Docket No. 2010-0370

The State of New HampshireSupreme Court

PROGRESSIVE NORTHERN INSURANCE COMPANY,Petitioner-Respondent,

v.

ARGONAUT INSURANCE COMPANY,Respondent-Appellant,

v.

CRAIG KELLY, MARTIN MORASSE and LINDA MORASSE,Respondents-Respondents.

BRIEF FOR RESPONDENT-APPELLANTARGONAUT INSURANCE COMPANY

PRIMMER PIPER EGGLESTON & CRAMER106 Main StreetPost Office Box 349Littleton, New Hampshire 03561603-444-4008

Attorneys for Respondent-AppellantArgonaut Insurance CompanyOf Counsel:

Gregory M. Eaton

Appeal Pursuant to Rule 7 from The State of New Hampshire,Merrimack County Superior Court, Docket No. 09-E-0235

To Be Argued By:Gregory M. Eaton

TABLE OF CONTENTS

Pages TABLE OF AUTHORITIES……………………………………………………………………ii QUESTIONS PRESENTED…………………………………………………………………….1 RELEVANT STATUTE……………………………………..………………….……………….1 STATEMENT OF THE CASE………….……………………………..…….………………….1

The Argonaut Policy……………………………………………………………………..2

The Progressive Policy…….……………………………………………………………..5

Depositions and Statements of Craig Kelly and Elizabeth Kelly……………………..6

Summary Judgment Motions…...……………………………………………………...9

The Superior Court’s Decision ……………………………………………………….10 SUMMARY OF ARGUMENT……….…………….……….………………………………....11

ARGUMENT…….…………….……….……………………………………………………….12

I. THE SUPERIOR COURT ERRED IN FINDING THAT THE

ACCIDENT VEHICLE DRIVEN BY KELLY WAS NOT FURNISHED FOR REGULAR USE ……...………………………….12

II. THE SUPERIOR COURT ERRED IN FINDING THAT

PROGRESSIVE WAS NOT OBLIGATED TO PROVIDE CO-INSURANCE FOR DEFENSE AND INDEMNITY OF THE MORASSE LAWSUIT ON A PRIMARY BASIS…….………………..16

CONCLUSION………………………………….……………………………………………...20 Addendum R.S.A. 259:61 .…………………………………………………………………………………..22 Underlying May 12, 2010 Summary Judgment Decision ……………………………………23

ii

TABLE OF AUTHORITIES Cases: Pages Aler v. Travelers Indemnity Co., 92 F.Supp. 620, 623 (D. Md. 1950) (citing 12A Couch on Insurance 2d § 45: 1074 (1981 & Supp. 1985))………..…………..………………..……………………………...14, 15 Allstate Ins. Co. v. Crouch, 140 N.H. 329 (1995)………………………...………………………………………………..16 American Home Assurance Co. v. Fish, 122 N.H. 711, 713-14 (1982)…………………………………………………………….18, 19 Godbout v. Lloyd’s Ins. Syndicates, 150 N.H. 103, 105 (2003)……………………………………………………………………17 Lamastus & Associates, Inc. v. Gulf Ins. Co., 260 So. 2d 83, 85-86 (La.App. 4 Cir. 1972)…………………………………………………18 LeMense v. Thiel, 25 Wis.2d 364, 367, 130 N.W.2d 875, 876 (1964) ………………………….…………….13 Liberty Mutual Ins. Co. v. Home Ins. Indemnity Co., 116 N.H. 12, 18 (1976)…………………………………………………………………...passim Martin Morasse and Linda Morasse v. Craig Kelly, N.H. Superior Court, Merrimack Co., Docket No. 08-C-114…………………………………….……………….……………..passim Peerless Ins. v. Vermont Mut. Ins. Co., 151 N.H. 71, 73, 74 (2004)………………………………………………………………passim Pro Con Constr. v. Acadia Ins. Co., 147 N.H. 470, 472 (2002)……………………………………………………………………17 State Farm Mut. Auto Ins. Co. v. Counts, 1990 Ohio App. LEXIS 4945, at *7 (9th Dist. 1990)………………………….……………..13 Universal Underwriters Ins. Co. v. Allstate Ins. Co., 134 N.H. 315, 319 (1991)………………………………………………..………………passim Volpe v. Prudential Property and Cas. Inc. Co., 802 F.2d 1, at *6. (1st Cir. 1986), rev’d on other grounds...….……………….……………….13

iii

Wallace v. State Farm Mut. Auto Ins. Co., 220 Ore. 520, 526, 349 P.2d 789, 792 (1960)………………………………….………………14 Relevant Statute: R.S.A. 259:61……………………………………………………………………………………..1 R.S.A. 491:8-a, III……………………………………………………………………...…….11, 22 Other: WEBSTER’S THIRD NEW INTERNATIONAL DICTIONARY 559 (unabridged ed. 2002)………………………………………………………………………….15

QUESTIONS PRESENTED

1. Did the Superior Court err in finding that the accident vehicle driven by Craig

Kelly was not furnished for regular use by Tom’s Auto Sales (“Tom’s”), and that coverage under

the Argonaut Policy issued to Tom’s was not therefore limited to $25,000 under the “Additional

Garage Limitations” endorsement? See Appendix (“A.”) at 23-27.

