Agency Insurance v. State Farm Mutual Automobile Insurance

WOODWARD, J. On December 10, 2007, Agency Insurance Company, appellant, sought a declaratory judgment in the Circuit Court for Baltimore County against State Farm Insurance Company (“State Farm”) and Allstate Insurance Company (“Allstate”), appellees, in order to determine the respective contractual responsibilities of the parties to provide insurance coverage arising from an automobile accident. After a one day bench trial, the trial court ordered on April 28, 2009, that neither State Farm nor Allstate was obligated to defend or indemnify the negligent driver. In this appeal, appellant presents two questions for review, which we have rephrased: I. Did the trial court err by determining that State Farm was not obligated under its policy to defend or indemnify the driver of an insured vehicle who was not the named insured, a relative of the named insured, or permitted to drive the vehicle?

II

Did the trial court err by determining that Allstate was not contractually obligated to defend or indemnify its insured while he was operating a non-owned vehicle? For the reasons stated herein, we shall affirm the judgment of the circuit court. BACKGROUND This appeal arises from a fatal automobile accident that occurred in Frederick County, Maryland. In December of 2005 Barbara Brooks owned a 1999 Ford Escort (the “Escort” or the “car”) that was insured by State Farm.

On December 30, 2005, Aaron Zufall was driving the Escort with Brooks’ minor daughter, Emily Pugh, and Tom Mullinex as passengers. While traveling on State Route 75, the Escort struck a 1995 Honda Civic driven by Lauren DeLodovico. Both Pugh and DeLodovico were killed as a result of the accident. Under State Farm’s policy covering the Escort, Brooks was listed as a named insured and Pugh was covered as a resident relative.

Zufall was an insured under an Allstate policy that was issued to his parents, Harry and Robin Zufall. DeLodovi ⁶⁷⁰ co was an insured under a policy with appellant, which contained a $50,000.00 uninsured motorist provision. On December 10, 2007, appellant filed a Complaint for Declaratory Judgment, which requested that the court “[d]etermine and adjudicate the rights and liability of the parties with respect to the policies involved.” A one-day trial was held on April 2, 2009. After certain stipulations were placed on the record, Brooks was the only witness to testify.

Brooks testified that she purchased, maintained, and insured the Escort. According to Brooks, the car was titled and registered in her name only. Brooks stated that she placed certain restrictions on Pugh’s use of the Escort. Brooks instructed Pugh, who was a senior at Frederick High School at the time of the accident, that she was only permitted to drive the car to school, work, and when she was volunteering at Frederick Memorial Hospital.

If Pugh wanted to use the car for any other purpose, Brooks required her to ask permission, state where she was going, and call when she arrived at her destination. Although Brooks testified that she told Pugh numerous times that no one else was to drive the Escort, Brooks admitted that she previously had granted Pugh’s request to allow Zufall, who was then dating Pugh, to drive the car so that Pugh and Zufall could go to Medieval Times in Anne Arundel County. According to Brooks, she was unaware of any other occasion that Zufall drove the Escort. Brooks then recounted that she permitted Pugh to drive to Zufall’s house on December 30, 2005, and spend the night there.

Brooks understood that Zufall and Pugh planned to pick up some other friends and travel to Burkittsville. Brooks testified that, after confirming that Zufall had an operational car, she instructed Pugh that Pugh was only allowed to drive the Escort to Zufall’s house and back. The car was to remain parked at the Zufall residence once Pugh was there, and she was not to do any additional driving that evening. Brooks never told Zufall of these restrictions.

Brooks also provided a statement to State Farm that she never gave Zufall permission to drive the Escort on the evening of December 30, 2005. ⁶⁷¹ The depositions of Zufall and Mullinex were also introduced into evidence. Both stated that the plan for the evening of December 30, 2005, was to pick up Mullinex’s cousin in Union Bridge and then drive to Burkittsville. Zufall testified that Pugh volunteered the use of the Escort and gave the keys to him. Mullinex, however, claimed that Pugh handed over the keys after Zufall stated his desire to drive the car.

