Cohen v. American Home Assurance Co.

Smith, J., delivered the opinion of the Court. This is a declaratory judgment action brought to determine to what extent, if at all, coverage existed on a policy of insurance issued by appellee and cross-appellant, American Home Assurance Company (American Home). Cross-appellee, Frances Louise Brown, on December 9, 1965, owned a 1958 Chevrolet sedan. On that day it was involved in an accident while operated by her son, Josephus.

He was killed subsequent to that accident. The administrator of his estate is an appellant. On September 22, 1965, Mrs. Brown says she applied to Basin and Basin Insurance Agency, Inc., for an automobile liability policy, the office of this firm being located on Ritchie Highway across the road from the Department of Motor Vehicles in Glen Burnie. There was filed in evidence an application made to Basin and Basin purportedly signed by “Francis Brown” dated September 22, 1965.

At the top of the application it is indicated that the name of the insured is “Francis Louise Brown”. The driver information shown is listed with reference to “Frances”, a “female” born on the date of birth of Mrs. Brown and holding a Maryland motor vehicle operator’s license with number identical to Mrs. Brown’s. The application was for a 1958 Chevrolet four door sedan. Policy # “3104629” appears at the top of the application.

Also in evidence is what purports to be policy #3104629 in the name of Francis Louise Brown covering what is described in one place as a 1958 Chevrolet with serial number corresponding to that of Mrs. Brown’s car, while ³³⁷ in another place the indication is that the policy coverage is on a 1961 Chevrolet with an entirely different serial number. The insurance application, in response to a requirement to list all drivers, listed only Mrs. Brown. She denied authorizing anyone to sign her name, denied ever having signed her name “Francis Brown” and introduced a number of documents with her first name spelled “Frances”. Her testimony indicated no knowledge as to the circumstances under which the signature “Francis Brown” was affixed.

Also filed in evidence were various invoices from Basin and Basin directed to Frances Brown or Frances L. Brown. The first of these specified its application to 1958 Chevrolet four door sedan with serial number corresponding to that owned by Mrs. Brown. Josephus Brown resided with his wife in a trailer near his mother and father. He was not a member of the same household as his mother.

Mrs. Brown’s husband had a back injury about two years prior to the time when insurance was obtained, being bedridden at times. Mrs. Brown said she needed the automobile for transportation to and from work. She testified that when she applied for the insurance it was her intention that she be the sole driver of the car. On December 9, 1965, Mrs. Brown drove Josephus and his wife to her place of employment in Odenton.

She stated that at that time she believed her son’s motor vehicle operator’s license which had been previously suspended had been reinstated. Her son had led her to believe this because he had been driving a truck for a company that was building a motel near Laurel. On December 9 he was unemployed. Mrs. Brown said that on the day in question her son, Josephus, had a series of conversations with her in which he asked for the keys for her car.

He wanted, so it is said, to travel to the Sierra Bar for the purpose of making transportation arrangements with regard to contemplated employment. She ultimately delivered the keys to ³³⁸ Josephus with the understanding that a friend, Scott, was to drive the car. She testified on direct examination, “I made it definitely clear to [Josephus] that he was not to drive that car * * A similar statement was made on cross-examination. Unfortunately, Josephus did not heed the admonition of his parent and was driving the car at the time of the accident.

Scott was not then around. There is no evidence relative to the nature of the “actual use” at the time of the accident, as to the location of the accident nor of the point of beginning and point of destination of the trip in progress when the accident occurred. Suit was brought in the Circuit Court for Anne Arundel County against Frances L. Brown and the estate of Josephus Brown as a result of the accident. American Home declined to defend either Mrs. Brown or the administrator of her son’s estate.