2. Did the Superior Court err in finding that the Progressive Policy, issued to driver

Kelly, is excess to the Argonaut Policy, thus rejecting Argonaut’s contention that the “other

insurance” clauses of the policies require Progressive and Argonaut to share coverage on a pro

rata basis. See A. at 23-27.

RELEVANT STATUTE

R.S.A. 259:61: Motor Vehicle Liability Policy. See full text of statute attached hereto in

addendum at page 22.

STATEMENT OF THE CASE

This is a coverage action which arises out of an automobile accident occurring on June 8,

2006, in which Kelly, while driving a vehicle owned by Tom’s, collided with another vehicle

operated by Martin Morasse. In January 2008, Martin Morasse and his wife Linda Morasse

commenced a lawsuit against Kelly alleging negligence causing personal injury to Martin

Morasse and loss of consortium. See Martin Morasse and Linda Morasse v. Craig Kelly, N.H.

Superior Court, Merrimack Co., Docket No. 08-C-114. A. 23, 210-11.

It is undisputed that Progressive issued a personal auto policy to Kelly and his wife,

Hanna, under Policy Number 56051127-5 (the “Progressive Policy”). The Progressive Policy

was issued for the period December 1, 2005 to December 1, 2006, with liability limits of

$100,000 per person. A. 300-332.

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By garage application dated November 16, 2005, Tom’s requested an insurance policy.

A. 144-145. Argonaut issued a garage policy to Tom’s under Policy Number GP3351019,

underwritten by Colony Management Services, Inc. (the “Argonaut Policy”) for the period

11/18/05 to 11/18/06, with liability limits of either $25,000 or $750,000 per accident, depending

upon the circumstances. A. 56-143

Argonaut’s investigation indicated that Kelly’s use of the vehicle at the time of the

accident was personal, and that he was not a scheduled driver on the policy. Argonaut decided to

provide a defense to Kelly under the $25,000 limit set forth under the policy’s “Additional

Garage Limitations” endorsement. Meanwhile, defense counsel identified Progressive as Kelly’s

personal auto insurer and thereupon tendered to Progressive full defense and indemnity of the

Morasse lawsuit.

Progressive’s response was to commence this coverage action against Argonaut on or

about June 18, 2009. A. 22-27. Progressive claims that Argonaut is obligated to defend and

indemnify Progressive’s insured, Kelly, under Argonaut’s policy limit of $750,000. Progressive

further claims its coverage is excess to that of Argonaut’s. A. 25-27.

Argonaut responded by denying the allegations and raising certain affirmative defenses.

A. 30-34. Argonaut subsequently joined Progressive’s insured, Kelly, and claimants Martin and

Linda Morasse as interested and necessary parties to this coverage dispute.

The Argonaut Policy

The Argonaut Policy was written on ISO Garage Policy Form CA 0005 (10/01). A. 65-

86. The Declarations page under “ITEM ONE” describes Tom’s as a “Used Car Sales & Repair”

business. A. 57. The “Garage Application” for insurance dated in November 2005 confirms this

description. A. 144. The insuring agreement provides coverage for bodily injury to which the

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insurance applies caused by an accident resulting from “garage operations.” A. 66. “Garage

Operations” is defined in the Argonaut Policy under “Section IV – Definitions” as follows:

H. “Garage operations” means the ownership, maintenance or use of locations for garage business and that portion of the roads or other accesses that adjoin these locations. “Garage operations” includes the ownership, maintenance or use of the “autos” indicated in Section I of this Coverage Form as covered “autos”. “Garage operations” also include all operations necessary or incidental to a garage business.

A. 84. In the event there is other insurance available for an accident, as there is here, the

Argonaut Policy provides as follows:

SECTION V – GARAGE CONDITIONS * * * * A. General Conditions

* * * * 5. Other Insurance

a. For any covered “auto” you own, this Coverage Form

provides primary insurance. . . .

* * * * d. When this Coverage Form and any other Coverage form or policy

covers on the same basis, either excess or primary, we will pay only our share. Our share is the proportion that the Limit of Insurance of our Coverage Form bears to the total of the limits of all the Coverage Forms and policies covering on the same basis. (emphasis ours).

A. 82. In addition, the Policy contains a limitations endorsement. The pertinent provisions

provide as follows:

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ADDITIONAL GARAGE LIMITATIONS Minimum Financial Responsibility Limits Applies

This endorsement modifies insurance provided under the following. This policy is amended as follows.

Furnished Autos – Dealers Only

The limits for Liability Coverage applicable to “bodily injury”, “property damage” or “loss” arising out of the use of covered “autos” owned by you and “furnished or available for regular use” of owners, partners, officers, employees, spouses, children or relatives of yours or any other person are reduced to the compulsory or financial responsibility law limits for any claim arising from an “accident” which occurs while a covered “auto” is being driven by any driver who is not listed on this endorsement. “Furnished or available for regular use” means the right to frequent use of an “auto” for purposes that are not necessary or incidental to ‘garage operations’. This limitation does not apply to the persons named in the Schedule of Drivers Furnished “Autos”. (emphasis ours).

Schedule of Drivers Furnished “Autos”

Elizabeth Kelly Paul Kelly John Adams

* * * * A. 63.

