total per-accident coverage of Travelers and Reliance which would provide a divisor of 61, i.e., $310,000 plus $300,000, for a total of $610,000. This formula is urged as an alternative to the formula expressed as desirable by the trial court.² Under this method, the proportionate share each company would pay toward each settlement on the per person basis would then be 31/61 for Travelers and 30/61 for Reliance. We have considered this approach and find it faulty under the facts before us. An example should suffice to show that this formula may not be relied upon: Assume a case in which more than three persons were injured-claimants and one of them recovered $210,000. Under the formula of 30/61 and 31/61, Reliance would be called upon to pay in excess of $103,000. Of course, its per person limit of $100,000 precludes such participation. The cases of Government Employees Insurance Co. v. St. Paul Fire Etc. Inc. Co., 243 Cal.App.2d 186, 52 Cal.Rptr. 317 and Allstate Insurance Co. v. Consolidated Mutual Ind. Co., 35 A.D.2d 535, 313 N.Y.S.2d 181 are cited as authority for the above stated formula. Neither case makes an analysis of the effects of such a formula. In adopting the formula first expressed by the trial judge in this case, we believe that there are no circumstances in which its application would not effectively provide the proportionate contribution for participating insurance companies.

Since we are not controlled by the theory applied (unwillingly) by the trial court, we adopt the formula which the trial judge stated he would like to have applied, for to us it is the more reasonable one. The lack of analytical authority, either text or case, leaves the choice of formula unfettered by a result based upon different circumstances. As a precautionary measure only, we wish it understood that we do not decide what formula might be appropriate where the total to be recovered exceeds the maximum limits of both parties, except to again call attention to the example above set forth and to express the desire that an appropriate single formula be adopted so as to aid future draftsmen in the preparation of insurance policies.

The judgment is reversed and remanded with directions that a judgment be entered in conformance with the views expressed in this opinion.

FOOTNOTES

1.  In connection with the following, Column A represents the combined payment made by Firestone and Travelers for a particular item, and Column B represents the amount paid by Travelers for a particular item:C2NameC3Column A Total SettlementC4Column B Amount Paid By Travelers1.Georgina Shum$ 950$ 356.252.Grace Lowe1,125421.873.Morris Lowe6,0002,250.004.Harry G. Quan5,6842,131.505.Cynthia G. Quan5,7002,137.506.Michael Tong2,500937.507.Gene Yonemoto1,250468.758.Richard Yee3,7501,406.259.Ronald Chan800300.0010.Janice Chew1,000375.0011.Dorothy Chu1,100412.5012.Judy Chu700262.5013.Grepory Fong80,00030,000.0014.Howard Ng2,000750.0015.Nathan Nought700262.5016.Joseph Kim Oh2,000750.0017.Frederick Tom700262.5018.Lenore Tom1,000375.0019.Jeffrey Tong700262.5020.Sherrilyn Tong700262.5021.Jayson Wing800300.0022.Terrence Moy800300.0023.Stanton Joe1,000375.0024.Benson Chan700262.5025.Lawrence Joe3,0001,125.0026.Robert Joe900337.5027.Willie Wong3,0001,125.0028.Clifford Tom700262.5029.Nelson Ng8,0003,000.0030.Rose Tong6,5002,437.5031.Stella Jue90,00033,750.0032.Michael Jue4,0001,500.0033.Ronald Jue4,0001,500.00Subtotal$241,395.10$90,059.62Correct Subtotal$241,759.00$90,059.6234.Hartford Ins. Co. (Property damage for musical instrument)636.10238.54  Grand Total$242,395.10$90,898.16

2.  At the time of the argument before us, Travelers essentially conceded that such a formula would be acceptable. We are not bound by any such concession, but accept it as a fortification of the conclusion that the judgment based on the formula adopted (begrudgingly) by the trial court must be reversed.

STEPHENS, Associate Justice.

KAUS, P. J., and ASHBY, J., concur.