This suit for declaratory judgment was then brought. Judge Childs in the Circuit Court for Anne Arundel County held American Home bound to defend Mrs. Brown, but not responsible for the defense of the suit against the estate of Josephus Brown, thus producing the appeal and cross appeal here presented. We shall affirm the decision of Judge Childs. Questions presented to us are (1) was a policy of insurance issued to Frances Brown?; (2) was there material misrepresentation to American Home by Frances Brown?; (3) did the insuring agreements contained in the American Home policy extend coverage to both defendants in the damage suit?; (4) are counsel fees and expenses to be allowed to the counsel of record for Frances Brown and the estate of Josephus Brown in the damage suit?; and, (5) is the attorney of record for the plaintiff in the declaratory judgment proceeding entitled to be reimbursed for attorney’s fees and disbursements for the prosecution of the declaratory judgment action?

Further facts will be developed as the questions are discussed. ³³⁹ I and II Apparently American Home concedes, as indeed it must, that the misspelling of “Frances” as “Francis” would not in itself be grounds for contending that a policy of insurance was not issued to Frances Brown. See Erie Insurance v. Lane, 246 Md. 55 , 227 A. 2d 231 (1967). American Home here contends that the policy was not validly issued because Mrs. Brown did not sign the application and it claims that there was misrepresentation because in her application she said the car would be used only by her. The trial judge in his opinion said : “American Home in its answers to interrogatories admitted that Basin and Basin was its agent in procuring the policy in question, but contended that the policy was void ab initio because it further argued that the application contained a material misrepresentation in that it includes the statement that the use of the car would be one hundred percent that of Frances Brown.

American offers no authority for this legal proposition, therefore the court must assume it could find none. The argument would seem somewhat specious on its face for if it were the intent of the parties that the car would be operated entirely by Mrs. Brown, there would be no reason to include provision III under Insurance Agreements wherein the company agreed that the word ‘insured’ includes — the spouse, if a resident of the same household, and any person while using the automobile with permission of either spouse. Moreover, there is a recognized difference between the term ‘use’ and the term ‘operate.’ Melvin v. American Auto Insurance Co., 232 Md. 476 . “There is no merit to the contention that American was not liable because Mrs. Brown did not actually sign the application. She went to American’s agent, made a deposit, answered ³⁴⁰ all questions asked of her, honestly it appears, and undoubtedly would have signed the application had she been requested to do so.

If anyone were misled by this procedure, the moving party was American’s own agent. It cannot at this point blame Mrs. Brown for an irregularity in its own procedure.” American Home cites no authority for its position relative to signing. The general rule relative to necessity and sufficiency of signing of an application is set forth in 43 Am.Jur.2d, Insurance, § 209 (1969), where it is said: “Generally if a signed application is a condition precedent to inception of the risk and the applicant is charged with knowledge of that requirement, failure to sign the application precludes the making of a binding contract because of the lack of a meeting of the minds. But if the contract does not require a signed application, acceptance of an unsigned application and delivery of the policy complete the contract and bind both the insured and the insurer. “It is not always essential that a proposed insured personally sign the application in order to create a binding insurance contract.

In several cases where the application was signed by another for the insured with the knowledge of the insurer’s agent, the policies issued have been sustained, notwithstanding provisions of the contract requiring that the application be signed by the insured personally. Such is the rule where the application has been signed by a third person at the direction of the insured .or by his authority and he has ratified the act. The insurer cannot avoid the obligation of the policy on the ground that the application was not signed by the insured, where the insurer’s ³⁴¹ agent signed it for the insured as authorized by him, or where the insurer’s agent assured the plaintiff beneficiary that signature of the application by the insured would not be necessary. Indeed, an insurer is liable on a policy issued on an application signed only by its agents in their own names, notwithstanding false representations in the application, where the insured is not responsible for such misrepresentations..

Similarly, if an insurance agent fills out and signs an application without the authority or knowledge of the applicant, the insurer is liable on the policy, notwithstanding provisions therein avoiding the policy for any misrepresentations.” In New York Life Insurance Co. v. Rogers, 156 Md. 88 , 143 A. 651 (1928), the question presented was whether delivery of a policy by an agent of an insurer to the beneficiary, who paid the premium, was rendered ineffective by the fact that an endorsement on the policy, stating truthfully that the insured had no other application for life insurance then pending, was not signed by him personally, but by the beneficiary at the agent’s suggestion. The Court said: “Although the amendment of the application was prepared with a view to its being signed by the insured, its practical purpose was accomplished by the verification suggested and obtained by the agent to whom the policy was entrusted for delivery. The certification was by a premium paying party who had knowledge of the fact of which the defendant wished to be assured. No question has been raised as to the accuracy of the statement thus certified.