New Hampshire’s Financial Responsibility Law, R.S.A. 259:61, provides a compulsory

minimum of $25,000 for any claim arising out of an auto accident. The limit under Argonaut’s

Additional Garage Limitations Endorsement is therefore $25,000.

Notably, Kelly is not listed on the endorsement as a scheduled driver and is therefore not

exempt from the $25,000 limit. A. 63, 144. Elizabeth Kelly further testified that the only

scheduled drivers intended to be listed on Tom’s insurance was herself, her husband, Paul Kelly,

and Tom’s mechanic, John Adams. A. 169.

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As to Tom’s customers, the Argonaut Policy excludes coverage where the customer has

his or her own insurance that is equal to or greater than the $25,000 compulsory limit. In such

event, the Argonaut Policy then provides:

SECTION II – LIABILITY COVERAGE A. Coverage

* * * * 3. Who Is An Insured.

a. The following are “insureds” for covered “autos”:

1. You for any covered “auto”. 2. Anyone else while using with your permission a covered “auto” you own,

hire or borrow except: * * * *

i. (d) Your customers, if your business is shown in the Declarations as an “auto” dealership.

* * * * A. 68.

The Progressive Policy

The pertinent insuring agreement of the Progressive Policy provides:

Subject to the Limits of Liability, if you pay the premium for liability coverage, we will pay damages, other than punitive or exemplary damages, for bodily injury and property damage for which an insured person becomes legally responsible because of an accident arising out of the: 1. ownership, maintenance, or use of a vehicle;

* * * * We will settle or defend, at our option, any claim for damages covered by this Part I. (emphasis in original to indicate terms defined by the Progressive Policy).

A. 309-310. Definition of an “insured person” includes the named insured, Kelly, “with respect

to an accident arising out of the maintenance or use of any vehicle with the express or implied

permission of the owner of the vehicle.” Part 1 - Additional Definitions – 1.[d.]. A. 310

(emphasis in original to indicate terms defined by the Progressive Policy).

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The Progressive Policy contains an “other insurance” provision providing in pertinent

part:

OTHER INSURANCE If there is other applicable liability insurance or bond, we will pay only our share of the damages. 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: 1. vehicle other than a covered vehicle;

* * * * will be excess over any other collectible insurance, self-insurance, or bond. (emphasis ours).

A. 312 (emphasis in original to indicate terms defined by the Progressive Policy). Under its

General Definitions, the Progressive Policy defines “covered vehicle” as “any vehicle shown on

the Declarations Page” or any other additional or replacement vehicle over which the insured

acquires ownership within the policy period. A. 308 (emphasis in original to indicate terms

defined by the Progressive Policy).

Depositions and Statements of Craig Kelly and Elizabeth Kelly

It is undisputed that Craig Kelly is the son of Elizabeth and Paul Kelly, the owners of

Tom’s, and that Kelly was using a vehicle owned by Tom’s for personal use at the time of the

accident. A. 149 (p. 10), 152 (p. 24), 153 (p. 27), 157 (p. 43), 168 (p. 14), 170 (p.23). Kelly was

not an employee of Tom’s. A. 150 (pp. 16-17). He had no ownership interest. A. 152 (p. 23).

As indicated, Kelly was not a scheduled driver on the Argonaut Policy. A. 63, 144.

Yet, Kelly had keys to the Tom’s business. A. 152 (p.23), 154-155 (pp. 33-34). He also

had access to the lot vehicle keys, which Kelly testified were hanging from a pegboard in the

office. A. 154-155 (pp. 33-34). Kelly explained that he had the keys for the purpose of taking

“care of whatever would come up in [his] parents’ absence.” A. 154 (p. 33). Kelly and his

family lived right across the street from each other, and Tom’s was only three miles down the

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road. A. 148 (p. 8), A. 149 (pp.11-12). He testified that his parents always implicitly entrusted

him to take care of their affairs over anyone else in the family. A. 159 (p. 51).

Mrs. Kelly confirmed that she and her husband always trusted him with the keys because,

“[h]e is the oldest child, he is responsible. The man is 37 years old. And as he explained to you,

in the glove box of his car, he has papers for his father. And what he doesn’t know is I also list

him in every emergency situation as my contact.” A. 171 (p. 29). “He’s just always been there.”

A. 171 (p. 29).

Not only did Kelly have keys to Tom’s, but he had keys to the other two family

businesses, one of which he worked for as an employee shortly before the accident. A. 148 (pp.

7-8), 154-55 (pp. 31-35). The regular use of Tom’s vehicles, or the right thereof, was part and

parcel of the relationship he had with his parents as a close and special son who has been on and

off involved in the family businesses.

Kelly gave a statement to Argonaut’s investigators on June 22, 2006, shortly after the

accident, explaining that his mother was adamant that if he was to take a Tom’s vehicle on the

road, it was Kelly and only Kelly who was to drive that car, further suggesting that Kelly had

special rights to the vehicles that few others had, and even suggesting that Kelly’s mother might

have believed Kelly’s regular use was fully covered under the Argonaut Policy. A. 373. In this

regard, Kelly stated that, “. . . I know that very, very strictly under – under whatever my mother

can unleash upon me that no one else is to drive [the vehicle with dealer plates] . . . I have no

idea if it’s, you know, insurance reasons or – or what.” A. 373.

