Title: UN UNDERWRITERS INS CO v STATE

State: montana

Issuer: Montana Supreme Court

Document:

No. 12692 I N T H E S U P R E M E C O U R T O F THE STATE O F M O N T A N A 1974 UNIVERSAL U N D E R W R I T E R S INSURANCE C O M P A N Y , a corporation, P l a i n t i f f and Respondent, STATE F A R M M U T U A L A U T O M O B I L E INSURANCE C O M P A N Y , a corporation; H E R B E R T SOLLE, individually and a s Administrator of the Estates of DAVID SOLLE and GREGORY SOLLE, Deceased, e t a l . , Defendants and Appellants. Appeal from: D i s t r i c t Court of the Fourth J u d i c i a l D i s t r i c t , Honorable Jack L. Green, Judge presiding. Counsel of Record : For Appellants : Garlington, Lohn and Robinson, Missoula, Montana Sherman V. Lohn argued, Missoula, Montana Worden, Thane, Haines and Williams, Missoula, Montana Shelton C. Williams argued and Ronald A. Bender argued, Missoula, Montana Longan, Holmstrom and Cebull, Billings, Montana For ~ e s p o n d e n t : Anderson, Symmes, Forbes, Peete & Brown, Billings, Montana Rockwood Brown, Jr. argued, Billings, Montana Submitted : September 11, 1974 Decided : - 5 1975 M r . J u s t i c e Gene B. Daly delivered the Opinion of the Court. P l a i n t i f f Universal Underwriters Insurance Company f i l e d i t s complaint June 12, 1973, i n the d i s t r i c t court, Missoula County, seeking declaratory r e l i e f . A l l of the defendants appeared and f i l e d answers. It was agreed between the p a r t i e s t h a t the matter would be submitted upon an agreed statement of f a c t s . The court on November 13, 1973, entered i t s findings of f a c t , conclusions of law and judgment declaring t h a t defendants John ~ ' O r a z i , Sr., Darlyene ~ ' O r a z i and John Zachary ~ ~ O r a z i , Jr., were not persons insured under t h e garage l i a b i l i t y insurance policy issued by Universal Underwiters Insurance Company t o Cislo Chevrolet- Olds, Inc., and t h a t p l a i n t i f f was not l i a b l e f o r any a c t s o r omissions of the DtOrazis pertaining t o an accident which occurred on October 19, 1971, nor any damages o r claims a r i s i n g therefrom. It f u r t h e r declared t h a t p l a i n t i f f was not l i a b l e t o defend DtOrazis, o r any thereof, against the c i v i l action brought by Herbert Solle against the ~ ' 0 r a z i s pertaining t o the deaths of David and Gregory Solle, nor pay the costs of defense thereof. Defendant Solle f i l e d exceptions t o the findings of f a c t , conclu- sions of law and the judgment and was joined i n such f i l i n g by defendant S t a t e Farm Mutual Automobile Insurance Co. The court overruled S o l l e ' s and S t a t e arm's exceptions. Thereafter a l l de- f endan t s appealed. The agreed f a c t s a r e : O n o r about April 1970, one Jane Howard purchased an automobile from Courtesy Chevrolet-Olds, Inc. of Polson, Montana, and traded i n a 1962 Mercury Monterey autombile, i d e n t i f i - cation number 22672518891,. She delivered the t i t l e c e r t i f i c a t e f o r the 1962 Mercury, notarized and endorsed i n blank, t o Courtesy. Around June 1970, Courtesy sold the Mercury t o one Don Tidwell and delivered the t i t l e c e r t i f i c a t e t o Tidwell, without executing the assignment, notarizing it, o r forwarding the c e r t i f i c a t g of owner- ship, c e r t i f i c a t e of r e g i s t r a t i o n , and an application f o r r e g i s t r a - t i o n t o the s t a t e r e g i s t r a r of motor vehicles a s required by section 53-109, R.C.M. 1947. - 2 - I n August 1970, Tidwell traded the 1962 Mercury t o John ~ ' ~ r a z i , Sr., giving DtOrazi a b i l l of sale. O n October 19, 1971, John DtOrazi, Jr., was driving the Mercury automobile i n the c i t y of Missoula when it collided with a motorcycle ridden by David Solle and h i s brother, Gregory Solle. A s a r e s u l t of the accident both David and Gregory Solle died. Herbert Solle, individually and a s administrator of the e s t a t e s of David and Gregory Solle, f i l e d i n the d i s t r i c t court, Missoula County, a combined wrongful death survival action. H e named John Zachary DtOrazi, Jr., a s a defendant based upon h i s negligent driving of the Mercury automobile and a l s o named John ~ ' O r a z i , Sr., and Darlyene DtOrazi, the parents of John, Jr., on the b a s i s of negligent entrustment a s defendants. He claimed general, special, and punitive damages. A t t h e time of the f a t a l accident defendant S t a t e Farm Mutual Automobile Insurance Company insured Herbert Solle under three automobile l i a b i l i t y policies. Included i n the coverage under each policy i s uninsured motorist coverage. State Farm has agreed t o