The agent apparently believed, and the evidence admits of the inference, that the plaintiff had the requisite authority to certify in his brother’s name to the statement contained in the amendment.” Id at 91. ³⁴² In this case the policy makes no reference to a signed application. It states that the company “[a]grees with the insured, named in the declarations made a part hereof, in consideration of the payment of the premium and in reliance upon the statements in the declarations * * No reference is made in the declarations to the application or to any intention of American Home that it was necessary for the application to be signed by Mrs. Brown. The burden is on the insurer to establish the insured’s fraud or misrepresentation in an application for insurance. Erie Insurance v. Lane, supra.

Ordinarily, whether a representation in an insurance application was true or false, or material to the risk, is for the jury to determine. Monumental Ins. Co. v. Taylor, 212 Md. 202 , 129 A. 2d 103 (1957), and Sun Ins. Office v. Mallick, 160 Md. 71 , 153 A. 35 (1931).

The trial judge was the trier of facts. Under Maryland Rule 886 a his findings are not to be disturbed unless clearly erroneous. He determined that a policy of insurance was issued to Mrs. Brown and that there was no material misrepresentation to American Home by Mrs. Brown. There was evidence to support those findings.

Ill Insuring Agreement III (a) of the policy issued by American Home to Mrs. Brown reads as follows: “III. Definition of Insured: (a) With respect to the insurance for bodily injury liability and for property damage liability the unqualified word ‘insured’ includes the named insured * * * and also includes any person while using the automobile * * * provided the actual use of the automobile is by the named insured or such spouse or with the permission of either . . . .” Thus we are again brought face to face with the proper application of the omnibus clause and again find ourselves in agreement with the statement of Judge Hall in the dissenting opinion in Matits v. Nationwide Mutual ³⁴³ Insurance Company, 33 N. J. 488, 166 A. 2d 345 (1960), when he said: “The simple words, perhaps too simple, ‘actual use * * * with the permission’ of the policyholder or named assured, found in substantially similar form in practically all automobile liability policies issued in every jurisdiction save compulsory insurance states, have engendered probably as much reported litigation as any common contractual phrase. The absence of an express definition of the key words, either legislatively or within the instrument, coupled with the infinite variety of factual situations arising, has resulted in the widest conceivable range of judicial approach, reasoning and result.” Id. at 498. We quoted that language in American Home Assurance Co. v. Erie Ins., 252 Md. 116 , 248 A. 2d 887 (1969).

The Josephus Brown estate relies upon the case of Casualty Company v. Mitnick, 180 Md. 604 , 26 A. 2d 393 (1942). In that case the omnibus clause covered “not only the named insured but also any person while using the automobile and any person or organization legally responsible for the use thereof * * * provided further that the actual use is with the permission of the named insured.” The owner and “named insured” kept the car for the use of his granddaughter. The granddaughter regularly kept the key and did all the driving. On the occasion covered by the case she had permitted a friend to drive at the request of the friend who was in her company at the time of the accident.

There was no evidence that the owner knew of the friend’s driving the car or had consented to it. The only testimony on the point was that he had instructed his granddaughter to let nobody but herself drive it. Chief Judge Bond for the Court said: “This court is unable to agree with the contention that the granddaughter, Mrs. Phillips, ³⁴⁴ was not under this policy an insured for whose judgment debt the insurer would in any case be liable. It is argued that the words ‘person using,’ and ‘use,’ in the omnibus clause, refer to the actual driving of the car, not to taking the car out and controlling the trip while driven by another.