Kelly stated that he was using the accident vehicle owned by Tom’s while his own

vehicle, a Ford Explorer, was being repaired at Tom’s service garage. He left the Ford Explorer

with Tom’s the evening before the accident, and obtained a “loaner” vehicle off the lot so that he

8

would be able to have transportation to his job the following day. A. 152-153 (pp. 24-27), A.

155-156 (p. 37-38).

Kelly indicated that, had he not been in the accident, he would have returned to the lot to

obtain a better vehicle to his liking. A. 154 (p.31), A. 156 (p. 39), A. 371-372. In Kelly’s June

22, 2006 statement, he represented that the vehicle he used the day of the accident “was just

something that was there that was ready to roll, ready to be sold, so I took that to drive for a

couple of days while they were working on mine.” A. 371.

Kelly also testified that his use of a vehicle was not conditioned upon his car being

repaired at Tom’s. If his personal vehicle, for example, was disabled, unavailable or being

repaired elsewhere, he still could use any available vehicle from Tom’s. A. 156 (p. 40), 157 (p.

44). He testified to taking cars for spins. A. 152 (p. 23), 156 (p. 41). He also testified that if he

was in between vehicles, he could have used a car from Tom’s. A. 158 (pp. 47-48). Kelly

agreed that he probably could have used a car for any reason, including while his parents were

not present at the business. A. 155 (p. 34).

His access to Tom’s vehicles was limited, according to Kelly, only by whether a car had

been sold, was scheduled for a test drive, or had no dealer plate. A. 156 (p. 39), A. 158 (p. 48),

A. 159 (p. 53). Any vehicle not subject to either of those limitations would be available for his

use. Id. In other words, Kelly’s use was subject only to a vehicles’ availability.

As to the dealer plates, Kelly testified they were stored in his father’s briefcase. A. 161-

162 (pp. 61-62). Kelly’s mother however testified that the dealer plates were actually kept in the

garage, to which Kelly had ready access since he had keys to the garage. A. 172 (p. 31). It is an

issue of fact as to whether Kelly knew that the dealer plates were kept in the garage, where he

had full access. Either way, the dealership plates did not present a materially significant obstacle

9

to Kelly’s access to vehicles. Even assuming the dealer plates were kept in his father’s briefcase,

nothing in the deposition testimony reveals any significant obstacle to Kelly’s access. As

indicated, Kelly lived right across the street from his father and mother, and Tom’s was about

three miles down the road. A. 148 (p. 8), A. 149 (pp.11-12). Whether in the briefcase or the

garage, the dealer plates for Kelly were never far at hand.

Although his mother was co-owner of the business, she was not involved in the day-to-

day operations and was not involved in monitoring the availability of the cars on the lot. She

was therefore not aware of when or whether Kelly was using the vehicles. A. 166 (pp. 8-9), A.

168 (p. 17), A. 172 (p. 33). Kelly confirmed that he only discussed using vehicles with his

father. A. 157 (p. 42). Kelly’s father however has been unable to testify as to Kelly’s use

because he is reported to have had a stroke, which has compromised his ability to speak and

write. A. 149 (pp. 10-11).

The facts show that Kelly’s arrangement with his father allowed him access to any car off

the Tom’s lot so long as it was available. A. 40-42, 45-49. Kelly’s statement shortly after the

accident reveals that he had the ability to take any available vehicle off the lot so long as it was

“ready to roll.” A. 371. The facts and testimony show that any “permission” Kelly was required

to obtain concerned only which vehicle was available, not whether use of a vehicle would be

permitted in the first place. As Kelly testified, “If I need[ed] a vehicle, my father, if he had one,

would let me have one.” A. 157 (p. 45).

Summary Judgment Motions

All parties, with exception of the Morasses, filed summary judgment motions. Argonaut

argued, among other things, that Kelly had regular use of any vehicle on the Tom’s lot, and that

such regular use by an unscheduled driver is covered at a reduced limit of $25,000 under the

10

Policy’s Additional Garage Limitations Endorsement. A. 45-49, 352-358, 361-363, 481-484.

Argonaut also argued that Progressive’s policy, written as primary coverage for Kelly, was not

excess insurance, and was obligated to provide co-insurance with Argonaut. See A. 49-51, 358,

482-483.

Progressive argued that Argonaut’s $750,000 limit applied because Kelly had no regular

use of the vehicle. See A. 182-191, 415-416. Progressive further argued that its policy was

excess and did not owe any coverage, including defense coverage, until the Argonaut Policy was

exhausted. A. 191-196, 416-418. The remaining parties concurred with Progressive. See A.

333-341, 398-400 (Kelly); 463-479 (Morasse).

The Superior Court’s Decision

The Superior Court found that there were no material disputes as to the facts of this

coverage action. A. 15. The court addressed whether the facts “demonstrate that Craig Kelly

had the right to frequent use of any of the autos owned by Tom’s for purposes not necessary or

incidental to garage operations.” Id. The Superior Court answered in the negative, finding

therefore that the $750,000 Argonaut limit applied. A. 16. The Superior Court based this

decision on the dictionary definition of a “right,” and the fact that Kelly’s right to use of the

vehicles off the lot was not “unfettered.” Id.

