Opinion
Appeal No. 2013AP1286 Cir. Ct. No. 2012CV5339
12-03-2013
JESUS M. HERNANDEZ, PLAINTIFF-RESPONDENT, v. LIBERTY MUTUAL INSURANCE COMPANY, DEFENDANT-APPELLANT, GEICO INDEMNITY COMPANY, DEFENDANT.
NOTICE
This opinion is subject to further editing. If published, the official version will appear in the bound volume of the Official Reports.
A party may file with the Supreme Court a petition to review an adverse decision by the Court of Appeals. See WIS. STAT. § 808.10 and RULE 809.62.
APPEAL from a judgment of the circuit court for Milwaukee County: DOMINIC S. AMATO, Judge. Affirmed.
Before Fine, Kessler and Brennan, JJ.
¶1 BRENNAN, J. Liberty Mutual Insurance Company appeals from a final judgment, awarding Jesus M. Hernandez $50,000 under an excess liability insurance policy issued by Liberty. The $50,000 award came following the circuit court's decision to grant Hernandez's motion for declaratory judgment and the parties' subsequent stipulation to the $50,000 judgment. The sole issue before this court is whether the plain language of the excess liability insurance policy issued by Liberty to Zipcar, Inc. is illusory. We conclude that it is and affirm.
BACKGROUND
¶2 On October 7, 2011, Hernandez was seriously injured when the motorcycle he was driving was struck by a motor vehicle driven by Anna S. Diantoni. The vehicle Diantoni was driving at the time of the accident was owned by Zipcar.
¶3 Zipcar is a vehicle-sharing service that offers the general public the right to reserve and use its motor vehicles, billable by the hour or day, in exchange for annual membership dues. Diantoni was a Zipcar member at the time of the accident and was authorized by Zipcar to operate the vehicle involved in the accident.
¶4 Liberty issued a commercial insurance policy that provides liability coverage in the amount of $300,000 for Zipcar members while operating Zipcar vehicles ("the Liability Policy"), and thereby insured Diantoni at the time of the accident. Liberty has paid out the $300,000 limit set forth in the Liability Policy to Hernandez in exchange for a partial release of claims.
¶5 Liberty also issued an excess liability insurance policy to Zipcar ("the Excess Policy"). Liberty denied Diantoni coverage under the Excess Policy based on the Other-Insurance Clause contained in the policy's Wisconsin Endorsement. The Excess Policy and the Wisconsin Endorsement form the basis for the underlying case and this appeal.
¶6 The declarations page of the Excess Policy specifically lists the Liability Policy as the sole underlying policy to which the Excess Policy applies. Endorsement 102 to the Excess Policy states:
It is a condition of this policy that, as respects all automobile renting activities, the insured will maintain the following minimum underlying insurance in force during the term of this policy.
[The Liability Policy Number]
The Policy will provide the following Limit:
Liability $300,000 for any one Accident or Loss[.]
¶7 The Excess Policy's insuring agreement provides:
I. COVERAGEIn other words, the Excess Policy, by its plain language, is triggered only when the Liability Policy is applicable and has been exhausted.
To pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages and which would be payable by the company on behalf of the insured under the underlying policies, except for the provisions of the Limits of Liability conditions thereof.
¶8 The Excess Policy defines an "insured" as follows:
III. DEFINITIONS OF INSUREDEndorsement 102 further clarifies that:
The definition of insured in any and all underlying policies shall not apply to this policy and, for purposes of this policy, the unqualified word "insured" shall mean:
(1) Zipcar, Inc.
(2) Zipcar on Campus
The words "insured" shall not include any person while using with your permission any vehicle for which insurance is provided to you under this policy, or any person or organization legally responsible for its use.Therefore, unlike the Liability Policy, the Excess Policy was originally written to provide coverage only to Zipcar as a corporate entity. By its plain language, the Excess Policy does not grant coverage to members driving Zipcar vehicles, like Diantoni, who were otherwise covered under the Liability Policy. However, the Excess Policy contained the Wisconsin Endorsement that modified the terms of the Excess Policy in two ways relevant to this appeal.
