No. 12692 INTHE SUPREME COURT OF THE STATE OF MONTANA 1974

UNIVERSAL UNDERWRITERS INSURANCE COMPANY, a corporation, Plaintiff and Respondent,

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, a corporation; HERBERT SOLLE, individually and asAdministrator of the Estates of DAVID SOLLE and GREGORY SOLLE, Deceased, etal., Defendants and Appellants.

Appeal from: District Court of the Fourth Judicial District, 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 SheltonC. Williams argued and Ronald A. Bender

argued, Missoula, Montana Longan, Holmstrom and Cebull, Billings, Montana For ~espondent : Anderson, Symmes, Forbes, Peete & Brown, Billings,

Montana Rockwood Brown, Jr. argued, Billings, Montana

Submitted: September 11, 1974 Decided: 

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## 1975Mr. Justice Gene B. Daly delivered the Opinion of the Court.

Plaintiff Universal Underwriters Insurance Company filed 

### its complaint June 12, 1973, inthe district court, Missoula County, seeking declaratory relief. Allof the defendants appeared and filed answers. It was agreed between the parties that the matter would be submitted upon an agreed statement of facts. The court on November 13, 1973, entered its findings of fact, conclusions of law and judgment declaring that defendants John ~'Orazi, Sr., Darlyene ~'Orazi and John Zachary ~~Orazi, Jr., were not persons insured under the garage liabilityinsurance policy issued by Universal Underwiters Insurance Company toCislo ChevroletOlds, Inc., and that plaintiff was not liable for any acts or omissions of the DtOrazispertaining toan accident which occurred

on October 19, 1971, nor any damages or claims arising therefrom. It further declared that plaintiff was not liable to defend DtOrazis,

or any thereof, against the civilaction brought by Herbert Solle against the ~'0razis pertaining to the deaths of David and Gregory Solle, nor pay the costs of defense thereof. Defendant Solle filed exceptions tothe findings of fact, conclusions of law and thejudgment and was joined in such filingby defendant StateFarm Mutual Automobile Insurance Co. The court overruled Solle's and State

### arm's exceptions. Thereafter alldefendant

### s appealed. The agreed facts are: On or about April 1970, one Jane Howard purchased an automobile from Courtesy Chevrolet-Olds, Inc. of Polson, Montana, and traded in a 1962 Mercury Monterey autombile, identification number 22672518891,. She delivered the titlecertificate for the 1962Mercury, notarized and endorsed inblank, to Courtesy. Around June 1970, Courtesy sold the Mercury toone Don Tidwell and delivered the titlecertificate toTidwell, without executing the assignment, notarizing it, or forwarding the certificatg of ownership, certificate of registration, and an application forregistration to the stateregistrar of motor vehicles asrequired by section 53-109, R.C.M. 1947. -2-InAugust 1970, Tidwell traded the 1962Mercury toJohn ~'~razi, Sr., giving DtOrazia bill of sale. On October 19, 1971, John DtOrazi, Jr., was driving the Mercury automobile in the cityof Missoula when it collided with a motorcycle ridden by David Solle and hisbrother, Gregory Solle. As a result of the accident both David and Gregory Solle died. Herbert Solle, individually and asadministrator of the estates of David and Gregory Solle, filed in the district court, Missoula County, a combined wrongful death survival action. He named John Zachary DtOrazi, 

### Jr., as a defendant based upon his negligent driving of theMercury automobile and alsonamed John ~'Orazi, Sr., and Darlyene DtOrazi, the parents of John, 

### Jr., on thebasis of negligent entrustment asdefendants. He claimed general, special, and punitive damages. Atthe time of the fatalaccident defendant StateFarm Mutual Automobile Insurance Company insured Herbert Solleunder three automobile liabilitypolicies. Included in the coverage under each policy isuninsured motorist coverage. State Farm has agreed to pay Solle the sum of $40,000, allocating $30,000 toGregory and $10,000 toDavid, in compromise of Solle's death claims under the uninsured motorist coverage provisions of the three policies which Sollecarriedwith StateFarm. The agreement also provides that Sollemay pursue death claims against the DtOrazis, and in the event of judgment and recovery under the Universal Underwriters garage liabilitypolicy, StateFarm would be entitled to subrogation against any recovery up to the amount of its$40,000 payment. At the time of the accident therewas in full force and effect a garage liabilitypolicy issued by Universal Underwriters to Cislo Chevrolet-Olds, Inc. (Courtesy's suecessor). On or about March 2, 1973, Universal Underwriters received notice from defendants ~'0razi tendering defense of the Solle case and claiming coverage under universal's garage liabilitypolicy on the grounds the 1962 Mercury automobile was stillowned by Universal Underwriters' insured, by

