Clarendon National Insurance v. Amica Mutual Insurance
Court: Massachusetts Supreme Judicial Court; March 19, 2004; Massachusetts; State Supreme Court
Clarendon National Insurance Company initiated legal action to declare that the automobile liability insurance policies it issued to nine rental car companies provided excess coverage over any personal motor vehicle insurance policies held by rental customers. Clarendon’s claim was based on two policy endorsements that were not filed with the Commissioner of Insurance, as required by Massachusetts law, and on the rental agreements signed by customers. The defendants included sixteen insurance companies whose insureds were involved in nineteen accidents while renting cars insured by Clarendon. The defendant insurers contended that Clarendon’s policy endorsements were void due to non-compliance with filing requirements and argued that Clarendon’s policies should provide primary coverage because the accidents occurred in cars owned by Clarendon’s insureds.
In cross motions for summary judgment, the Superior Court ruled in favor of certain defendant insurers, declaring the endorsements void but allowing the underlying policies to remain valid and treated as if the endorsements did not exist. Clarendon appealed, and the case was transferred for review. The appellate court affirmed the lower court's judgment, holding that while the endorsements were invalid, G. L. c. 175. 193 recognized them as valid for protecting Clarendon’s insureds from coverage interruptions, necessitating that coverage align with statutory requirements.
The undisputed facts revealed that between 1996 and 1998, Clarendon issued policies to nine rental car companies, and rental customers were involved in accidents while driving rented vehicles. Each customer had their own vehicle insured by a defendant insurer, leading to claims for bodily injury and damages submitted to Clarendon. Clarendon paid some claims while reserving its rights and sought a declaration that the rental customers' personal insurance must be exhausted before it is liable to pay under its policy and that it is entitled to reimbursement for claims paid. Each Clarendon policy included conditions specifying that for covered vehicles owned by the insured, it provided primary insurance, while for those not owned, the coverage was excess over any other collectible insurance.
Each Clarendon policy includes two endorsements intended to modify existing policy provisions, neither of which was filed with the commissioner as required by G. L. c. 175. Endorsement No. 3 specifies that liability limits for rentees align with applicable financial responsibility laws and asserts that this coverage is excess over other collectible insurance. Additionally, it states that the insurance is conditional upon the rental agreement's terms. Endorsement No. 2 similarly asserts that coverage for lessees is subject to the lease terms, which vary among rental companies regarding the nature of the insurance provided, often describing it as excess or secondary to the renter's own policy. Some agreements even certify that the customer maintains the requisite minimum liability insurance.
Each customer holds a personal automobile policy issued by one of the defendant insurers, which provides coverage that requires the owner's insurance to pay first in the event of an accident involving a non-owned vehicle. Clarendon argues against the judge's conclusion that the unfiled endorsements are ineffective, citing G. L. c. 175. 193, which states that policies issued in violation of the chapter remain valid and binding. Clarendon references the case Hewins v. London Assurance Corp., which upheld that a policy's non-compliance with statutory requirements does not negate its binding nature but subjects the issuing company to penalties rather than altering the contractual obligations.
Endorsements no. 2 and no. 3, although issued in violation of G. L. c. 175, remain binding between Clarendon and its insureds due to the provisions of Section 193, which validates illegally issued endorsements to protect insured parties. However, these endorsements cannot contradict G. L. c. 175 and are deemed ineffective to the extent they do. Clarendon’s assertion that Section 193 validates its endorsements for all purposes is incorrect; it only offers limited validity to prevent coverage interruption for insureds. The endorsements must still be filed with the commissioner, who has the authority to approve or disapprove them within thirty days. Clarendon’s failure to secure this approval means the endorsements lack validity concerning third parties and do not alter the absence of commissioner approval. The interpretation that would allow Clarendon to bypass the commissioner’s authority contradicts the established statutory scheme for motor vehicle liability insurance. Consequently, the endorsements are void for the purposes of this litigation, affirming the judgment.
Four defendant insurers have filed for summary judgment, but Clarendon acknowledges that the legal and factual issues are largely the same across all claims involving these insurers. Safety and CGU failed to provide their insurance policies for two drivers, making it unclear whether those drivers had standard Massachusetts policies. Massachusetts General Laws c. 175. 22A prohibits any insurance company from issuing a liability policy for motor vehicles unless the policy form has been filed with the commissioner for at least thirty days, unless the commissioner approves it sooner, or notifies the company of non-compliance within that timeframe. Similar provisions are outlined in General Laws c. 175. 113A, which also mandates that motor vehicle liability policies cannot be issued without prior approval or acknowledgment from the commissioner regarding compliance. Additionally, General Laws c. 175. 192 extends these filing and approval requirements to endorsements attached to policy forms. The statutory framework allows for penalties for non-compliance. The defendant insurers do not contest that the Massachusetts standard liability insurance policy and the Massachusetts business auto coverage form, as determined by the commissioner, hold regulatory status. Furthermore, correspondence from legal counsel to the commissioner suggests that the division of insurance considers an owner’s policy as providing "primary" coverage.
