Ball v. Wilshire Ins. Co.

• Decision Date: 16 June 2009
• Docket Number: No. 104,939.,104,939.
• Citation: 221 P.3d 717,2009 OK 38
• Parties: Amanda L. BALL, Plaintiff-Appellant v. WILSHIRE INSURANCE COMPANY, a North Carolina Insurance Company, Defendant-Appellee.
• Court: Oklahoma Supreme Court

221 P.3d 717

2009 OK 38

Amanda L. BALL, Plaintiff-Appellant v. WILSHIRE INSURANCE COMPANY, a North Carolina Insurance Company, Defendant-Appellee.

No. 104,939.

Supreme Court of Oklahoma.

June 16, 2009.

Rehearing Denied September 14, 2009.

CERTIFIED QUESTIONS OF LAW FROM A FEDERAL COURT

¶ 0 The United States Court of Appeals for the Tenth Circuit certified to this court five questions of state law pursuant to the Revised Uniform Certification of Questions of Law Act, 20 O.S.2001 § 1601 et seq.¹ We have consolidated and reformulated the five questions by reducing their number to four.

CERTIFIED QUESTIONS AS CONSOLIDATED AND REFORMULATED ANSWERED.

Rick W. Bisher, Ryan Bisher Ryan, Oklahoma City, OK, for Plaintiff-Appellant.

Scott M. Rhodes, James W. Dobbs, Smith Rhodes Stewart & Elder, P.L.L.C., Oklahoma City, OK, for Defendant-Appellee.²

OPALA, J.

¶ 1 The United States Court of Appeals for the Tenth Circuit certified to this court five questions of law under the Revised Uniform Certification of Questions of Law Act.³ We address the following four consolidated and reformulated⁴ questions:

1. Is a motor-vehicle insurance policy provision that excludes any coverage for "Vehicles Loaned, Leased or Rented to others, including those dealerships and repair shops who provide [word or words omitted in policy] while customer's auto is being repaired" void in whole or in part, in light of Oklahoma's Compulsory Liability Insurance statute, 47 O.S. § 7-600 to § 7-612?

2. If the answer to # 1 is yes, does the exclusion nevertheless relieve an insurance company of its contractual duty to defend an insured?

3. If the answer to the second certified question is "no," does an insurance company act in bad faith in relying on the exclusion to deny a defense to an insured?

4. Does an insurer who relies on the exclusion to deny or delay payment of uninsured motorist benefits act in bad faith?

¶ 2 We answer the first and second questions in the affirmative. Our answer to the second question makes a response to the third question unnecessary. Our answer to the fourth question is in the negative.

I THE ANATOMY OF FEDERAL LITIGATION

¶ 3 Wilshire Insurance Company issued a commercial auto liability insurance policy to John Drummond, d/b/a Henryetta Auto Sales. The policy contained a "Combined Garage Exclusion Endorsement," which inter alia excluded any coverage for vehicles loaned to customers of an auto repair shop while the customer's car was being repaired ("Loaned Vehicle Exclusion").⁵ But for the Loaned Vehicle Exclusion, a customer of Henryetta who had no liability insurance of his or her own and who was driving a Henryetta-owned vehicle with Drummond's permission would have fallen under the definition of "an insured" contained in the liability section of the Wilshire policy.⁶ But for the Exclusion, a customer permissively driving a Henryetta-owned vehicle would also have fallen under the definition of "an insured" in the Uninsured Motorist Coverage Endorsement.⁷

¶ 4 On 2 June 2003, Amanda Ball, with her roommate as a passenger, was driving a pickup truck belonging to Henryetta while her vehicle was being repaired at Drummond's repair shop when she collided with a vehicle that turned left in front of her. In addition to the driver, three children were riding as passengers in the other vehicle. The accident caused serious injuries to the occupants of both vehicles, including the death of one of the children. Both Ball and the other driver were cited for traffic violations.

¶ 5 The guardian ad litem of two of the children and the personal representative of the deceased child each filed separate negligence actions against Ball in state court. Ball asked Wilshire to defend her. She also made a claim under the uninsured/underinsured motorist ("UM") provisions of the Wilshire policy. Relying on the Loaned Vehicle Exclusion, Wilshire refused to defend Ball or to pay UM benefits to her or to her passenger. The state court consolidated the tort actions and entered a default judgment against Ball in excess of $20,000,000.00.

¶ 6 Ball sued Wilshire in state court, alleging that she was insured under the Wilshire policy and that Wilshire's refusal to defend her in the tort litigation and its denial of her UM claim breached the insurance contract and violated the insurer's implied duty of good faith and fair dealing. After removing the case to federal court, Wilshire answered and filed a counterclaim for a declaratory judgment that it had no duty to defend Ball. Wilshire also tendered UM limits to Ball and her passenger, but maintains that it was not legally obligated to do so.⁸ Ball then recast her UM contract and tort claims in terms of delay in payment of benefits due. Upon cross motions for summary judgment, all issues were summarily adjudicated in favor of Wilshire except the UM breach of contract claim, which was left pending.

