Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca10-89-06290/USCOURTS-ca10-89-06290-0/pdf.json

Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 

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PUBLISH 

UNITED STATES COURT OF APPEALS 

FOR THE TENTH CIRCUIT 

STATE FARM MUTUAL INSURANCE ) 

COMPANY, an Illinois corporation, ) 

) 

Plaintiff-Appellant, ) 

) 

v. ) 

FILED 

United States Cc 1rt or Appeals 

'l'nr.f:\, l'i"l'1lit 

r~:.~·( ~ 3 1991 

ROBERT L. HOECKER 

Clerk 

) 

CHARLES SCHWARTZ; GLENDA SCHWARTZ,) 

No. 89-6290 

Individually and as Mother and ) 

Next Friend of CARLA SCHWARTZ, ) 

MARK SCHWARTZ, and DAVID SCHWARTZ,) 

) 

Defendants-Appellees. ) 

) 

--------------------------------- ) 

) 

OKLAHOMA FARMERS UNION MUTUAL ) 

INSURANCE COMPANY, ) 

) 

Amicus Curiae. )~-

Appeal from the United States District Court 

For the Western District of Oklahoma 

D.C. No. CIV-88-969-W 

Submitted on the Briefs: 

Don Manners, Michael Mannes, William J. Molinsky, Jr., and Orlando 

M. Hernando, Oklahoma City, Oklahoma, for Plaintiff-Appellant. 

David A. Davis and John L. Collinsworth, Oklahoma City, Oklahoma, 

for Defendants-Appellees. 

Appellate Case: 89-6290 Document: 01019292087 Date Filed: 05/13/1991 Page: 1 
Mort G. Welch of Abowitz & Welch, Oklahoma City, Oklahoma, for 

Amicus Curiae. 

Before MCKAY and MOORE, Circuit Judges, and BROWN, District 

Judge.** 

MOORE, Circuit Judge. 

**Honorable Wesley E. Brown, United States Senior District Court 

Judge for the District of Kansas, sitting by designation. 

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Appellate Case: 89-6290 Document: 01019292087 Date Filed: 05/13/1991 Page: 2 
State Farm filed this action in district court seeking a 

declaratory judgment that it is not obligated to defend or 

indemnify Glenda Schwartz in an Oklahoma state court action filed 

against her by her children. The children brought suit against 

their mother alleging that her negligent driving resulted in their 

injury. The district court granted summary judgment in favor of 

the Schwartz children, holding that the "household exclusion" in 

their parents' State Farm insurance policy, denying coverage for 

bodily injury to any insured or member of the insured's household, 

violated the public policy of Oklahoma under the state's 

compulsory automobile liability insurance law. The court held 

that State Farm is therefore liable to defend and indemnify Glenda 

Schwartz against her children's lawsuit. We affirm. 

I. Background 

The parties stipulated: 1) the insurance policy covering the 

automobile involved in the accident was in full force; 2) the 

policy excludes from coverage damages "[f]or any bodily injury 

to: ... c. any insured or any member of the insured's family 

residing in the insured's household" [the household exclusion at 

issue here]; 3) the policy defines "insured" as: "1. you 

[Charles Schwartz, in this case]; 2. your spouse; 3. the 

relatives of the first person named in the declarations [Charles 

Schwartz is the only named insured]; 4) the policy defines 

"relative" as: "a person related to you or your spouse by blood, 

marriage, or adoption who lives with you. It includes your 

unmarried and unemancipated child away at school;" and 5) the 

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Appellate Case: 89-6290 Document: 01019292087 Date Filed: 05/13/1991 Page: 3 
Schwartz children are relatives for the purposes of this policy. 

We review a summary judgment order de novo and apply the same 

legal standard used by the district court under Fed. R. Civ. P. 

56(c). Osgood v. State Farm Mut. Auto. Ins. Co., 848 F.2d 141, 

143 (lOth Cir. 1988). 

