Bill Atkin Volkswagen, Inc. v. McClafferty

• Decision Date: 29 October 1984
• Docket Number: No. 83-522,83-522
• Citation: 41 St.Rep. 1981,213 Mont. 99,689 P.2d 1237
• Parties: BILL ATKIN VOLKSWAGEN, INC., Plaintiff and Appellant, v. William McCLAFFERTY, Defendant and Respondent. William McCLAFFERTY, Third Party Plaintiff and Respondent, v. UNIVERSAL UNDERWRITERS INSURANCE CO., Third Party Defendant and Appellant.
• Court: Montana Supreme Court

Page 1237

689 P.2d 1237

213 Mont. 99

BILL ATKIN VOLKSWAGEN, INC., Plaintiff and Appellant, v. William McCLAFFERTY, Defendant and Respondent.

William McCLAFFERTY, Third Party Plaintiff and Respondent, v. UNIVERSAL UNDERWRITERS INSURANCE CO., Third Party Defendant

and Appellant.

No. 83-522.

Supreme Court of Montana.

Submitted June 19, 1984.

Decided Oct. 29, 1984.

Anderson, Brown, Gerbase, Cebull & Jones; Rockwood Brown argued, Billings, for plaintiff and appellant.

Keller, Reynolds, Drake, Sternhagen & Johnson; P. Keith Keller argued, Helena, for defendant and respondent.

WEBER, Justice.

This is an appeal from the judgment of the Silver Bow County District Court in an action to determine insurance coverage between Universal Underwriters Insurance Company (Universal), insurer of Bill Atkin Volkswagen, Inc. (Atkin VW), and Safeco Insurance Company (Safeco), insurer of William McClafferty (McClafferty). The District Court entered judgment in Safeco's favor and Universal appeals. We affirm in part, reverse in part, and remand the cause for further proceedings.

The issues are:

1. Does section 61-6-301(1), MCA require that an automobile dealer maintain a liability insurance policy extending coverage to a customer using a "loaner" vehicle with the dealer's permission?

2. Which liability insurance policy provides coverage where the vehicle owner's policy coverage is excess for any person who becomes an insured as required by law, as does McClafferty under the Universal policy, and the operator's policy coverage with respect to a temporary substitute automobile is excess over any other valid and collectible insurance?

3. Is Home Insurance Company v. Pinski Bros., Inc. (1972), 160 Mont. 219, 500 P.2d 945, authority for awarding attorney's fees and court costs in a suit between two insurers?

McClafferty left his vehicle with Atkin VW, a Butte car dealership, for repair. While his car was being repaired, McClafferty drove a "loaner" vehicle owned by Atkin VW. On November 12, 1980 McClafferty drove the loaner vehicle into a parked car owned by Ogrin. McClafferty was admittedly at fault.

Ogrin sued McClafferty for damage to his automobile. McClafferty tendered defense of the suit to Universal, Atkin VW's insurer. Universal denied coverage. Safeco, McClafferty's insurer, undertook defense of the suit and settled Ogrin's claim.

Universal partially reimbursed Atkin VW for the damage to the loaner vehicle. Atkin VW, in its own and Universal's behalf, sued McClafferty to recover for the damage to the loaner vehicle. McClafferty in turn sued Universal as a third party defendant, claiming to be insured under the Universal policy. On behalf of Safeco, McClafferty sought recovery the amount paid by Safeco to settle Ogrin's claim and sought recovery of attorney's fees and costs.

Because the only issues in the case were questions of law regarding insurance coverage, the parties executed an agreed statement of facts, contentions and issues and submitted the matter to the District Court for decision on briefs and oral argument. The court entered findings, conclusions and judgment in favor of McClafferty (Safeco) and against Atkin VW and Universal. Universal appeals.

I

Does section 61-6-301(1), MCA require that an automobile dealer maintain a liability insurance policy extending coverage to a customer using a "loaner" vehicle with the dealer's permission?

The liability policy issued by Universal to Atkin VW extends coverage to the named insured, Atkin VW, its corporate family, and to "[a]ny other person or organization required by law to be an INSURED while using an AUTO covered by this Coverage Part within the scope of YOUR permission" (emphasis added). Whether McClafferty was covered under the Universal policy therefore depends upon whether Montana law requires Atkin VW to provide liability insurance covering customers such as McClafferty while using loaner vehicles with permission. The District Court concluded that section 61-6-301, MCA requires auto dealers to provide liability coverage for permissive users and that McClafferty was therefore an insured under the Universal policy.