As to the interplay of both “other insurance” provisions, the Superior Court mistakenly

adopted Progressive’s argument that its Policy was excess over the Argonaut Policy. A. 19.

The Superior Court however rejected Progressive’s argument that it owed no defense coverage

for the Morasse lawsuit unless its Policy was triggered. Instead, the Superior Court held that

Progressive had a duty to pay its pro rata share of defense costs. A. 20-21.

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The Superior Court decision was dated May 12, 2010. Argonaut timely filed its Rule 7

Notice of Mandatory Appeal from this decision on June 1, 2010.

SUMMARY OF ARGUMENT

A moving party is entitled to summary judgment where there is “no genuine issue as to

any material fact and . . . the moving party is entitled to judgment as a matter of law.” R.S.A.

491:8-a, III. As the Superior Court correctly found, the parties do not dispute the material facts,

only how those facts should be viewed in light of the law. A. 9, 15-16. The Superior Court erred

however in finding that a right to regular use must be entirely “unfettered” in order for it to

qualify as regular use under the reduced limitations endorsement of the Argonaut Policy.

Subjecting Kelly Kelly’s right to the availability of a lot vehicle however is not a limitation that

diminishes the right to regular use. The facts and testimony show that any “permission” Kelly

was required to obtain concerned only which vehicle was available, not whether use of a vehicle

would be permitted in the first place. There was never any question here that Kelly otherwise

could always have a vehicle at will. If this Court cannot find that Kelly had regular use of the

accident vehicle, then the only other inescapable conclusion is that Kelly was a customer, using

the accident vehicle as a loaner while Tom’s was servicing his own vehicle, in which case

coverage under the Argonaut Policy is excluded.

The Superior Court also erred in not giving effect to the respective “other insurance”

provisions of each policy so as to require pro rata contribution for indemnity of the Morasse

action by both Progressive and Argonaut. The Progressive Policy is written on a primary

coverage form. It is not an excess policy. The Argonaut Policy contains a pro rata “other

insurance” provision that is not subject to the availability of other valid or collectible insurance.

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Progressive’s so-called “excess” other insurance provision therefore is not triggered, and the net

effect is that each policy pays indemnity on a pro rata basis.

As for defense coverage, the Superior Court erred in not following Universal

Underwriters, 134 N.H. 315, 319 (1991) and Liberty Mutual Ins. Co. v. Home Ins. Indemnity

Co., 116 N.H. 12, 18 (1976), which held that insurers that have a potential obligation to cover an

action must share equally in the defense. Instead, the Superior Court found that each insurer

should cover the defense on a pro rata basis.

ARGUMENT

I. THE SUPERIOR COURT ERRED IN FINDING THAT THE ACCIDENT VEHICLE DRIVEN BY KELLY WAS NOT FURNISHED FOR REGULAR USE

The indisputable facts show that Kelly had the right to frequent use of any available

vehicle on the Tom’s lot. Under such circumstances, the Argonaut Policy limit is $25,000, the

compulsory limit required under New Hampshire’s Financial Responsibility Law, R.S.A. 259.61.

“Regular Use” as defined by the Argonaut Policy’s Additional Garage Limitations

Endorsement may be broken down into four elements: (1) covered auto owned by the named

insured; (2) used by a driver not listed on the schedule; (3) “for purposes that are not necessary

or incidental to ‘garage operations’” and (4) with “right to frequent use.” See Ex. A, Additional

Garage Limitations Endorsement (Form G1518-0605) (emphasis ours).

There to no dispute here that Kelly’s use of the accident vehicle met the first three

elements required for the reduced limitation. The legal question on appeal is whether the

indisputable facts compel a finding that Kelly’s use met the fourth element, the right to frequent

use. The deposition testimony indeed confirmed that Kelly could have used any Tom’s vehicle

at any time for any reason, subject only to its availability.

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“Regular use” occurs where a driver has access to a vehicle, or a group of vehicles, much

the same as he has to his own personal vehicle. See, e.g., Volpe v. Prudential Property and Cas.

Ins. Co., 802 F.2d 1, at *6. (1st Cir. 1986), rev’d on other grounds. Having regular use means

having the use of a vehicle, the right to which is not dependent upon any particular reason.

LeMense v. Thiel, 25 Wis.2d 364, 367, 130 N.W.2d 875, 876 (1964). In order to be included

under “regular use,” a vehicle need not be a single particular vehicle regularly furnished to the

driver, but may be “only one of a group of vehicles from which” the driver could choose. State

Farm Mut. Auto Ins. Co. v. Counts, 1990 Ohio App. LEXIS 4945, at *7 (9th Dist. 1990) (citing

Ohio Cas. Ins. Co. v. Travelers Indem. Co., 42 Ohio St.2d 94, 99 (1975)).

Generally, the purpose of the regular use limitation is to protect an insurer from multiple

exposure to liability for which the insured pays only one premium. Volpe v. Prudential Property

and Cas. Ins. Co., 802 F.2d 1, at *6 (citing cases from various jurisdictions).

