Washington Metropolitan Area Transit Authority v. Bullock

WILNER, Judge. Jackson Bullock was a claims adjustor employed by the Washington Metropolitan Area Transit Authority (WMA-TA). On the evening of September 10,1982, while driving a car owned by WMATA on a purely personal errand, Mr. Bullock struck and injured two pedestrians, Regina Queen ²³ and Quantonia Discomb. Ms. Queen and Ms. Discomb filed claims against Bullock and WMATA.

WMATA, which self-insures its vehicles, acknowledged the claims 1 and assigned them to one of its in-house adjustors, Robert Seabald, to handle. Mr. Seabald proceeded, for about 18 months, to receive information from the claimants’ counsel and to discuss various aspects of the case with him. At no time during that period did Mr. Seabald suggest to counsel that there was a problem as to underlying coverage. In March, 1984, upon review of the claims by WMATA’s acting claims manager, by an “outside” consultant, and by counsel, WMATA concluded that, because Bullock had been instructed not to use the car for personal errands, his use of it at the time of the accident was non-permissive and, as a result, there was no insurance coverage.

WMATA then filed this declaratory judgment action in the Circuit Court for Anne Arundel County, seeking a declaration that Bullock was not acting as its agent or employee, that his use of the car was non-permissive, and that WMATA was not responsible for his conduct. Bullock, Queen, and Discomb denied that Bullock’s use was non-permissive and asserted further that, by reason of laches, estoppel, and waiver, WMATA was precluded from denying that Bullock’s use of the vehicle was permissive. Bullock, indeed, filed a counterclaim in which he asked the court to declare affirmatively that WMATA was obligated to defend the Queen/Dis-comb claims. After a non-jury trial, the court ruled against WMATA on a number of bases, each of which is challenged in this appeal.

(1) Status of the Parties—Underlying Facts WMATA is a regional, quasi-governmental entity created by interstate compact to develop and operate a mass transit ²⁴ system in the District of Columbia and its Maryland and Virginia suburbs. See Md.Code Ann.Transp. art., § 10-204; also 1985-86 Md.Manual, p. 418. The compact provides, in ¶ 80, that WMATA is liable “for its torts and those of its directors, officers, employees and agents committed in the conduct of any proprietary function” and that “[t]he exclusive remedy for such ... torts for which the Authority shall be liable ... shall be by suit against the Authority.” Paragraph 72 of the compact authorizes WMATA to self-insure “against liability for injury to persons or property” and provides that “[s]uch insurance coverage shall be in such form and amount as the board may determine____” 2 Pursuant to that authority, WMATA apparently elected to self-insure its vehicles in the District of Columbia. 3 WMATA concedes that it owned the vehicle driven by Bullock, that Bullock was its employee, and that he had permission to use the vehicle at work and to commute to and from work. The thrust of its argument is that Bullock was on a personal errand at the time, that he not only did not have permission to use the car for such a purpose but was expressly forbidden to do so, that that restriction is not against public policy, and that it has done nothing to preclude it from asserting the defense of non-permissive use.

Bullock, for his part, concedes that he was on a personal errand and that, as a result, he was not acting within the scope of his employment at the time of the accident. His defense is based on the notion that his personal use of the vehicle was a permissive one and that WMATA is precluded from contending otherwise. It is undisputed that, when Bullock began employment with WMATA in 1972, he was given a company car that he ²⁵ could use for both business and personal use. The unrestricted use of the car was regarded by him, and by the other adjustors who had them, as part of their compensation.

Periodically, WMATA announced policies restricting the personal use of company vehicles, but those policies were not effectively enforced against claims adjustors. 4 In February, 1982, WMATA decided to discontinue the assignment of cars on a “take-home basis” altogether, which would have precluded their use even for commuting. This new policy was announced in a memorandum of February 16, 1982, which, among other things, repeated the prohibition against using company cars “for other than official purposes.” Regarding this new policy as an improper modification of their unwritten (and, from what we were told at oral argument, at-will) employment agreements, the adjustors protested. On March 10, 1982, ten of them, including Bullock, submitted a proposal “to lay to rest once and for all this demoralizing problem____” They offered two alternatives: (1) to “grandfather” the existing adjustors and permit them “the continued unrestricted and unrestrained use of a WMATA vehicle under the same conditions said employees have utilized and enjoyed since their employment with WMATA began,” or (2) the adjustors would receive an immediate full grade step promotion retroactive to January 1, 1982, they would surrender their company cars on January 1, 1983, upon surrender they would receive a bonus of $3,000 plus free maintenance, fuel, insurance, and parking for the cars they bought to replace the company vehicles, and, as their replacement vehicles wore out, they would ²⁶ receive an additional $3,000 toward the cost of a second replacement vehicle. Management was apparently unwilling to accede to either of those proposals.

