American Fidelity Co. v. North British & Mercantile Ins. Co., 1038

• Decision Date: 06 October 1964
• Docket Number: No. 1038,1038
• Court: Vermont Supreme Court
• Parties: AMERICAN FIDELITY COMPANY v. NORTH BRITISH & MERCANTILE INSURANCE CO., Ltd., et al.

Page 110

204 A.2d 110

124 Vt. 271

AMERICAN FIDELITY COMPANY v. NORTH BRITISH & MERCANTILE INSURANCE CO., Ltd., et al.

No. 1038.

Supreme Court of Vermont.

Oct. 6, 1964.

A. Pearley Feen, Paul D. Sheehey and R. Allan Paul, Burlington, for plaintiff.

Loveland & Hackel, Rutland, for defendant.

Before HOLDEN, C. J., and SHANGRAW, BARNEY, SMITH and SYLVESTER, JJ.

BARNEY, Justice.

The accident happened during a five-block trip for ice cream for two six-year old girls. Their play diverted the attention of the driver, one Blanchard, and he struck a parked car in which some people were sitting. As a consequence, the insurance carrier for Blanchard became liable to pay a $6000.00 judgment in favor of the injured. The car Blanchard was driving belonged to one Fredette, a car dealer doing business as Fredette Motors. Blanchard's insurer, the plaintiff here, brought this action to obtain contribution from Fredette's insurer, in proportion to the coverage available to Blanchard as an additional insured under Fredette's insurance contract with the defendant. The suit took the form of an action in equity for a declaratory judgment, and, based on his findings of fact, the chancellor gave judgment in favor of the defendant.

Two issues govern the litigation. First, in view of the use being made of the automobile, was Blanchard within the definition of an 'insured' in defendant's policy, and so within its coverage? The other question is whether or not the participation of plaintiff and defendant in payment of the judgment is governed by their subsequent agreement, or conduct amounting to waiver or raising an estoppel, regardless of policy terms?

On the first issue, the parties are urging the adoption of 'rules' ranging from the strictest, called the conversion rule through the moderate, called the minor deviation rule, to the broadest, called the initial permission rule. See Konrad v. Hartford Accident & Indemnity Co., 11 Ill.App.2d 503, 137 N.E.2d 855, beginning on page 861, for a discussion of these rules.

The conversion rule requires that permission have been given for the particular use being made of the vehicle at the time of the accident. The minor deviation rule, as its name implies, holds that a small deviation from the use encompassed by the permission granted will not bar coverage, but a major one will. The initial permission rule requires only that there be permission to use the vehicle in the first instance to provide coverage, whatever the actual use made of the vehicle. All of these rules relate to interpretation of the standard omnibus clause extending policy benefits to persons other than the named insured, a clause present in defendant's policy and reading as follows: 'Any person while using the automobile covered by this policy and any person or organization legally responsible for the use thereof provided the actual use of the automobile is by the named insured or with his permission.'

Rules and categories are tempting devices for arriving at automatic answers. Sometimes the distinguishing qualities of the classifications coincide with the essential differences between situations. And sometimes they do not. Sometimes the categories carry with them characteristics of their own which introduce deceptive or irrelevant distinctions into a decision, leading us away from the substance of an inquiry.

It is, therefore, usually best for courts to meet the issues completely on a case by case basis, leaving classification to others, limiting the use of general propositions to those that are essential to an understanding of the manner in which the court resolved the questions involved, and the way will approach others like it. This is the genius of our common law system, deriving the general rule from the specific case.

In the matter at hand, as so often happens, we must deal with competing and conflicting considerations. To follow the initial permission rule completely may make decisions in this area simple, certain and predictable. In law, these are advantages not lightly case aside. And yet, there come to mind applications of such a rule grossly inequitable, like the conversion of the permitted around-the-block demonstration spin into a cross-country trek.

The minor deviation rule is troublesome because there is so little of a rule about it. It must, to be useful, be accompanied by some standards by which the measurement of deviations as minor or major can be consistently accomplished. When such standards are arrived at, they become themselves a more useful and more definitive rule.

The strict conversion rule derives from the contractual origins of the policy provisions. It applies the rules of construction appropriate to personal service or bargain and sale transactions to contracts of indemnity. That this is unduly narrow can be easily seen, since the object of the contract is to protect against incurred liability, which derives from tort law. The concepts of tort responsibility reach beyond agreed limitations, as in cases of a master's responsibility for tortious acts of his servant who is acting within the scope of his employment although beyond its express terms. Young v. Lamson, 121 Vt. 474, 477, 160 A.2d 873.

Since the object of the insuring agreement is the assumption of tort liability which is expected to arise out of circumstances beyond the mutual control of the contracting parties, too narrow construction may defeat the purpose of the agreement. It is because of such considerations that most courts give a broad, rather than a narrow, construction to liability policy language. Harte v. Peerless Ins. Co., 123 Vt. 120, 124, 183 A.2d 223. Since these liability policies are drafted by the insurer, it is not unreasonable, having in mind that the policies are sold as shields against liability claims, to construe that terms of the agreement as broad as its intended purpose, and giving its language appropriate breadth of meaning. Griswold v. Metropolitan Life Ins. Co., 107 Vt. 367, 381, 180 A. 649.

An automobile is an instrument of general transportation utility. It has replaced foot travel for trips to the corner store, as well as being useful for transcontinental journeys. With casual use so common and usual in our society, it is unrealistic to expect that absolutely no such use will be made of a convenient car when borrowed. The language of the standard omnibus provision, present in the policy concerned here, does not suggest any such prohibition.

The chancellor found that Blanchard's errand to obtain ice cream for the children was unconnected with any purpose connected with the sale of the car and was solely for the personal benefit of Blanchard. He went on to find that this purpose was outside of the permitted use authorized by Fredette. He held that, since Fredette intended Blanchard to use the vehicle for purposes in connection with its sale, the policy issued by the defendant did not give coverage to Blanchard as an additional insured for the accident.

From the principles previously discussed it is plain that this result does not follow as a matter of law from the policy provisions. The question then becomes one of whether or not there are facts which make a different result appropriate, supporting the finding...