As described above, Kelly had keys to the Tom’s business as well as the other family

businesses. Kelly also had access to the keys to the vehicles on the Tom’s lot. On the evening

before the accident, Kelly testified that he was using the Tom’s vehicle while his own car was

being serviced. Kelly also testified that, had he not been in the accident, he would have returned

to the lot to exchange it for another vehicle more suited to his needs. Furthermore, Kelly

testified that his use of a vehicle was not conditioned upon his car being repaired at Tom’s, and

agreed that he could probably have used a car off his parents’ lot for any reason. Vehicle

availability was limited, according to Kelly, only by whether a car was sold, was scheduled for a

test drive, or had no dealer plate. Otherwise, he would have access to the vehicle. Kelly

confirmed shortly after the accident that his mother was very adamant that he and only he had

special rights to use the cars with dealership plates, and that he not permit anyone else to drive

14

the vehicles. Why would Kelly’s mother be so concerned that he be the only one driving the

vehicle unless he was deemed to have special privileges regarding their use? As indicated, his

mother’s concern, suggested a misapprehension that Kelly was one of the scheduled drivers on

the policy.

Even if Kelly had not taken full advantage of his “right to frequent use” of any car on the

Tom’s lot, he nonetheless had regular use within the meaning of the Argonaut Policy. Opposing

counsel during depositions attempted to make much of the fact that Kelly supposedly did not

make frequent actual use of the vehicles. See, e.g., A. 161 (p. 60). Frequent actual use however

is not the criteria for regular use under the Argonaut Additional Garage Limitations

Endorsement. It is rather “the right to frequent use” that triggers the reduced limits. A. 63.

The Argonaut Policy is quite explicit about this criterion.

Regular use may be premised upon the right to frequent use, whether such right is

exercised. Aler v. Travelers Indemnity Co., 92 F.Supp. 620, 623 (D. Md. 1950) (citing 12A

Couch on Insurance 2d § 45: 1074 (1981 & Supp. 1985) (emphasis ours). The right to frequent

use need not be in written form, or even explicit in any way, but may be based upon a tacit or

implicit understanding. Id.

The Superior Court mistakenly concluded that, because Kelly’s rights to frequent use was

not “unfettered,” he therefore had no “right to frequent use.” A. 16. In fact, the right to frequent

use need not be unlimited. As the Oregon Court in Wallace v. State Farm Mut. Auto Ins. Co.

articulated, regular use means the insured could have the use of any particular class of

automobiles “at such times as he desired if available.” Wallace, 220 Ore. 520, 526, 349 P.2d

789, 792 (1960) (emphasis ours). The deposition testimony reveals that Kelly’s use of any

15

vehicle on the lot for any reason was limited only by its availability, which necessitated his

having to clear his use of any car off the lot with his father before using it.

Although such “right” as Kelly had, may not have been formally articulated or in writing,

Kelly nonetheless developed over the years an understanding with his parents that he could use

any car of the Tom’s lot if available. He was the son who had “just always been there,” working

for at least one of the other family businesses just prior to the accident, and living across the

street from his parents. Kelly was also responsible for Tom’s and his other family’s businesses

while his parents were out of town. A. 154 (p. 33), 171 (p.29). Indeed, this was a greater

responsibility than assigned the Tom’s mechanic, John Adams, who was a scheduled driver on

the Argonaut Policy. A 63, 169 (p. 21).

This set of facts describes a right based upon an implicit understanding, as discussed in

Aler v. Travelers Indemnity Co., 92 F.Supp. 620, 623 (citing 12A Couch on Insurance 2d § 45:

1074 (1981 & Supp. 1985).

If Kelly did not have the right to regular use of Tom’s vehicles and was not otherwise

using the accident vehicle for any purpose in furtherance of Tom’s business, then the only other

inescapable conclusion is that Kelly’s use on the day of the accident was that as a customer while

his own vehicle was being repaired at Tom’s shop. As quoted above, the Argonaut Policy

excludes coverage for customers. A. 68.

Contrary to the Superior Court’s findings, payment of services is not dispositive of the

definition of customer. The Superior Court in so finding relied upon only one part of the

definition cited in WEBSTER’S THIRD NEW INTERNATIONAL DICTIONARY as “one that purchases

some commodity or service.” A. 14. WEBSTER’S however also defines customer as one who

uses services. WEBSTER’S THIRD NEW INTERNATIONAL DICTIONARY 559 (unabridged ed. 2002).

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Payment for use of services is not necessarily required to be a customer. Neither does the

Argonaut policy limit the term customer with the modifier “paying.” A. 68. The term is used

without limitation for the readily understood purpose of excluding coverage for anyone using

Tom’s services, subject to New Hampshire’s Financial Responsibility Law. Consistent with

WEBSTER’S inclusive definition of customer, this Court found in another context that a gratuitous

service may constitute a “business pursuit” for purposes of a homeowner’s policy exclusion. See

Allstate Ins. Co. v. Crouch, 140 N.H. 329 (1995) (payment for services was not dispositive of

whether an accident fell within the business pursuits exclusion).

If Kelly cannot be considered a customer under the given set of facts here, then Kelly

Kelly’s use of the accident vehicle can only be considered to have constituted regular use and

therefore meets the criteria for reduced limits under the Argonaut Policies’ Additional Garage

Limitations Endorsement.

