Mustain v. United States Fidelity & Guaranty Co. , 925 P.2d 533 ( 1996 )

ALMA WILSON, Chief Justice:

Pursuant to the Uniform Certification of Questions of Law Act, 20 O.S.1991, §§ 1601, et seq., the United States Court of Appeals for the Tenth Circuit certified the following question of state law to this Court:

Are the decisions in Hibbs v. Farmers Insurance Co., 725 P.2d 1232 (Okla.1985) and Smith v. Government Employees Insurance Co., 558 P.2d 1160 (Okla.1976) that when an insurance policy contains an excess insurance clause, primary coverage must be exhausted before the secondary insurer is liable, still good law in light of Buzzard v. Farmers Insurance Co., 824 P.2d 1105 (Okla.1991)?

The certified question has been recast by this Court. Centric Corp. v. Morrison-Knudsen Co., 731 P.2d 411 (Okla.1986). The questions to be answered are:

1) Based on this Court’s rulings in Buzzard v. Farmers Insurance Co., 824 P.2d 1105 (Okla.1991) and State Farm Mutual Auto. Insurance Co. v. Wendt, 708 P.2d 581 (Okla.1985) and pursuant to 36 O.S. 1991, § 3636, should uninsured motorist insurance be treated as primary coverage?

2) If uninsured motorist insurance must be declared primary coverage in Oklahoma, should the ruling be prospective?

The recast questions of law arise because the appellants (Mustain) settled their uninsured motorist insurance (UM) claims with the insurer of the vehicle involved in the accident for less than policy limits and seek to recover from the UM insurer of their personal motor vehicle. Our answer to the first question is that as between the insurer and its insured UM insurance is primary coverage. We answer the second question in the negative because the 1979 amendments to § 3636(C) of Title 36¹ clearly provide that the UM insurer’s responsibility to its injured insured may not be conditioned on the amount of other coverage.

The Tenth Circuit certified the following facts. On December 18, 1988, Michael Mus-tain was repairing an electric sign on the premises of the Comfort Inn in Oklahoma City, Oklahoma. Mustain was working near the top of an automatically extendable ladder that was attached to the crane of a truck. Signco, Inc. owned the crane truck. David Gaddis, the purported owner of Signco, Inc., manipulated the ladder control causing the ladder to swing and Mustain to fall. The crane truck was covered by an United States Fidelity and Guaranty (USF & G) policy which included UM coverage and Mustain was classified as an insured under the UM provisions. Mustain was also an insured under the UM provisions of his personal automobile insurance policy issued by American Employer’s Insurance Company (American).

Mustain filed suit in the United States District Court for the Western District of Oklahoma against USF & G and American to recover UM benefits. After an unsuccessful motion for summary judgment, USF & G settled with Mustain for less than its UM policy limit. American moved for summary judgment, asserting that the maximum UM benefits under the policy covering the truck had to be exhausted before Mus-tain was entitled to collect benefits under his UM policy. The federal district court granted summary judgment in favor of American and Mustain appealed.

American urges that the USF & G insurance is the primary UM coverage which must be exhausted before its UM liability is triggered. This argument is grounded in the “other insurance” policy provisions which read:

If there is other applicable similar insurance we will pay only our share of the loss. Our share is the proportion that our limit of liability bears to the total of all applicable limits. However, any insurance we provide with respect to a vehicle you do not own shall be excess over any other collectible insurance.

This “other insurance” clause does not establish a priority of payments, i.e. primary and secondary responsibility, among multiple UM insurers. It provides that the UM coverage will be excess over all other insurance when Mustain is injured in another person’s vehicle. Excess provisions in a motor vehicle liability insurance policy are unenforceable if the provisions would allow the insurer to escape liability.² In this case, American’s reading of the “other insurance” clause would allow it to completely escape liability and thereby defeat the purpose of the controlling statute³ to protect insured persons who are injured by uninsured/under-insured motorists.⁴ Buzzard v. Farmers Insurance Co., 824 P.2d 1105 (Okla.1991), foreshadowed that such escape attempts will be futile and thus altered the consequences of Hibbs v. Farmers Insurance Co., 725 P.2d 1232 (Okla.1985).

Pursuant to 36 O.S.1991, § 3636, UM insurance is first-party coverage⁵ that follows the person.⁶ The UM insurer and its insured occupy a statutory relationship imbued with a duty of good faith and fair dealing.⁷ The injured UM insured is entitléd to swift payment from the UM insurer and, in the absence of a reasonable dispute as to the coverage or the amount of damages, the UM insurer may not withhold payment to its insured on the sole basis that the liability insurance has not been exhausted.⁸ Accordingly, we conclude that 36 O.S.1991, § 3636 imposes a responsibility upon the UM insurer to protect its insured by good faith and fair dealing from and after the time of injury and the insurer may not withhold payment to its injured insured on the sole basis that some other insurance has not been exhausted. We therefore hold that as between the insurer and its insured UM insurance is primary coverage.

