Nationwide General Insurance v. Government Employees Insurance

ROSALYN B. BELL, Judge. This appeal from a decision of the Circuit Court for Anne Arundel County takes us once again into the arena insurance companies battle over which company is required to provide a defense, primary coverage, or any coverage at all, ¹⁰⁶ for a successor permittee under an omnibus clause. 1 Before presenting the issues, we must establish the relationship between the parties. John Bonnar purchased a car on which his daughter Nancy was to make some of the payments out of her earnings. Mr. Bonnar insured the car with Government Employees Insurance Company (GEICO).

Nancy was a permitted driver under the policy. Stephen Hughes, Nancy’s boyfriend, was not expressly permitted to drive the car by Mr. Bonnar, but was granted permission on occasion by Nancy. Stephen’s father was insured by Nationwide General Insurance Company (Nationwide). The accident occurred on March 20, 1987 on the way to school while Stephen was driving and Nancy was sitting on the console between the seats.

Nancy had specific permission to drive the car to school. Stephen had picked up his friend Sean Fohner, who sat in the passenger seat. Nationwide filed a complaint, seeking a declaratory judgment that GEICO be required to provide primary coverage and a defense for Stephen. Mr. Bonnar and Nancy (the Bonnars) counterclaimed, seeking a declaration that Nationwide provide insurance coverage under the policy Nationwide had issued to Stephen’s father.

On a summary judgment but after trial, the court dismissed the Bonnars’ counterclaim because there was no justiciable controversy. The court also found that GEICO had no obligation to defend or provide coverage. Nationwide and Stephen (hereinafter referred to as Nationwide) jointly appealed. 2 ¹⁰⁷ Nationwide complains that GEICO should have been required to provide coverage and defense, presenting the issues as: —Whether the court erred in failing to find that Stephen, as a second permittee, was an insured since Nancy, the first permittee who was present in the car, was “using” the car with permission of the named insured, under the first sentence of paragraph 2 of the GEICO policy. —Whether “actual use” of the automobile was within the scope of a permitted purpose under the second sentence of paragraph 2. —Whether the court erred in not finding GEICO’s omnibus clause was ambiguous and void since it was against public policy. We agree with Nationwide that the trial court applied the wrong definition of “use,” and that Stephen was, in fact, a permitted user of the vehicle.

Since we hold that Stephen fulfilled the first permission requirement, and the court found that the actual use, the second “permission” requirement, was within the scope of that permission, we reverse the judgment. We hold that Stephen Hughes is an insured under section two of the GEICO policy and GEICO owes him primary coverage. Because we hold that Stephen is covered under this section, we need not address Nationwide’s claims of coverage alleged because Nancy was using the car with her father’s permission and is “any other person” under the second paragraph of “Persons Insured.” 3 Similarly, we need not address Stephen’s coverage under section three of the GEICO policy or the invalidity of the omnibus clause. ¹⁰⁸ FACTS In August 1986, Mr. Bonnar purchased a 1986 Pontiac Fiero. He bought the car primarily for Nancy to go to and from school after she obtained her driver’s license, which she did in December of 1986.

It is undisputed that Mr. Bonnar told Nancy on numerous occasions that she was not to let anyone else drive the car. He specifically instructed her that Stephen was not to drive. Mr. Bonnar also explicitly told Nancy that the two-seater vehicle was not to carry more than two people, including the driver, in it. It is also clear that Mr. Bonnar was the owner of the car.

The title was in his name and, although Nancy made a portion of the payments, Mr. Bonnar was ultimately responsible for the payments on and the maintenance of the vehicle. In her deposition, Nancy testified that she had told Stephen that her father did not want him driving the car; that the car really belonged to her father; and that Mr. Bonnar refused to add Stephen’s name to the insurance policy. After the accident, Stephen moved Nancy to the driver’s seat. 4 Mr. Bonnar insured the vehicle with GEICO; he was the “insured person” under the policy. The policy also provided for coverage of other persons as set forth by the omnibus clause which stated in pertinent part: “PERSONS INSURED Who is covered Section I applies to the following as insured with regard to an owned auto: 1. you and your relatives; . 2. any other person using the auto with your permission.