pay Solle the sum of $40,000, allocating $30,000 t o Gregory and $10,000 t o David, i n compromise of S o l l e ' s death claims under the uninsured motorist coverage provisions of the three policies which Solle c a r r i e d with S t a t e Farm. The agreement a l s o provides t h a t Solle may pursue death claims against the DtOrazis, and i n the event of judgment and recovery under the Universal Underwriters garage l i a b i l i t y policy, S t a t e Farm would be e n t i t l e d t o subrogation against any recovery up t o the amount of i t s $40,000 payment. A t the time of the accident there was i n f u l l force and e f f e c t a garage l i a b i l i t y policy issued by Universal Underwriters t o Cislo Chevrolet-Olds, Inc. (Courtesy's suecessor). O n o r about March 2, 1973, Universal Underwriters received notice from defendants ~ ' 0 r a z i tendering defense of the Solle case and claiming coverage under universal's garage l i a b i l i t y policy on the grounds the 1962 Mercury automobile was s t i l l owned by Universal Underwriters' insured, by reason of its failure to process the transfer of title when the Mercury was sold to Don Tidwell in 1970. Universal Underwriters has denied coverage to ~'Orazis but has assumed the defense of the underlying wrongful death and survival action upon an express reservation of rights and nonwaiver of its defenses under the policy. Paragraph V of the garage liability insurance policy containing the definition of "Persons Insured" provides: "Each of the following is an insured under this insurance to the extent set forth below: " ( 3 ) with respect to the automobile hazard: " ( a ) any partner, or paid employee, or director or stockholder thereof or a member of the household of the named insured or such partner or paid employee or director or stockholder while using an automobile covered by this policy or when legally responsible for the use thereof, provided the actual use of the automobile is by the named insured or with his permission, and " ( b ) any other person or organization legally responsible for the use thereof only while such auto- mobile is physically operated by the named insured or any such partner or paid employee or director or stockholder, or member of the household of the named insured or partner or paid employee or director or stockholder, provided the actual use of the automobile is by the named insured or with his permission. 11 Appellants present these issues for this court's review: 1. Whether there is coverage for the defendants D'Orazi under the Universal Underwriters garage liability policy under the Safeco Insurance Co. v . Northwestern Mutual Insurance Co., Ostermiller v. Parker, and Irion v . Glenn Falls Insurance Co., cases? 2 . Whether the person insured provision of the Universal underwriters' policy is ambiguous and should be construed against the insurer? 3. Whether under the Cbner's Responsibility Law (section 53-438, R.C.M. 1947), the Universal Underwriters' garage policy must contain a mandatory omnibus clause? 4 . Whether the limitation and/or exclusion of a permissive user from the definition of insured, as respondent contends, is a limita- tation or exclusion in an insurance contract which is unenforceable as being violative of public policy? Appellants i n t h e i r f i r s t issue contend t h i s c o u r t ' s decisions i n Sazeco Ins. Co. v. Northwestern Mutual Ins. Co., 142 Mont. 155, 382 P.2d 174; Ostermiller v. Parker, 152 Mont. 337, 451 P.2d 515; and I r i o n v. Glenn F a l l s Ins. Co., 154 Mont. 156, 461 P.2d 199, established the r u l e t h a t i f a c a r dealer f a i l s t o comply with section 53-109(c), R.C.M. 1947, by f a i l i n g t o send t o the r e g i s t r a r of motor vehicles a c e r t i f i c a t e of ownership, c e r t i f i c a t e of r e g i s t r a t i o n , plus an application f o r r e g i s t r a t i o n upon the s a l e of a c a r , and t h a t c a r i s involved i n an accident, the automobile d e a l e r ' s l i a b i l i t y insurance policy covers the person driving the c a r , regardless of the language o r limitations regarding coverage contained i n the insurance policy. This seems t o go t o the question of l i a b i l i t y of the garage owner which i s not a t issue here. Here, the sole question t o be determined i s whether o r not the "garage" l i a b i l i t y policy issued by Universal t o Cislo Chevrolet-Olds, Inc. (formerly Courtesy) a l s o insures the ~ ' O r a z i s ; which i s a question of coverage. The confusion a r i s e s because the three cases c i t e d by appellants a l l had "omnibus" clauses and coverage was not i n issue but r a t h e r ownership was the c e n t r a l question t o be determined. The