Section 3636 is silent as to the priority of payments among multiple UM insurers. The statute does provide that the UM insurer making payment to its insured is entitled to the proceeds of any settlement or judgment against the person or organization legally responsible for the damages.⁹ It does not, however, set forth the priority of multiple UM insurers to such proceeds when the insured has recovered under two or more UM policies. Rather, it creates subrogation rights to guard against one insurer shifting the burden of loss to another or escaping the burden of loss through token settlements. “Subrogation is a doctrine the law has devised for the benefit of one secondarily liable who has paid the debt of another.”¹⁰

Under § 3636, the injured insured has a right to an indemnity unburdened by contract provisions that control priority among multiple UM insurers. The insurers, on the other hand, do not lose their rights to press for adjustment or apportionment of the indemnity among themselves as required by the law of insurance. Payment entitles the insurer to a judicial determination of the primary, secondary, and tertiary priority among insurers pursuant to the applicable UM insurance policies. Accordingly, we conclude that upon payment to its injured insured the UM insurer may seek a determination of its priority as a secondary insurer pursuant to its policy provisions and a distribution of the burden of loss among all the affected insurers in ancillary, post-judgment proceedings.

Our research reveals no general rule for determining primary, secondary, and tertiary priorities among multiple UM insurers and distributing the burden of loss. The provisions in each of the involved UM policies, as well as all the circumstances between and among the injured insured and the UM insurers, must be considered. No one factor can rigidly control the distribution so as to impair satisfaction of the injured UM insured’s damages up to the total insurance coverage available and defeat the objective of § 3636.

The priority among multiple UM insurers for payment to the injured insured and apportionment of the burden of loss among the UM insurers must await final adjudication of the damages suffered by the injured insured, a principle unaddressed in Hibbs v. Farmers Insurance Company, 725 P.2d 1232 (Okla. 1986). Hibbs involved an automobile accident that occurred when Hibbs was forced off the road by another driver, who left the scene of the accident, and collided with a guard rail. The pick-up truck Hibbs was driving was owned by his employer. Hibbs settled with his employer’s UM insurer for $17,250.00, although the policy limits were $30,000.00. Hibbs then sued his own UM insurer for the remainder of his damages. Hibbs’ UM insurer claimed it was secondarily liable in excess of the employer’s UM coverage. The Court framed the issue as “(w)hether settlement with the primary UM carrier for less than the policy limits effectively negates recovery from the secondary UM carrier because of the ‘excess’ coverage clause.”¹¹ Relying on Smith v. Government Employees Insurance Co., 558 P.2d 1160 (Okla.1976), Hibbs held that “(t)he effect of Smith as applied to this case means the insurer with secondary coverage does not become liable unless the primary coverage is exhausted.”¹² Smith concerned the right to indemnity for property damage, which is conceptually different from the right to indemnity under § 3636.¹³ Therefore, any part of Hibbs v. Farmers Insurance Co., 725 P.2d 1232 (Okla.1985), which is inconsistent with the UM insurer’s responsibility and liability under § 3636 as construed herein, shall have no further precedential value.

CERTIFIED QUESTION ANSWERED.

KAUGER, V.C.J., and HODGES, OPALA and WATT, JJ., concur. LAVENDER, SIMMS, HARGRAVE and SUMMERS, JJ., dissent.

1 . 1979 Okla.Sess.Laws, ch. 178, § 1.

2 . Equity Mutual Ins. Co. v. Spring Valley Wholesale Nursery, 747 P.2d 947 (Okla.1987).

3 . 36 O.S.1991, § 3636. The UM insurance policies herein were issued pursuant to 36 O.S.1981, § 3636. The applicable provisions of § 3636 remain unchanged in the referenced 1991 codification, unless otherwise noted.

4 . Cothren v. Emcasco Insurance Company, 555 P.2d 1037 (Okla.1976); Moser v. Liberty Mut. Ins. Co., 731 P.2d 406 (Okla.1986).

5 . Bohannan v. Allstate Insurance Co., 820 P.2d 787 (Okla.1991).

6 . Shepard v. Farmers Insurance Company, 678 P.2d 250 (Okla.1984); State Farm Mut. Auto. Ins. Co. v. Wendt, 708 P.2d 581 (Okla.1985).

7 . Townsend v. State Farm Mutual Automobile Insurance Company, 860 P.2d 236, 238 (Okla. 1993).

8 . Buzzard v. Farmers Insurance Company, Inc., 824 P.2d 1105, 1112 (Okla.1992).

9 . 36 O.S.1991, § 3636, subsection (E).

10 . Sexton v. Continental Casualty Company, 816 P.2d 1135, 1138 (Okla.1991).

11 . Hibbs, 725 P.2d at 1233.

12 . Id.

13 . Two of our recent opinions recognize that the law of UM insurance and the law of liability insurance are separate and distinct bodies of law. Townsend v. State Farm Mutual Auto. Insurance Co., 860 P.2d 236 (Okla.1993) and Gianfillippo v. Northland Casualty Company, 861 P.2d 308 (Okla.1993).