The issue in this case is straightforward: whether the 

district court erred in determining that the household exclusion 

in the Schwartz' insurance policy with State Farm contravenes the 

public policy established by Oklahoma's compulsory liability 

insurance law. In reviewing the district court's decision, we are 

faced with the difficult task of divining a coherent state policy 

from an ambiguous statute, directly conflicting positions 

announced in dicta in several state court opinions, and the 

persuasive authority of the public policies of other states with 

compulsory liability insurance laws. 

II. Conceptual Analysis 

Conceptually, 

whether the policy 

there are two ways to analyze this 

definition of the children as 

issue: 1) 

"insureds" 

precludes recovery, or 2) whether the household exclusion in the 

policy offends Oklahoma public policy. First, taking notice of 

the fact that the Schwartz children are defined as "insureds" in 

the policy, and the fact that according to the policy "insureds" 

may not recover for bodily injury under the liability provisions, 

one could argue that under Looney v. Farmers Ins. Group, 616 P.2d 

1138, 1141 (Okla. 1980), the children, as "insureds," are not 

covered by the insurance policy. This resolution would avoid 

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Appellate Case: 89-6290 Document: 01019292087 Date Filed: 05/13/1991 Page: 4 
reaching the difficult public policy question of the validity of 

the household exclusion. 

However, there are flaws in this rationale. First, the 

claimant in Looney, as the spouse of the policyholder, was defined 

in the policy.as a "named insured." In the present case the 

children are defined within the class of the "insured." Id. at 

1139 n.2. While the linguistic distinction between a "named 

insured" and an "insured" may not be significant, it does point to 

a more serious problem. The spouse of the policyholder is much 

more likely than the children of the policyholder to be a true, 

consenting party to the contract. It is highly unlikely that 

household members such as minor, unemancipated children will have 

~:~·-

consented, or are legally able to consent, to the terms of the 

insurance contract. 1 In Young v. Mid-Continent Casualty Co., 743 

P.2d 1084, 1088 (Okla. 1987), the court distinguished parties to 

the contract from those "innocent victims" the Act intended to 

protect. Id. at 1087-88. The Young court noted that this 

conclusion was consistent with Looney because, in essence, a 

1

see Mutual of Enumclaw Ins. Co. v. Wiscomb, 643 P.2d 441, 446 

(Wash. 1982) (citations omitted), distinguishing "named insureds" 

from children excluded from coverage by a household exclusion, 

reasoning that: 

[t]hose named insureds could then intelligently choose 

to add the exclusion, with an adjustment in their 

premiums reflecting any decreased risks, or retain the 

coverage at the higher premium rate. Under any 

circumstances, exclusion clauses which purport to deny 

coverage to children of the insured or any person not a 

party to the insurance contract are violative of this 

state's public policy .... The family or household 

exclusion clause violates this state's public policy of 

assuring compensation to the victims of negligent and 

careless drivers. 

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Appellate Case: 89-6290 Document: 01019292087 Date Filed: 05/13/1991 Page: 5 
"named insured" is simply another name for a party to the 

contract. 

In the present case, the district court properly pointed out 

that under Oklahoma law, Okla. Stat. Ann. tit. 15, § 11 (West 

1983), children are incapable of contracting, and, in addition, 

simply because they are third party beneficiaries does not make 

them contracting parties. Okla. Stat. Ann. tit. 15, § 29 (West 

1983). Logic supports this conclusion as well. 

Adopting Young's division of the world into two populations: 

innocent victims and parties to the contract, and remembering that 

parental immunity has been abrogated in automobile injury cases in 

Oklahoma, Unah By and Through Unah v. Martin, 676 P.2d 1366 (Okla. 

1984), it would undermine Unah for parents and their insurance 

company to be able to prevent suits against the parents by their 

children by simply defining the children as "insureds." 

Also, assuming for the moment that the household exclusion 

does contravene Oklahoma public policy, the contracting parties 

should not be able to accomplish the same results as would a 

household exclusion by simply defining all parties they would like 

to exclude from coverage as "insureds." For these reasons, we 

follow the second conceptual path. Our quest will therefore be to 

analyze whether the household exclusion violates Oklahoma public 

policy. 

