Maryland Indemnity Insurance v. Kornke

Moore, J., delivered the opinion of the Court. We are here confronted with a “clear-cut set of facts” 1 requiring a decision as to whether the coverage afforded by the omnibus clause of an automobile liability insurance policy extends to the “second permittee” — the driver of the insured vehicle as distinguished from the borrower or “first permittee” — and under circumstances where the insured owner restricted the operation of his car to the first permittee but the latter was a passenger at the time of the accident. The issue was presented to the trial court (Jenifer, J.) upon a stipulation of facts and the deposition of the first permittee, in a suit for declaratory judgment wherein Maryland Indemnity Insurance Company (“Maryland Indemnity”) sought in effect a determination that Nationwide Mutual Insurance Company (“Nationwide”) — and not Maryland Indemnity — was required to provide coverage and a defense to the second permittee in two separate personal injury actions filed in the Circuit Court for Baltimore County, on behalf of the first permittee and another passenger, respectively. Nationwide had issued a policy to the father of the second permittee and the latter ¹⁸⁰ was covered by a so-called JR-11 endorsement to her father’s policy. 2 In a carefully considered written opinion, the trial judge held that Maryland Indemnity was the primary insurer.

We affirm. The so-called “omnibus clause,” required by statute in a number of states, 3 is in addition to the general insuring clause and extends the protection of the automobile liability insurance policy to any person using the insured vehicle provided the use (or “actual use”) 4 is by the named insured or with his permission or consent. The clause, irrespective of language variations, clothes the named insured with broad authority to constitute other persons as “additional insureds.” The Maryland Indemnity omnibus clause at issue in this case contains fairly standard provisions and reads as follows: “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, if the ¹⁸¹ named insured is an individual, his spouse if a resident of the same household, and also includes any person while using the automobile and any person or organization legally responsible for the use thereof, provided the actual use of the automobile is by the named insured or such spouse or with the permission of either. ” (Emphasis added.) With respect to the “simple words, perhaps too simple, ‘actual use . . . with the permission of,’ ” the Court of Appeals has at least twice recorded its agreement with the observation of a dissenting judge in a 1960 New Jersey case 5 that these words “. . . have engendered probably as much reported litigation as any common contractual phrase. The absence of any 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.” Appellant’s principal contention is that the trial court erred in determining that at the time of the accident in question the “actual use” of the automobile was by the named insured (William T. Kornke, Sr.) or with his permission, or, as alternatively stated, the court erred in its determination that Kornke, Sr. “had, in fact, given to his son permission to operate the vehicle for the use as established by the facts. 6 The facts are uncomplicated and substantially undisputed.

They present the familiar picture of an 18 year old high ¹⁸² school student, William T. Kornke, Jr., living at home with his parents in Baltimore County in June, 1968. He enjoyed permission to drive his father’s car, a 1960 Chevrolet hardtop, for purposes of going to “school and work, mostly,” and for those purposes drove the car “almost every day.” On these occasions he was not required to ask his father’s permission to drive the car but rather “it was agreed that it was my responsibility.” When, however, he wanted to use the car for a date or other social purpose the case was somewhat different; then “I always had to tell him that I was going out.” This was, in effect, asking permission: “. . . I like asked that permission when I said, I am going out; that was like asking can I have the car also. Q. Your father knew what you meant by that?

A. Yes. ... If he didn’t want me to use it, he would say, well, don’t take the car.” At the same time, William was under explicit instructions not to allow anyone else to drive the father’s car. When he had first obtained his license his father had “made it clear like it was a law, a rule.” Thereafter, “along the way, ever so often he would mention that, you know, never let anybody drive your car,” meaning in the present context, the father’s car. On the evening of June 22, 1968 William had invited friends, about 15 people, home for crabs and beer.

At about midnight the group decided to ride out to Billingslee Farm in Harford County and “build a campfire near the river and sit around.” William told his father that he was going out and the group set out in two other cars and the Kornke Chevrolet which had four occupants including William’s date, Sue Peters, and her close friend, Lynanne Hampshire. 7 With William driving his father’s car they drove north. When they were about equidistant between their destination and the Kornke home the car began to misfire. William had had similar trouble before with the car and each time would stop ¹⁸³ and fix it, which involved essentially reattaching wires that had come loose from the top of the distributor. While attempting to replace one wire, however, he inadvertently touched the uninsulated portion of another and received an electric shock.

He explained the effect: “A. Well, I wasn’t wearing any shoes and I was grounded right against the pavement and it knocked me back, knocked me from under the car. . . . the engine was running ... it knocked me back and numbed me pretty well, numbed my right hand and arm, and I decided ... let me see ... I was tired, also, because I was working quite a bit the past two weeks before that, and I just — my right arm and hand, I just couldn’t move them.” Since “it was kind of taken for granted that we were headed out there, out still further, and we had a ways to go, we were only halfway there,” the question arose as to who would drive. William was “like ushered into the front seat.” He did not ask anyone else to drive but “just mentioned that my arm was sore and I probably couldn’t drive. ... It wouldn’t be safe.” He conceded that if no one had volunteered to drive, “[w]e could have just sat there until my arm got okay and then taken off again.” Lynanne Hampshire offered to drive, however, and when evidently there was no objection, she took over the wheel.

