Automobile Underwriters, Inc., Pauline Nelson and Donald Nelson, Intervening v. Fireman's Fund Insurance Companies v. Liberty Mutual Insurance Company, 874 F.2d 188, 3rd Cir. (1989)

874 F.
2d 188
AUTOMOBILE UNDERWRITERS, INC., Appellant,

Pauline Nelson and Donald Nelson, Intervening Plaintiffs,
v.
FIREMAN'S FUND INSURANCE COMPANIES
v.
LIBERTY MUTUAL INSURANCE COMPANY.
No. 88-3850.
United States Court of Appeals,

Third Circuit.
Submitted Under Third Circuit Rule 12(6)
April 18, 1989.
Decided May 16, 1989.
Jan C. Swensen, Swensen & Perer, Pittsburgh, Pa., for appellant, Auto.
Underwriters, Inc.
Jane Ann Thompson, Maria Zulick, Meyer, Darragh, Buckler, Bebenek,
Eck & Hall, Pittsburgh, Pa., for appellee, Fireman's Fund Ins. Companies.
Before SEITZ, SLOVITER, and GREENBERG, Circuit Judges.
OPINION OF THE COURT
SLOVITER, Circuit Judge.
I.
Issue
1
This case involves the construction of an "other insurance" clause in an

insurance policy providing coverage to a car dealership that leased a car to a
customer while his car was being fixed. The customer struck and killed a
pedestrian while driving this rented car. The question presented is whether the
clause in the car dealership's insurance policy was an "escape" clause, to which
Pennsylvania gives no effect, or was a valid "excess" clause, as found by the
district court.
II.
Facts and Procedural History
2
William Loving left his car with Ramsey-Sturman Ford, Inc. (Ramsey) for
repairs; he rented from Ramsey a substitute car. The rental car was owned by
Ford Rent-a-Car Systems and leased to Ramsey. Loving struck and killed a
pedestrian, Eric Nelson, while driving this rental car. Nelson's estate filed a
wrongful death action in state court against Loving, claiming $3,325 in funeral
expenses, and compensatory and punitive damages in excess of $20,000.
Liberty Mutual Insurance Companies (Liberty), which provided a policy with a

$100,000 limit to Ford Rent-a-Car Systems, admitted to being the primary
insurer and agreed to pay up to the policy limit of $100,000. Liberty's excess
policy, unlike its primary policy, did not cover drivers of rental vehicles.
Automobile Underwriters, Inc., the appellant here, provided Loving's personal

automobile policy coverage. The liability limit of its policy was $35,000. The
policy contained a provision which stated:
5 there is any other applicable liability insurance we will pay only our share of the
If
loss. Our share is the proportion that our limit of liability bears to the total of all
applicable limits. However, any insurance we provide for a vehicle you do not own
shall be excess over any other collectible insurance.
6
App. at 32.
Ramsey was covered by a primary policy issued by Fireman's Fund Insurance

Companies (Fireman's Fund) which had a limit of $1,000,000. The Fireman's
Fund policy stated:
8Anyone else is an insured while using with your permission a covered auto except:
9* * *
10 Your garage operations customers. However, if a garage operations customer of
(3)
yours ...
11 Has no other available insurance (whether primary, excess or contingent), he or

(a)
she is an insured only up to the compulsory or financial responsibility law limits
where the covered auto is principally garaged.
12 Has other available insurance (whether primary, excess or contingent), less than
(b)
the compulsory or financial responsibility law limits where the covered auto is
principally garaged, he or she is an insured only for the amount by which the
compulsory or financial responsibility law limits exceeds the limits of his or her
other insurance.
13
App. at 78.
14
Automobile Underwriters brought a declaratory judgment action against

Fireman's Fund based on diversity of citizenship to determine the parties'
obligations. It contended that its policy provided only excess coverage to that
undertaken by Liberty and Fireman's Fund.
15
The administrators of the Nelson estate were given leave to intervene as