¶9 First, the Wisconsin Endorsement amended the Excess Policy's definition of an insured by appending the following:
(3) Anyone else while using an auto covered by an underlying policy, provided such use is with the permission of
Zipcar, Inc. [or]
Zipcar on Campus.
¶10 Second, the Wisconsin Endorsement created the Other-Insurance Clause in the Excess Policy, which states:
5. OTHER INSURANCE
....
The insurance provided to persons who qualify as Insureds under Section (3) of Definition of Insured shall not apply when there is other valid and collectible insurance with at least the limits required by the Wisconsin Financial Responsibility Law, whether the other insurance is primary, excess or contingent.
¶11 Following the accident, Hernandez made a claim against Liberty under the Excess Policy for Diantoni's negligence as a permissive driver of a Zipcar vehicle. Liberty denied the claim, citing the Other-Insurance Clause within the Wisconsin Endorsement. In doing so, Liberty asserted that the existence of the Liability Policy operated to exclude coverage under its Excess Policy for permissive users like Diantoni. Hernandez filed this lawsuit, and the parties filed cross-motions seeking a declaration as to the availability of coverage under the Excess Policy.
Several other parties are named in the lawsuit but their interests are irrelevant on appeal.
¶12 Before the circuit court, Hernandez argued that Liberty's position— that the Liability Policy could trigger the Excess Policy's Other-Insurance Clause—must be rejected because such a reading of the clause renders coverage under the Excess Policy illusory. Instead, Hernandez asserted that a reasonable reading of the Other-Insurance Clause would apply the clause only to other concurrent liability insurance policies.
¶13 Liberty countered that the Other-Insurance Clause invoked Wisconsin's omnibus statute, which permitted Liberty to restrict coverage to permissive users other than Zipcar's officers, agents, or employees when there is other valid and collectible insurance with at least the limits required by the Wisconsin Financial Responsibility Act. See WIS. STAT. § 632.32(5)(c) (2011-12). Because the Liability Policy's $300,000 limit met the requirements for other valid and collectible insurance, Liberty argued that Diantoni was not covered under the Excess Policy. Liberty asserted that the Other-Insurance Clause did not render the Excess Policy illusory because the Other-Insurance Clause did not deny excess coverage to Zipcar, as the named insured, or its officers, agents, or employees.
All references to the Wisconsin Statutes are to the 2011-12 version unless otherwise noted.
¶14 The circuit court agreed with Hernandez and granted his motion for declaratory judgment, finding that Liberty's interpretation of the Other-Insurance Clause rendered the Excess Policy "meaningless." The parties then stipulated to a final judgment against Liberty from which it could appeal as a matter of right.
DISCUSSION
¶15 The issue before this court is whether the plain language of the Excess Policy and its Wisconsin Endorsement renders the Excess Policy illusory or whether it is somehow saved by WIS. STAT. § 632.32. We conclude that the plain language of the clause is illusory and that § 632.32 cannot act to change that plain language. Consequently, we affirm.
¶16 "[T]he grant or denial of a declaratory judgment is addressed to the [circuit] court's discretion." Gulmire v. St. Paul Fire & Marine Ins. Co., 2004 WI App 18, ¶10, 269 Wis. 2d 501, 674 N.W.2d 629. "However, when the exercise of such discretion turns upon a question of law, we review the question de novo, benefiting from the [circuit] court's analysis." Id. Here, the issue turns upon the construction of Wisconsin's omnibus statute governing automobile insurance, WIS. STAT. § 632.32, and the interpretation of the Excess Policy and the Wisconsin Endorsement. These are also questions of law that we review independently. See Folkman v. Quamme, 2003 WI 116, ¶12, 264 Wis. 2d 617, 665 N.W.2d 857 (insurance contracts); Van Erden v. Sobczak, 2004 WI App 40, ¶11, 271 Wis. 2d 163, 677 N.W.2d 718 (statutory interpretation).