For William’s part, “as soon as I was in the seat and my head was down ... it was no time before my eyes were closed and I was asleep.” He was still asleep when the car struck a bridge abutment while Lynanne was driving. Upon these facts the trial court could readily conclude that 1) William Kornke, Jr. received permission from his father on the evening of June 22 to use the father’s car for a social purpose; and 2) Kornke, Jr., in turn, consented to the operation of the car by Lynanne Hampshire for the continuation of the trip to the Billingslee Farm when, in his opinion, he became temporarily unable to drive. The question for decision, therefore, is whether in these ¹⁸⁴ circumstances the use of the car continued, until the time of the accident, with the permission of Kornke, Sr., and the effect of the express prohibition, repeatedly communicated by father to son, against allowing anyone else to drive. In 1965, then U. S. District Judge Harrison L. Winter observed that “there is no direct decision of the Maryland Court of Appeals deciding whether, or under what circumstances, a second permittee becomes an insured under an omnibus clause. . . .” Ohio Casualty Ins.

Co. v. Pennsylvania Nat. Mut. Cas. Ins.

Co., 238 F. Supp. 706 (D.C.D. Md. 1965), aff'd per curiam, 352 F. 2d 308 (4th Cir. 1965). 8 This remains true today. A review of applicable Maryland cases, however, points the way to the proper resolution of the issue upon the facts in this case. Immediate guidance, in terms of the meaning of “actual use” as employed in the omnibus clause, is presented in the cases of Hardware Mutual Casualty v. Mitnick, 180 Md. 604 , 26 A. 2d 393 (1942) and Melvin v. American Automobile Insurance Company, 232 Md. 476 , 194 A. 2d 269 (1963), neither of which, however, involved the question of coverage vel non of a second permittee. Mitnick involved essentially the same omnibus clause as in this case.

The named insured owner kept the car for the use of his granddaughter and her mother and the granddaughter regularly kept the key and did all the driving. At issue in the case was whether coverage under the omnibus clause extended to the granddaughter (first permittee) in circumstances where the accident occurred while she was a passenger in the car as it was being driven by another person with her permission. There was no evidence that the owner “knew of Harrison’s (second permittee) driving the car, or had consented to it; on the contrary, the only testimony on the point was that he had instructed his granddaughter to let nobody but herself drive it.” ¹⁸⁵ The violation of this prohibition, however, was apparently not urged by the insurer as grounds for the denial of coverage. Instead it limited its defense to the contention that permitted “use” under the omnibus clause referred solely to the act of driving the car and not to taking it out while it was being driven by another.

Chief Judge Bond, writing for the Court, rejected this contention, holding that using includes riding while another drives: “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 [the granddaughter] was ‘still the director of the enterprise, still the custodian of the instrumentality confided to [her] keeping, still the master of the ship.’ Grant v. Knepper, 245 N. Y. 158, 165 , 156 N. E. 650, 652 , 54 A.L.R. 845 ; Arcara v. Moresse, 258 N. Y. 211 , 179 N. E. 389 ; Johnson v. O’Lalor, 279 Mass. 10 , 180 N. E. 525 . And see Appleman Automobile Liability Insurance, 1938 Ed., p. 107 and cases cited.” In Melvin v. American Automobile Insurance Company, supra, it was also argued by an insurer that the actual use of the car was by the driver and not the passenger, the owner’s son, who had become tired and asked his friend to drive. The Court of Appeals (Judge Henderson, later Chief Judge, speaking for the Court) again rejected this contention, holding that the “actual use” at the time of the accident was by and for the benefit of the son: “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 this immediate and present direction and control.

There appears to be no case that has construed the words 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 ¹⁸⁶ the words seems clearly to include a borrower’s making use of it by riding while driven by another.’ See also Arcara v. Moresse, 258 N. Y. 211 ; 179 N. E. 389 ; Brown v. Kennedy, 48 N.E.2d 857 (Ohio); Maryland Casualty Company v. Marshbank, 226 F. 2d 637, 639 (C.A.3d); Osborne v. Security Insurance Company, 318 P. 2d 94, 99 (Cal. App.) and Indemnity Ins. Co. v. Metropolitan Cas.

Ins. Co. of N. Y., 166 A. 2d 355 (N.J.). These cases also indicate that ‘actual use’ means the particular use contemplated when permission is granted and relied on.” In Melvin the omnibus clause differed from that in Mitnick (and in the instant case) in extending coverage in the first instance to “. . . (1) the named insured and any resident of the same household. . . .” Thus, the son “was covered as a resident of his father’s household, and did not need to rely upon the permission granted” for his authority to permit another to drive.