II. THE SUPERIOR COURT ERRED IN FINDING THAT PROGRESSIVE WAS NOT OBLIGATED TO PROVIDE CO-INSURANCE FOR DEFENSE AND INDEMNITY OF THE MORASSE LAWSUIT ON A PRIMARY BASIS

The Progressive policy, like the Argonaut Policy was written on a primary basis.

Comparing each policy’s other insurance clauses should result in a pro rata division of

indemnity. See, e.g., Peerless Ins. v. Vt. Mut. Ins. Co., 151 N.H. 71 (2004) (mutually repugnant

other insurance provisions). As to defense costs, based on the holding in Universal

Underwriters, 134 N.H. 315, 319 (1991) and Liberty Mutual Ins. Co. v. Home Ins. Indemnity

Co., 116 N.H. 12, 18 (1976), Progressive should share equally with Argonaut. The Superior

Court however found otherwise. Characterizing Progressive’s clause as an “excess clause” and

Argonaut’s as a “pro rata clause,” it concluded that the Progressive Policy was not triggered as

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to indemnity until the Argonaut’s applicable policy limit was exhausted and that each insurer

should share defense on a pro rata basis. A. 19-20.

An examination of the insurance policy language is, like any contract language, an issue

of law for the court to decide. Pro Con Constr. v. Acadia Ins. Co., 147 N.H. 470, 472 (2002).

New Hampshire courts look to the plain and ordinary meaning of the policy’s words in context.

Id. Where the terms of a policy are clear and unambiguous, the court will accord the language its

natural and ordinary meaning. Godbout v. Lloyd’s Ins. Syndicates, 150 N.H. 103, 105 (2003).

As even the Superior Court agreed, the Progressive Policy is not a true excess policy. A.

20.1. In order for a policy to be truly excess, “liability attaches only after a predetermined

amount of primary coverage is exhausted.” Peerless Ins. v. Vermont Mut. Ins. Co., 151 N.H. 71,

73 (2004) (citations and internal quotations omitted). The Progressive Policy does not set a

predetermined amount, but only purports to make its policy excess in the event that other

collectible insurance exists to provide primary coverage. A. 324 (Progressive’s “Other

Insurance” provision). Neither does the Progressive Policy preclude or limit defense coverage to

its insured after a predetermined amount. A. 309-310 (insuring agreement).

Argonaut’s “other insurance” clause provides that where, as here, there exists “any other

Coverage form or policy” that covers on the same basis, either excess or primary, it will pay only

its share on a pro rata basis. See Ex. A, Section V-A.-5.-d. Unlike a number of other pro rata

“other insurance” clauses, Argonaut’s clause is explicitly written so as to not limit its

applicability to circumstances where the other insurance is valid or collectible. This point the

Superior Court did not consider. Instead the Superior Court relied upon secondary treatises that

considered pro rata clauses, unlike Argonaut’s clause, that took effect only upon the existence of

other valid and collectible insurance. A. 19.

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Here, the Progressive Policy is “other insurance” that triggers Argonaut’s pro rata

provision. The Progressive Policy provides that it “will be excess over any other collectible

source of recovery . . .” The only “other collectible” source of recovery here is Argonaut’s pro

rata share of indemnity. Argonaut’s unconditional pro rata provision does not recognize

Progressive’s attempt to render its primary Policy as excess in the event there is other valid and

collectible insurance. Interpreted in this way, Progressive’s excess provision conflicts with

Argonaut’s pro rata provision, resulting in two provisions that are mutually repugnant. See

Lamastus & Associates, Inc. v. Gulf Ins. Co., 260 So. 2d 83, 85-86 (La.App. 4 Cir. 1972)

(finding unqualified pro rata and excess clauses to be mutually repugnant).

Where two other insurance provisions are mutually repugnant, as here, New Hampshire

courts assign the same priority to each, and order that each insurer be liable for its pro rata share

of any settlement or judgment, and share equally in defense costs. Peerless Insurance, 151 N.H.

71, 74 (citing Universal Underwriters, 134 N.H. 315, 319 (1991) and Liberty Mutual Ins. Co. v.

Home Ins. Indemnity Co., 116 N.H. 12, 18 (1976)).

In circumstances contrasting the present matter, this Court in American Home Assurance

Co. v. Fish, 122 N.H. 711, 713-14 (1982), considered a policy issued by Forum Insurance

Company that contained a “no liability” clause in the event there was other collectible insurance.

Specifically, Forum’s policy stated that it “shall not be liable to make any payment in connection

with any claim . . . which is insured by another valid policy . . .”. Id. at 713 (emphasis ours).

The other policy issued by American Home Assurance Co. was written on a primary form,

stating that its coverage was “excess insurance over any other valid and collectible insurance

available to the Insured . . .” Id. This Court considered that Forum’s “no liability” clause

applied only when there was “another valid policy.” Since American Home’s policy contained

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an “excess” clause, its coverage was not triggered until all other collectible insurance was

exhausted. This Court concluded therefore that the American Home policy was not a “valid

policy” since it was not collectible, and therefore did not trigger Forum’s pro rata provision. Id.

at 714.

