American Family Ins. Group v. Howe

• Decision Date: 16 April 1984
• Docket Number: No. CIV 83-4015.,CIV 83-4015.
• Citation: 584 F. Supp. 369
• Parties: AMERICAN FAMILY INSURANCE GROUP, a Wisconsin corporation, Plaintiff, v. Christopher L. HOWE, Raymond Sloan, as Special Administrator of the Estate of Lori Jean Sloan, Deceased; and Larry A. Seney; and Farmers Insurance Exchange, a member of the Farmers Insurance Group, a California corporation, North River Insurance Company, a New Jersey corporation, Defendants.
• Court: U.S. District Court — District of South Dakota

584 F. Supp. 369

AMERICAN FAMILY INSURANCE GROUP, a Wisconsin corporation, Plaintiff, v. Christopher L. HOWE, Raymond Sloan, as Special Administrator of the Estate of Lori Jean Sloan, Deceased; and Larry A. Seney; and Farmers Insurance Exchange, a member of the Farmers Insurance Group, a California corporation, North River Insurance Company, a New Jersey corporation, Defendants.

No. CIV 83-4015.

United States District Court, D. South Dakota, S.D.

April 16, 1984.

COPYRIGHT MATERIAL OMITTED

Douglas M. Diebert, Sioux Falls, S.D., for plaintiff.

William P. Fuller, Sioux Falls, S.D., for defendants Larry A. Seney and Farmers Ins. Exchange.

Richard L. Travis, Beresford, S.D., for defendant Christopher Howe.

Arthur L. Rusch, Vermillion, S.D., for defendants Raymond Sloan and North River Ins. Co.

MEMORANDUM DECISION AND ORDER

NICHOL, Senior District Judge.

The plaintiff, American Family Insurance Group (hereinafter referred to as American Family), filed a complaint against the above-named defendants seeking declaratory relief as to the rights and other legal relations of the parties under an insurance policy. Jurisdiction is premised upon 28 U.S.C. section 2201 and upon diversity of citizenship pursuant to 28 U.S.C. section 1332.

The insurance policy in question was issued by American Family to Laurence D. Brady (hereinafter referred to as Brady) of Vermillion, South Dakota. This policy provided, among other things, for automobile liability coverage on a 1975 GMC Jimmy owned by Brady. On January 18, 1980, the 1975 GMC Jimmy owned by Brady was involved in a one-car accident. At the time of the accident the Jimmy was being driven by defendant Christopher Howe, a part-time employee of Brady. As a result of the accident Lori Jean Sloan was killed and defendant Larry Seney was injured. Defendant Raymond Sloan is the duly appointed and acting administrator of the estate of Lori Jean Sloan.

The question presented is whether American Family has a duty to defend Christopher Howe (hereinafter referred to as Howe) in any legal action or to indemnify Howe, should he be held liable for damages to any party arising from this accident under the automobile liability policy issued to Brady. It is undisputed that this policy was in force at the time of the accident. Coverage under the policy requires a determination of whether Howe, at the time of the accident, was operating the Jimmy within the terms of the omnibus clause or additional insured clause of the insurance policy.

The policy issued to Brady by American Family contained the following clause which extends liability coverage under the terms of the policy to "any person using such automobile with the permission of the named insured, provided his operation or, if not operating, his other actual use thereof is within the scope of such permission." (Emphasis added). If Howe was operating the Jimmy on January 18, 1980, with the permission of the insured Brady or his wife Beth Marie Brady, then he may become an additional insured under the policy and may be entitled to the protection of the policy without having himself procured the policy. The operation of an omnibus clause creates liability insurance in favor of persons other than the named insured to the same degree as the named insured. See 12 Couch on Insurance 2d (Rev.Ed.) section 45:293 at 618-19 (1981); Birrenkott v. McManamay, 65 S.D. 581, 276 N.W. 725 (1937). To trigger the effects of the omnibus clause, Howe must have been operating the Jimmy at the time of the accident with Brady's permission. In the absence of permission American Family would have no contractual obligations under its policy to defend or indemnify Howe.

EXISTENCE OF PERMISSION

In a diversity action this Court is bound to apply the substantive law of the forum jurisdiction. Erie Railroad v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938). Therefore, South Dakota statutes and common law apply to the issues before the Court.

The permission required to bring an additional insured within the protection of an omnibus clause may generally be express or implied. Stoll v. Hawkeye Casualty Co., 193 F.2d 255 (8th Cir.1952) (applying South Dakota law); Traders & General Insurance Co. v. Powell, 177 F.2d 660 (8th Cir.1949); National Farmers Union Property & Casualty Co. v. Ronholm, 153 N.W.2d 322 (N.D.1967) (cited by the S.D. Supreme Court in Western Casualty & Surety Company v. Anderson, 273 N.W.2d 203 (S.D.1979)); Brochu v. Taylor, 223 Wis. 90, 269 N.W. 711 (1936).

