Vigilant Insurance Company; Government Employees Insurance Company v. Lincoln General Insurance Company

This disposition is not appropriate for publication and is not precedent*
except as provided by 9th Cir. R. 36-3.
NOT FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
VIGILANT INSURANCE COMPANY;
GOVERNMENT EMPLOYEES
INSURANCE COMPANY,
Plaintiffs - Appellees,
v.
LINCOLN GENERAL INSURANCE
COMPANY,
Defendant - Appellant,
and
DTG OPERATIONS, INC.,
Defendant.
No. 08-17212
D.C. No. 2:06-cv-01607-LDG-
LRL
MEMORANDUM *
Appeal from the United States District Court
for the District of Nevada
Lloyd D. George, District Judge, Presiding
Argued and Submitted January 13, 2010
San Francisco, California
Before: NOONAN, HAWKINS and M. SMITH, Circuit Judges.
FILED
JAN 22 2010
MOLLY C. DWYER, CLERK
U .S. C OU R T OF APPE ALS

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This is an action for contribution among insurers arising under Nevada law.
We have jurisdiction pursuant to 28 U.S.C. §§ 1332 and 1291. As the facts and
procedural history are familiar to the parties, we recite them here only as necessary
to explain our decision.
Defendant-Appellant Lincoln General Insurance Co. (Lincoln) appeals the
district court’s grant of summary judgment in favor of Plaintiffs-Appellees
Vigilant Insurance Co. (Vigilant) and Government Employees Health Insurance
Co. (GEICO). By its order, the district court held that Lincoln was required to
reimburse Vigilant and GEICO for the $250,000 each contributed to settle an
underlying personal injury lawsuit arising from an automobile accident involving
their insured, Dr. Barry Root, while he was driving a rental car. We affirm.
Dr. Root purchased the supplemental insurance offered by DTG Operations,
Inc. (Dollar) at a car rental counter in Las Vegas, Nevada. The supplemental
insurance had two parts: Dollar’s primary self-insurance (the Primary Protection),
and Lincoln’s Supplemental Liability Insurance (the Lincoln SLI policy). The
Primary Protection provided for insurance against third party personal injury
claims up to Nevada’s $15,000 statutory minimum. The Lincoln SLI policy
provided for the same up to $1 million, less the Primary Protection.

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Lincoln argues that as between a rental car driver’s personal automobile
insurance—here, GEICO—and a rental car agency’s self insurance up to the state
statutory minimum—here, the Primary Protection—the driver’s personal
automobile insurer bears the primary responsibility for covering losses. Lincoln
claims that Alamo Rent-A-Car, Inc. v. State Farm Mutual Automobile Insurance
Co., 953 P.2d 1074 (Nev. 1998) supports its position.
Lincoln’s argument fails. The court in Alamo ruled that “[a] rental agency
offers primary insurance only when the renter agrees to purchase an extra
protection plan.” Id. at 1077. Because Dr. Root purchased an extra protection plan
from the rental agency, that extra protection plan provides primary coverage for
losses sustained by Dr. Root while he drove the rental car. Thus, as the district
court held, as between the Dollar Primary Protection and GEICO, Dollar must pay
first. Dollar accepted that outcome, paid the policy limit, and is not party to this
appeal.
The gravamen of this appeal is whether GEICO or Lincoln pays next, since
the Primary Protection is only $15,000 and the damages assessed against Dr. Root
were $760,000. Lincoln argues that GEICO should pay next because its policy is a
“primary type” policy whereas the Lincoln SLI policy is an “excess type” policy,
and that all “primary type” policies must be exhausted before any “excess type”

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policies become liable for a given loss—thus invoking the so-called “horizontal
exhaustion rule.” See, e.g., Cmty. Redev. Agency v. Aetna Cas. & Surety Co., 57
Cal. Rptr. 2d 755, 761 (Cal. App. 1996). However, even assuming this California
rule would be embraced by Nevada courts, the horizontal exhaustion rule does not
apply when the language of the relevant policies provides specific guidance on
payment priority. “If an excess policy states that it is excess over a specifically
described policy and will cover a claim when that specific primary policy is
exhausted, such language is sufficiently clear to overcome the usual presumption
that all primary coverage must be exhausted.” Id. at 761 n.6. This is consistent
with Nevada law, which directs us to examine the language of the policies to
determine priority when there is no statutory scheme governing priority. See
Alamo, 953 P.2d at 1075. We therefore turn to the policies.
The Lincoln SLI policy provides:
We will pay on behalf of the “insured” [Dr. Root] the
“ultimate net loss” in excess of the limit of liability or
limit of insurance of all “underlying insurance” available
to the “insured” because of “bodily injury” or “property
damage” to which this insurance applies . . . .
“Underlying insurance” means “insurance listed in ITEM 4.” Item 4 states,
“[l]imits required under any State Financial Responsibility Limits or Mandatory
Insurance Law or other available insurance, which ever is higher.”

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According to Lincoln, “other available insurance” includes the renter’s own
auto insurance. Such a construction cannot be correct. The Lincoln SLI policy is
not a contract between Lincoln and Dr. Root; it is a contract between Lincoln and
Dollar. Elsewhere in the Lincoln SLI policy, it states: “‘underlying insurance’
shall be maintained in full effect by you during the term of the policy.” “[Y]ou”
refers to Dollar. Thus, the plain meaning of the Lincoln SLI “excess type” policy
is that it is expressly excess to the primary insurance secured by Dollar, not that
maintained by the renter. On the other hand, the GEICO “primary type” policy
states that it is excess as to non-owned (rented) autos. Accordingly, regardless of
the policies’ general self-classifications as “primary” or “excess,” the language of
the policies establishes that the order of priority for the particular loss in this case
must be first Dollar, second Lincoln, and third GEICO.
We note that any other ruling would lead to an unconscionable result.
Lincoln contracted with Dollar to sell insurance to rental car drivers. If Lincoln
has no liability until after a renter’s personal insurance is exhausted, Lincoln’s SLI
policy offers only an illusory benefit, and is potentially putting its contracting
partner, Dollar, at risk of liability for misrepresentation. In light of such
considerations, and the general rules of insurance contract interpretation, we
decline to accept Lincoln’s interpretation of its policy. See Fed. Ins. Co. v. Am.

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Hardware Mut. Ins. Co., 184 P.3d 390, 392 (Nev. 2008) (stating Nevada public
policy in favor of construing insurance policies narrowly against the insurer and in
favor of coverage); Nat’l Union Fire Ins. Co. of Pa. v. Reno’s Executive Air, Inc.,
682 P.2d 1380, 1383 (Nev. 1984) (“When ambiguity in the language of a policy
exists, the court should consider not merely the language, but also the intent of the
parties, the subject matter of the policy, and the circumstances surrounding its
issuance.”).
We therefore find that once the Primary Protection was exhausted, Lincoln
became liable for the loss up to the limits of its policy. Since the limits of
Lincoln’s policy are not exhausted in this case, there is no need to determine the
relative liabilities of GEICO and Vigilant. Lincoln must reimburse GEICO and
Vigilant each $250,000.
AFFIRMED.

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