The actual use must be within the scope of that permission; 3. any other person or organization for his or its liability because of acts or omissions of an insured under 1 or 2 above.” (Emphasis added.) ¹⁰⁹ Nationwide alleges that this clause extended coverage to Stephen. We agree and explain. OMNIBUS CLAUSE COVERAGE Before we look at the instant case further, we review the relevant Maryland case law as it developed. Zurich Insurance Co. v. Monarch Insurance Co. of Ohio, 247 Md. 3 , 230 A.2d 330 (1967), noted the division of authorities regarding whether a second permittee is deemed to be using the vehicle with the permission of the named insured.

The Court of Appeals cited then Federal District Court Judge Winter’s (now on the United States Court of Appeals for the Fourth Circuit) prediction in Ohio Casualty Insurance Co. v. Pennsylvania National Mutual Casualty Insurance Co., 238 F.Supp. 706 (D.Md.1965), aff'd, 352 F.2d 308 (4th Cir.1965) (per curiam), that the Court of Appeals would extend coverage to second permittees. Judge Winter based his prediction on Melvin v. American Automobile Insurance Co., 232 Md. 476 , 194 A.2d 269 (1963), and Hardware Mutual Casualty Co. v. Mitnick, 180 Md. 604 , 26 A.2d 393 (1942). Melvin involved the extension of coverage to a second permittee based on policy language affording such to “[a]ny other person ... legally responsible for the use of” an automobile. The Court of Appeals reversed the trial court and extended coverage to the second permittee.

In Mitnick , the Court of Appeals held that using a car includes a borrower’s making use of it by riding while driven by another. Mitnick, 180 Md. at 607 , 26 A.2d 393 . In Zurich, however, the Court declined to fulfill the prophecy of Ohio Casualty. The Zurich Court distinguished Mitnick where it had extended coverage.

It held that in Zurich since the second permittee had his girlfriend with him in the front seat, while the initial permittee sat in the back, the “benefit of the use of the car inured to [the second permittee].” Zurich, 247 Md. at 10 , 230 A.2d 330 . Thus, coverage was denied. In 1969, the Court of Appeals decided three cases in this area: American Home Assurance Co. v. Erie Insurance ¹¹⁰ Exchange, 252 Md. 116 , 248 A.2d 887 (1969), Cohen v. American Home Assurance Co., 255 Md. 334 , 258 A.2d 225 (1969), and Goodwin v. Home Indemnity Co., 255 Md. 364 , 258 A.2d 220 (1969). In Erie Insurance Exchange, the policy provided coverage for any other person using the car with the insured’s permission and where the “actual operation” of the vehicle was within the scope of the permission.

The sole issue on appeal was whether the permittee operated the car within the scope of the permission granted. The Court had no trouble in holding that, while the use of the vehicle was originally permitted, the actual operation was not (the accident occurred two and one-half hours after the driver borrowed it for a trip that was not to have taken more than 45 minutes, and the permittee had not yet picked up his wife which was his intended purpose). In Cohen , the policy coverage depended on whether the actual use of the automobile was by the named insured or such spouse or with the permission of either. The mother owned the car and gave the keys to her son with the understanding that a friend, not the son, would drive.

The son was driving at the time of the accident. The Court held “that the use ... made by [the son] was not within the scope of the permission granted and was not the particular use contemplated when the permission was granted.” Cohen, 255 Md. at 349 , 258 A.2d 225 . The Court of Appeals affirmed the decision of the trial court and held that American Home was not responsible for the defense of the son who drove without permission. Goodwin , decided the same day as Cohen , involved a dispute over a policy provision.

The parties had stipulated that the actual operation of the vehicle must be within the scope of permission given by the named insured. On appeal, this stipulation was said to be error because the policy language protected any person using the automobile provided the actual use thereof was with the permission of the named insured. The Goodwin Court said it did not matter which language was operative. The permission granted to the permittee was for a repair pick up on Saturday morning, ¹¹¹ “not a Friday night (or early Saturday morning) escapade,” which occurred.