III. Public Policy 

Oklahoma's compulsory liability insurance law states in 

relevant part: 

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Appellate Case: 89-6290 Document: 01019292087 Date Filed: 05/13/1991 Page: 6 
On and after January 1, 1983, every owner of a motor 

vehicle registered in this state, other than a licensed 

used motor vehicle dealer, shall, at all times, maintain 

in force with respect to such vehicle security for the 

payment of loss resulting from the liability imposed by 

law for bodily injury, death and property damage 

sustained by any person arising out of the ownership, 

maintenance, operation or use of the vehicle. 

Okla. Stat. Ann. tit. 47, § 7-601(B) (West 1988) (emphasis added). 

Also, as mentioned above, Oklahoma has abrogated parental immunity 

from suit to allow a child's action for negligence arising from an 

automobile accident to the extent of the parent's automobile 

insurance. Unah, 676 P.2d at 1369-70. 

Since passage of the Compulsory Liability Insurance Act (the 

Act) in 1976, Oklahoma courts have invalidated several insurance 

policy exclusions as contrary to the public policy established by 

the Act. In Young, 743 P.2d at 1087-88, the Oklahoma supreme 

court held an age exclusion (no liability coverage if the operator 

was under age twenty-five and not a relative of the insured) 

violated the public policy. The Young court reached this result 

by concluding the legislative intent underlying the Act was to 

mandate that "any vehicle operated on the highways of Oklahoma be 

secured against liability to innocent victims of the negligent 

operation or use of the insured vehicle." Id. at 1088. Young 

also cited that portion of the Act requiring coverage for loss 

"sustained by any person" as further support for its conclusion. 

Id. at 1087, 1088. 

In Equity Mut. Ins. Co. v. Spring Valley Wholesale Nursery, 

Inc., 747 P.2d 947, 952 (Okla. 1987), the Oklahoma supreme court 

held that a geographical exclusion (policy did not cover travel 

outside a two hundred mile radius) also contravened the public 

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Appellate Case: 89-6290 Document: 01019292087 Date Filed: 05/13/1991 Page: 7 
policy of the Act, holding that "when liability insurance is 

issued in compliance with compulsory insurance laws, statutory 

policy at the very minimum requires coverage for all actionable 

claims which may arise within the state." Id. (emphasis in 

original). The Equity court noted in dictum, mischaracterizing 

the holding of Looney, that, unlike the geographical exclusion, 

the household exclusion would comply with Oklahoma public policy 

under the Act because "[t]he purpose of the law is to shield the 

public, not members of the named insured's household." Id. at 

953. 

The Young and Equity discussions of the household exclusion 

are at best persuasive dicta because they dealt with other types 

of exclusions. Looney is closer to the facts of the present case 

because it indirectly involved a household exclusion as well as an 

exclusion prohibiting recovery by one of the insured parties. Id. 

at 1139 n.2. 2 The Equity court stated that Looney determined the 

household exclusion did not violate public policy in Oklahoma. 

This is a questionable characterization of Looney because the 

court there based its decision in favor of the insurance company 

upon the fact that the claimant was a named insured. The court 

2The policy in Looney contained the following provisions: 

Definition of Named Insured. If the insured named 

Item 1 of the Declarations is an individual, the 

named insured includes his spouse, if a resident of 

same household. 

in 

term 

the 

This policy does not apply to ... (12) the liability 

of any insured for bodily injury to (a) any member of 

the same household of such insured except a servant, or 

(b) the named insured. 

Id. at 1139 n.2. 

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Appellate Case: 89-6290 Document: 01019292087 Date Filed: 05/13/1991 Page: 8 
simply did not base its decision on the validity of the household 

exclusion; indeed, the court stated, "[t]he appellant was more 

than a mere member of the family of the insured; she was the 

insured. Her relationship with the defendant Looney surpasses 

mere household member status. " Id. at 1141 (emphasis in 

original). However, the Looney court unfortunately obscured the 

exact basis for its holding by expressing agreement with this 

court's treatment of household exclusions in Farmers Ins. Co. v. 

