Allstate Ins. Co. v. U.S. Fidelity & Guaranty Co., 16306

Decision Date16 October 1980
Docket NumberNo. 16306,16306
Citation619 P.2d 329
CourtUtah Supreme Court
PartiesALLSTATE INSURANCE COMPANY, a corporation, Plaintiff and Respondent, v. UNITED STATES FIDELITY & GUARANTY COMPANY et al., Defendants and Appellants.

J. Anthony Eyre of Kipp & Christian, Thomas Duffin, Salt Lake City, for Brookfield.

L. E. Midgley, Salt Lake City, for plaintiff and respondent.

MAUGHAN, Justice:

Allstate Insurance Company initiated a declaratory action to determine the validity of a named driver exclusionary endorsement to an automobile liability insurance policy, issued by United States Fidelity and Guaranty Company to Brookfield Products, Inc. The district court found the exclusion void, and granted Allstate Insurance Company's motion for summary judgment. On appeal, United States Fidelity and Guaranty Company challenges this order, and the district court's dismissal of their motion for summary judgment. We affirm the lower court's ruling as limited by the holding in this opinion. All statutory references are to Utah Code Annotated, 1953, as amended.

On March 14, 1977, United States Fidelity and Guaranty Company, hereinafter USF&G, issued to Brookfield Products, Inc., hereinafter Brookfield, an automobile liability insurance policy for the period of March 14, 1977, to March 14, 1978. When initially issued, the policy contained no restrictions to the omnibus coverage found in the original contract documents.

However, upon issuing the policy USF&G requested a list of potential drivers of Brookfield vehicles. After investigating the named individuals, USF&G informed Brookfield they would no longer insure Brookfield vehicles driven by Jerry Pulliam, hereinafter Pulliam. 1

Thereafter, USF&G drafted a named driver exclusion which was signed by Dale Hanks, manager of Brookfield Products, Inc., and endorsed as part of the liability policy in May, 1977. Following the addition of the exclusionary endorsement to the insurance policy, Brookfield personnel informed Pulliam he was no longer covered by insurance, and was not to drive Brookfield vehicles. Pulliam was then assigned to warehouse duties where he eventually assumed a position as warehouse supervisor.

On January 5, 1978, because there were no other employees available, Pulliam was allowed to drive a Brookfield truck to Heber City to make a delivery for the company. 2 While enroute, the vehicle developed a mechanical problem which caused Pulliam to veer onto the opposite side of the road and into the on-coming traffic. The ensuing collision resulted in the death of Ora Parcell.

On the day of the accident, Allstate Insurance Co., hereinafter Allstate, had in effect an automobile liability policy in favor of the deceased, which included both "No-Fault" or "Personal Injury Protection" and "Uninsured Motorist" coverage. Because of the named-driver exclusionary endorsement, USF&G refused to extend liability coverage to Pulliam, thereby rendering him an "uninsured motorist." Allstate, therefore, compensated the estate of Ora Parcell under the "uninsured motorist" provisions of his liability policy. 3

Allstate initiated a declaratory action in the district court to determine the validity of the "named driver" exclusion and the financial responsibility of USF&G under the Brookfield policy. 4 Allstate joined as defendants' Brookfield Products, Inc., Jerry Pulliam and Vee L. Parcell, personal representative of the estate of Ora Parcell, in the lower court proceedings. Brookfield and Pulliam entered a cross-complaint against USF&G requesting the insurance policy issued by USF&G be declared in full force and effect and the exclusion void.

Following the presentation of evidence and arguments by the various parties the district court held the restrictive endorsement to be of no force or effect. The court granted Allstate's motion for summary judgment, and decreed USF&G liable under the policy in question.

USF&G appeals from this order and the district court's dismissal of its motion for summary judgment.

This appeal presents to this Court a question of first impression concerning the validity of an exclusionary endorsement, to an automobile liability policy, which is presented as security under the provisions of the Utah No-Fault Insurance Act.

Although we cannot accept the contention of Allstate, viz., the enactment of the Utah No-Fault Act establishes a "constructive compulsory liability insurance requirement," 5 we believe the language of 31-41-5 evidences a legislative intent to mandate liability coverage in all insurance policies presented as security under Section 31-41-4.