But using a car in the ordinary acceptation of the words seems clearly to include a borrower’s making use of it by riding while driven by another. Mrs. Phillips was ‘still the director of the enterprise, still the custodian of the instrumentality confided to [her] keeping, still the master of the ship.’ ” (citing authorities) Id. at 607 . In Melvin v. American Auto Insurance Company, 232 Md. 476 , 194 A. 2d 269 (1963), the omnibus clause provided the persons insured were “the named insured and any resident of the same household” and provided coverage for “[a]ny other person * * * legally responsible for the use of * * * an automobile * * * not owned * * * by such person * * * provided the actual use thereof is by a person who is an insured * * * with respect to such automobile * * The son of the owner of the vehicle was a resident of the same household as the named insured. He had general permission to use the car.

He went to a party and after leaving asked a friend to drive, the son remaining in the car. It was argued by American Automobile Insurance Company in that case that the “actual use” was by the friend, and not by the son, because the friend was actually operating the car at the time of the accident. In an opinion by Judge (later Chief Judge) Henderson this Court said: “We see no reason to limit the meaning of the words ‘actual use’ 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. There appears to be no case that has construed the words ³⁴⁵ in the context of this policy, but there are cases in which the word ‘use’ has been so construed.

In Casualty Co. v. Mitnick, 180 Md. 604, 607 , Chief Judge Bond, for this Court, said that ‘using a car in the ordinary acceptation of the words seems clearly to include a borrower’s making use of it by riding while driven by another.’ (Citing authorities). The cases also indicate that ‘actual use’ means the particular use contemplated when permission is granted and relied on. “The appellee cites 7 Appleman, Insurance Law and Practice, sec. 4354 as stating: ‘The term “actual use”, as employed in the present policy, was drafted to confine the coverage to situations where the employment made of the vehicle at the time of the accident was within the scope of the permission granted.’ We think it is clear, however, that the policy there referred to was one in which the coverage extended only to persons using the vehicle with the permission of the named insured. Thus, coverage depends in that situation upon the scope of the permission granted. In sec. 4361, Apple-man states that ‘[t]he ordinary rule is usually stated to be that the bailee of an automobile, having possession with the permission of the named insured, cannot validly permit a third person to operate the vehicle so as to bring such third person within the policy protection’.

We may note that there are many cases to the contrary. But in sec. 4360, the author states: ‘The term “actual use” refers to the actual employment of the vehicle at the time of the accident, rather than to the identity of the operator at such time.’ Thus, so far as the meaning of the words is concerned, the author would seem to agree that use and operation are not synonymous. ³⁴⁶ “In the instant case Barry was covered as a resident of his father’s household, and did not need to rely upon the permission granted. The policy in the instant case is broader than any of the policies in the cases cited by Appleman and relied upon by the appellee. Here the test is use rather than permission.” Id. at 478-80.

In Zurich Company v. Monarch Company, 247 Md. 3 , 230 A. 2d 330 (1967), the omnibus clause covered “any other person using such automobile with the permission of the named insured, provided his actual operation * * * is within the scope of such permission, * * Quade secured permission from Mrs. Fuller, a “named insured” to use the automobile for his personal use. He was held not to be a member of the household within the meaning of the policy. Heiston wanted to use the car. Quade told him he would have to obtain the permission of Mrs. Fuller.

Quade was led to believe that permission was given and delivered the keys to Heiston. Judge Finan for the Court there said: “We are aware that with Heiston operating the Fuller vehicle with Quade, the permittee, present in the back seat, that in keeping with the holding of this Court in Casualty Co. v. Mitnick, 180 Md. 604 , 26 A. 2d 393 (1942), that Heiston’s operation of the vehicle might be deemed Quade’s use of the vehicle, as Chief Judge Bond in Casualty Co. v. Mitnick, supra, said at p. 607: ‘using a car in the ordinary acceptation of the words seems clearly to include a borrower’s making use of it by riding while driven by another.’ “However, in the instant case Heiston’s girl friend was present in the front seat — he was on a date with her — and, although Quade was present, the benefit of the use of the car inured to Heiston. As Heiston stated in his deposition: ³⁴⁷ “ ‘Q. If you had permission to use the car did he [Quade] have to be with you? ‘“A. No, sir.’ “This also reveals that Heiston’s deception was of such quality as to vitiate any validity that normally might have been accorded the proposition that the use was that of the first permittee at the time of the accident.” Id. at 10. In American Home Assur.

