No Liability Clause of Car Dealership's Garage Liability Policy Found to Negate Coverage for Driver of Loaner Vehicle

AUTO – LOANER VEHICLE – NO LIABILITY CLAUSE – PRIORITY OF INSURANCE
Progressive Cas. Ins. Co. v. Harco Natl. Ins. Co.
(4th Dept., decided 2/11/2010)

Jason Webb borrowed a loaner vehicle from Burdick Pontiac-GMC while his own vehicle was being repaired by the car dealership. His son, Justin Webb, was driving the loaner vehicle when he collided with a vehicle operated by Andrea Walker. Walker thereafter commenced the underlying against Justin Webb and Burdick seeking damages for injuries that she allegedly sustained in the accident.

The loaner vehicle was insured under a garage liability policy issued to Burdick by Harco National Insurance Company, and the Webbs were insured under a family motor vehicle policy issued by plaintiff, Progressive Casualty Insurance Company. The Harco policy contained what is commonly known as a "no liability clause," which provided coverage to a customer of its insured only if the customer "[h]as no other available insurance (whether primary, excess or contingent)" or "[h]as other available insurance (whether primary, excess or contingent) less than the compulsory or financial responsibility law limits where the covered auto' is principally garaged." The Progressive policy contained an "excess" clause, which stated that any insurance provided for a vehicle, other than a covered vehicle, "will be excess over any other valid and collectible insurance."

Progressive commenced this action seeking a declaration that Harco was obligated to provide primary coverage to defend and indemnify Justin Webb in the underlying action, and Harco asserted a counterclaim seeking a declaration that Progressive is the primary insurance carrier for Webb and thus was obligated to defend and indemnify him to the limits of its policy. Onondaga County Supreme Court granted Progressive's motion for summary judgment declaring that Harco was obligated to provide primary coverage to Justin Webb and that Progressive's coverage was excess to Harco's.  Harco appealed.

In REVERSING the order appealed from and declaring that Progressive owed primary coverage to Justin Webb and Harco owed no coverage, the Fourth Department gave effect to the no liability clause of the Harco policy:

We agree with Harco and Burdick that the Webb defendants are excluded from coverage pursuant to the express terms of the Harco policy. Under the Harco policy, a customer is excluded from the definition of an "insured" unless the customer possesses insufficient insurance to meet the minimum requirements set forth in New York's financial responsibility laws. In granting the motion of Progressive, the court relied on the general rule that, "[i]n cases in which one insurance policy has a no liability clause and the other insurance policy has an excess clause, . . . the no liability clause is not given effect" (Kipper v Universal Underwriters Group, 304 AD2d 62, 65; see Utica Mut. Ins. Co. v Travelers Ins. Co., 213 AD2d 983, 984). That was error, inasmuch as "[a]n exception to the general rule arises [where, as here,] the no liability clause expressly provides that other available insurance' includes both primary and excess insurance coverage. In that case, the no liability clause is given effect and the excess insurance carrier is the primary carrier" (Kipper, 304 AD2d at 65; see Mills v Liberty Mut. Ins. Co., 36 AD2d 445, affd 30 NY2d 546; Davis v De Frank, 33 AD2d 236, 241, affd 27 NY2d 924). Here, the Harco policy specifically provides that "other available insurance" includes "primary, excess or contingent insurance" (emphasis added), and it is undisputed that the liability limits contained in the Progressive policy exceed the minimum statutory requirements. Thus, the exception to the general rule applies, the no liability clause contained in the Harco policy is given effect, and Progressive is the primary insurer for the Webb defendants (see Davis, 33 AD2d at 241). 

The appellate court also rejected Progressive's argument that the "Other Insurance" clause of the Harco policy rendered Harco liable for coverage in this case:

Contrary to the contention of Progressive, that clause does not in fact render Harco liable to provide insurance coverage with respect to all vehicles owned by Burdick. Rather, it simply clarifies that, where coverage exists under the substantive provisions of the Harco policy, coverage is primary with respect to all vehicles owned by Burdick and excess with respect to non-owned vehicles. 

Finally, and although the court twice stated that Justin Webb was "excluded" from coverage pursuant to the Harco policy's restrictive definition of an  insured, the Fourth Department also rejected Progressive's contention that Harco had a duty to provide a timely disclaimer for the subject accident:

Finally, because the Harco policy does not provide coverage for the Webb defendants, there is no merit to Progressive's contention that Harco had a duty to provide a timely disclaimer for the subject accident (see State Farm Mut. Auto. Ins. Co. v John Deere Ins. Co., 288 AD2d 294, 297). Thus, even assuming, arguendo, that the written disclaimer provided by Harco was insufficient, we conclude that "the failure to disclaim coverage does not create coverage which the policy was not written to provide" (Zappone v Home Ins. Co., 55 NY2d 131, 134). 

I'm confused.  Why would Walker have sued the father, Jason Webb?  This decision contains contradictory references (compare "Walker thereafter commenced the underlying action against Justin Webb and Burdick seeking damages" to "Harco is not obligated to defend or indemnify the Webb defendants in the underlying action").  In all likelihood, Jason Webb was not named as a defendant in the underlying action, only his son, Justin Webb, was as the loaner vehicle's driver, along with the vehicle's owner, Burdick.  And Justin was not Burdick's customer; his father, Jason, was.  Shouldn't that have made a difference?  If Justin wasn't Burdick's customer, the "your customers" exception to coverage for permissive users of Burdick's vehicles should not have applied.  Surely Progressive argued that point, but, as sometimes happens, the Fourth Department did not address it, like it had in its decision in Graphic Arts Mut. Ins. Co. v Russell, 50 AD3d 1611 (4th Dept. 2008).