Often times I get coverage assignments from insurers and am asked for a coverage opinion on the coverage for their trailer involved in an accident in California. They assume, based on normal policy language, that coverage for the trailer is excess to the coverage for the tractor until faced with a subrogation and recovery lawsuit for fees and indemnity from the tractor insurer after the claim has been paid and defended. This is where regulation CA 11580.9 can be a silent killer. I say silent because some insurers have never heard of it and others are befuddled at the result of its application.

CA 11580.9 applies to disputes involving tractor-trailer vehicles and essentially requires that both the insurer for the tractor and trailer share equally in the coverage obligations and ultimately the defense fees regardless of any underlying contract or the language in the respective policies. The unfairness in the legislation is even discussed by the judges in the case of Wilshire Insurance v. Sentry Insurance where the Court held that the insurer for a trailer owed co-primary obligations for an accident when its policy clearly expressed that it would be excess if pulled by a non-owned tractor, a typical occurrence in the industry. The Court was even quoted as saying "We recognize the seeming inequity of this result. Wilshire agreed to provide primary coverage. Sentry agreed to provide only excess coverage. Wilshire will suffer only half the loss it promised to bear and Sentry will pay half of a loss it never promised to bear. Yet the Legislature believed a bright-line rule in these circumstances was beneficial. The inequity, if any, lies in the operation of a statute we are powerless to rewrite." Wilshire, 124 Cal. App. 4th 27; 21 Cal. Rptr. 3d 60; 2004 Cal. App. LEXIS 1909; 2004 Daily Journal DAR 10189

To be clear, the inequity arises from the standpoint that an insurer has provided coverage under its policy believed to excess, collected premiums suitable for excess coverage, was not involved in the initial investigation, adjustment or defense of the claim and then are being asked to pay attorneys fees for lawyers they never hired and contribute to settlements they never agreed to in the first place. Often, the regulation 11580.9 first rears its ugly head when an insurer is faced with a subrogation lawsuit or DJ action for claim for indemnity and attorneys fees after the underlying case is long over. By the time the underlying case is settled, attorneys fees are paid and counsel is paid to defend the subrogation or DJ action, the relative costs associated with the application of this regulation are exorbitant, and unexpected.

The nuts and bolts of the regulation require insurers of the tractor and the trailer to contribute pro rata (equally if policy limits are equal) if both carriers schedule or specifically rate the respective vehicles on their policies. There is currently some debate going on among the appellate districts about what constitutes "scheduled" and "rated", but suffice it to say that if your policy specifically describes the auto involved in the accident, whether it is a tractor or trailer, that policy will presumably be considered at least co-primary if not entirely primary to the other policies involved.

There are some limited exceptions and circumstances under which a carrier will be able to successfully argue that its coverage is excess to other policies involved, but those exceptions are narrowly construed and the circumstances are very rare. One such example is when the tractor is scheduled and rated on its policy under a symbol 46, but the trailer is covered under a non-scheduled symbol, such as leased, hired, borrowed or non-owned, the policy with the scheduled tractor will be considered primary over the policy of the trailer. Clarendon v. ICW, (2000) 2000 U.S. Dist. LEXIS 13920 citing Travelers Indemnity Co. v. Maryland Casualty Co., (2d Dist. 1996) 41 Cal.App.4th 1538, 1547-1548. In addition, if both vehicles are scheduled on the respective policy, but the trailer was leased for more than 6 months and the trailer insured is exclusively in the business of leasing trailers without drivers, the trailer policy will be considered excess to the tractor's policy. General Security Ins. Co., v. Old Republic Ins. Co., 2004 Cal.Unpub. LEXIS 4604 (2d App. Dist. 2004. However, it is the general rule that when a general subhauler not exclusively in the business of leasing the trailers without a driver would be considered co-primary without the requisite showing that the insured was in the exclusive business of leasing trailers. Travelers Indemnity Co. of Illinois v. Maryland Casualty Co., 41 Cal. App.4th 1538, 49 Cal.Reptr.2d 271 (Cal.App. 2nd Dist. 1996).

Lastly, one Court held that when both policies schedule the tractor and the trailer, respectively, and the tractor policy also schedules "unidentified trailers", the tractor policy would be considered primary to the trailer policy on the theory that with the addition of the "unidentified trailer" the insurer intended to cover the entire rig on a primary basis, despite the fact that the trailer was scheduled on its own policy. Transport Indemnity Co. v. Royal Ins. Co. (1987) 189 Cal.App.3d 250, 253 [234 Cal.Rptr. 516]. However, there was a strong dissenting opinion from Judge Poche that claimed the opinion conflicted with another decision on similar facts, Mission Ins. Co. v. Hartford Ins. Co. (1984) 155 Cal.App.3d 1199, 1213 [202 Cal.Rptr. 635].)

The case law to date has made it clear that insurers and insureds who do not agree with the effect of this legislation can overcome the statutory presumption of shared coverage by signing an agreement at the outsetof the relationship. Under Section 11580.9(f), the agreement must be written and signed by all insurers who have issued policies for a loss and all named insureds to override the effect of the law. This of course is a very cumbersome process and would not likely occur in the real world as we know it in the industry.

Despite the exceptions to the rule and the limited circumstances that will allow an insurer to retain its position as an excess insurer, this regulation is no doubt unfair to the unsuspecting insurer as the judges pointed out in the landmark case of Wilshire v. Sentry. If you insure either tractors or trailers in California, be aware of CA Regulation 11580.9 and its effects, and look closer when placed on notice of an underlying action, which may trigger its application.