McClain, 603 F.2d 821 (lOth Cir. 1979). 

McClain was a declaratory judgment action filed to determine 

whether the insurance company was obligated to defend and 

indemnify the policyholder for torts committed in his automobile 

against a member of his family. The policy in question contained 

a household exclusion. The McClain court held that the explicit 

terms of the policy (i.e., the household exclusion) relieved the 

insurance company from its duty to defend and indemnify the 

policyholder. Id. at 823. 

The court's reference to McClain is not helpful, however, 

because the McClain court did not consider the validity of the 

household exclusion in the context of the compulsory liability 

3 insurance law. This consideration undermines Looney as precedent 

for the question before us. We are constrained to conclude that 

the discussion of the household exclusion in Looney is also 

nonbinding dictum. 

3rt is unclear from McClain whether the accident 

prior to the enactment of the Act in 1976 or the 

not raised by the parties. 

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there occurred 

issue was simply 

Appellate Case: 89-6290 Document: 01019292087 Date Filed: 05/13/1991 Page: 9 
Finally, the Oklahoma supreme court in Unah, in the context 

of partially abrogating parental immunity, stated, 

[w]e can no longer countenance the legal anomaly where 

two minor children, negligently injured in the operation 

of a motor vehicle, one of them a stranger, could 

recover compensation for his injuries and the other one, 

a minor child of the operator of the vehicle, could not. 

Today, where all other passengers in a car are 

mandatorily protected by liability coverage it is unfair 

and against public interest to deprive an unemancipated 

minor the benefit of recovery. 

Id. at 1370. As dictum, this discussion is also of scarce 

precedential value in determining the validity of the household 

exclusion in Oklahoma, but it nonetheless demonstrates clear 

public policy preferences that assist us in determining the scope 

of the comprehensive liability insurance law. 

To summarize, Oklahoma courts have presented us with four 

opinions adopting contradictory positions in dicta bearing on the 

validity of the household exclusion. The Young and Unah opinions 

make a strong argument for affirming the district court in this 

case. The Equity and Looney opinions, however, appear to urge an 

opposite conclusion. Since Oklahoma case law is contradictory, we 

must look elsewhere for guidance. 

Many states have addressed the issue of whether household 

exclusions are valid in the context of a compulsory liability 

insurance law. These states have almost uniformly held that the 

household exclusion is contrary to the public policy created by 

compulsory liability insurance laws. 4 Most state courts that have 

4

see Beacon Ins. Co. of Am. v. State Farm Mut. Ins. Co., 795 

S.W.2d 62, 64 (Ky. 1990); Stepha v. Allstate Ins. Co., 383 S.E.2d 

887, 888 (Ga. 1989) (household exclusion invalid if broader than 

common law tort immunity); Government Employees Ins. Co. v. Repka, 

(Continued to next page.) 

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Appellate Case: 89-6290 Document: 01019292087 Date Filed: 05/13/1991 Page: 10 
addressed this issue but which have not explicitly ruled that the 

household exclusion violates public policy, are states without 

compulsory liability insurance laws. 5 Thus, our review leads us 

to conclude the overwhelming majority of states that have 

addressed this issue have determined, under various lines of 

reasoning, that the household exclusion violates public policy 

created by compulsory liability insurance laws. 

(Continued from prior page.) 

536 A.2d 1214, 1218 (Md. App.), cert. denied, 541 A.2d 964 (1988) 

(household exclusion invalid only to extent of statutorily 

required minimum insurance amount); State Farm Mut. Auto Ins. 