Goodwin, 255 Md. at 367 , 258 A.2d 220 . Based on these facts the Court held that the driver was not covered. Then, in Maryland Indemnity Insurance Co. v. Kornke, 21 Md.App. 178, 196-97 , 319 A.2d 603 (1974), this Court changed the tide of decisions which refused to extend coverage to permittees and second permittees. In Kornke , an 18-year-old son lived at home with his parents.

He drove his father’s car almost every day to and from school and work. He was told not to allow anyone else to drive the car. One evening, while driving the car with his father’s permission, he had car trouble. While attempting to fix it, he hurt his arm and someone else volunteered to drive.

The accident occurred with the son’s friend at the wheel. The omnibus clause at issue in Kornke extended coverage to any person using the automobile and any person legally responsible for the use thereof. This Court held that the son was still “using” his father’s car with his father’s permission. We held that the second permittee drove the car for the convenience of the first permittee who was in the car at the time of the accident and was benefit-ted by the second permittee’s driving.

These factors enabled this Court to distinguish between circumstances where the second permittee uses the car for his or her own benefit, and cases like Kornke where we extended coverage to the second permittee under the car owner’s omnibus clause. Cohen and Goodwin were held to be controlling in Insurance Company of North America v. State Farm Mutual Automobile Insurance Co., 281 Md. 381 , 378 A.2d 1344 (1977) (per curiam), where the Court of Appeals reversed this Court. Insurance Company of North America v. State Farm Mutual Automobile Insurance Co., 35 Md. App. 402 , 370 A.2d 566 (1977). In State Farm, the Court of Appeals held that Kornke did not apply because of the disparate facts and omnibus clause.

(This Court had contrasted the differences in the policies.) The facts as set out ¹¹² by this Court were that a mother owned a car which she let her son borrow. Although he had been told not to let anyone else drive the car, his friend was driving at the time of the accident. The car owner’s insurance policy provided for coverage of “any other person using such automobile with the permission of the Named Insured, provided his actual operation of (if he is not operating) his actual use thereof is within the scope of such permission.” State Farm, 35 Md.App. at 404 , 370 A.2d 566 . Chief Judge Gilbert, writing for the Court of Special Appeals in State Farm , had adopted the liberal rule of construction for omnibus clauses.

He supported this adoption, as New Jersey Courts had done, by looking to the Legislature. But the Court of Appeals held that, since the accident in the State Farm case occurred prior to the adoption by the General Assembly of then Md.Code Ann. Art. 66%, § 7-101(a) (1957, 1972 Repl.Vol., 1976 Cum. Supp.), mandating that every owner of a vehicle have liability insurance, this provision could not be used to interpret the policy as this Court had done in extending coverage. 5 Cohen, Goodwin and State Farm construed policies narrowly and refrained from extending coverage to second permittees. In contrast, the Court of Appeals decided Federal Insurance Co. v. Allstate Insurance Co., 275 Md. 460 , 341 A.2d 399 (1975).

In Allstate, 275 Md. at 471 , 341 A.2d 399 , the Court observed: “The question which we have not previously had occasion to consider is whether a second permittee is also an insured under an omnibus clause such as the one here on the grounds that he is using the automobile ‘with the permission of the named insured.’ Previous cases that have extended coverage to the second permittee were based on an omnibus clause naming, as an insured, any person ‘legally responsible’ for the use of the automobile, ¹¹³ provided the actual use was with the permission of the named insured. In such cases, the second permittee was covered because, as the operator of the vehicle, he was ‘legally responsible’ for the use, although the actual use was by the first permittee. The Allstate policy in question here does not contain such a phrase; consequently, the second permittee (Straz) is covered only if he was using the automobile with the implied permission of Direct Way.” (Emphasis in original.) (Citations omitted.) The Court then quoted a passage from 7 Am.Jur.2d Automobile Insurance § 117 (1963), which notes that recovery is generally not precluded where (1) the original permittee is in the car and (2) the second permittee serves some purpose of the original permittee. The Court cited Kornke and added that, even where there is an express prohibition for others to operate the vehicle, the second permittee is generally held to be covered if the facts fit the above exceptions.