plaintiffs and Liberty was added as a defendant. The three insurance companies
moved for summary judgment, and all parties agreed that no material facts
were in dispute. The district court granted summary judgment in favor of
Liberty with respect to its excess policy because it did not cover drivers of
rental vehicles. Automobile Underwriters, Inc. v. Fireman's Fund Ins. Cos., 699
F.Supp. 1133, 1135 (W.D.Pa.1988). No party has appealed from that portion of
the order.
16
The court then held that the clause of the Fireman's Fund policy was an
"excess" clause, not an unenforceable "escape" clause, because it insured
against the possibility that the driver did not carry insurance or carried
insurance below the minimum required by Pennsylvania law. Id. at 1136.
Therefore, this provision was "excess over other basic auto liability coverage
with a policy limit equal to the amount of the state's statutory minimum." Id.
The court found that the provision was "consistent with and enhances the
purpose of" the state's law requiring insurance coverage and had the further
"salutary benefit of relieving the insured dealership of any obligation to
determine each customer's insurance coverage before providing a loaner car."
Id. The court concluded that "[b]ecause Loving has other insurance which
exceeds the statutory minimum required by Pennsylvania, Loving is not an
insured under the Fireman's Fund primary policy." Id.
17
Finally, the court found that the clear language of the Fireman's Fund excess
policy limited excess policy coverage to insureds covered under the primary
policy. Therefore, it granted summary judgment in favor of Fireman's Fund on
both its primary and excess policies.
18
Automobile Underwriters appeals. This court exercises plenary review of the

grant of a motion for summary judgment. See Peters Township School Dist. v.
Hartford Accident and Indem. Co., 833 F.2d 32, 34 (3d Cir.1987).
III.
Discussion
19
Judicial attitudes towards the use of "escape" clauses vary. See 8A J.

Appleman, Insurance Law and Practice Secs. 4906, 4910 (1981 and 1988
Supp.). The leading Pennsylvania Supreme Court case on point is Grasberger v.
Liebert & Obert, Inc., 335 Pa. 491, 6 A.2d 925 (1939). In that case,
Threshermen Company issued an insurance policy to a company which leased
its truck, together with a driver, to a company insured by Aetna. The
Threshermen policy covered any person legally responsible for operation of the
covered automobile but further provided that "[i]f any other person ... insured
hereunder ... is covered by other valid insurance against a claim otherwise
covered by this Policy, no insurance under this policy shall be applicable to
such claim." 335 Pa. at 494, 6 A.2d at 926. The Aetna policy provided that "if
the named Assured is covered under a policy taken out by the owner or
operator of any automobile ... the coverage under this endorsement shall be
excess coverage over and above the valid and collectible insurance under the
policy taken out by the owner or operator." 335 Pa. at 495, 6 A.2d at 926.
20
A pedestrian was injured by the truck and driver and the lessor and lessee were
held jointly liable for the injury. Threshermen paid the judgment and then
sought to recover contribution from the lessee. The lessee resisted, arguing that
it was covered under Threshermen's own policy. The Pennsylvania Supreme
Court agreed. It construed Aetna's policy as excess only, and held that the
clause in the Threshermen policy which withheld protection if other coverage
existed was not applicable because "up to the amount of the coverage of the
[Threshermen] policy, [the insured] is not covered by other insurance." Id. 6
A.2d at 926. It distinguished this situation from one where both policies
contained clauses providing for proportional contribution when the risk was
covered by another policy, in which situation it prorated the recovery from the
two policies.
21
Although the Grasberger Court did not denominate the clause in the Aetna
policy as an "escape" clause, which is generally defined as a clause providing

that there shall be no coverage where there is other valid and collectible
insurance, see 8A J. Appleman , supra at 457, later Pennsylvania courts have so
characterized it. See, e.g., Jett v. Hill, 10 Pa.D. & C.3d 734, 737
(C.P.Phila.1978) ("Grasberger ... dealt with an escape clause (whereby that
policy would be null and void if other insurance existed) vis-a-vis an excess
clause."). Recently, the Pennsylvania Superior Court, following a discussion of
Grasberger, inter alia, concluded that "it appears that the weight of authority
instructs us to strike the escape clause or provision and enforce the policies as if
the escape provision did not exist." Connecticut Indem. Co. v. Cordasco, 369
Pa.Super. 439, 444, 535 A.2d 631, 634 (1987). This court, citing Grasberger,
has explained that the courts of Pennsylvania have treated escape clauses with
disfavor because they find "it unacceptable for an insurance company to
provide no coverage under a policy for which it received premiums." Contrans,
Inc. v. Ryder Truck Rental, Inc., 836 F.2d 163, 166 (3d Cir.1987).
22
The clause in the Fireman's Fund policy at issue here goes beyond the escape
provision in Grasberger. Known as a "super-escape/reduced limits clause," see
8A J. Appleman, supra at 350, 457, it provides that the company will not
provide coverage when there is any other insurance available except to cover
the excess of damages not covered by any other insurance up to the limit of an
applicable financial responsibility law.
23
This court considered the effect of Grasberger on a "super-escape" clause in

