Opinion ID: 2566097
Heading Depth: 4
Heading Rank: 1

Heading: Coverage Issues

Text: ¶29 Nationwide maintains that its policy with Fricke did not cover Hiatt because Hiatt was not a permissive user under the policy. In the alternative, Nationwide contends that even if Hiatt qualifies as a permissive user, he is not covered under the policy by virtue of the policy's intentional acts exclusion, which bars coverage of property damage or bodily injury caused intentionally by or at the direction of an insured. Finally, even if the policy covers Hiatt's actions, Nationwide maintains that it is not bound by the default judgment entered against Hiatt and is therefore entitled to relitigate the issue of Hiatt's liability for the accident. The trial court agreed with Nationwide on all of these issues. ¶30 In reviewing coverage issues, we interpret the language of the Nationwide auto insurance policy in light of the requirements of Utah's motor vehicle insurance statutes. Because this review turns on questions of law, we review the conclusions of the trial court for correctness, without deference to its decision. Holmes Dev., LLC v. Cook, 2002 UT 38, ¶ 24, 48 P.3d 895.
¶31 The Nationwide policy at issue provided liability coverage for Fricke, her household, and anyone who used her car with her permission. [3] Auto insurance policies must cover permissive users pursuant to section 31A-22-303(1)(a)(ii) of the Utah Code. [4] The parties dispute whether Hiatt's actions were covered under the policy provision protecting a person who is legally responsible for the use of your auto and uses it with your permission. ¶32 The default judgment against Hiatt established that he was legally responsible for damages occurring as a result of his use of Fricke's vehicle. Accordingly, the coverage issue turns on whether the term permission contemplates coverage for the actions of a person permitted to use a car generally, or rather is limited to those persons who have permission to take the particular actions immediately giving rise to liability. ¶33 Hiatt accepted Fricke's offer for a ride and therefore had permission to use the car in the sense that he was invited to sit in the passenger seat while Fricke drove him from the nightclub to his home. On the other hand, Fricke never gave Hiatt permission to reach over and grab the steering wheel. Nationwide urges us to conclude that grabbing and turning the steering wheel disqualified Hiatt from permissive user status under the terms of the policy. We decline to do so. ¶34 We hold that Hiatt was using [Fricke's car] with [her] permission despite his sudden action that caused Fricke's car to veer into oncoming traffic. This interpretation is dictated by the statutory language mandating coverage of permissive users and is also supported by practical considerations of efficiency and predictability in resolving insurance claims. ¶35 The controlling statutory language does not limit permissive users to those who are given permission to drive or operate a vehicle. Operator is a defined term under the statute. See Utah Code Ann. §§ 31A-22-301(5), 41-12a-103(8) (2003). However, the legislature chose not to use this term to describe the mandatory coverage at issue here. While the legislature could have required liability policies to cover permissive operators, it chose instead to mandate coverage for permissive users. We are persuaded that the legislature selected the term user advisedly and with the intention that it apply more broadly than the term operator. See In re Estate of Flake, 2003 UT 17, ¶ 25, 71 P.3d 589 (In construing a statute, we assume that each term in the statute was used advisedly . . . . (quotation and citation omitted)). ¶36 Our interpretation of permissive user is also supported by a related provision of the insurance code. The code prevents an insurer from withdrawing the coverage it is required to extend to permissive users on the basis that the permissive user was at fault in causing an accident. See Utah Code Ann. § 31A-22-303(1)(a)(iii)(A) (2003). Our interpretation prevents insurers from frustrating this provision by categorizing as unauthorized those actions giving rise to fault. ¶37 Practical considerations also support our reading of the statutory language. The construction proposed by Nationwide would give rise to circumstances where a person using someone else's vehicle could move in and out of the zone of permissiveness from moment to moment. Such an interpretation would spawn fact-dependent disputes over whether, at the relevant moment(s), a user had permission to undertake the particular action(s) that caused an accident. For example, the typical automobile owner does not authorize permissive users to exceed speed limits, run red lights, drive recklessly, or engage in any negligent or ill-advised actions. Under the interpretation urged by Nationwide, a person driving someone else's automobile with permission, but without permission to act negligently, would find himself without liability coverage. Other potential scenarios giving rise to coverage disputes under Nationwide's proposed interpretation could involve passengers who inadvertently bump the driver's arm, open a door at an inopportune moment, or startle the driver. ¶38 We find no support for an interpretation that would create additional coverage disputes and inject increased uncertainty into the evaluation of coverage determinations for permissive users. The many fact-dependent issues inherent in such disputes would likely subject both accident victims and the insurance industry not only to more uncertainty, but to increased litigation as well. ¶39 We are cognizant that other courts confronted with the issue of whether a steering-wheel-grabber disqualifies himself from permissive user status have decided the issue differently. [5] However, none of these decisions relied on the language of a statutory scheme like ours, which defines the term operator but mandates coverage of permissive users. Moreover, none of these decisions analyzed the problems inherent in an interpretation that renders coverage dependent on the factual complexities presented by a construct where would-be permissive users frequently enter and exit the scope of permission. ¶40 Because Hiatt had permission to ride in Fricke's car as a passenger, we hold that he was covered as a permissive user under Fricke's policy with Nationwide for the duration of the ride. We further hold that Hiatt's actions in grabbing and turning the steering wheel did not disqualify him from permissive user status.