Section 61-6-301(1), MCA provides:

"Every owner of a motor vehicle which is registered and operated in Montana by the owner or with his permission shall continuously provide insurance against loss resulting from liability imposed by law for bodily injury or death or damage to property suffered by any person caused by maintenance or use of a motor vehicle ..."

Universal argues that this section does not require Atkin VW to insure all permissive users. It argues that except for constitutional, statutory or public policy limitations, parties to an insurance contract are free to bargain for and agree to whatever terms and coverage they desire. Here, it contends, the parties limited coverage of permissive users to only those cases where the law requires coverage. They contend that section 61-6-304, MCA requires operators of motor vehicles to maintain liability coverage and that McClafferty did so through his Safeco policy. Universal contends that both Atkin VW and McClafferty complied with these respective mandatory liability provisions by maintaining coverage for themselves. Viewed in this light, Universal argues that section 61-6-301, MCA requires that the vehicle owner insure only itself against liability. Because the statute does not require coverage of McClafferty, it contends, the policy excludes McClafferty from coverage. We disagree.

Section 61-6-301(1), MCA requires every owner of a motor vehicle registered and operated in Montana by the owner or with his permission to provide insurance for liability caused by maintenance or use of the motor vehicle. Section 61-6-303, MCA provides a list of vehicles exempt from the mandatory liability insurance law. Eight classifications of vehicles are specifically excluded from the liability insurance requirement. There is no exclusion for vehicles owned or used by automobile dealerships. Because the Legislature did not exclude dealers from the mandatory liability insurance requirement, dealers are included in the general statutory language "every owner of a motor vehicle."

Section 61-6-301, MCA clearly applies to Atkin VW. This section requires coverage where the vehicle is "operated in Montana by the owner or with his permission." The statute makes no exception where an operator is covered under a separate liability insurance policy. In fact, without deciding the question, it appears section 61-6-304, MCA is complied with if an operator is covered under the vehicle owner's policy, even if the operator maintains no policy of his own. In any event, the fact that an operator maintains his own policy does not exempt an owner from the statutory requirement of insuring against liability from permissive use of its vehicles.

Universal also appears to argue that section 61-6-301(1), MCA requires liability coverage only as a prerequisite to registration of a motor vehicle, that automobile dealers do not "register" inventory vehicles, and the statute therefore does not require liability coverage for permissive users. If this position were correct, however, section 61-6-301 would not even require auto dealers to insure against liability resulting from their own use of such vehicles. Universal concedes, however, that the statute requires that Atkin VW insure itself. If the statute requires the dealer to insure itself, clearly it also requires that permissive users be insured.

We hold that section 61-6-301(1), MCA requires that an automobile dealer maintain a liability insurance policy extending coverage to a customer using a "loaner" vehicle with the dealer's permission. The District Court correctly concluded that McClafferty was an insured under the Universal policy.

Universal argues that the District Court erred in also finding coverage under the Universal policy on grounds that the loaner vehicle was "leased or rented" to McClafferty and that coverage extends to vehicles leased or rented to a customer for a term of two months or less as a temporary replacement of the customer's auto. Universal argues that a vehicle that is loaned "gratis" is not considered leased or rented within the meaning of an insurance policy, citing Mountain States Casualty Company v. American Casualty Company (1959), 135 Mont. 475, 342 P.2d 748. Because we have concluded that McClafferty is covered under a separate provision of the Universal policy, we need not address this issue.

II

Which liability insurance policy provides coverage where the vehicle owner's policy coverage is excess for any person who becomes an insured as required by law, as does McClafferty under the Universal policy, and the operator's policy coverage with respect to a temporary substitute automobile is excess over any other valid and collectible insurance?

Each party argues here that its policy coverage is excess and that the opposing party's policy coverage is primary. Thus, each party argues that the other party should bear the entire loss in this case. Both parties base their argument on Mountain States Casualty Company v. American Casualty Company (1959), 135 Mont. 475, 342 P.2d 748. The District Court concluded that Mountain States was controlling and that it required a finding that Universal's coverage was primary and Safeco's coverage excess. A careful analysis of Mountain States is required.

In Mountain States, an accident occurred involving a truck owned by McBee, who was insured by Mountain States. The Mountain States policy defined the named insured as including "any person while using an 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 [McBee] or with his permission." 135 Mont. at 481, 342 P.2d at 751. The truck in question was covered by this policy and had been loaned to Hilands Golf Club. Autos rented to...