Insurance Co. of North America v. Continental Casualty Co., 575 F.2d 1070
(3d Cir.1978) ("INA" ). INA insured the lessee of a tractor-trailer under a policy
agreeing to provide coverage "in excess of, and not [in] contribut[ion] with,
[any other applicable] insurance." Id. at 1072. We characterized this provision
as an excess clause, because it did not provide supplemental protection until the
other coverage available to the insured was exhausted. The other insurer,
Continental, insured the owner/lessor of the tractor-trailer under a policy which
stated that "[i]f ... the insured has other insurance, whether on a primary, excess
or contingent basis, there shall be no insurance afforded hereunder ... provided,
that if the limit of liability of this policy is greater than the limit of liability
provided by other insurance, this policy shall afford excess insurance over and
above such other insurance in an amount sufficient to give the insured, as
respects the layer of coverage afforded by this policy, a total limit of liability
equal to the limit of liability afforded by this policy." Id.
24
Judge Weis, writing for this court, stated that although "the first part of the
Continental language is of the 'escape' variety," the second part is not so
"draconian" in that it undertook to provide coverage if the limits of its policy
were greater than the other insurance available. Id. at 1072. However, because
the policy limit in the Continental policy was lower than INA's, we held that
"in the context of the dispute at bar" the provision must be considered an
escape clause, and noted that " 'escape' clauses are generally in disfavor with
the courts." Id. at 1072.
25
We predicted that Pennsylvania would not make a distinction between a "superescape" clause and the basic escape clause at issue in Grasberger. We construed
Grasberger to hold that, "in a conflict between an excess and an escape clause
the court would refuse to enforce the latter," and would require that the whole
loss be borne "by the company which sought to avoid any responsibility by
invoking its escape clause." Id. at 1073. Accord Jamestown Mut. Ins. Co. v.
Erie Ins. Exch., 357 F.Supp. 933 (W.D.Pa.1972) (where one policy contained
excess clause and the other contained escape clause, policy with escape clause
held to provide coverage), aff'd mem., 474 F.2d 1339 (3d Cir.1973).
26
Thereafter, the Pennsylvania Superior Court in Connecticut Indemnity Co. v.

Cordasco, 369 Pa.Super. 439, 535 A.2d 631 (1987), expressly adopted our
analysis of Pennsylvania law as set forth in the INA case. Connecticut
Indemnity provided insurance to the car dealership which owned the car
involved in the accident. The driver had an insurance policy issued by State
Farm Insurance which provided primary automobile insurance coverage on his
personal automobile. The State Farm policy also provided coverage for use of
temporary substitute cars but provided that:
27
If a temporary substitute car ... has other vehicle liability coverage on it, then
this coverage is excess. This coverage shall not apply:
28
a. If the vehicle is owned by any person or organization in a car business, and
29
b. if the insured or the owner has other liability coverage which applies in
whole or in part as primary, excess or contingent coverage.
30
369 Pa.Super. at 443, 535 A.2d at 633 (emphasis added). The Pennsylvania
Superior Court expressly followed INA and found this language to constitute an
escape clause because it purported to relieve the insurer from any obligation to
the insured if other coverage is available. 369 Pa.Super. at 444, 535 A.2d at
633. The court found "no difficulty with the fact that the escape provision is
tied to an excess coverage provision," noting that this court had, in the INA
case, dealt with a similar clause. 369 Pa.Super. at 444, 535 A.2d at 633-34. The
Cordasco court disregarded the escape provision and held that State Farm was
obligated to provide the excess coverage at issue.