The Allstate Court extended coverage to a third permittee under the first permittee’s insurance policy based on this argument. 6 More recently, omnibus clause coverage was addressed by the Court of Appeals in Bond v. Pennsylvania National Mutual Casualty Co., 289 Md. 379 , 424 A.2d 765 (1981). Unlike Kornke and the instant case, the first permittee was not present in the automobile when the Bond accident occurred. Kornke was discussed in the Bond brief of one of the appellants and by the appellees, primarily for the distinction between “use” and “operation” and not to support an extension of coverage. The decision of the Court of ¹¹⁴ Appeals in Bond , however, failed to mention the Kornke case.

The Bond Court did note the annotation referred to in Kornke (Omnibus Clause of Automobile Liability Policy as Covering Accidents Caused by Third Person Who Is Using Car With Consent of Permittee of Named Insured, 4 A.L.R.3d 10 superseded in part by 21 A.L.R. 4th 1146 , see n. 1 supra) and footnoted the two variations from the general rule denying coverage to the second permittee where there is an express prohibition which were previously mentioned in State Farm . The failure in Bond to overrule or discuss the Kornke decision suggests that Kornke was not disapproved. In fact, the two opinions are not inconsistent. Bond states the general rule of denying coverage when the named insured has expressly prohibited the first permittee from allowing others to drive the car.

Bond did not distinguish the variations within this category, such as where the first permittee is present and where the second permittee uses the vehicle for his or her own purposes. Bond notes that there are two exceptions but did not comment upon their validity in Maryland; Kornke is one of those exceptions. The omnibus clause at issue in Bond contained language which limited the “actual operation” to the scope of such permission. Bond, 289 Md. at 381 , 424 A.2d 765 .

The Bond Court explained its denial of coverage to the second permittee, who drove without the first permittee’s presence, by stating: “The reason we conclude that appellant Bond cannot prevail here, and the short answer to her contrary assertion, is that once the trier of fact determined (as without being clearly erroneous he did in this case) that the named insured ‘had specifically restricted her daughter, Kathy, from allowing anybody, including Renee Lantz, to drive the car,’ and that this express ban was operative when the accident occurred, there is no escape from Judge Raine’s further conclusion that ‘you cannot imply something in face of an express statement to the contrary.’ ” ¹¹⁵ Bond, 289 Md. at 385, 424 A.2d 765 (emphasis in original). This statement could lead to the conclusion that in Maryland a determination that a parent expressly prohibited a child from allowing anybody to drive the car is the end of the factual inquiry. Footnote 1 in Bond, 289 Md. at 386 , 424 A.2d 765 , however, questions this belief since it suggests some exceptions to the general rule as applied in other jurisdictions where: (1) the first permittee was riding in the car or was benefitted by its operation, and (2) the second permittee’s driving was occasioned by an emergency or a situation involving elements of urgency or necessity benefiting the first permittee. Thus, in Bond , Judge Digges appropriately concluded that the policy was unambiguous and specified that the person operating the vehicle must enjoy permission to operate it from the named insured.

Bond, 289 Md. at 387 , 424 A.2d 765 . Such language is noticeably absent in the instant case. We hold that the instant case falls within the first proposed exception alluded to in Bond , and meets the Kornke “tests” since Nancy, the first permittee, was in the car with Stephen and was benefitted by its operation. GEICO’s assertion that, because the GEICO policy language is unlike Kornke , the general rule of Bond applies is patently incorrect.

The GEICO policy language is different from the language in both Bond and Kornke . Further, the present case is factually quite similar to Kornke and unlike Bond since the first permittee accompanied the second permittee. Kornke , as this Court noted in its opinion, fits both exceptions. 7 Kornke, 21 Md.App. at 197 , 319 A.2d 603 . The facts in Bond , as the Court of Appeals suggested, did not require that Court to “consider the validity” of either exception in Maryland.

Bond, 289 Md. at 386, n. 1 , 424 A.2d 765 . ¹¹⁶ —Sister Jurisdictions— As previously stated, the decisions in the area of coverage under omnibus clauses vary widely. Where the owner has expressly