Co. v. Erie Ins., supra, the omnibus clause covered “any other person using such automobile with the permission of the named insured, provided his actual operation * * * is within the scope of such permission * * (emphasis in policy) We there pointed out the three rules said to apply to omnibus clauses, namely (1) the strict or conversion rule, (2) the liberal rule, and (3) the moderate or “minor deviation” rule. Heiston in that case had been granted permission for a specific purpose with the admonition that he “come straight back”. The errand for which permission was granted would have taken 30 to 45 minutes. The accident took place while Heiston was off on a mission of his own some two and half hours after he borrowed the car and while proceeding in an absolutely opposite direction from that for which permission was granted.

We there determined that we did not have to decide whether we adhere to the strict or conversion rule or the moderate or “minor deviation” rule, that the “actual operation” was not “within the scope of * * * permission [granted]”. In Mt. Beacon Insurance Company v. Williams, 296 F. Supp. 1094 (D.Md. 1969) Chief Judge Thomsen said: “This Court concludes that the Court of Appeals of Maryland would hold that the words in the policy should ‘be given their customary, normal meaning/ see quotation from American Home Assurance Co., supra, and would construe the term ‘actual use’ to mean ‘the particular use contemplated when permission [was] granted.’ ³⁴⁸ Melvin, supra, 232 Md. at 479 , 194 A. 2d at 271 .” Id. at 1100. Again, we do not consider ourselves obliged to determine whether we follow the strict or conversion rule or the moderate or “minor deviation” rule.- We distinguish the facts here from Casualty Company v. Mitnick, supra, and also from Melvin v. American Auto Insurance Company, supra.

We believe that in determining whether the use comes within the purview of the omnibus clause one must examine the total facts. In Mitnick, supra, there was a general grant of use of the automobile. It was kept for the complete use of the granddaughter. It is true that-she violated the instructions given to her by her grandfather when he told her that no one else was to operate the car, but the car was generally available for her use and convenience and was being so used at the time of the accident.

In Melvin, supra, coverage was based on the fact that the car was really being used at the time by a member of the household who, therefore, was a named insured, a member of the household who for his own convenience at the moment while using the car requested someone else to operate. Accordingly, the Court was not obliged there to determine whether it accepted the comment in 7 Appleman, Insurance Law and Practice, § 4354 which states: “The term ‘actual use’, as employed in the present policy, was drafted to confine the coverage to situations where the employment made of the vehicle at the time of the accident was within the scope of the permission granted.” Judge Henderson there pointed out, however, that in a situation such as this where it was permission that was involved, “coverage depends in that situation upon the scope of the permission granted.” There is no evidence in this case as to the particular mission upon which Josephus Brown was engaged at the ³⁴⁹ time of the accident. Scott was not operating the vehicle, and there is no evidence before us to indicate he was even in it. Accordingly, the case comes close to Zurich Company v. Monarch, supra, in that it might well be said that the keys were obtained by deception.

When one considers the total circumstances here involved, the inevitable conclusion is that the use here made by Josephus Brown was not within the scope of the permission granted and was not the particular use contemplated when the permission was granted. IV It was agreed between the parties that $405.00 were reasonable counsel fees for the defense of Mrs. Brown and that expenses of $3.90 incurred were reasonable. The trial judge said: “Its refusal to defend Mrs. Brown was unjustified and the court will therefore award her the stipulated amount of $405.00 as reasonable counsel fees and expenses of $3.90.” American Home says in its brief that although it agrees that attorney’s fees ought to be allowed to counsel for defending persons where it is subsequently determined that those persons were covered by a contract of liability insurance, “* * * it is perfectly clear that the only real defense in the