### reason of its failure to process the transfer of titlewhen 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 insurancepolicy containing the definition of "Persons Insured" provides: "Each of the following is an insured under this insurance to the extent set forthbelow:

"(3) with respect to the automobilehazard: "(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 stockholderwhile using an automobile covered by this policy or when legally responsible for the use thereof,provided the actual use of the automobile isby the named insured or with his permission, and "(b) any other person or organization legally responsible for the use thereof onlywhile such automobile 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 actualuse of the automobile isby the named insured orwith his permission.11 

### Appellants present these issues for this court's review: 1. Whether there is coverage for the defendants D'Orazi under the UniversalUnderwriters garage liability policy under the Safeco Insurance Co. v. Northwestern Mutual InsuranceCo., Ostermillerv. Parker,and Irionv. Glenn Falls InsuranceCo., 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 limitatation or exclusion in an insurance contract which is unenforceable

asbeing violative of public policy?Appellants intheir first issue contend this court's decisions in Sazeco Ins. Co. v. Northwestern Mutual Ins. Co., 142Mont. 155, 382 P.2d 174; Ostermiller v. Parker, 152Mont. 337, 451 P.2d 515; and Irion v. Glenn Falls Ins. Co., 154Mont. 156, 461 P.2d 199, established the rule that if a car dealer failstocomply with section 53-109(c), R.C.M. 1947, by failingto send to the registrar of motor vehicles a certificateof ownership, certificate of registration, plus an application for registration upon the saleof

a car, and that car 

### isinvolved inan accident, the automobile dealer's liabilityinsurance policy covers the person driving the car, regardless of the language or limitations regarding coverage contained in the insurance policy. This seems to go to the question of liabilityof the garage

owner which isnot atissue here. Here, the sole question tobe determined iswhether or not the "garage" liabilitypolicy issued by Universal toCislo Chevrolet-Olds, Inc. (formerly Courtesy) also insures the ~'Orazis; which is a question of coverage. The confusion arises because the three cases citedby appellants allhad "omnibus" clauses and coverage was not inissuebut rather ownership was the central question tobe determined. The three cases held, asa matter of law, that if the car dealer failed to comply with section 53-109(c), R.C.M. 1947, then the title to that automobileremains with the car dealer, as

### in the case here. However, as in allcases of thisnature, once ownership isestablished the language of the insurance contract in force governs the coverage availabletoa person claiming coverage, ifany. The statuteunder consideration isnot penal. Appellants' issue No. 3 isnot well taken inasmuch as public policy and this Court's interpretation of section 53-438, R.C.M. 1947, are laid to rest inNorthern Assurance Co. v. Truck Insurance Exchange, 151Mont. 132, 439 P.2d 760, and inBoldt v. StateFarm Mutual Auto. Ins. Co., 151Mont. 337, 443 P.2d 33. Interestingly, counsel here for appellants Solle and State Farm were involved inNorthern Assurance. There has been no showing in the instant case that the policy inquestion was issued to show proof of financial responsibility asrequired by sections 53-418 through 53-458, R.C.M. 1947. Appellants' issues 2 and 4 willbe discussed hereinafter inthe context of the limitations on those insured under Paragraph V, heretofore cited, of the garage liabilitypolicy. The exclusions are not atissue here.

11 The policy under consideration here does not contain an omnibus" clause but a limitation of those insured and hence 

### isnot a standard liabilitypolicy. Appellants contend this isviolative of public policy. Section 13-801, R.C.M. 1947, on unlawful contracts provides: 

### hat isnot lawful which 

### is:

It(1) Contrary toan express provision of law; "(2) Contrary tothe policy of express law, though not expressly prohibited; or, "(3) Otherwise contrary togood mcrals. " Many out of jurisdiction cases have examined exclusions and limitations of coverage cases similar to the instant one and have not been moved todeclare the absence of "omnibus" coverage against public policy. This Court inNorthern Assurance found exclusions not violative of public policy ifnot inviolation of statute, and the same would apply to limitations. We have disposed of the statutory argument concerning section 53-438, R.C.M. 1947, and 

### will only comment that the claimed application of section40-4403, R.C.M.

1I 1947, concerning omnibus" coverage tobe contained in "uninsured motorist policies" has no application to the problem here presented to this Court in the agreed statement of facts. Two parties may contract inany manner they so choose with any insurance coverage they desire, as long as that contract isnot contrary toan express provision of law; contrary tothe policy of express law, though not expressly prohibited; or, otherwise contrary togood morals.~ppellants' issue 2 argues the "persons insured" provision contained inParagraph V of the policy in question isambiguous and should be construed against the insurer. The policy of insurance between Universal and Cislo Chevrolet 