Zufall maintained that he was unaware that Pugh was only permitted to drive the Escort to his home that evening and asserted that Pugh never communicated any restrictions that Brooks placed on the car’s use. Zufall stated that he had driven the Escort on a number of previous occasions and that Pugh had given him permission to drive the car. Both Zufall and Mullinex stated that they did not have any conversation with Brooks regarding the use of the Escort that evening. On April 28, 2009, the trial court ruled that neither State Farm nor Allstate was required to defend or indemnify Zufall, because he did not have permission to drive the Escort at the time of the December 30, 2005 accident.

A timely notice of appeal followed. DISCUSSION Standard of Review Our review of a trial court’s declaratory judgment regarding the scope of coverage under an automobile insurance policy is governed by Maryland Rule 8-131(c). Mundey v. Erie Ins. Grp., 167 Md.App. 444, 450-51 , 893 A.2d 645 (2006), aff'd, 396 Md. 656 , 914 A.2d 1167 (2007).

Rule 8-131(c) provides: (c) Action tried without a jury. When an action has been tried without a jury, the appellate court will review the case on both the law and the evidence. It will not set aside the judgment of the trial court on the evidence unless clearly erroneous, and will give due regard to the opportunity of the trial court to judge the credibility of the witnesses. Under the clearly erroneous standard, we do not disturb the factual findings of the trial court if they are supported by ⁶⁷² competent and material evidence.

Thomas v. Capital Med. Mgmt. Assocs., LLC, 189 Md.App. 439, 453 , 985 A.2d 51 (2009). This Court, however, does not defer to a trial court’s conclusions on issues of law.

Karsenty v. Schoukroun, 406 Md. 469, 502 , 959 A.2d 1147 (2008). “[U]nder Maryland law, an insurance policy is a contract.” Anderson v. Gen. Cas. Ins. Co., 402 Md. 236, 246 , 935 A.2d 746 (2007).

As the interpretation of a contract is ordinarily a legal question, we review the judgment of the trial court de novo. Mundey, 167 Md.App. at 451 , 893 A.2d 645 . I. Did the trial court err by determining that State Farm was not obligated under its policy to defend or indemnify the driver of an insured vehicle who was not the named insured, a relative of the named insured, or permitted to drive the vehicle? Because an insurance policy is a contract, the usual principles of contract interpretation apply, “which require that a contract be interpreted as a whole, in accordance with the objective law of contracts, to determine its character and purpose.” Anderson, 402 Md. at 246 , 935 A.2d 746 .

The Court of Appeals has stated: “An insurance policy is a contract between the parties, the benefits and obligations of which are defined by the terms of the policy.” Thus, “[w]e look first to the contract language employed by the parties to determine the scope and limitations of the insurance coverage.” When interpreting the language of a contract, “we accord a word its usual, ordinary and accepted meaning unless there is evidence that the parties intended to employ it in a special or technical sense.” Clendenin Bros., Inc. v. U.S. Fire Ins. Co., 390 Md. 449, 458-59 , 889 A.2d 387 (2006) (citations omitted) (alterations in original). “Maryland does not follow the rule that insurance policies should, as a matter of course, be construed against the insurer.” Dutta v. State Farm Ins. Co., 363 Md. 540, 556 , 769 A.2d 948 (2001). ⁶⁷³ The case sub judice regarding State Farm requires the interpretation of the “omnibus clause” of State Farm’s policy. An omnibus clause extends coverage under an automobile insurance policy to individuals other than the named insured.

