Title: Engeldinger v. State Auto. & Cas. Underwriters

State: minnesota

Issuer: Minnesota Supreme Court

Document:

236 N.W.2d 596 (1975) Anna R. ENGELDINGER, Trustee for the Heirs and Next of Kin of Nicholas F. Engeldinger, Decedent, and Anna R. Engeldinger, Individually, Respondents, v. STATE AUTOMOBILE AND CASUALTY UNDERWRITERS, Appellant. No. 45261. Supreme Court of Minnesota. November 14, 1975. *597 Hoppe & Healy and Robert J. Healy, Minneapolis, for appellant. Rischmiller & Wasche and John E. Wasche, Minneapolis, for respondents. Heard before SHERAN, C. J., and PETERSON, KELLY, YETKA, and SCOTT, JJ., and considered and decided by the court en banc. SCOTT, Justice. This appeal arises from an action in the Hennepin County District Court against defendant insurer for satisfaction of a judgment entered against an insured pursuant to settlement of a wrongful death action commenced by the widow of Nicholas F. Engeldinger against Merle E. Ferry. Upon a stipulation of confession of judgment signed by Ferry, the trial court ordered judgment in favor of plaintiff in the amount of $28,500 plus costs and disbursements. In the instant action, commenced because of Ferry's failure to satisfy the judgment, defendant insurer and plaintiff, Engeldinger's widow, both moved for summary judgment and the court granted plaintiff's motion, ordering entry of judgment in the sum of $28,500 together with costs and disbursements. Defendant appeals from the judgment. We affirm in part and reverse in part. On January 31, 1970, Merle E. Ferry carried Engeldinger, who was intoxicated and unconscious, from a Minneapolis bar to the former's automobile with the stated purpose of driving him home. Instead, Ferry drove to Duffy's tavern in Minneapolis and left Engeldinger unattended and unconscious in his automobile. After consuming another drink, Ferry, while returning to the automobile, fell and broke his leg. He was hospitalized; Engeldinger remained in Ferry's car during temperatures of 20° Fahrenheit and died that night from a combination of the effects of the exposure to the elements and Ferry's failure to exercise reasonable care for decedent's safety. When the wrongful death action was commenced against Ferry, he tendered the defense of the action to defendant, State Automobile and Casualty Underwriters, which had issued a homeowner's policy to Ferry's mother, Mrs. Lottie Ferry. State Automobile denied coverage under the policy and refused to defend. At the trial, a verdict was returned in favor of the plaintiff in the amount of $2,500, and upon plaintiff's motion a new trial was granted upon all issues. On November 30, 1973, pursuant to the stipulation executed by Ferry, the district court ordered entry of judgment in favor of plaintiff in the amount of $28,500 plus costs and disbursements. The subject policy was issued to Lottie Ferry as the named insured. Merle Ferry was the son of the named insured and was living with her at the time of the accident. The policy was a standard homeowner's policy providing coverage for personal liability *598 for bodily injury and property damage coverage with limits of $25,000 for each occurrence. The policy provides, in portions relevant to this action, as follows: The definition of "insured" in the policy under the General Conditions provides: Additional definitions included the following: The policy had an exclusion under Coverage E: It also provided: This action commenced by decedent's widow, after a writ of execution was returned unsatisfied, is authorized by Minn.St. 60 A. 08, subd. 6, which provides: The main issue to be considered is whether the death falls within defendant insurer's exclusionary clause, which excludes liability coverage for bodily injury or death "arising out of the ownership, maintenance, operation, use, loading or unloading" of the motor vehicle. *599 Plaintiff initially relies on language of State Farm Mutual Ins. Co. v. Partridge, 10 Cal. 3d 94, 109 Cal. Rptr. 811, 514 P.2d 123 (1973), to support her theory that courts will strictly construe exclusionary clauses, while broadly interpreting coverage clauses, to accomplish the purpose of affording the "greatest possible protection to the insured" and applying the fundamental principle of resolving ambiguities against the insurer. The court concluded in that case (10 Cal. 3d 102, 109 Cal. Rptr. 816, 514 P.2d 128): Defendant contends that the existence of a causal relationship between the death and use of the automobile invokes the exclusionary clause of the homeowner's policy to relieve it of any liability. It states that the exclusion does not only apply to the operation of, but also to the use of, the automobile, and that there is no question that the automobile was being used at the time to transport the decedent. An examination of the voluminous authority discussing the phrase "arising out of the use of an automobile," as well as the actual or necessary causal connection between this use and the accident leads to the ultimate conclusion that each court will determine coverage and liability upon the particular facts presented. See, Tucker v. State Farm Mutual Auto. Ins. Co., 154 So. 2d 226 (La.App.1963), in which the court held that an automobile was not being "used" by a child who disengaged the gears, causing the automobile to roll into the insured, who was attempting to stop it; Azar v. Employers Cas. Co., 178 Colo. 58, 495 P.2d 554 (1972), and Brenner v. Aetna Ins. Co., 8 Ariz.App. 