Standard Mut. Ins. Co. v. Bailey

• Decision Date: 17 February 1989
• Docket Number: No. 88-1302,88-1302
• Citation: 868 F.2d 893
• Parties: STANDARD MUTUAL INSURANCE COMPANY, Plaintiff-Appellee, v. Elodie L. BAILEY, Charlotte A. Cook, Charles E. Cook and Christopher J. Cook, Defendants-Appellants.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 893

868 F.2d 893

STANDARD MUTUAL INSURANCE COMPANY, Plaintiff-Appellee, v. Elodie L. BAILEY, Charlotte A. Cook, Charles E. Cook and Christopher J. Cook, Defendants-Appellants.

No. 88-1302.

United States Court of Appeals, Seventh Circuit.

Argued Sept. 29, 1988.

Decided Jan. 30, 1989.

As Corrected Feb. 17, 1989.

Steven R. Fox, Gray, Robinson, Eckert & Ryan, Indianapolis, Ind., for defendants-appellants.

John T. Lorenz, Kightlinger & Gray, Indianapolis, Ind., for plaintiff-appellee.

Before BAUER, Chief Judge, and POSNER and COFFEY, Circuit Judges.

COFFEY, Circuit Judge.

Defendants-appellants Charlotte Cook, Charles Cook and Christopher Cook ("the Cooks") appeal the district court's grant of summary judgment in favor of the plaintiff-appellee Standard Mutual Insurance Company ("Standard"). Standard filed this action seeking a declaratory judgment that a motor vehicle exclusion clause in its homeowners' insurance policy issued to Joseph and Julie McCoy excluded coverage of the Cooks' claim of negligent entrustment of a motor vehicle against the defendant Elodie Bailey, an insured under the policy. We affirm.

I.

On October 10, 1984, Robert Jones, driving an automobile owned by Elodie Bailey, struck nine-year-old Christopher Cook while he was riding his bicycle. As a result of this collision, Cook sustained severe bodily injuries. On February 11, 1985, Christopher and his parents, Charlotte and Charles Cook, filed suit in Hancock County, Indiana, for damages against Jones and Bailey. In their complaint, the Cooks alleged that Bailey negligently entrusted her automobile to Jones, who in turn struck Christopher while operating the vehicle in a negligent manner.

At the time of the accident, Bailey had an automobile insurance policy with the Farm Bureau Insurance Company. Pursuant to the terms of that policy, Farm Bureau provided Bailey with a defense to the Cooks' state court action. Also in force at the time of the mishap was a homeowners' insurance policy Standard had issued to Joseph and Julie McCoy. For purposes of this appeal, it is undisputed that Bailey, the mother of Joseph McCoy, was a resident of her son's household and, thus, an "insured" under the terms of the homeowners' insurance policy issued by Standard. ¹ The policy contains a provision entitled "Coverage E-Personal Liability." The terms of this coverage provide, in pertinent part "If a claim is made or a suit is brought against any insured for damages because of bodily injury or property damage, we will ... pay up to our limit of liability for the damages for which the insured is legally liable."

The policy also contains language, commonly referred to as a motor vehicle exclusion, relating to this coverage which reads:

"Coverage E-Personal Liability and Coverage F-Medical Payments to Others do not apply to bodily injury or property damage:

* * *

* * *

e. arising out of the ownership, maintenance, use, loading or unloading of:

* * *

* * *

(2) a motor vehicle owned or operated by, or rented or loaned to any insured...."

On November 4, 1986, Standard commenced this declaratory judgment action in the United States District Court for the Southern District of Indiana arguing that under the language of its homeowners' policy it had neither a duty to defend Bailey nor an obligation to pay any judgment against her in the negligent entrustment action filed by the Cooks. On March 31, 1987, Standard filed a motion for summary judgment alleging that its homeowners' policy, as a matter of law, clearly and unmistakenly excluded coverage for the Cooks' claim of negligent entrustment of the motor vehicle. The Cooks also filed a motion for summary judgment on April 29, 1987.