### isa contract, and subject toapplicable contract law of Montana. The language of a contract governs 

### its interpretation, if the language 

### isclear and explicit. Section 13-704, R.C.M. 1947. The intention of the contracting parties 

### is tobe ascertained from the contract itself, ifpossible. Section 13-705, R.C.M. 1947. Where the language of an insurance policy admits of only one meaning there 

### isno basis for 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 Fire and Marine Insurance Company v. Clark, 217 F. Supp. 231, 235, (D.C.Mont. 1963), Judge Jameson noted the generalrule that ambiguous oruncertain provisions of an insurance policy shallbe construed in favor of the insured and against the insurer, but he cautioned: "On the other hand, ifthe intention of the parties is clear, the courts have no authority tochange the contract in any particular, or todisregard the express language the parties have used. In James v. Prudential Ins. Co., 1957, 131Mont. 473, 477, 312 P.2d 125, 127, 1 the court said: But even though it is a cardinal principle of insurance law that a contract of insurance is tobe construed liberally in favor of the insured and strictlyagainst the insurer, contracts of insurance should be given a fairand reasonable construction. Park Saddle Horse Co. v. Royal Indemnity Co., 81Mont. 99, 111, 261 P. 880. In arriving at such construction, no matter how strictlyconstrued against the insurer, the intention of both insurer and insured 

### is tobe ascertained from the language of the policy. R.C.M. 1947, !$ 13-704. Effect must be given toevery part of the policy contract. R.C.M. 1947, $13-707. The words of the contract are tobe understood in theirusual meaning. R.C.M. 1947, !$ 13-710. 1 Common sense controls. Moreover, '[almbiguity does not existjust because a claimant says so. It can only exist where thewording or phraseology of a contract isreasonably subject totwo different interretations.' Holmstrom 

### v. 

## ?

. MI-1 Benefit Health & Accident Ass n, 1961, 139Mont. 426, 364 P.2d 1065, 1066." To the same effect the Ninth Circuit Court of Appeals inNational Farmers Union Property and Casualty Company v. Colbrese, 368 F.2d 405, 411, commented that the foregoing rule:

# "*** does not prevent application of the more general principle that an insurance policy, like any other contract, must be given an interpretationwhich 

### isreasonable and which is consonant with the manifest object and intent of the parties." Paragraph V, section (3)(a), of the policy provides that in addition to the named insured, Cislo Chevrolet-Olds Inc., any partner, paid employee, director or stockholder of the named insured, orany member of the household of any of the foregoing

are covered under the insurance policy inquestion. This section 

### isclear and unambiguous and clearly does not include the ~'0razi.s under the facts. Section (3)(b) of Paragraph V of the policy provides that in addition tothenamed insured, any other person or organization legallyresponsible for the use of an owned automobile willbe an additional insured under the policy provided that such automobile is physically operated by the named insured or any such partner or paid employee or director or stockholder ormember of the household of the insured, partner, paid employee, director or stockholder. Since the 1962 Mercury was not physically operated atthe time of the accidentby the named insured or any partner, paid employee, director or stockholder, ormember of the household of any of the foregoing specified category of persons, the ~'0razis do not come within the definition of an insured under Section 

### (3)(b)

# . Appellants present case law and a strong argument that the term

IIphysically operate" 

### isunclear and susceptible of various constructions and more sowhen the named insured isa corporation. They rely on an Idaho case, Mayflower Ins. Exchange v. Kosteriva, 84 Ida. 25, 367 P.2d 

### 572, 574 (1961) for principal support. However,

11 the language there was operate" inan exclusion of military personel.

II The contention there was actual physical control" or "the right of direction and control", and the court found the term "operate"

asused ambiguous and uncertain.

II Here, our term is physically operated" and tkreforenot in point with the Idaho court's analysis. A better analysis of our problem, concerning the same policy provision, at a time when itcontained only the term "operatet', by the Ninth Circuit Court 

### is found inOrth v. Universal Underwriters Insurance Co., 

### 284 F.2d

Orth involved a corporate insured and the same argument was advanced to the Ninth Circuit Court ashere and in thisregard the Court concluded: "Having reached this conclusion through an analysis of the contract language and findingno ambiguity, the determination that Aronson isnot insured under the ~olicv isone of law 1 and not of fact. Since operated' asLsed inclause (3) does not include the concept of direction and control, no issue of fact 

### isresented as towhether West SeattleMotors directed and contkolled Aronson in the use of the automobile. Having thus determined thatArnson's operation of the automobile isexcluded inany event from coverage under the policy, it 

### is immaterial whether his use of the carwas permissive, asrequired by the proviso atthe end of clause (3).11 (Emphasis added). The trialcourt correctly held asa matter of law that the DIOraziswere not parties insured under the garage liability insurance policy issuedby respondent Universal Underwriters Insurance Company to Cislo Chevrolet-Olds, Inc. and in question here. The judgment of

We Concur: I



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