¶17 When interpreting insurance policies, we construe them to give effect to the intent of the parties as expressed in the language of the policy. Folkman, 264 Wis. 2d 617, ¶12. To determine the parties' intent, we begin by analyzing the policy language to see if an ambiguity exists regarding the disputed coverage issue. Badger Mut. Ins. Co. v. Schmitz, 2002 WI 98, ¶51, 255 Wis. 2d 61, 647 N.W.2d 223. Terms in the policy are given their common and ordinary meaning. Hull v. State Farm Mut. Auto. Ins. Co., 222 Wis. 2d 627, 637, 586 N.W.2d 863 (1998). Policy language is ambiguous only "if it is susceptible to more than one reasonable interpretation." Danbeck v. American Family Mut. Ins. Co., 2001 WI 91, ¶10, 245 Wis. 2d 186, 629 N.W.2d 150. Given that context, we turn to the plain language of the Excess Policy and its Wisconsin Endorsement.
¶18 The Excess Policy defines an "insured" as "(1) Zipcar, Inc. [and] (2) Zipcar on Campus." The policy expressly states that "[t]he definition of insured in any and all underlying polices shall not apply to this policy[.]" In other words, by the plain language of the Excess Policy, permissive users are not covered insureds under the Excess Policy, even though they are included as insureds in the underlying Liability Policy.
¶19 The parties all agree that the Excess Policy's general definition of an insured violates WIS. STAT. § 632.32(3)(a). Section 632.32(3)(a) requires that "[c]overage provided to the named insured appl[y] in the same manner and under the same provisions to any person using any motor vehicle described in the policy when the use is for purposes and in the manner described in the policy."
¶20 Liberty states that, in order to comply with WIS. STAT. § 632.32(3)(a), it included the Wisconsin Endorsement in the Excess Policy, which amended the policy's definition of an insured. The Wisconsin Endorsement adds to the Excess Policy's general definition of an "insured" "[a]nyone else while using an auto covered by an underlying policy, provided such use is with the permission of Zipcar, Inc. [or] Zipcar on Campus[.]" The parties all agree that Diantoni was using the vehicle involved in the accident with Zipcar's permission and was therefore an insured under the Excess Policy pursuant to the amended definition of an insured provided in the Wisconsin Endorsement.
¶21 The parties' positions on the issue of coverage under the Excess Policy begin to diverge with their interpretations of the Other-Insurance Clause included in the Wisconsin Endorsement. The Other-Insurance Clause states that:
[t]he insurance provided to persons who qualify as Insureds ... shall not apply when there is other valid and collectible insurance with at least the limits required by the Wisconsin Financial Responsibility Law, whether the other insurance is primary, excess or contingent.Liberty denied Hernandez coverage under the Excess Policy, arguing that the underlying Liability Policy triggered the Other-Insurance Clause and thereby denied him coverage.
¶22 Hernandez argues that the Excess Policy's Other-Insurance Clause cannot be triggered by the underlying Liability Policy because, pursuant to case law, "'[o]ther insurance' clauses cannot be permitted to operate to produce a total forfeiture of coverage." See Schoenecker v. Haines, 88 Wis. 2d 665, 672, 277 N.W.2d 782 (1979). Hernandez argues that, if the underlying Liability Policy can trigger the Other-Insurance Clause, no insured qualifies for coverage under the Excess Policy because exhaustion of the Liability Policy is a prerequisite to making a claim under the Excess Policy. To wit, Hernandez argues that the Excess Policy is illusory. See Gillund v. Meridian Mut. Ins. Co., 2010 WI App 4, ¶19, 323 Wis. 2d 1, 778 N.W.2d 662 ("Coverage is illusory when an insured cannot foresee any circumstances under which he or she would collect under a particular policy provision.").