On November 5, 1987, the district court granted the Cooks' motion for summary judgment and denied Standard's motion holding that the motor vehicle exclusion in Standard's policy was inapplicable to the Cooks' negligent entrustment claim. In granting the Cooks' motion, the district court expressly relied on State Farm Fire & Casualty Co. v. Lather, No. IP 83-561-C (S.D.Ind. Sept. 25, 1984), ² an unpublished district court opinion holding that a provision in a homeowners' policy similar to the exclusionary clause in this case which excluded coverage for motor vehicle injuries did not exclude liability arising out of a claim of negligent entrustment of a motor vehicle. Subsequent to the district court's entry of summary judgment in favor of the Cooks, Standard filed a motion for reconsideration of the court's ruling in light of Great Central Insurance Co. v. Johnstone, No. IP 86-1035-C (S.D.Ind. July 16, 1987), another unpublished district court case. In Johnstone, the district court held that a claim of negligent entrustment fell within an exclusionary provision in a business liability policy, also similar to the exclusion in this case, which excluded coverage for automobile-related injuries. Concluding that the holdings in Lather and Johnstone were irreconcilable, the district court granted Standard's motion to reconsider its prior grant of summary judgment for the Cooks. On February 2, 1988, the district court, reversing its prior decision, granted Standard's motion for summary judgment and denied the Cooks' motion finding that negligent use of a motor vehicle is an essential element of a negligent entrustment claim under Indiana law. Thus, the provision in Standard's homeowners' insurance policy excluding claims arising out of the use of a motor vehicle owned by any insured was applicable to the Cooks' claim of negligent entrustment against Bailey. The Cooks filed this appeal alleging that the district court erred in granting Standard's motion for summary judgment because the language in Standard's policy does not clearly and unmistakenly exclude or bar a claim of negligent entrustment from coverage under the terms of the policy.

II.

Both the Cooks and Standard admit that the Indiana state courts have not addressed the issue of whether a claim of negligent entrustment is excluded from coverage by a provision in a liability insurance policy which excludes "bodily injury ... arising out of the ownership, maintenance, use, loading or unloading of ... a motor vehicle owned or operated by ... any insured...." ³ Thus, we are faced with the task of attempting to rule in this case according to Indiana law as we believe the Indiana courts would probably resolve it. See, e.g., Sur v. Glidden-Durkee, 681 F.2d 490 (7th Cir.1982). In making such a determination, we look to Indiana insurance law, as well as decisions from other jurisdictions which have addressed this issue.

Under Indiana law, an insurance policy is a contract between the insurer and the insured; thus, insurance contracts are subject to the same rules of interpretation as are other contracts. Eli Lilly & Co. v. Home Insurance Co., 482 N.E.2d 467, 470 (Ind.1985). These general rules of construction are outlined in Huntington Mutual Insurance Co. v. Walker, 181 Ind.App. 618, 392 N.E.2d 1182 (1979):

"It is an elementary rule of construction that one should give words their ordinary meaning.... When interpreting the provisions of an insurance policy, the court cannot extend the coverage delineated by clear and unambiguous language in the insurance contract.... However, it is well-settled that where the language of an insurance contract is so ambiguous as to be susceptible of more than one interpretation, the court will adopt a construction most favorable to the insured.... This is all the more so where the particular provision in dispute purports to create an exclusion from coverage under the general terms of the policy.... A condition or exclusion in an insurance contract, therefore, in order to be effective, must clearly and unmistakingly bring within its scope the particular act or omission that will bring the condition or exclusion into play.... Coverage will not be excluded or destroyed by an exclusionary condition unless such clarity exists."

Id. 392 N.E.2d at 1185 (citations omitted).

At the outset, we hold that the words "Coverage E--Personal Liability ... do[es] not apply to bodily injury ... arising out of the ownership, maintenance, use, loading or unloading of ... a motor vehicle owned or operated by ... any insured" are not ambiguous. Clearly, this language in the exclusionary provison of Standard's homeowners' policy was drafted with the express intention of excluding from coverage injuries associated with a motor vehicle owned by the insured. ⁴ Therefore, the relevant question becomes whether the exclusionary language, given its plain and ordinary meaning, clearly and unmistakenly brings within its scope a claim of negligent entrustment. ⁵

The Cooks, in an attempt to expand the language of the liability insurance contract, argue that their claim against Bailey does not come within the scope of the exclusionary language of the insurance contract since, according to them, liability is based solely on the act of entrusting her automobile to Jones. They argue that this act is unrelated to the ownership, maintenance, use, loading or unloading of the motor vehicle owned by Bailey. They further argue that the words "bodily injury ... arising out of the ownership, maintenance, use, loading or unloading of ... a motor vehicle owned or operated by ... any insured" apply only to claims arising out of the negligent operation of a motor vehicle and do not apply to exclude coverage for an act of negligent entrustment of a motor vehicle to another. After due consideration of the Cooks' contentions, we find them unpersuasive because they mischaracterize the tort of negligent entrustment in Indiana.

In Indiana, a cause of action for negligent entrustment of a motor vehicle requires that the plaintiff establish that the defendant owned or controlled the motor vehicle and permitted a third person to use the vehicle knowing that the third person will use the vehicle in a negligent manner so as to endanger persons or...