272, 445 P.2d 474 (1968), where both courts held that there was no causal connection between the use of the automobile and the injury where a gun went off and accidentally injured a passenger riding in a car. In Brenner the court concluded that the homeowner's and not the automobile policy covered the occurrence. For contrary results, see Morari v. Atlantic Mutual Fire Ins. Co., 105 Ariz. 537, 468 P.2d 564 (1970); Allstate Ins. Co. v. Truck Ins. Exchange, 63 Wis.2d 148, 216 N.W.2d 205 (1974); Wyoming Farm Bureau Mutual Ins. *600 Co. v. State Farm Mutual Auto. Ins. Co., 467 F.2d 990 (10 Cir. 1972). An analysis of the facts in the instant case leads to the conclusion that the death did not arise out of the "use" of the automobile, but rather that the automobile was a mere instrument, receptacle, or situs of the primary negligence of the insured. In National Farmers Union Property & Cas. Co. v. Gibbons, 338 F. Supp. 430 (D.N.D. 1972), the court construed "use" to mean use as a vehicle, not as a gun rest, where a passenger in a stopped automobile was injured by a bullet fired from a gun resting on top of the automobile. Applying that theory to the facts before us, certainly the use of the automobile as an overnight resting place for the decedent is not the use of it as a vehicle. As stated by plaintiff, the decedent might easily have been assisted to his front porch under the same circumstances, with death resulting from the same causes. We therefore feel that the summary judgment entered in favor of plaintiff was a proper determination of this issue. There is no dispute as to the facts, and the issue is therefore one of lawthe interpretation of the language of an insurance contract. Associated Independent Dealers, Inc. v. Mutual Serv. Ins. Companies, Minn., 229 N.W.2d 516 (1975). The second issue facing this court concerns the insurer's duty to defend. This court undertook a rather persuasive and determinative discussion of the duty to defend in the recent case of Republic Vanguard Ins. Co. v. Buehl, 295 Minn. 327, 204 N.W.2d 426 (1973). In that case, the defendant appealed from a summary declaratory judgment in favor of the plaintiff insurer which had determined that the provisions of a homeowner's policy did not obligate the company to defend an action for personal-injury damages sustained by the defendant when she was struck by a motorcycle operated by the insureds' minor son. This court reversed that determination, relying upon allegations of parental negligence in the complaint in the personal injury action. In citing and quoting the case of McDonald v. Home Ins. Co., 97 N.J.Super. 501, 235 A.2d 480 (1967), this court stated (295 Minn. 331, 204 N.W.2d 429): Under the evidence before us, it is clearly established that the decedent was exposed to the elements while occupying the rear seat of insured's automobile. He was placed there and left unattended through the negligence of insured in failing to exercise reasonable care for him. The complaint in the instant action alleges as follows: Doubtless, this complaint is not framed in terms of a cause of action or risk excluded by the subject insurance policy but rather in terms of negligence. The complaint in the initial wrongful death action was framed in the following terms: There are no facts or allegations that Ferry parked the automobile in a negligent manner, e. g., leaving it in the middle of the street or in a dangerous area. Rather, the allegation focuses upon the negligent act of the defendant in leaving the decedent as indicated by the facts. Therefore, this complaint was not framed in terms of a cause of action or a risk excluded by the insurance policy, and the insurer should have undertaken the defense upon tender by the insured. The remaining issue can be stated as follows: Must the insurer be liable for the entire amount of the settlement, which exceeds the maximum limits of the policy, when the insurer failed to defend the action on the basis that the policy did not afford such coverage? Coupled with this is the question of whether plaintiff must prove that the settlement was made in good faith in order to bind the insurer. Republic Vanguard Ins. Co. v. Buehl, supra, is conclusive of the determination that the insurer had an obligation to defend. Further, there is additional support for this conclusion upon a reading of the policy provision, Section IICoverage E, of the homeowner's policy, which defines the insurer's obligation to defend as set forth above. This court construed similar language in Butler Bros. v. American Fidelity Co., 120 Minn. 157, 169, 139 N.W. 355, 360 (1913), as follows: The court did not mention the burden of good-faith settlement. As in Butler, the record does not disclose that there was ever a challenge to the settlement, either in that the amount was excessive or that the settlement itself was not proper. However, the lower court, in its memorandum, specifically referred to substantial authority for the conclusion that a breach of contract by the insurer in failing to defend, even through an honest mistake, renders it liable for the amount of the judgment. Butler Bros. v. American Fidelity Co. supra; Hansen v. Globe Ind. Co., 127 F. Supp. 260 (D.Minn.1954). This court, in Mannheimer Bros. v. Kansas Cas. & Surety Co., 149 Minn. 482, 184 N.W. 189 (1921), held that, where the amount of the judgment exceeds policy limits, the insurer is not liable for more than the maximum policy coverage. Plaintiff