¶41 In the alternative, Nationwide asserts that Hiatt was not covered under the policy by virtue of the policy's intentional acts exclusion. The policy states that it does not cover property damage or bodily injury caused intentionally by or at the direction of an insured (emphasis added). Nationwide argues that Hiatt's actions in grabbing and turning the steering wheel were intended to cause injury or damage and therefore were not covered. West American contends that Nationwide's intentional acts exclusion runs afoul of Utah's statutorily mandated coverage requirement. See Utah Code Ann. § 31A-22-303(1)(a)(ii)(A) (2003). We agree with West American. ¶42 The Utah legislature has enacted a comprehensive statutory scheme mandating minimum liability coverage for motor vehicles. See id. §§ 31A-22-303 to -304. This legislative enactment reflects a public policy requiring vehicle owners to carry a minimum level of liability coverage to protect innocent victims of automobile accidents. In the case of an owner's liability policy, the statute requires that the policy insure the person named in the policy and any permissive users against loss from the liability imposed by law for damages arising out of the ownership, maintenance, or use of these motor vehicles within the United States and Canada . . . in [dollar] amounts not less than the minimum limits specified. Id. § 31A-22-303(1)(a)(ii) (emphasis added). ¶43 The statute recognizes no distinction between liability arising out of negligent acts and liability arising out of intentional acts; it simply requires coverage for all liabilities imposed by law. Because the law imposes liability for damages caused negligently and intentionally, we conclude that the statute requires coverage of liability arising out of intentional, as well as negligent, acts. [6] ¶44 Our conclusion is buttressed by the fact that the statutory scheme expressly contemplates some exclusions from coverage, [7] but does not authorize exclusions from coverage for the intentional acts of otherwise covered persons. In light of the clear statutory language mandating coverage against loss from the liability imposed by law for damages arising out of the ownership, maintenance, or use of a motor vehicle and the public policy requiring minimum coverage to protect innocent victims of automobile accidents, the legislature's failure to authorize such intentional acts exclusions is dispositive. Accordingly, we hold that the intentional acts exclusion is unenforceable against accident victims up to the minimum liability limits prescribed by the statute. [8] ¶45 Our holding with respect to the limited validity of the intentional acts exclusion is consistent with our holdings regarding the validity of other exclusions in the arena of automobile liability coverage. In Allstate Insurance Co. v. United States Fidelity & Guaranty Co., 619 P.2d 329 (Utah 1980), we considered the validity of a named driver exclusion to an automobile liability insurance policy. After analyzing the then-applicable statutory scheme and concluding that the legislature had established a mandatory minimum liability coverage requirement for automobile insurance policies, we held that the exclusion was void in relation to the minimum level of liability coverage mandated by statute. Id. at 333. ¶46 Similarly, in Farmers Insurance Exchange v. Call, 712 P.2d 231 (Utah 1985), we examined the validity of a policy provision that excluded coverage for bodily injury to members of the insured's household. We held that the exclusion contravened the statutory requirement mandating minimum benefits that must be provided to all persons sustaining personal injuries in automobile accidents. In so holding, we noted that many jurisdictions interpret their mandatory insurance statutes to require liability insurance subject only to specific statutory exclusions and construe the legislative policy to require minimum coverage to victims of automobile accidents. Id. at 234. We concluded that it would be anomalous if the rights of innocent accident victims, for whose protection the Utah No-Fault Act was adopted, could be defeated by private agreements. Id. at 235. The same reasoning applies with equal force to the intentional acts exclusion at issue here. [9] ¶47 At the time of the accident and throughout the duration of this action, the statute required a minimum coverage of $25,000 for liability for bodily injury to or death of one person arising out of the use of a motor vehicle in any one accident and $15,000 for liability for property damage in any one accident. Utah Code Ann. § 31A-22-304 (2003). West American has requested reimbursement of a property damage payment to its insured of $11,514.65, along with rental car expenses of $499.70. Because the amounts at issue in this case fall within the statutory minimums, the intentional acts exclusion does not excuse Nationwide from any obligation it may have to reimburse West American for the payments it made to Speros.