31
Nothing in Contrans, Inc. v. Ryder Truck Rental, Inc., 836 F.2d 163 (3d
Cir.1987), to which Fireman's Fund alludes, is contrary. In Contrans, Old
Republic issued a policy covering both the tractor portion of a rig involved in
an accident, which was owned by its insured and leased to Contrans, and the
trailer portion, owned by another party and leased to Contrans. The policy
provided that the insurance "shall not apply if there is other coverage
applicable to the trailer and available to the lessee/renter." Id. at 167 (emphasis
in original). Although the district court had construed this language as an
escape clause, we held instead that the limiting clause was applicable only to
the trailer (which Old Republic's insured did not own) and that in fact Old
Republic's policy provided primary coverage on the tractor. Because the policy
did not evince an intent to escape coverage entirely, it was not to be construed
as an escape clause. Id. at 170.
32
Fireman's Fund argues that its policy, like that recently construed in Widener
University v. Fred S. James & Co., 371 Pa.Super. 79, 537 A.2d 829 (1988),
should be viewed as an excess clause rather than an escape clause. The clause
at issue there read, "The insurer shall not be liable to make any payment for
loss in connection with any claim against the Assureds ... which is insured by
another policy or policies except in respect of any excess over and above the
amount or amounts of such other policy or policies," 371 Pa.Super. at 83-84,
537 A.2d at 831, and was a fairly straightforward excess clause. See also
Maryland Casualty Co. v. Horace Mann Ins. Co., 551 F.Supp. 907, 910
(W.D.Pa.1982), aff'd mem., 720 F.2d 664 (3d Cir.1983) (holding a clause
stating that it did not apply "to that portion of any claim ... against the insured
which is insured by another valid policy" should be construed as an excess
clause, rather than an escape clause, because "[n]owhere does defendant
attempt to escape liability in its entirety" (emphasis added by district court)).
Fireman's Fund confuses the distinction between an excess clause and an
escape clause. An excess clause provides for payment of that portion of the
claim that remains unpaid once other coverage is exhausted. Id.; see also INA
575 F.2d at 1072. An escape clause, on the other hand, relieves the insurer
from any obligation to its insured if other coverage is available. Id.
33
The district court here reasoned that the Fireman's Fund clause was not an
escape clause because it would not exonerate the company from liability with
respect to a class of potential insureds, i.e., those without the minimum
coverage required under law. Such a construction is inconsistent with our
analysis in INA. There, we refused to view the clause in a hypothetical situation
and instead construed the clause "[a]s applied to the facts here" and labeled it
"escape" "in the context of the dispute at bar." 575 F.2d at 1072. No escape
clause exonerates the company from liability in all situations; all such clauses
by definition contemplate the possibility that no other insurance policy will
provide coverage, but it is only in the event of that contingency that the insurer
will be responsible.
34
The policy reason for nullifying escape clauses was discussed in INA where we
noted that such a rule protects the interests of the insured; that companies who
write insurance in the state are aware of the rule; and that applying it would
promote certainty in a field of law where predictability was particularly
desirable. 575 F.2d at 1074.
35
It follows, with the escape clause stricken, that the Fireman's Fund primary
policy coverage of $1,000,000 is applicable to the claim at issue. Moreover, we
note that the basis on which the district court held that the Fireman's Fund
excess policy was inapplicable, i.e., its applicability only to insureds covered
under the primary policy, can no longer be used to exclude its coverage.
IV.
Conclusion
36
For the reasons set forth above, we will reverse the judgment of the district
court and remand for the entry of a declaratory judgment consistent with this
opinion.

Automobile Underwriters, Inc., Pauline Nelson and Donald Nelson, Intervening v. Fireman's Fund Insurance Companies v. Liberty Mutual Insurance Company, 874 F.2d 188, 3rd Cir. (1989)

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874 F.

AUTOMOBILE UNDERWRITERS, INC., Appellant,

United States Court of Appeals,

This case involves the construction of an "other insurance" clause in an

Liberty Mutual Insurance Companies (Liberty), which provided a policy with a

Automobile Underwriters, Inc., the appellant here, provided Loving's personal

Ramsey was covered by a primary policy issued by Fireman's Fund Insurance

11 Has no other available insurance (whether primary, excess or contingent), he or

Automobile Underwriters brought a declaratory judgment action against

The administrators of the Nelson estate were given leave to intervene as

Automobile Underwriters appeals. This court exercises plenary review of the

Judicial attitudes towards the use of "escape" clauses vary. See 8A J.

policy as an "escape" clause, which is generally defined as a clause providing

This court considered the effect of Grasberger on a "super-escape" clause in

Thereafter, the Pennsylvania Superior Court in Connecticut Indemnity Co. v.

a. If the vehicle is owned by any person or organization in a car business, and

obligated to provide the excess coverage at issue.

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