¶23 Liberty counters that the underlying Liability Policy can be used to trigger the Other-Insurance Clause for certain permissive users, like Diantoni, pursuant to WIS. STAT. § 632.32(5)(c). Section 632.32(5)(c) states that:
If the policy is issued to a motor vehicle handler,[] it may restrict coverage afforded to anyone other than the motor vehicle handler or its officers, agents or employees to the limits under [WIS. STAT. §] 344.01(2)(d) and to instances when there is no other valid and collectible insurance with at least those limits whether the other insurance is primary, excess or contingent.Liberty contends that the Other-Insurance Clause does not render the Excess Policy illusory because the clause was drafted to conform with § 632.32(5)(c), and § 632.32(5)(c), while permitting insurers to exclude certain permissive users from coverage when there is "other valid and collectible insurance" available, does not permit insurers to exclude "the motor vehicle handler or its officers, agents or employees." See id.
The parties agree that Zipcar is a motor vehicle handler under the statute. See WIS. STAT. § 632.32(2)(b) (defining "[m]otor vehicle handler").
¶24 The problem with Liberty's argument is that regardless of whether WIS. STAT. § 632.32(5)(c) permits insurers to exclude coverage for some permissive users when there is "other valid and collectible insurance," that is not what the plain language of the Other-Insurance Clause does in this case. The Other-Insurance Clause acts to exclude all "persons who qualify as Insureds." The Other-Insurance Clause states:
The insurance provided to persons who qualify as Insureds under Section (3) of Definition of Insured shall not apply when there is other valid and collectible insurance with at least the limits required by the Wisconsin Financial Responsibility Law, whether the other insurance is primary, excess or contingent.(Emphasis added.)
¶25 Here, the "persons who qualify as Insureds" is defined in the Excess Policy, under "Section III," as "Zipcar, Inc." and "Zipcar on Campus." And the Wisconsin Endorsement has amended the Section III definition of insured "to include" "[a]nyone else while using an auto covered by an underlying policy, provided such use is with the permission of Zipcar, Inc. [or] Zipcar on Campus." (Emphasis added.) Thus, the plain language of "persons who qualify as Insureds" in the Other-Insurance Clause excludes coverage for all persons who qualify as insureds. Contrary to Liberty's argument, the policy language does not exclude "the motor vehicle handler or its officers, agents or employees" from the reach of the Other-Insurance Clause. It excludes all insureds.
¶26 We note that the Dissent does not mention the Other-Insurance Clause and reaches the conclusion that because the Excess Policy's and Endorsement 102's general definition of an insured covers Zipcar and Zipcar, Inc., the policy is not illusory. However, we respectfully disagree. The Other-Insurance Clause cannot be ignored and plainly eliminates coverage for Zipcar and Zipcar, Inc., as insureds, as well as all permissive users, thus rendering the policy illusory.
¶27 In short, Liberty cannot: (1) require Zipcar to maintain the Liability Policy to receive coverage under the Excess Policy; and then (2) exclude all insureds under the Excess Policy based upon coverage under the Liability Policy pursuant to the Other-Insurance Clause. To do so renders the Excess Policy illusory. See Gillund, 323 Wis. 2d 1, ¶19. As such, we need not reach the question of whether WIS. STAT. § 632.32(5)(c) permits an insurer to exclude some permissive users under the Other-Insurance Clause based upon coverage under a primary liability policy.
In its brief-in-chief to this court, Liberty also "questions whether Hernandez has standing to pursue coverage under the Excess Policy on the grounds that coverage under the Excess Policy was illusory... [because] Ms. Diantoni was not a Named Insured on either the Commercial Policy or the Excess Policy." Hernandez responds that the direct action statute, WIS. STAT. § 632.24, grants him standing. We need not resolve the issue because Liberty raises it for the first time on appeal. See State v. Cuban, 210 Wis. 2d 597, 604, 563 N.W.2d 501 (1997) (Issues not presented to the circuit court need not be considered for the first time on appeal.).