William Chadwick, purportedly acting on behalf of himself and the nine other adjustors, did, however, negotiate an agreement with Delmer Ison, the acting director of the claims department, under which (1) the ten adjustors would receive a full grade step promotion effective April 16, 1982, (2) they would retain possession of the vehicles assigned to them until December 31, 1982, at which time the vehicles would be surrendered, and (3) the adjustors agreed “not to use the WMATA vehicle assigned to each of them for personal use.” Although a senior official of WMATA expressed reservations about this agreement, WMATA fully lived up to its obligations under it. The adjustors, including Bullock, got their immediate raise and, with one exception, they were allowed to keep their vehicles until December 31, 1982. The exception was that, when Mr. Ison learned that Bullock was on a personal errand at the time of the accident, he took the car away from him immediately. The memorandum of this agreement was signed only by Chadwick, and Bullock never affirmatively acknowledged that he was bound by it.

The evidence was uncontradicted, however, that Bullock knew of the agreement, that he accepted the benefits of it, that he never complained about it, and that he never denied being bound by it. There was also some evidence that the interim restriction on personal use was not strictly adhered to, that some of the adjustors continued to use the cars for uses that might be regarded as personal. There was no evidence that anyone in management above Mr. Chadwick, who, though part of the group of 10, was a claims supervisor, was aware of this continued use or in any way approved of it. In further defense of his position as to permissive use, Bullock presented as an expert witness Edward J. Birrane, Jr., a former Maryland Insurance Commissioner.

Over ²⁷ objection, Mr. Birrane was allowed to testify, based on a telephone conversation with a former Motor Vehicle Administrator, that that former Administrator would “not accept a filing from a self insurer whose coverage was less broad than that required by the insurance commissioner of an insurance company” and that “for a self insured to effect an agreement such as the one that I have seen between WMATA and these particular adjusters is and ought to be contrary to the public policy of the State of Maryland, whose announced public policy is to make sure that any victim or person who suffers loss, damage, through the negligent operation of an automobile ought to be able to show that they are indemnified and this agreement seeks in specific reference as respects the countermanding of the allowance of personal use to deny indemnification which is the specific public policy of Maryland and in my opinion is an open invitation to fraud.” On this evidence, the court announced findings that: (1) the April 8 change of policy was not binding on Bullock because he never “agreed” to it, (2) Bullock therefore had continued permission to use the car assigned to him for personal use, (3) he was, as a result, “operating [the car] with permission of WMATA even though he was using it for his own personal use at that time,” (4) for a change in policy restricting personal use to be effective, notice of the change must be given not only to the affected employee but also to “potential claimants,” (5) it would be against public policy to allow WMATA, as a self-insurer, to decline coverage “because of some alleged agreement between the employer and employee,” and (6) “because of [its] long continued non-enforcement of the so-called company policy, [WMATA] would be estopped from denying coverage to Mr. Bullock for his alleged personal use at the time of this accident.” These findings were translated into formal declaratory judgments. By order dated September 11, 1985, the court declared that Bullock was an employee of WMATA at the ²⁸ time of the accident, that Bullock was operating the vehicle “with the permission of WMATA,” that WMATA “is es-topped from denying that [Bullock] had permission and consent to operate the said vehicle,” that Bullock’s “use of the said vehicle was within the scope of that permission,” that WMATA “waived” any claim that Bullock’s particular use of the vehicle was non-permissive, and that WMATA is therefore obligated to defend the claims. (2) The Issues—Introduction As we observed earlier, WMATA challenges each of the court’s findings and conclusions. To provide a proper context in which to consider the issues before us, we start with the fact that Bullock, though an employee of WMATA, clearly was not acting within the scope of his employment when the accident occurred.

He conceded the point, both in the trial court through his answers to WMATA’s request for admissions and in this Court. Compare, however, D.C. Code, § 40-408; but see Gaither v. Myers, 404 F.2d 216 (D.C.Cir.1968). Accordingly, WMATA would have no derivative liability as Bullock’s employer; its liability can rest only upon its status as an insurer of the vehicle. The issue of WMATA’s liability as an insurer is complicated by the fact, and the somewhat unclear nature, of its self-insurance.

As noted, the compact (¶ 72) authorizes WMATA to self-insure in such form and amount as its board of directors determines, but the record is bare of any evidence as to what, if anything, the board determined. WMATA eventually obtained from the District of Columbia a Self-Insurer Certificate simply attesting that WMATA “has qualified as a Self-Insurer for the payment of benefits for personal injury protection benefits, bodily injury liability, property damage liability and uninsured motorist coverage, arising out of all of the operations now conducted by means of Motor Vehicles within the District of Columbia ²⁹ ____” (Emphasis added.) 5 The certificate does not set forth the nature, scope, or extent of the coverage provided within the District, and gives no indication at all of what, if any, coverage is afforded for accidents occurring outside the District. Although D.C.Code, § 40-453 requires the certificate to be “supplemented by an agreement by the self-insurer that, with respect to accidents occurring while the certificate is in force, he will pay the amounts that an insurer would have been obliged to pay under an owner’s motor vehicle liability policy if it had issued such a policy to said self-insurer,” no such agreement is in the record before us. 6 Nor is there any indication whether WMATA was obliged to comply with Maryland’s required security laws or whether it had done anything to effect such compliance. The accident in question occurred in Maryland.