Salamon v. Progressive Classic Ins. Co., 379 Md. 301, 315 , 841 A.2d 858 (2004); Andrew Janquitto, Maryland Motor Vehicle Insurance § 7.7, at 198 (2d 1999). “The purpose of an omnibus clause is to protect the named insured, the persons within the omnibus clause, and the public generally and its members injured by the negligent operation of the insured automobile on a public highway.” 12 Couch on Insurance (“Couch on Insurance”) § 45:293 at 617-18 (2d 1981). Specifically, the omnibus clause serves three objectives: (1) It gives the injured person a right to proceed against the insurer in cases in which the insurer would not otherwise be liable because the automobile was not driven by the original insured, his employee, or under other circumstances imposing liability upon the original insured for the operation of the automobile. (2) It gives the additional insured the protection of automobile liability insurance without his having procured such a policy, for an omnibus clause creates liability insurance in favor of others than the named insured as meet the descriptions outlined in the respective policies, to the same degree and with the same effect as though such a person’s name had been specifically stated in the policy as an insured, or as though the insured had been operating the car at the time of the accident.

That is, upon the happening of an accident the protection of the insurance vests in one using the car with the permission of the insured as completely as if he had been a named insured. (3) It may free the original insured from being sued, as in the case where the injured person brings suit instead against the additional insured for the purpose of establishing the existence of a covered liability. Id. at 618-19. The provisions in an omnibus clause must be analyzed in accordance with the specific terms present in the contract: ⁶⁷⁴ “We note specifically that all omnibus clauses do not contain the same language.

Because these clauses are part of contracts, it follows that they must be interpreted pursuant to their terms on a contract by contract or case by case basis, and not by sweeping language saying that regardless of the exact provisions of the contract we shall interpret all similar, but not identical, contracts alike.” Wash. Metro. Area Transit Auth. v. Bullock, 68 Md.App. 20, 32 , 509 A.2d 1217 (emphasis added) (quoting Nat'l Grange Mut. Ins.

Co. v. Pinkney, 284 Md. 694, 706 , 399 A.2d 877 (1979)), cert. denied, 308 Md. 237 , 517 A.2d 1120 (1986). State Farm’s insurance policy in the instant case contained the following omnibus clause: Who Is an Insured When we refer to your car, a newly acquired car or a temporary substitute car, insured means: 1. you; 2. your spouse; 3. the relatives of the first person named in the declarations; 4. any other person while using such a car if its use is within the scope of consent of you or your spouse; and 5. any other person or organization liable for the use of such a car by one of the above insureds. (Emphasis and bold in original). Appellant argues that Zufall was an insured at the time of the accident under section 5 of the omnibus clause of State Farm’s policy.

In particular, appellant states that Brooks was a named insured on the policy, and Pugh was insured under section 3 of the omnibus clause as a resident relative. According to appellant, Pugh was in actual use of the Escort at the time of the accident, even though Zufall was driving the car, because Zufall was operating the Escort in furtherance of Pugh’s purposes. Appellant asserts that the language of section 5 “contemplates operation by one and ⁶⁷⁵ actual use by an Insured, and supports a finding of coverage and duty to indemnify.” (Emphasis in original). Appellant concludes that Zufall was covered under section 5 of the omnibus clause as a person “liable for the use of such a car by one of the above insureds, lie., Pugh].” In addition, appellant contends that the scope of Brooks’ permission to Pugh “is relevant only to the extent that it may preclude coverage under [ ]seetion (4)” of the omnibus clause.

Appellant acknowledges that in the trial court it argued that coverage also existed under section 4 of the omnibus clause, “because the permissive use may be implied from prior actions of [Pugh], [Zufall] and [ ] Brooks.” Appellant states, however, that “[t]his is not the [a]ppellant’s contention on appeal.” In this appeal, appellant relies exclusively on section 5 of the omnibus clause for coverage of Zufall and claims that “[b]y virtue of the presence of [ ]section (5), State Farm implicitly contemplated the situation where the named insured does not give permission, and a relative does.” Thus, appellant concludes, “[t]he plain language of [ ]section (5) of the omnibus clause renders [] Brooks’ permission unnecessary in this context.” Appellant relies on Melvin v. American Automobile Insurance Company, 232 Md. 476 , 194 A.2d 269 (1963), claiming that “Melvin is the best source of authority as the facts are directly on point, and the policy provisions are functionally identical.” In Melvin , Barry Brontman (“Barry”) obtained permission from his father, Harry Brontman (“Harry”), to use an automobile owned by Harry. Id. at 477 , 194 A.2d 269 . On the evening of March 9, 1957, Barry drove to a party in Baltimore. Id.