Specifically, 31-41-4 requires:

"(1) every resident owner of a motor vehicle shall maintain the security provided for in Section 31-41-5 in effect continuously throughout the registration period of the motor vehicle." 6

The requirement of security prior to registration of a motor vehicle in this state is clarified by 31-41-5, which states:

"(1) The security required by this act shall be provided in one of the following methods:

(a) Security by insurance may be provided with respect to each motor vehicle by an insurance policy that qualifies under Chapter 12 of title 41 (the Safety Responsibility Act), except as modified to provide the benefits and exemptions provided for in this act, and has been approved by the department; or ..."

Thus, the No-Fault Act, while ostensibly distinct from the Safety Responsibility Act, expressly incorporates provisions of the latter act, (those setting out the "qualifications" of an insurance policy under that act) into its security requirements. We interpret this as evidence of the intent of the legislature, to require the minimum coverages outlined in the Safety Responsibility Act in all insurance policies used as security for the registration and subsequent operation of motor vehicles in Utah.

The qualifying language of the Safety Responsibility Act is found primarily in 41-12-21. 7 That section provides among other qualifications, the owner's or operator's policy of liability insurance shall be issued, except as otherwise provided in Sections 41-12-20, 8 by an insurance carrier duly authorized to transact business in the State. The provision goes on to explain:

"(b) Such owner's policy of liability insurance:

"(1) shall designate by explicit description or by appropriate reference all motor vehicles with respect to which coverage is thereby to be granted; and

"(2) shall insure the persons named therein and any other person, as insured, using any such motor vehicle or motor vehicles with the express or implied permission of such named insured, against loss from the liability imposed by law for damages arising out of the ownership, maintenance or use of such motor vehicle or motor vehicles within the United States of America or the Dominion of Canada, subject to limits exclusive of interests and costs, with respect to each such motor vehicle, in the amount specified in Section 41-12-1(k) of this act." 9 (Emphasis added.)

Further reference to 41-12-1(k) sets the minimum liability limits necessary to qualify under the Safety Responsibility Act and by incorporation, the No-Fault Insurance Act. That section requires minimum liability coverage for damages arising out of the ownership, maintenance or use of a motor vehicle to be:

"... the amount of $15,000 because of bodily injury to or death of one person, in any one accident, and, subject to said limit for one person, in the amount of $30,000 because of bodily injury to or death of two or more persons in any one accident, and in the amount of $5,000 because of injury to or destruction of property of others in any one accident, or in lieu of the foregoing limits, a single limit of not less than $25,000. 10

The incorporation of the qualifying provisions of Chapter 12 of Title 41 requires: a) minimum omnibus coverage including persons operating the vehicle with the express or implied permission of the owner-insurer, and b) the minimum liability limits detailed in 41-12-1(k). Thus, by reference to the Safety Responsibility Act the legislature has established a mandatory minimum liability coverage requirement for insurance policies presented as security under 31-41-5.

In the present situation, because Pulliam was driving with the express permission of Brookfield, the named driver exclusion is void in relation to the minimum level of liability coverage mandated by 41-12-1(k).

Our decision does not, however, read the named driver exclusionary endorsement out of the contract entirely. Rather, contracting parties are free to limit coverage in excess of the minimum required limits, 11 and the exclusion found in the contract is valid in relation to any coverage exceeding the minimum amounts. 12 Thus, a balance is struck between the necessity of securing minimum automobile liability coverage and the availability of lower premiums because of the exclusion of high insurance risks. This effectuates the express twofold purpose of the Utah No-Fault Insurance Act which is to require the payment of certain prescribed benefits in respect to motor vehicle accidents while stabilizing the rising costs of automobile accident insurance. 13

Therefore, we affirm the lower court's decision that the named driver exclusionary endorsement is void, but only in relation to the mandatory minimum liability coverage. The exclusion is enforceable as to any insurance coverage provided to Brookfield above those minimum limits. 14

After a thorough consideration of the other issues presented on appeal we conclude they are not meritorious.

WILKINS and STEWART, JJ., concur.

HALL, Justice (dissenting):

I am of the opinion that this case should be reversed both on procedural grounds as well as on the merits.

Allstate lacks standing to bring this lawsuit in its present form. Its complaint seeks the interpretation of an insurance contract between Brookfield Products and USF&G, specifically, the validity of an exclusion clause. Allstate is...

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