Co. v. Mastbaum, 748 P.2d 1042, 1044 (Utah 1987) (household 

exclusion invalid only to extent of statutorily required minimum 

insurance amount); Farmers Ins. Group v. Reed, 712 P.2d 550, 552 

(Idaho 1985); Meyer v. State Farm Mut. Auto. Ins. Co., 689 P.2d 

585, 589-90 (Colo. 1984); Dowdy v. Allstate Ins. Co., 685 P.2d 

444, 449 (Or. App. 1984); Transamerica Ins. Co. v. Royle, 656 P.2d 

820, 824 (Mont. 1983); Allstate Ins. Co. v. Wyoming Ins. Dept., 

672 P.2d 810, 813-16 (Wyo. 1983); DeWitt v. Young, 625 P.2d 478, 

482 (Kan. 1981); Bishop v. Allstate Ins. Co., 623 S.W.2d 865, 866 

(Ky. 1981); State Farm Mut. Auto. Ins. Co. v. Traycik, 272 N.W.2d 

629, 631 (Mich. App. 1978); Estate of Neal v. Farmers Ins. 

Exchange, 566 P.2d 81, 83 (Nev. 1977); Hughes v. State Farm Mut. 

Auto. Ins. Co., 236 N.W.2d 870, 885-86 (N.D. 1975); Jordan v. 

Aetna Casualty and Sur. Co., 214 S.E.2d 818, 820 (S.C. 1975). 

5

see, e.g., Faraj v. Allstate Ins. Co., 486 A.2d 582, 585-86 (R.I. 

1984); State Farm Mut. Auto. Ins. Co. v. Suarez, 432 N.E.2d 1204, 

1208 (Ill. App. 1982). 

Appellant cites Southern Guarantv Ins. Co. v. Preferred Risk 

Mut. Ins. Co., 359 S.E.2d 665 (Ga. 1987), and various other cases 

in support of its assertion that the household exclusion has "long 

enjoyed judicial support." Appellant's Brief in Chief, at 15. 

However, each of these decisions have been either overturned or 

limited to their facts by subsequent decisions. See cases cited 

in footnote 4. Arizona and Indiana appear to be the only states 

which have upheld the household exclusion in the face of a 

compulsory liability insurance law. State Farm Mut. Auto. Ins. 

Co. v. Transport Indem. Co., 505 P.2d 227, 230 (Ariz. 1973); 

Transamerica Ins. Co. v. Henry, 563 N.E.2d 1265 (Ind. 1990). 

California has adopted a somewhat qualified acceptance of the 

household exclusion by allowing an insurer to exclude from 

coverage any person insured under the policy. Farmers Ins. 

Exch. v. Cocking, 628 P.2d 1, 2-3 (Cal. 1981). 

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Appellate Case: 89-6290 Document: 01019292087 Date Filed: 05/13/1991 Page: 11 
- One of the most common lines of reasoning in these cases 

leading to invalidation of the household exclusion, and the logic 

used by the Young and Unah courts in Oklahoma, holds that: 

[compulsory liability insurance] legislation embodies a 

public policy that innocent victims of the negligent 

operation of motor vehicles should be compensated for 

their injuries. The perspective which this public 

policy adopts is that of the innocent victim rather than 

that of the insurer or the insured tort-feasor. 

Young, 743 P.2d at 1087 (footnotes omitted). Young noted that 

this interpretation of legislative intent is also consistent with 

the explicit statutory requirement of the Act that every driver 

have security to cover losses sustained by "any person." Id. 

We believe that this position, combined with the passage we 

have quoted from Unah, best harmonizes the language of the Act, 

the legislative intent expressed by the Oklahoma courts, and the 

overwhelming trend among other jurisdictions in finding the 

household exclusion contrary to public policy in compulsory 

liability insurance states. 6 Therefore, we hold the district 

court did not err in granting summary judgment in favor of the 

Schwartz children because the household exclusion in their 

parents' insurance policy contravened the public policy of 

Oklahoma under the Act. 

AFFIRMED. 

6

we do not 

compatible 

only above 

decide the question of whether household exclusions are 

with Oklahoma public policy to the extent they operate 

the statutorily required minimum insurance amount. 

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