To constitute express permission the evidence must be of an "affirmative character, directly, and distinctly stated, clear and outspoken, and not merely implied or left to inference." Hinton v. Indemnity Insurance Company, 175 Va. 205, 8 S.E.2d 279, 283 (1940). Clearly no express permission to use the vehicle existed for Howe to use the Brady vehicle at the time, place, and for the purpose in which he was engaged at the time of the accident. The evidence reveals that Howe had express permission only to use the vehicle involved in the accident (1975 GMC Jimmy) to pull a trailer for work related purposes, i.e., haul junk to the dump grounds; haul a snowblower for snow removal at Brady's rental property and one of his local businesses. On January 18, 1980, Howe was not involved in any of the above permissive uses but had embarked on a personal mission or "lark" of his own. If permission existed on January 18, 1980, such permission must have been implied.

Whether or not implied permission existed at the time of the accident presents a question of fact. Edgar v. Travelers Insurance Company, 351 F.2d 690 (8th Cir. 1965); Traders & General Insurance Company v. Powell, supra; Bekaert v. State Farm Mutual Auto Insurance Co., 230 F.2d 127 (8th Cir.1956); Derusha v. Iowa National Mutual Insurance Co., 49 Wis.2d 220, 181 N.W.2d 481 (1970). The South Dakota Supreme Court in Western Casualty & Surety Company v. Anderson, 273 N.W.2d 203 (S.D.1979) (hereinafter referred to as Western), held that to establish the existence of implied permission or consent there must be a "showing of a course of conduct or practice known to the owner and acquiesced in by him that would lead to an implication of permission for a particular venture." Id. at 205. The court also held that the failure of the owner to object to the use would not by itself be deemed consent. Id.

In accord with the rule stated in Western, the evidence must establish that under all the circumstances a course of conduct or practice must have existed known to Bradys and acquiesced in by them. Id. This course of conduct or practice must also lead to a clear inference that Howe had permission to use the vehicle for the particular venture that he was on at the time of the accident. Id. Implied permission arises upon consideration of such factors as the past and present conduct of the insured, relationship between the driver and the insured, and usage and practice of the parties over an extended period of time prior to the use in question. See Andrews v. Commercial Casualty Insurance Co., 128 Neb. 496, 259 N.W. 653 (1935); State Farm Mutual Auto Insurance Co. v. Kersey, 171 Neb. 212, 106 N.W.2d 31 (1960) (overruled on other grounds, Arndt v. Davis, 183 Neb. 726, 163 N.W.2d 886 (1969)); National Farmers Union Property & Casualty Co. v. Ronholm, 153 N.W.2d 322 (N.D.1967); See also, 12 Couch on Insurance 2d (Rev.Ed.) section 45:352 at 696-99 (1981). In addition, some courts have stated that the usage and practice of the parties should be such that would indicate to a reasonable mind that the driver had the right to assume permission under the particular circumstances. United States Fidelity & Guaranty Co. v. Brann, 297 Ky. 381, 180 S.W.2d 102, 104 (1944); Tomasetti v. Maryland Casualty Company, 117 Conn. 505, 169 A. 54, 55 (1933); See 12 Couch on Insurance 2d (Rev.Ed.) section 45:352 at 696-99 (1981).

The burden of proof is upon the defendants to show that Howe's use at the time of the accident was with the permission of the Bradys since Howe is a stranger to the policy in question and not the named insured. Western, supra at 205; See also American Universal Insurance Company v. Dykhouse, 326 F.2d 694, 698 (8th Cir.1964); Derusha v. Iowa National Mutual Insurance Co., 49 Wis.2d 220, 181 N.W.2d 481, 482 (1970); Mitchell v. Automobile Underwriters of Des Moines, 225 Iowa 906, 281 N.W. 832 (1938); Hartford Accident & Indemnity Co. v. Peach, 193 Va. 260, 68 S.E.2d 520, 522 (1952); 12 Couch on Insurance 2d (Rev.Ed.) section 45:363, 364 (1981).

A determination of the existence of implied permission or consent requires the Court to consider the nature of the relationship between Brady and Howe and the course of conduct or practice between them with respect to the use of motor vehicles owned by Brady.

A. Relationship Between Bradys and Christopher Howe

At the time of the accident Howe was employed part-time by Brady. This employment started in July of 1979 and involved the performance of odd jobs at Brady's farm and several of his places of business in Vermillion. The work entailed such things as feeding the cat and horses, mowing lawns, and snow removal. In connection with this employment Howe was at times given permission to use motor vehicles owned by Brady. A clear dispute exists between the parties as to the nature and extent of Howe's use of these vehicles for his own personal use. At the time he began his employment with Brady and at the time of the accident on January 18, 1980, Howe was fifteen years of age and possessed a restricted driver's license. This license authorized Howe to operate motor vehicles between the hours of 6:00 A.M. and 7:00 P.M. The Bradys were aware of the restrictions on Howe's license.

The relationship between the Bradys and Howe was that of employer and employee. Although a social and work relationship existed between Howe's mother Judy and Beth Brady this does not alter the fact that Howe was an employee. It...