The North Dakota Supreme Court ruled that an insured’s policy had not automatically terminated when the insured acquired a new policy, finding that the policies were not “similar insurance.” The case is Nodak Ins. Co. v. Farm Family Cas. Ins. Co., 990 N.W.2d 595 (N.D. 2023).
Background
On April 6, 2019, Samuel Hamilton was driving his parents’ pickup truck and, while intoxicated, ran a stop sign and collided with another vehicle. The other vehicle was driven by H.W., with A.M. riding as a passenger. As a result of the accident, A.M. was killed and H.W. was seriously injured. H.W.’s vehicle was insured with Nodak Insurance Company. Nodak sought recovery from Farm Family Casualty Insurance Company, who denied the claim, arguing that their policy was not in effect at the time of the accident.
The Two Policies
At the time of the accident, the Hamilton pickup truck was insured under two active insurance policies. Farm Family issued an automobile insurance policy to Bruce and Diana Hamilton, insuring the truck with an effective policy period from October 19, 2018, to April 19, 2019. The policy was issued in Vermont and provided bodily injury liability coverage limits of $250,000 per person and $500,000 per accident.
Bruce and Diana moved to Montana and acquired a separate policy insuring the truck with Mountain West Farm Bureau Mutual Insurance Company. The policy had an effective policy period from December 2, 2018, to June 2, 2019, and provided bodily injury liability coverage limits of $100,000 per person and $300,000 per accident.
District Court
In District Court, Nodak sought recovery from Farm Family, claiming that their policy was in effect at the time of the accident. Farm Family argued that their policy terminated on December 2, 2018, when the Hamiltons acquired the Mountain West policy. The court determined that the Farm Family policy was in effect at the time of the accident and that Farm Family and Mountain West should share the loss on a pro-rata basis. Farm Family appealed the judgment from the district court, and the case was brought before the North Dakota Supreme Court.
Policy Language
The cancellation or nonrenewal section of the Farm Family policy stated, “If other insurance is obtained by you on your insured car, similar insurance afforded under this policy for that car will cease on the effective date of the other insurance. If different requirements for cancellation and nonrenewal or termination of policies are applicable because of the laws of your state, we will comply with those requirements.”
Farm Family argued that the policy language was clear and unambiguous and that the policy ceased on December 2, 2018, the day the Mountain West policy was effective. Farm Family argued that the use of “cease” is clear and that the policy was not in effect at the time of the accident, so they are not responsible for providing coverage. However, the case ultimately came down to the interpretation of “similar insurance.”
Similar Insurance
The main issue before the court is whether “similar insurance” means the other insurance is similar in type alone or similar in type and amount. Since the term was undefined in the policy, the court applied the plain, ordinary meaning and determined that any ambiguity should go in the insured’s favor. Using Merriam-Webster’s Collegiate Dictionary, the court applied the ordinary meaning of “similar”, meaning “having characteristics in common: strictly comparable” and “alike in substance or essentials.”
The court looked to past cases to see how other courts ruled. In United Fire & Cas. Co. v. Victoria, 576 N.W.2d 118 (Iowa 1998), the court stated that to an average policy buyer, a policy with a substantially lower limit would not be viewed as similar to another policy, and that when purchasing another policy can result in automatic termination, the insurer should inform the insured of what would cause the termination.
The court determined that for the termination clause of the policy to apply, the other insurance would have to be similar in type and amount. They determined that the Mountain West and Farm Family policies were not similar as they were not strictly comparable or alike in substance or essentials. An essential part of liability insurance is the amount of coverage, and the policies had vastly different limits.
The court concluded that the acquisition of the Mountain West policy did not terminate the Farm Family policy, so both policies were in effect at the time of the accident. The District Court’s judgment was affirmed.
Editor’s Note: The court determined that for the termination clause to apply, the policies would have to be similar in type and amount, not just in type. They ruled that the policy providing liability coverage for $250,000 per person and $500,000 per accident, and the policy providing $100,000 per person and $300,000 per accident, were not similar in amount and therefore not “similar insurance.” However, they did note that they did not make a determination of just how much difference the limits of a policy would have to be before they are considered not similar. This does show that policies don’t have to be exact for the termination clause to trigger, but there is no rule to determine what similar insurance might mean.