three cases held, a s a matter of law, t h a t i f the c a r dealer f a i l e d t o comply with section 53-109(c), R.C.M. 1947, then the t i t l e t o t h a t automo- b i l e remains with the car dealer, a s i n the case here. However, a s i n a l l cases of t h i s nature, once ownership i s established the language of the insurance contract i n force governs the coverage available t o a person claiming coverage, if any. The s t a t u t e under consideration i s not penal. Appellants' issue No. 3 i s not well taken inasmuch a s public policy and t h i s Court's i n t e r p r e t a t i o n of section 53-438, R.C.M. 1947, a r e l a i d t o r e s t i n Northern Assurance Co. v. Truck Insurance Exchange, 151 Mont. 132, 439 P.2d 760, and i n Boldt v. S t a t e Farm Mutual Auto. Ins. Co., 151 Mont. 337, 443 P.2d 33. Interestingly, counsel here f o r appellants Solle and S t a t e Farm were involved i n Northern Assurance. There has been no showing i n the i n s t a n t case t h a t the policy i n question was issued t o show proof of financial responsibility a s required by sections 53-418 through 53-458, R.C.M. 1947. Appellants' issues 2 and 4 w i l l be discussed hereinafter i n the context of t h e limitations on those insured under Paragraph V , heretofore c i t e d , of the garage l i a b i l i t y policy. The exclusions a r e not a t issue here. 11 The policy under consideration here does not contain an omnibus" clause but a limitation of those insured and hence i s not a standard l i a b i l i t y policy. Appellants contend t h i s i s v i o l a t i v e of public policy. Section 13-801, R.C.M. 1947, on unlawful contracts provides: hat i s not lawful which is: I t (1) Contrary t o an express provision of law; "(2) Contrary t o the policy of express law, though not expressly prohibited; or, "(3) Otherwise contrary t o good mcrals. " Many out of j u r i s d i c t i o n cases have examined exclusions and limitations of coverage cases similar t o the i n s t a n t one and have not been moved t o declare the absence of "omnibus" coverage against public policy. This Court i n Northern Assurance found exclusions not v i o l a t i v e of public policy i f not i n violation of s t a t u t e , and t h e same would apply t o limitations. W e have disposed of the s t a t u t o r y argument concerning section 53-438, R.C.M. 1947, and w i l l only comment t h a t the claimed application of section 40-4403, R.C.M. 1 I 1947, concerning omnibus" coverage t o be contained i n "uninsured motorist policies" has no application t o the problem here presented t o t h i s Court i n the agreed statement of facts. Two p a r t i e s may contract i n any manner they so choose with any insurance coverage they desire, a s long a s t h a t contract i s not contrary t o an express provision of law; contrary t o the policy of express law, though not expressly prohibited; or, otherwise contrary t o good morals. ~ p p e l l a n t s ' issue 2 argues the "persons insured" provision contained i n Paragraph V of the policy i n question i s ambiguous and should be construed against the insurer. The policy of insurance between Universal and Cislo Chevrolet i s a contract, and subject t o applicable contract law of Montana. The language of a contract governs i t s interpretation, i f the language i s c l e a r and e x p l i c i t . Section 13-704, R.C.M. 1947. The intention of the contracting p a r t i e s i s t o be ascertained from the contract i t s e l f , i f possible. Section 13-705, R.C.M. 1947. Where the language of an insurance policy admits of only one meaning there i s no b a s i s f o r interpretation of the policy coverage under the guise of ambiguity. Nelson v. Combined Insurance Co. of America, 155 Mont. 105, 467 P.2d 707. In Kansas City F i r e and Marine Insurance Company v. Clark, 217 F. Supp. 231, 235, (D.C.Mont. 1963), Judge Jameson noted the general r u l e t h a t ambiguous o r uncertain provisions of an insurance policy s h a l l be construed i n favor of the insured and against the insurer, but he cautioned: "On the other hand, i f the intention of the p a r t i e s i s c l e a r , the courts have no authority t o change the contract i n any p a r t i c u l a r , o r t o disregard the express language the p a r t i e s have used. I n James v. Prudential Ins. Co., 1957, 131 Mont. 473, 477, 312 P.2d 125, 127, 1 the court said: But even though it i s a cardinal prin- c i p l e of insurance law t h a t a contract of insurance i s t o be construed l i b e r a l l y i n favor of the insured and s t r i c t l y against the insurer, contracts of insurance should be given a f a i r and reasonable construction. Park Saddle Horse Co. v. Royal Indemnity Co., 81 Mont. 99, 111, 261 P. 880. In a r r i v i n g a t such construction, no matter how s t r i c t l y construed against the insurer, the intention of both insurer and insured i s t o be ascertained from the language of the policy. R.C.M. 1947, !