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¶28 "Where coverage is illusory, we have concluded that the contract should be reformed so that it comports with the insured's reasonable expectations." Gillund, 323 Wis. 2d 1, ¶19. Here, Hernandez suggests that a reasonable insured reading the Other-Insurance Clause would expect the clause to only apply to concurrent liability policies, and not to the underlying Liability Policy. Liberty does not proffer a more reasonable interpretation of the clause. As such, we affirm the circuit court and conclude that the Other-Insurance Clause does not act to exclude coverage under the Excess Policy for Diantoni as a permissive driver.
By the Court.—Judgment affirmed.
Not recommended for publication in the official reports.
¶29 FINE, J. (dissenting). In my view, the provisions at issue on this appeal do not make the excess policy "illusory." Accordingly, I respectfully dissent.
¶30 As the Majority notes in paragraph 8, the policy and the endorsement restrict coverage to everyone but the named insureds on the excess policy: "Zipcar, Inc., and Zipcar, on Campus":
The definition of insured in any and all underlying policies shall not apply to this policy and, for purposes of this policy, the unqualified word "insured" shall mean:Majority, ¶8. This eliminates drivers of the Zipcar, like the injured plaintiff here, and the Majority recognizes this in paragraph 18: "[B]y the plain language of the Excess Policy, permissive users are not covered insureds under the Excess Policy, even though they are included as insureds in the underlying Liability Policy." Majority, ¶18.
(1) Zipcar, Inc.
(2) Zipcar on Campus
...
The words "insured" shall not include any person while using with your permission any vehicle for which insurance is provided to you under this policy, or any person or organization legally responsible for its use.
¶31 WISCONSIN STAT. § 632.32(3) provides:
Except as provided in sub. (5), every policy subject to this section issued to an owner shall provide that:(Emphasis added.) Thus, we must look to § 632.32(5) to see what in § 632.32(3) survives. Section § 632.32(5)(c) reads:
(a) Coverage provided to the named insured applies in the same manner and under the same provisions to any
person using any motor vehicle described in the policy when the use is for purposes and in the manner described in the policy.
(b) Coverage extends to any person legally responsible for the use of the motor vehicle.
If the policy is issued to a motor vehicle handler, it may restrict coverage afforded to anyone other than the motor vehicle handler or its officers, agents or employees to the limits under s. 344.01(2)(d) and to instances when there is no other valid and collectible insurance with at least those limits whether the other insurance is primary, excess or contingent.(Emphasis added.) This permissive restriction of the otherwise broad required-coverage grant in § 632.32(3) is conditioned on two things: (1) the restriction is to "the limits under s. 344.01(2)(d)"; and (2) those "instances when there is no other valid and collectible insurance with at least those limits whether the other insurance is primary, excess or contingent." This is precisely what the policy does here.
¶32 Stated another way, by virtue of WIS. STAT. § 632.32(5)(c), policies issued to motor vehicle handlers, like Zipcar here, may limit coverage to "the motor vehicle handler or its officers, agents or employees"—excluding all others (and, as we have seen, that is what the excess policy does), so long as those others have coverage under "other valid and collectible insurance with at least those limits whether the other insurance is primary, excess or contingent." There is such coverage for the "others" here. Accordingly, anyone other than the named insureds on the excess policy, "Zipcar, Inc., and Zipcar, on Campus," do not have coverage under the excess policy, and, because "Zipcar, Inc., and Zipcar, on Campus," have coverage under the excess policy, the excess policy is not "illusory." See Brunson v. Ward, 2001 WI 89, ¶5, 245 Wis. 2d 163, 169, 629 N.W.2d 140, 142 (A policy is "illusory" when "the insurer would never have to pay.").
¶33 Respectfully, I would reverse.