In contrast to the “no liability” policy in American Home Assurance, the Argonaut Policy

here agrees to pay only its share whenever there is “any other Coverage form or policy.” It does

not require that the other insurance be valid or collectible. The only requirement is that there

exist another policy, like Progressive’s, written on the same basis as Argonaut, whether excess or

primary. A. 82. Unlike the “excess” clause in American Home Insurance, Progressive’s clause

does not nullify Argonaut’s pro rata provision, because Argonaut’s clause is not dependent on

the existence of other valid and collectible insurance. As Argonaut and Progressive are on equal

footing as primary co-insurers, they each share indemnity on a pro rata basis.

As to defense costs, the holding in Universal Underwriters Ins. Co. v. Allstate Ins. Co.,

134 N.H. 315, 319 (1991) compels a finding that Argonaut and Progressive share defense costs

equally. “[T]he duty of an insurer to defend is the same whether its potential liability is either as

a primary or as an excess carrier.” See also Liberty Mut. Ins. Co. v. Home Ins. Indem. Co., 116

N.H. 12, 18 (1976) (order on motion for rehearing) (ordering co-insurers to share equally in

defense). Departing from the holding in Universal Underwriters, the Superior Court decided

upon a pro rata division of defense costs, relying on its incorrect finding that the Progressive

Policy’s “other insurance” provision rendered it excess. Even assuming Progressive is excess,

however, Universal Underwriters still found that an excess carrier has an obligation to share

defense on an equal basis.

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In sum, for the reasons stated above, Argonaut and Progressive are each liable for its pro

rata share of any settlement or judgment, and are to share equally in defense costs. Peerless

Insurance, 151 N.H. 71, 74 (citing Universal Underwriters, 134 N.H. 315, 319 (1991) and

Liberty Mutual Ins. Co. v. Home Ins. Indemnity Co., 116 N.H. 12, 18 (1976)).

CONCLUSION

For the foregoing reasons, Argonaut respectfully requests this Honorable Court modify

the Superior Court’s May 12, 2010 Order, and decide that: (1) Argonaut’s Limit of coverage is

$25,000; (2) Progressive owes co-insurance for both defense and indemnity on a primary basis

with Argonaut as regards the auto injury lawsuit entitled, Martin Morasse and Linda Morasse v.

Craig Kelly, N.H. Superior Court, Merrimack Co., Docket No. 08-C-114; (3) Progressive is

obligated to reimburse Argonaut for defense coverage, or its proper share thereof, for costs and

fees it has incurred and will incur with respect to the Morasse lawsuit; and (4) such further relief

as this Court deems just.

Dated: Littleton, New Hampshire

August 24, 2010

PRIMMER PIPER EGGLESTON & CRAMER By__________________________________ Gregory M. Eaton NH Bar #10513 106 Main Street, P.O. Box 349 Littleton, New Hampshire 03561-0349 603.444.4008

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REQUEST FOR ORAL ARGUMENT

Pursuant to Rule 16(10), Appellant, Argonaut Insurance Company, requests oral argument. Gregory M. Eaton, Esq. will argue the case for Appellant and requests fifteen (15) minutes for this purpose. Dated: Littleton, New Hampshire

August 24, 2010

PRIMMER PIPER EGGLESTON & CRAMER By__________________________________ Gregory M. Eaton NH Bar #10513 106 Main Street, P.O. Box 349 Littleton, New Hampshire 03561-0349 603.444.4008

ADDENDUM

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RELEVANT STATUTE

R.S.A. 259:61 Motor Vehicle Liability Policy.

“Motor vehicle liability policy” shall mean a policy of liability insurance which provides: I. Indemnity for or protection to the insured and any person responsible to him for the operation of the insured’s motor vehicle, trailer, or semi-trailer who has obtained possession or control thereof with his express or implied consent, against loss by reason of the liability to pay damages to others for damage to property, except property of others in charge of the insured or his employees, or bodily injuries, including death at any time resulting therefrom, accidentally sustained during the term of said policy by any person other than the insured, or employees of the insured actually operating the motor vehicle or such other person responsible as aforesaid who are entitled to payments or benefits under the provisions of any workers’ compensation act arising out of the ownership, operation, maintenance, control, or use within the limits of the United States of America or the Dominion of Canada of such motor vehicle, trailer or semi-trailer, to the amount or limit of at least $25,000 on account of injury to or death of any one person, and subject to such limit as respects injury or death of one person, of at least $50,000 on account of any one accident resulting in injury to or death of more than one person, and at least $25,000 for damage to property of others, as herein provided, or a binder pending the issue of such a policy or an endorsement to an existing policy, as defined in RSA 264:14, 18, and 19, and II. Which further provides indemnity for or protection to the named insured and to the spouse of such named insured as insured if a resident of the same household, or the private chauffeur or domestic servant acting within the scope of the employment of any such insured with respect to the presence of any such insured in any other motor vehicle, from liability as a result of accidents which occur in New Hampshire due to the driving of any motor vehicle, trailer, or semi-trailer not owned in whole or in part by such insured; provided, however, the insurance afforded under this paragraph applies only if no other valid and collectible insurance is available to the insured. III. The coverages described in paragraphs I and II, except as to the minimum financial responsibility limits, shall not apply to any insured operator whose driver’s license has been suspended or revoked. Coverage under RSA 264:15 or RSA 264:16 shall not apply to any insured operator whose driver’s license has been suspended or revoked.

DECISION APPEALED FROM

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