Vicarious Liability Means Secondary Coverage, Irrespective Of General Rules Governing Primary And Excess Policies

On February 28, 2013, the Fourth District California Court of Appeal issued a significant decision regarding the priority of coverage in matters involving vicarious liability of employers for their negligent employees. In GuideOne Mut. Ins. Group v. Utica Nat'l Ins. Group , __ Cal. App. 4th __ (2013), the court reversed a summary judgment entered in favor of GuideOne Mutual Insurance Company ("GuideOne") in a contribution action filed by Utica National Insurance Group ("Utica"). The Court held that because primary and umbrella policies issued by Utica were triggered only based on an employer's vicarious liability for a negligent employee, while primary and umbrella GuideOne policies actually insured against the employee's negligence, both GuideOne policies were primary to both Utica policies.

GuideOne involved the $4.5 million settlement of a claim for personal injury resulting from a serious auto accident caused by an individual driving his own car for business purposes. Pursuant to statute, the negligent driver's $100,000 personal auto liability policy paid first. The same statute, Insurance Code section 11580.9, provides that "the insurance provided by any other policy or policies shall be excess." In this case, the other relevant insurance consisted of a total of four commercial auto policies issued to the driver's employer and the subsidiary to which he was assigned to work. Both the employer and the subsidiary were named in the underlying suit under the theory that the driver was an employee and/or agent of each. The subsidiary held $1 million primary and $1 million umbrella commercial auto policies issued by GuideOne, both of which covered company-owned and employee-owned vehicles conducting business activities. The driver's employer held a $1 million primary commercial auto policy and a $5 million umbrella policy issued by Utica, both of which provided coverage for company-owned vehicles, but which covered employee-owned vehicles conducting business activities only as "excess over any other collectible insurance." Both the driver's employer and the subsidiary were named in the underlying lawsuit under a theory of vicarious liability.

Based on the language of section 11580.9, GuideOne argued that all four commercial auto policies must be treated as excess policies and pay out on the same basis. The trial court, however, held that both primary level policies had to be exhausted before reaching either umbrella policy. The trial court...