This distinguished the case, the Court found, from those relied on by the insurer (citing 7 Appleman, Insurance Law and Practice, § 4354) in which the policies granted coverage only to persons using the vehicle with the permission of the named insured and where “coverage depends . . . upon the scope of the permission granted.” In Melvin , the Court said “the test is use rather than permission,” and quoted with approval Appleman’s definition of actual use”: “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. ” (Emphasis added.) The Court commented: “Thus, so far as the meaning of the words is concerned, the author would seem to agree that use and operation are not synonymous.” 232 Md. at 480 . After Melvin in 1963, in a procession of cases before the Court of Appeals involving the omnibus clause, three of ¹⁸⁷ them in 1969, the results turned upon the Court’s interpretation of “permission” rather than “use.” Zurich Co. v. Monarch Co., 247 Md. 3 , supra; American Home Assurance Co. v. Erie Insurance Exchange, et al., 252 Md. 116 , 248 A. 2d 887 (1969); Cohen, Adm’r v. American Home Assurance Co., 255 Md. 334 , 258 A. 2d 225 (1969); Goodwin v. Home Indemnity Co., 255 Md. 364 , 258 A. 2d 220 (1969); Unsat. C. & J. Fund v. U. S. F. & G. Company, 256 Md. 412 , 260 A. 2d 279 (1970); Keystone Insurance Company v. The Fidelity & Casualty Company of New York, 256 Md. 423 , 260 A. 2d 275 (1970). 9 In Erie Insurance Exchange, supra, the Court quoted extensively from 7 Am. Jur. 2d Automobile Insurance, § 119, “Scope of permission; deviation from permitted use” wherein It is pointed out that, to determine whether the coverage of the omnibus clause applies to a given accident, it is first necessary to resolve two preliminary questions: 1) Was the permission or consent of the named insured granted to the operator; and if so, 2) was the vehicle being used at the time of the accident within the scope of the permission granted?

With respect to the second question, the treatise points out, it may be necessary to determine the effect of deviations from the permitted use. Such deviations may result from: a) the use of the vehicle for other purposes, b) the extention of the permission by its delegation to third persons, or c) the use of the vehicle in violation of express instructions. Finally, the Courts are divided sharply as to the legal theory applicable in determining when a deviation will preclude ¹⁸⁸ coverage under the omnibus clause. Three different rules have been adopted: 1) the strict or conversion rule, whereby any deviation, no matter how slight, will preclude coverage; 2) the liberal rule whereby it is held that once permission is given, it will extend to any and all uses of the vehicle; and 3) the moderate or “minor deviation” rule under which the Courts hold that a slight deviation does not preclude coverage under the omnibus clause.

In the Erie case, the language of the policy, “. . . provided his [any other person using such automobile with the permission of the named insured] actual operation ... is within the scope of such permission . . .,” (emphasis added) was held to be “sufficiently explicit” to preclude application of the liberal rule and, on the facts of the case, it was unnecessary to decide whether Maryland adheres to the strict or moderate rule. The sole question at issue — whether the driver was acting within the scope of the permission 10 — was answered negatively since the accident occurred some 2V2 hours after the driver had borrowed the car and it was headed in an altogether different direction than was represented to the owner. 11 Cohen, Adm’r, supra, concerned an omnibus clause identical to that in the instant case and called for a decision as to its applicability to a son, Josephus, who borrowed the keys to his mother’s car with the express understanding that a friend, Scott, and not Josephus, would do the driving. At the time of the accident, Josephus was behind the wheel and ¹⁸⁹ there was no evidence to indicate that Scott was even in the car. The Court of Appeals in Cohen again found it unnecessary to decide “whether we follow the strict or conversion rule or the moderate or ‘minor deviation’ rule.” To determine whether the use comes within the purview of the omnibus clause, it was held, requires an examination of “the total facts.” Such examination compelled the conclusion that the use made by Josephus “was not within the scope of the permission granted and was not the particular use contemplated when the permission was granted.” 12 Melvin and Mitnick, supra, were distinguished on their facts.

With respect to the latter, Judge Smith wrote (255 Md. at 348): “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. (Emphasis added.) The Court also distingushed Melvin factually and again its language is worth noting: “In Melvin . . . 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. ” 13 (Emphasis added.) ¹⁹⁰ Adopting the language of Melvin , the Court in Cohen ruled that in a case where coverage is extended by the policy only to persons using the vehicle with the permission of the named insured (or other designated person) “coverage depends in that situation upon the scope of the permission granted,” and that the term “actual use” in an omnibus clause means “the particular use contemplated when permission is granted and relied on.” In Goodwin v. The Home Indemnity Company, supra,