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Allstate Insurance Co. v. Avis Rent-A-Car System Inc11/10/1997
een criticized because " t is commonly known that the cost of liability insurance does not increase proportionately with the policy limits." Cosmopolitan Mut. Ins. Co., 147 A.2d at 534. For this reason, the majority rule may unfairly discriminate against a larger policy because it would require the larger policy to bear a much greater share of relatively small claims. See American Policyholders, 404 A.2d at 222 (" he majority rule amounts to no more than an unacceptable subsidy from the high-coverage to the low-coverage carrier."). The majority rule also may have adverse effects on the consumer, such as raising the cost of high-risk coverage and discouraging insurers from offering higher policy limits. See Universal Underwriters, 657 P.2d at 581-82; American Policyholders, 404 A.2d at 222.
The third method, apportionment based on the losses each insurer would have incurred in the absence of the other, corresponds with method two when the total loss does not exceed the limits of either policy. In that instance, each insurer would be liable for one-half of the damages. But when the total loss exceeds the limits of one policy and not the other, method three becomes unwieldy, requiring calculation of a ratio between the losses each policy would have covered.
We reject method one and method three and adopt method two because of CAARA's preference for immediate, fair, and adequate response by insurers to losses caused by their insured. Method two is prone to the least dispute, is straightforward in its application, and is equitable. It calls upon both insurers to respond equally until the policy with the lower limit is exhausted; then the second policy covers the rest of the actual loss up to its limits.
III.
Accordingly, we affirm the judgment of the court of appeals and return the case to that court with directions that the trial court enter judgment consistent with this opinion. We conclude that Allstate and Avis are co-primary insurers for the loss caused by the operation of the rental car and must contribute dollar-for-dollar, each paying one-half of the loss until one policy is exhausted. The other must then pay until the loss is fully compensated or its policy is exhausted.
JUSTICE MULLARKEY concurs in the Opinion of the Court as to Parts I, II.A., II.B., and III, but does not participate as to Part II.C.
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