We therefore have a situation in which (1) unlike most instances, there is no policy language to construe, (2) the only evidence of the nature and extent of coverage is that provided in the D.C.Code which, facially at least, appears to have no application outside the District, and (3) there is no indication at all of what coverage is afforded for vehicles such as the one operated by Bullock, registered in the District but operated in Maryland. Compare Hines v. Potomac Elec. Power Co., 305 Md. 369 , 504 A.2d 632 (1986). In the end, we shall conclude that this case cannot properly be decided on this record, and we shall therefore vacate the judgments entered below and remand the case for further proceedings.

We shall, however, for the guidance of the ³⁰ court on remand, address the findings heretofore made by the court. (3) Non-Permissive Use—Public Policy The trial court rejected WMATA’s position essentially on three bases: (1) because Bullock had not “agreed” to the restriction on personal use, he was not bound by it; (2) it would be against public policy for WMATA to withdraw coverage for personal use without giving some kind of effective public notice to “potential claimants” that it was doing so; and (3) because it had not effectively enforced its ban on personal use, WMATA was estopped from asserting that ban as a defense. On the record before us, we disagree with each of those findings and conclusions. We begin with the question of public policy.

To this point, it has not been regarded as against public policy in this State for an insurer to disclaim or deny coverage when an insured vehicle is being used by someone other than the “named insured” without the permission or beyond the scope of the permission of the “named insured.” As the Court pointed out in National Grange Mut. Ins. v. Pinkney, 284 Md. 694 , 399 A.2d 877 (1979), coverage of persons other than the named insured (or members of his household) arises only from what is generally referred to as an “omnibus clause” in an insurance policy, and “there is no provision in any Maryland statute to which we have been referred, or which we have found in our research, which requires an omnibus clause to appear in any motor vehicle liability insurance policy.” Id., at 704-05 , 399 A.2d 877 . 7 ³¹ National Grange also involved a company vehicle that an employee, Pinkney, was permitted to drive. The vehicle was insured under a policy providing coverage to the named insured and any other person while using the vehicle “with the permission of the named insured, provided his actual operation [was] within the scope of such permission____” Id., 696 , 399 A.2d 877 . There was a dispute of fact as to whether Pinkney had permission to use the vehicle for personal use: the company maintained that Pinkney’s after-hours use was restricted to commuting directly to and from work and that he was never to carry more than one passenger; Pinkney stated that he was given unrestricted use.

The accident occurred at 3:22 a.m.—long after his 5:00 p.m. quitting time—while Pinkney was carrying seven passengers. Notwithstanding the factual dispute as to the restriction on personal use, the circuit court granted summary judgment against the insurer and held it liable. The Court of Appeals noted that three alternative rules of construction had developed with respect to permissive use cases. The most expansive of these, sometimes known as the “liberal,” or “initial permission,” or “hell or high water” rule holds that “if the vehicle was originally entrusted by the named insured, or one having proper authority to give permission, to the person operating it at the time of the accident, then despite hell or high water, such operation is considered to be within the scope of the permission granted, regardless of how grossly the terms of the original bailment may have been violated.” National Grange Mut.

Ins., 284 Md. at 698 , 399 A.2d 877 , quoting 6C Appleman, Insurance Law and Practice § 4367 (Buckley ed. 1979). A second rule, denoted the “conversion” rule, recognizes that a particular use can so exceed ³² the scope of initial permission as to become non-permissive but requires that the departure be such as would cause the user to be liable to the owner in an action for conversion. The third rule, considered to be “an intermediate position between the two more extreme rules,” is known as the “minor deviation” rule. National Grange, 284 Md. at 699 , 399 A.2d 877 , quoting 12 G. Couch, Cyclopedia of Insurance Law § 45:462 (2d ed.

R. Anderson 1964). It regards “minor deviations” as still being within the scope of permissive use. The National Grange Court observed that the Court had previously rejected the “liberal” rule and saw no public policy reason to change that view. In the end, it took an almost unique approach, rejecting all three rules and opting instead to construe, on a case-by-case basis, the particular wording of the omnibus clause at issue.

At 706 (of 284 Md., 399 A.2d 877), it made the point: “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.” Because the Court rejected the “liberal” rule, it concluded that the dispute as to whether Pinkney had permission to use the vehicle for personal errands was crucial, and that the circuit court therefore erred in deciding the case on summary judgment. Its parting message, at 707, 399 A.2d 877 , was as follows: “If the trier of fact concludes after listening to all of the testimony that the actual operation of the vehicle was within the scope of the permission granted, then National Grange will be obliged to defend. Obviously, if the trier of fact believes that such actual operation was not within the scope of the permission granted, then National Grange is not obligated under the omnibus clause.” ³³ National Grange , it seems to us, is flatly inconsistent with the notion that a permissive