$ 13-704. Effect must be given t o every p a r t of t h e policy contract. R.C.M. 1947, $13-707. The words of the contract a r e t o be under- stood i n t h e i r usual meaning. R.C.M. 1947, !$ 13-710. 1 Common sense controls. Moreover, '[almbiguity does not e x i s t j u s t because a claimant says so. It can only e x i s t where the wording o r phraseology of a contract i s reason- ably subject t o two d i f f e r e n t i n t e r r e t a t i o n s . ' Holmstrom v. ? . M I - 1 Benefit Health & Accident A s s n , 1961, 139 Mont. 426, 364 P.2d 1065, 1066." To the same e f f e c t the Ninth Circuit Court of Appeals i n National Farmers Union Property and Casualty Company v. Colbrese, 368 F.2d 405, 411, commented t h a t the foregoing r u l e : "* * * does not prevent application of the more general principle t h a t an insurance policy, l i k e any other contract, must be given an interpreta- t i o n which i s reasonable and which i s consonant with the manifest object and i n t e n t of the parties." Paragraph V , section (3)(a), of the policy provides t h a t i n addition t o the named insured, Cislo Chevrolet-Olds Inc., any partner, paid employee, d i r e c t o r o r stockholder of the named insured, o r any member of the household of any of the foregoing a r e covered under the insurance policy i n question. This section i s c l e a r and unambiguous and c l e a r l y does not include the ~ ' 0 r a z i . s under the facts. Section (3)(b) of Paragraph V of the policy provides t h a t i n addition t o the named insured, any other person o r organization l e g a l l y responsible f o r the use of an owned automobile w i l l be an additional insured under the policy provided t h a t such automobile i s physically operated by the named insured o r any such partner o r paid employee or d i r e c t o r o r stockholder o r member of the household of the insured, partner, paid employee, d i r e c t o r o r stockholder. Since the 1962 Mercury was not physically operated a t the time of the accident by the named insured o r any partner, paid employee, d i r e c t o r o r stockholder, o r member of the household of any of the foregoing specified category of persons, the ~ ' 0 r a z i s do not come within the d e f i n i t i o n of an insured under Section (3) (b) . Appellants present case law and a strong argument t h a t the term I I physically operate" i s unclear and susceptible of various con- structions and more so when the named insured i s a corporation. They r e l y on an Idaho case, Mayflower Ins. Exchange v. Kosteriva, 8 4 Ida. 25, 367 P.2d 572, 574 (1961) f o r principal support. However, 11 the language there was operate" i n an exclusion of m i l i t a r y personel. I I The contention there was a c t u a l physical control" o r "the r i g h t of direction and control", and the court found the term "operate" a s used ambiguous and uncertain. I I Here, our term i s physically operated" and t k r e f o r e not i n point with t h e Idaho c o u r t ' s analysis. A b e t t e r analysis of our problem, concerning the same policy provision, a t a time when it contained only the term "operatet', by t h e Ninth Circuit Court is found i n Orth v. Universal Underwriters Insurance Co., 284 F.2d Orth involved a corporate insured and the same argument was advanced t o the Ninth Circuit Court a s here and i n t h i s regard t h e Court concluded: "Having reached t h i s conclusion through an analysis of t h e contract language and finding no ambiguity, the determination t h a t Aronson i s not insured under the ~ o l i c v i s one of law 1 and not of f a c t . Since operated' a s Lsed i n clause (3) does not include the concept of direction and control, no issue of f a c t i s resented a s t o whether West S e a t t l e Motors directed and contkolled Aronson i n the use of the automobile. Having thus determined t h a t Arnson's operation of the auto- mobile i s excluded i n any event from coverage under the policy, it i s immaterial whether h i s use of the c a r was permissive, a s required by the proviso a t the end of clause (3).11 (Emphasis added). The t r i a l court correctly held a s a matter of law t h a t the DIOrazis were not p a r t i e s insured under the garage l i a b i l i t y insurance policy issued by respondent Universal Underwriters Insurance Company t o Cislo Chevrolet-Olds, Inc. and i n question here. The judgment of W e Concur: I - > - . - -*--------------------------------- Chief J u s t i c e