¶48 The trial court also held that the default judgment entered against Hiatt is not binding on Nationwide and that Nationwide is entitled to litigate anew the issue of Hiatt's liability for the accident. This is a legal conclusion that we review for correctness. ¶49 Nationwide argues that the facts established in a default judgment against one defendant in an action are not deemed admitted against other defendants in that action and that Nationwide is therefore entitled to dispute the facts established by the default judgment against Hiatt. While this may be true in a general sense, it is inapplicable in the context of a liability insurer who breaches a duty to defend an alleged tortfeasor. ¶50 The complaint filed by Speros and West American imposed a duty on Nationwide to defend Hiatt. A policy containing motor vehicle liability coverage imposes on the insurer the duty to defend, in good faith, any person insured under the policy against any claim or suit seeking damages which would be payable under the policy. Utah Code Ann. § 31A-22-303(5) (2003). It is well established that [a]n insurer's duty to defend is determined by reference to the allegations in the underlying complaint. When those allegations, if proved, could result in liability under the policy, then the insurer has a duty to defend. Nova Cas. Co. v. Able Constr., 1999 UT 69, ¶ 8, 983 P.2d 575 (citing Sharon Steel Corp. v. Aetna Cas. & Sur. Co., 931 P.2d 127, 133 (Utah 1997); Deseret Fed. Sav. & Loan Ass'n v. United States Fid. & Guar. Co., 714 P.2d 1143, 1146 (Utah 1986)). ¶51 The complaint in this case alleged that Hiatt's negligent act of grabbing and turning the steering wheel caused the accident. It further alleged that Hiatt was an insured person under Nationwide's policy with Fricke. These allegations created a duty on the part of Nationwide to defend Hiatt. See United States Fire Ins. Co. v. United Serv. Auto. Ass'n, 772 S.W.2d 218, 221 (Tex. App. 1989) (holding that the insurer of the car owner and driver whose passenger grabbed and turned the steering wheel, causing an accident, had a duty to defend the passenger). Notwithstanding that duty, Nationwide responded to West American's complaint by filing a timely answer on behalf of only itself and Fricke. It failed to answer or defend on behalf of Hiatt, thus exposing Hiatt to the risk of a default judgment. When Nationwide exposed Hiatt to that risk in breach of its duty to defend, it also exposed itself to the risk that it could lose the ability to litigate the facts giving rise to Hiatt's alleged liability and that it could thereafter be held liable for the resulting judgment. ¶52 Despite the default judgment, Nationwide maintains that it must be provided a fair opportunity to litigate the underlying factual issues in the case. However, Nationwide was, in fact, provided that opportunity. We have held that as a general rule[,] when an insurer, whose policy requires it to defend its insured, receives notice of a suit against [the insured] and is allowed an opportunity to defend, but refuses, [the insurer] is bound by the findings and judgment therein. McCarty v. Parks, 564 P.2d 1122, 1123 (Utah 1977). ¶53 In this case, Nationwide had notice and an opportunity to defend when it was presented with the original complaint filed by West American. The original complaint alleged that Hiatt was liable for the accident and that Nationwide's policy covered Hiatt's actions. Nationwide therefore had notice from the inception of this action that Hiatt may have been insured under its policy with Fricke. When Nationwide chose not to defend Hiatt, it forfeited its opportunity to dispute the underlying facts of the accident. See McCarty, 564 P.2d at 1124 (It is undoubtedly true that where any substantial question as to coverage exists, it may involve some risk on the part of the insurance company to refuse to defend.). Nationwide cannot avoid the consequences of its failure to defend by asserting that it had no opportunity to refute the factual basis for the claims against Hiatt.