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Int'l Ins. Co. of New York v. Sentry Ins.

OPINION FILED FEBRUARY 10, 1977.

INTERNATIONAL INSURANCE COMPANY OF NEW YORK, PLAINTIFF-APPELLEE,

v.

SENTRY INSURANCE, DEFENDANT-APPELLANT.



APPEAL from the Circuit Court of Macon County; the Hon. ALBERT G. WEBBER III, Judge, presiding.

MR. PRESIDING JUSTICE CRAVEN DELIVERED THE OPINION OF THE COURT:

The plaintiff, International Insurance Company of New York, brought an action against defendant, Sentry Insurance, to recover expenses incurred in settling claims arising out of an automobile accident. Plaintiff's insured, Alfred Williams, while test-driving an automobile owned by defendant's insured, Donald Hartwig, caused it to collide with an auto driven by Ralph Rawlings. Plaintiff expended the sum of $56,250.40 in investigating and settling claims of the occupants of the Rawlings' vehicle. Plaintiff, as Williams' subrogee, brought suit against defendant for reimbursement for its loss. Finding no controverted issues of fact, the trial court gave judgment on the pleadings to the plaintiff for the full amount of its claim, $56,250.40, plus interest of $7,767.18, and costs of suit.

At the time of the accident, Williams was covered by a policy issued by the plaintiff which provided that the insurance with respect to a temporary substitute or non-owned automobile would be "excess" insurance over any other valid and collectible insurance. The auto Williams was driving at the time of the accident was clearly a "non-owned" or a "temporary substitute automobile" within the meaning of plaintiff's policy.

Defendant's policy also applied to the 1965 Chevrolet which Williams was test-driving. Defendant's policy provided $50,000 person/$100,000 occurrence coverage for bodily injury and contained a limited coverage endorsement which states, in part:

"In consideration of the reduced rate of premium made applicable to the Garage Liability Insurance, it is agreed that garage customers are not insureds with respect to the automobile hazard except in accordance with the following additional provisions:

1. If there is other valid and collectible insurance, whether primary, excess or contingent, available to the garage customer and the limits of such insurance are sufficient to pay damages up to the amount of the applicable financial responsibility limit, no damages are collectible under this policy.

2. If there is other valid and collectible insurance available to the garage customer, whether primary, excess or contingent, and the limits of such insurance are insufficient to pay damages up to the amount of the applicable financial responsibility limit, then this insurance shall apply to the excess of damages up to such limit.

3. If there is no other valid and collectible insurance, whether primary, excess or contingent, available to the garage customer, this insurance shall apply but the amount of damages payable under this policy shall not exceed the applicable financial responsibility limit.

4. As used in this endorsement:

`applicable financial responsibility limit' refers to the applicable limit of the financial responsibility law of the state where the automobile is principally garaged."

Section 7-317 of the Illinois Vehicle Code (Ill. Rev. Stat. 1975, ch. 95 1/2, par. 7-317) provides financial responsibility limits of $10,000 person/$20,000 occurrence for bodily injury or death. Defendant argued at trial that under paragraph 3 aboye its liability was limited to only $20,000. In rejecting defendant's position, the trial court held in favor of plaintiff for the full amount expended, plus interest, finding defendant's affirmative defense — the limited endorsement — insufficient at law, saying that the endorsement relied upon was ineffective to reduce the amount of defendant's primary insurance under the rule of New Amsterdam Casualty Co. v. Certain Underwriters at Lloyds, London (1966), 34 Ill.2d 424, 216 N.E.2d 665, and Automobile Underwriters, Inc. v. Hardware Mutual Casualty Co. (1971), 49 Ill.2d 108, 273 N.E.2d 360. We review only the correctness of that order. The parties would have this court decide whether an insurer may reduce its liability for certain users below that of the named insured, reduce it to the limits of the State financial responsibility law. Interesting as this question may seem, we do not address it since on the facts of this case that issue need not be reached.

• 1, 2 It is clearly the law of Illinois that where the owner has a policy with an omnibus clause covering the driver and an "escape" clause while the driver's insurance provides "excess" coverage, the "excess" clause prevails and the owner's insurer is primarily liable. (New Amsterdam.) Automobile Underwriters solidified the primary liability of the owner's insurer in "escape" versus "excess" situations, saying that "We find no justification to allow a circumvention of New Amsterdam by the mere inclusion of the phrase `either primary or excess' in the `escape' clause." (49 Ill.2d 108, 112, 273 N.E.2d 360, 362-63.) Neither New Amsterdam or Automobile Underwriters considered the issue whether the owner's insurer could limit its liability for permissive users to something less than provided the named insured. They held only that in case of conflicts, the escape clause fails, leaving the owner's insurer primarily liable.

• 3 We are persuaded that the trial court's decision was correct, because, by its own terms, the reduction clause in defendant's limited coverage endorsement is inapplicable. Paragraph 3 (the reduction clause) only applies if "there is no other valid and collectible insurance, whether primary, excess or contingent" covering the driver. Defendant argues that New Amsterdam and Automobile Underwriters are authority for the proposition that "excess" insurance is not "other valid and collectible insurance." We disagree with such a broad proposition as it applies to this case. Rather, we are persuaded that plaintiff's "excess" insurance is available insurance; thus, defendant's reduction clause is not activated. We see this result as no way inconsistent with the supreme court opinion in New Amsterdam. It must be remembered that there the supreme court was dealing with two mutually exclusive insurance clauses, logically irreconcilable as to primary coverage conflicts. Also, it is critical to note that in New Amsterdam the damages were less than the limits of the owner's policy; thus, the driver's "excess" coverage never came into force. On these facts, the supreme court ruled that the driver's "excess" coverage was not "other" insurance within the meaning of the owner's escape clause.

To accept defendant's argument here that "excess" insurance cannot constitute "other valid and collectible insurance" would produce an illogical result. A valid, collectible and available form of insurance would be deemed to lose that status to the extent of the coverage of the policy containing the reduction clause. If defendant's liability were limited to $20,000 here, plaintiff would remain liable for $36,250.40 under its "excess" provision. In light of these facts, we conclude that plaintiff's "excess" ...


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