¶ 7 Meanwhile, Ball's tort litigation judgment creditors brought a proceeding in state court against Wilshire to garnish the liability proceeds of the Wilshire policy. This proceeding was also removed to federal court. Upon cross motions for summary judgment, the district court ruled that the Loaned Vehicle Exclusion was unenforceable against the garnishors to the extent of the minimum amount of liability coverage required by the Oklahoma Compulsory Liability Insurance Law.⁹ No appeal was brought from that decision.

¶ 8 Ball filed an appeal in the United States Court of Appeals for the Tenth Circuit from the federal district court's adverse decision in her contract/tort action against Wilshire. On 20 August 2007, the Tenth Circuit certified five questions of state law to this court, deeming them to be unsettled by extant Oklahoma jurisprudence. Because the paperwork submitted to this court by the Tenth Circuit at that time indicated that the federal appellate court might yet refuse to exercise jurisdiction over the appeal, we issued an opinion on 23 October 2007 in which we declined to answer the certified questions as potentially calling for a prohibited advisory opinion.¹⁰ The jurisdictional issue having since been resolved,¹¹ the federal appellate court has recertified the legal questions which as consolidated and reformulated we answer today.

II THE NATURE OF THIS COURT'S FUNCTION WHEN ANSWERING QUESTIONS FROM A FEDERAL COURT

¶ 9 In answering questions submitted by a federal court the parameters of state-law claims or defenses identified by the questions may be tested. Yet it is not this court's province to intrude (by its responses) upon the certifying court's decision-making process.¹² The certifying court must be left entirely free to assess the impact of our answers and to make its own appraisal of the proof in the case before it.¹³

¶ 10 Because this case is not before us for decision, we refrain, as we must, from applying the declared state-law responses to the facts in the federal-court litigation. Those facts have been tendered for review by the certifying court either in the form of evidence adduced at trial or in acceptable probative substitutes (so-called "evidentiary materials").¹⁴ The task of analyzing today's answers for their application to this case is deferred in its entirety to the certifying court.¹⁵

III THE LOANED VEHICLE EXCLUSION CONTRAVENES THE PUBLIC POLICY BEHIND THE COMPULSORY LIABILITY INSURANCE LAW TO THE EXTENT IT DENIES TO AN INJURED THIRD PARTY THE MINIMUM AMOUNT OF LIABILITY INSURANCE REQUIRED BY STATUTE¹⁶

¶ 11 The provisions of 47 O.S.2001 § 7-601(C)(1) prohibit the operation of any motor vehicle in this state unless it is insured or secured for the payment of personal injury or property damage to another arising out of the ownership, maintenance, operation or use of the vehicle.¹⁷ As part of this mandate, the law requires that every owner's policy of automobile liability insurance include an "omnibus clause" that insures against liability not only the named insured, but also any other person using an insured vehicle with the express or implied permission of the named insured.¹⁸ No one may be excluded from liability coverage unless the exclusion is authorized by "existing laws."¹⁹

¶ 12 The principal purpose of compulsory liability insurance is to protect the public from the financial hardship that may result from the use of automobiles by people who are financially unable to respond in damages for any injury done.²⁰ In enacting legislation compelling the purchase of liability insurance, the legislature intended that every vehicle operated in this state be secured against liability to innocent victims of the negligent operation of insured vehicles.²¹ This clearly articulated public policy plainly overrides contrary private agreements that restrict coverage whenever the contractual strictures do not square with the purpose of the Compulsory Liability Insurance Law.²² In light of this public policy, clauses which would exclude from coverage all potential claimants have been almost uniformly invalidated because they are at odds with the legislative intent of the Compulsory Liability Insurance Law.²³ Our decisions make clear that an insured vehicle cannot be rendered uninsured vis a vis the general public.²⁴

¶ 13 The Loaned Vehicle Exclusion is not authorized by the Compulsory Liability Insurance Law and does not differ in any significant respect from other exclusions deemed incompatible with the statute because they would bar from coverage all potential claimants. The Loaned Vehicle Exclusion removes protection from the general public by rendering uninsured an otherwise insured vehicle when a certain class of people, customers of a named-insured dealership or repair shop, happen to be driving that vehicle. Because the Loaned Vehicle Exclusion has the effect of withholding coverage from the general public and is not sanctioned by existing law, we pronounce it violative of the public policy embodied in 47 O.S.2001 § 7-601(C)(1).

¶ 14 The...