Arnold v. State Farm Mutual Automobile Ins. Co.

• Decision Date: 19 November 1958
• Docket Number: No. 12278.,12278.
• Citation: 260 F.2d 161
• Parties: Horace A. ARNOLD, as Administrator of the Estate of Robert Eugene Arnold, Plaintiff-Appellee, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

260 F.2d 161 (1958)

Horace A. ARNOLD, as Administrator of the Estate of Robert Eugene Arnold, Plaintiff-Appellee, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Defendant-Appellant.

No. 12278.

United States Court of Appeals Seventh Circuit.

October 27, 1958.

Rehearing Denied November 19, 1958.

Joseph L. Kivett, Silas C. Kivett, Jr., and Kivett & Kivett, Indianapolis, Ind., for appellant.

Earl C. Townsend, Jr., John F. Townsend, and Townsend & Townsend, Indianapolis, Ind., for appellee.

Before SCHNACKENBERG, HASTINGS and PARKINSON, Circuit Judges.

HASTINGS, Circuit Judge.

In a prior suit in an Indiana state court, plaintiff (appellee), as administrator of his son's estate, recovered a default judgment of $15,000 against an individual who, while driving a truck with permission of the insured owner, negligently struck and killed plaintiff's son.¹ In this present diversity action appellee seeks to recover from the defendant insurance company (appellant), an Illinois corporation and insurer of the owner of the truck, the amount of the default judgment. At the conclusion of all the evidence the trial court directed the jury to return a verdict for plaintiff, upon which judgment was entered and from which this appeal is taken. The errors relied upon arise out of the denial of defendant's motion to direct a verdict and the granting of plaintiff's similar motion.

A statement of the pertinent facts is a necessary prelude to a definition of the issues at this point, and we adopt the outline set out in Judge Steckler's memorandum opinion in the district court, 1958, 158 F.Supp. 1, 2, as follows:

"James V. Ray was the operator of two farms, which will be referred to in this summary as Farm No. 1 and Farm No. 2. Farm No. 2 was located about two and one-half miles away from Farm No. 1, the latter being the situs of the Ray home. Ray was the owner of a certain 1950 G.M.C. truck, which was used in connection with his farming activities. Lowell Leroy Gibbons was employed by Ray as a general farm laborer. On the morning of July 27, 1952, Ray\'s wife, acting on the instructions of her husband, who was ill, gave Gibbons the keys to the truck in order for him to drive it to Farm No. 2 and feed and water certain livestock. A few days prior to the morning here involved, Gibbons had conferred with Ray about looking after the farm chores on both farms during Ray\'s confinement, and it was generally understood that Gibbons would use the truck in that connection. Pursuant to his general instructions and after obtaining the keys from Mrs. Ray, Gibbons drove the truck over to Farm No. 2. There he watered the livestock, though he did not feed them, and then he decided to drive the truck to the Town of Bridgeport, Indiana, which was located approximately fifteen miles away. While in Bridgeport, Gibbons contacted a bootlegger from whom he purchased some whiskey. After consuming a portion of his newly acquired whiskey, Gibbons commenced the journey back to the Ray homestead, taking one or two drinks while on the way back to the farm. While passing through the Town of Plainfield, Indiana, on his way back to the Ray home, Gibbons was involved in a collision with a bicycle ridden by plaintiff\'s fourteen year old son. Plaintiff\'s son was killed. * * *

"The evidence also showed that Ray had been ill for about a week prior to the day of the accident; that during this time Gibbons had been permitted to use the truck in question daily in the performance of his duties. The evidence also showed that on one other occasion, Gibbons had been permitted to take the truck to a certain grain elevator located several miles away from the Ray homestead.

"With respect to the truck, Ray was insured by the defendant by a policy of insurance containing a so-called `omnibus clause,\' which provided, in Section III of the policy as follows:

"`With respect to the insurance for bodily injury liability, for property damage liability, and for medical payments the unqualified word "insured" includes the named insured and also includes any person while using the automobile 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.\'" (Emphasis added.)

The first contention to be resolved is whether, under Indiana law, the foregoing omnibus clause in Section III of the policy affords protection to a permittee of the owner, in this case his employee, or whether this omnibus clause is limited in its coverage to benefit the owner of the vehicle by virtue of the Indiana courts' interpretation of a statute, Burns' Ind.Ann.Stat., § 39-4309 (1952 Repl.), requiring that omnibus clauses be inserted in all automobile policies issued in Indiana.

Appellant contends that the omnibus clause is for the benefit of the insured and not the permittee, and relies on three Indiana cases construing the statute cited above to this effect.² The applicable part of this statute reads:

"39-4309. Liability insurance policies — Prohibition. * * * No such policy shall be issued * * * unless there shall be contained within such policy a provision insuring such owner against liability for damages for death or injury to person or property resulting from negligence in the operation of such motor vehicle, in the business of such owner or otherwise, by any person legally using or operating the same with the permission, express or implied, of such owner. * * *" (Our emphasis.)

The Spicklemeier, Shadow and Culley cases (supra note 2) cited by appellant, are distinguishable on their facts from the case at bar. In each of these cases there was no omnibus clause in the policies and the plaintiffs there sought to read into the policies the foregoing statute for the benefit of the permittee. These opinions held that this could not be done and construed the statute to be solely for the protection of the owner of the vehicle and not his permittee. These holdings were again affirmed by the Supreme Court of Indiana in American Employers' Ins. Co. v. Cornell, 1947, 225 Ind. 559, 568-569, 76 N.E.2d 562, 566, but were expressly limited to a situation where no omnibus clause appears in the policy.

The Cornell case also concerned a suit brought by the holder of a judgment against a permittee driver seeking recovery from an owner's insurance carrier under a policy containing an omnibus clause. The court affirmed a judgment for plaintiff against the insurance company, holding that such a policy provision extended coverage to a permittee and that it was error to attempt to apply this statute to such a situation; and, on this ground, expressly limited and distinguished the Spicklemeier, Shadow and Culley cases. This was consistent with an earlier holding of the Appellate Court of Indiana in Mercer Casualty Co. of Celina, Ohio, v. Kreamer, 1937, 105 Ind. App. 358, 11 N.E.2d 84. Thus, it seems quite clear to us that, under Indiana law, where the policy in suit contains an omnibus clause, the coverage under the policy is extended to and is for the benefit of the permittee.

This leads us then to the question of whether or not this coverage is terminated if the permittee deviates from the use of the motor vehicle contemplated by the owner at the time such initial permission was granted. The precise question here is whether an employee who uses his employer's motor vehicle with the latter's permission remains within the protection of the omnibus clause when he deviates from the purpose and use for which the permission was granted.³ The Indiana courts have not passed upon this question of deviation.

As applied to the instant situation the courts have generally taken one of three views: (1) the "strict" rule to the effect that the motor vehicle "must have been used for a purpose reasonably within the scope of the permission given, during the time limits expressed, and within the geographical limits contemplated"; (2) the moderate...