He left the party -with three other young men and went to a diner to eat. Id. They then decided to visit a friend in Anne Arundel County. Id.

Barry, however, stated that he was tired and asked or told Alan Melvin to drive. Id. After finding their friend not at home, they were on their way back to Baltimore when Melvin lost control of the car and struck a tree, killing Barry and injuring another passenger. Id. ⁶⁷⁶ ■ The controversy in Melvin was whether the omnibus clause in Harry’s automobile insurance policy with American Automobile Insurance (“American”) covered Melvin.

Id. Melvin himself was covered by an automobile insurance policy with State Farm that was issued to Melvin’s father. Id. at 476-77 , 194 A.2d 269 . The relevant language of American’s omnibus clause read: The following are insureds under part I:(a) with respect to the owned automobile, (1) the named insured and any resident of the same household, (2) any other person using such automobile, provided the actual use thereof is with the permission of the named insured; (b) With respect to a non-owned automobile, (1) the named insured, (2) any relative, but only with respect to an automobile not owned by such relative; (c) Any other person or organization legally responsible for the use of (1) an automobile or trailer not oumed or hired by such person or organization, or (2) a temporary substitute automobile, provided the actual use thereof is by a person who is an insured under (a) or (b) above with respect to such automobile or trailer.

Id. at 478, 194 A.2d 269 (emphasis in original). State Farm, on behalf of the Melvins, sued American, claiming coverage of Melvin under American’s policy as primary insurance. Id. at 477, 194 A.2d 269 . The trial court entered judgment in favor of American, which State Farm appealed.

Id. Although it was conceded that Barry was an insured under section (a)(1), the issue was whether Melvin was covered under section (c)(1) as a person legally responsible for the use of Harry’s automobile and the actual use of the automobile was by Barry. Id. at 478, 194 A.2d 269 . Specifically, the parties contested whether Barry, who was a passenger at the time of the accident, actually “used” the car.

Id. State Farm argued that, because Melvin was driving the car for the benefit of Barry, there was “actual use” by Barry, and as a result, Melvin was covered under section (c)(1) “as a person legally responsible for the use of an automobile, not owned or ⁶⁷⁷ hired by [him].” Id. American contended that the “actual use” of the car was by Melvin and not Barry, because Melvin was actually operating the car at the time of the accident. Id.

Thus, according to American, Melvin was not covered by its policy. Id. The Court of Appeals determined that the meaning of the words “actual use” in the omnibus clause should not be limited “to the operation of a vehicle, where the operator is the agent or servant of another and subject to his immediate and present direction and control.” Id. at 478-79, 194 A.2d 269 . The Court cited to the case of Hardware Mutual Casualty Co. v. Mitnick, 180 Md. 604, 607 , 26 A.2d 393 (1942) for the proposition that “ ‘using a car’ ” includes “ ‘a borrower’s making use of it by riding while driven by another.’ ” Melvin, 232 Md. at 479 , 194 A.2d 269 .

The Court held that the “actual use” of Harry’s vehicle was by Barry, and therefore Melvin was an insured under the terms of section (c)(1) of American’s omnibus clause. Id. at 480 , 194 A.2d 269 . In the instant appeal, appellant contends that State Farm’s omnibus clause “provides essentially the same mechanism of coverage for [ ] Melvin as the omnibus [c]lause in the case sub judice provides for [] Zufall.” According to appellant, the actual use of the Escort was by Pugh, as Zufall was driving “to carry out her original purpose.” Thus appellant concludes that Zufall is an insured under section 5 of the State Farm omnibus clause. State Farm counters that appellant’s reliance on Melvin is misplaced because, among other things, the language of the omnibus clauses in Melvin and the instant case are materially