would have this court adopt the reasoning of Comunale v. Traders & Gen. Ins. Co., 50 Cal. 2d 654, 328 P.2d 198 (1958), where the court concluded that an insurer which denies coverage does so at its own risk, and although its denial may not have been entirely groundless, if found wrongful it must *602 bear the full amount of the insured's financial detriment. Therefore, the result sought by plaintiff is that the insurer is liable for the full amount of the settlement, $28,500, plus costs and interest. To conclude, as did the lower court, that the insurer is liable for the entire settlement, plus costs and interest, an amount which exceeds policy limits, would require a reversal of the Mannheimer case. It is not clear, given the fact here that the refusal to defend was based upon the existence of an exclusionary clause, that a reversal of Mannheimer is warranted at this time. The only attempted offer to settle by decedent's widow within the policy limits is of limited persuasiveness in that it was conveyed after the November 30, 1973, judgment date. Conceivably, there exist situations where the insurer must bear the entire financial settlement, even in excess of policy limits, when it fails to defend. However, there is some degree of uncertainty as to whether this is one of those cases. We therefore reaffirm our holding in Mannheimer Bros. v. Kansas Cas. & Surety Co. supra, and reverse the trial court only on the question of damages, limiting such damages to the policy limits plus interest and costs including the reasonable cost of legal services employed to defend the action, as spelled out in Mannheimer. Affirmed in part, and reversed as to damages only. TODD, Justice (dissenting). I dissent from that part of the majority opinion reducing defendant's liability to the policy limits. The majority sustains the trial court's findings that the defendant acted improperly in refusing to undertake the tendered defense of its insured. I would, based upon the factual distinctions of record here, hold defendant responsible for the full amount of the damages by virtue of its refusal to defend and the resulting exposure of the insured to possible legal proceedings to recover the excess of the judgment over the policy limits. At the outset, it is noteworthy that the amount of the settlement has never been challenged by the insurer. The burden of raising this issue is on defendant insurer and since it failed to do so we should conclude as a matter of law that the settlement is reasonable. Butler Bros. v. American Fidelity Co., 120 Minn. 157, 139 N.W. 355 (1913). The majority opinion is premised on our holding in Mannheimer Bros. v. Kansas Cas. & Surety Co., 149 Minn. 482, 184 N.W. 189 (1921). The California court in Comunale v. Traders & Gen. Ins. Co., 50 Cal. 2d 654, 659, 328 P.2d 198, 201 (1958), in commenting on our Mannheimer case, said: I am in accord with the last sentence quoted above and would so limit our holding in Mannheimer. The California court also said (50 Cal. 2d 660, 328 P.2d 201): In the case of Seward v. State Farm Mutual Auto. Ins. Co., 392 F.2d 723, 727 (5 Cir. 1968), the court said: Our court in Crum v. Anchor Cas. Co., 264 Minn. 378, 392, 119 N.W.2d 703, 712 (1963), stated the rule to be applied in this situation, there saying: The majority opinion holds that defendant was obligated to defend in this case. In evaluating whether its determination not to defend was made in bad faith, I would add to the matters being considered the obvious value of having the insurer in the case from the beginning. The presence of a funded source is of enormous impact in any litigation and the denial of this leverage works to the substantial detriment of the insured. Further, I fail to see any distinction where an insured undertakes a defense and wrongfully refuses an offer of settlement within the policy limits and the situation we have here. Plaintiff is proceeding under a statutory right, Minn.St. 60 A. 08, subd. 6, quoted in the majority opinion. There has been no assignment of rights by the insured. Consequently, there has not been the usual delivery of a covenant not to levy in exchange for the assignment of the insured's rights to plaintiff. The effect of the majority decision is a partial satisfaction of the judgment, leaving the insured exposed to claims for the balance. Following judgment, defendant decided to appeal without advising the insured. In addition, plaintiff offered to settle within policy limits, together with interest, after the judgment was entered, but this offer was never communicated to the insured. The fact that there exists an unsatisfied levy against the insured is immaterial. In *604 Lange v. Fidelity & Cas. Co., 290 Minn. 61, 66, 185 N.W.2d 881, 885 (1971), we said: We further said (290 Minn. 68, 185 N.W.2d 886): Considering defendant's refusal to defend initially, the insured's lack of financial leverage during the initial trial, the failure of the insurer to seek declaratory relief, the questionable validity of its original denial, the offer of settlement within the policy limits, the failure to communicate the offer of settlement to the insured, the exposure of the insured to an excess judgment, and the failure to settle in a situation where the insurer placed its own interest above that of the insured, I would find bad faith as a matter of law and hold defendant responsible for the full amount of the judgment, which is reasonable in amount as a matter of law.