Christensen v. Milbank Ins. Co.

• Decision Date: 03 April 2003
• Docket Number: No. C3-01-2078.,C3-01-2078.
• Citation: 658 N.W.2d 580
• Parties: Harvey CHRISTENSEN, Petitioner, Appellant, v. MILBANK INSURANCE COMPANY, Respondent.
• Court: Minnesota Supreme Court

658 N.W.2d 580

Harvey CHRISTENSEN, Petitioner, Appellant, v. MILBANK INSURANCE COMPANY, Respondent.

No. C3-01-2078.

Supreme Court of Minnesota.

April 3, 2003.

Robert E. Kuderer, Teresa M. Thompson, Johnson & Condon, P.A., Minneapolis, MN, for Appellant.

John H. Scherer, Rajkowski Hansmeier Ltd., St. Cloud, MN, for Respondent.

Heard, considered, and decided by the court en banc.

OPINION

ANDERSON, Russell A., Justice.

In this case, we are asked to interpret the scope of the initial permission rule which provides that when a named insured initially gives another permission to use a vehicle, subsequent use, short of conversion or theft of the vehicle, remains permissive even though the use is outside the initial grant of permission. We hold, in the context of the "theft or conversion" exception to the initial permission rule, that the intentional dominion or control necessary for "conversion" cannot be shown by accidental destruction of the vehicle in a collision. Further, we hold that "closer to the risk" analysis is inappropriate where a school district's insurance plan states "this agreement provides primary coverage" and the school district employee's personal insurance policy states that its coverage "shall be excess over any other collectible insurance."

From 6 a.m. to 12 noon on Friday, July 1, 1994, appellant Harvey Christensen, a drivers' education instructor, conducted drivers' education instruction with a van owned by Independent School District # 787. After he finished instruction, Christensen drove home to wash the van. Christensen did not have permission to use the van for personal reasons at any time but did have permission to park the van at his home.

Christensen washed the van in the afternoon after he mowed the lawn and cleaned the house. Over the course of the afternoon, he also drank about six beers. At about 6:30 p.m., as he was finishing supper, Christensen decided to go for a drive. Since the drivers' education van was blocking his car in the driveway, he put a cooler of beer and ice in the van and took the van for a drive. Christensen drank a couple more beers between 6:30 and 8:15 p.m. About 8:30 p.m., Christensen was involved in a collision with a vehicle driven by Veronica Wagner on State Highway 10. He was intoxicated at the time.¹ The van was totally destroyed. Wagner's passengers sued Christensen, District # 787, and others for past and future damages resulting from their injuries.

The van was insured by District # 787 through the Minnesota School Board Association Insurance Trust (MSBAIT), a self-insurance pool specifically authorized by Minnesota Statutes § 471.981, subd. 1 (2002). This plan provides:

WHO IS COVERED

1. You are a plan participant for any covered auto.

2. Anyone else is a plan participant while using, with your permission, [any auto you own, hire or borrow except] * * * [none applicable].

The plan also states:

PURCHASE OF INSURANCE

1. For any covered auto you own, this agreement provides primary coverage. For any covered auto you don't own, the coverage provided by this agreement is excess over any purchased collectible insurance.

Christensen's personal auto insurer was Milbank Insurance Company. Milbank's policy provides:

INSURING AGREEMENT

A. We will pay damages for "bodily injury" or "property damage" for which any "insured" becomes legally responsible because of an auto accident. * * * We will settle or defend, as we consider appropriate, any claim or suit asking for these damages.

* * * *

OTHER INSURANCE

If there is other applicable liability insurance we will pay only our share of the loss. Our share is the proportion that our limit of liability bears to the total of all applicable limits. However, any insurance we provide for a vehicle you do not own shall be excess over any other collectible insurance.

MSBAIT initially defended Christensen and the school district in the action brought by Wagner's passengers. MSBAIT later tried to tender the defense of the action to Milbank. Milbank rejected the tender on the grounds that Christensen's Milbank policy was excess and that the MSBAIT plan was primary but agreed to act in the capacity of an excess insurer. Ultimately, Christensen settled with payments totaling $78,000. The payments were made pursuant to a loan receipt² provided by MSBAIT. The loan receipt was conditioned upon Christensen's promise that he would seek declaratory relief against Milbank for recovery of damages and attorney fees for the original action as well as for the declaratory proceeding for breach of the duty to defend. Christensen then sought declaratory relief against Milbank for the breach of its duties to defend and indemnify him and for the recovery of attorney fees and costs incurred in the original action and the declaratory judgment action.

Both parties brought motions for summary judgment. The district court granted Christensen's summary judgment motion and ordered judgment against Milbank for the amount of the settlement plus attorney fees and costs in the original action and the declaratory judgment action. In doing so, the district court determined: (1) that Christensen was not a permissive user within the context of the initial permission rule because Christensen's use of the vehicle constituted conversion since he had improperly taken the van, failed to return it, and ultimately destroyed it; and (2) that the Milbank policy should provide primary coverage because Milbank intended to insure Christensen's personal vehicle use and District # 787's plan intended to cover only school use of the vehicle.

The court of appeals, concluding that the district court's definition of conversion was "too broad," held that "[i]n a situation in which the property is destroyed, conversion may be shown only if the destruction was intentional." Christensen v. Milbank Ins. Co., 643 N.W.2d 639, 643 (Minn.App. 2002). The court of appeals applied its definition to the instant facts and determined that Christensen did not convert the van. It therefore concluded that the district court erred in granting summary judgment for Christensen and reversed. Christensen appealed, and this court granted review to consider the scope of the conversion exception to the initial permission rule.

I.

On appeal from summary judgment, our review is de novo; we consider whether there are any genuine issues of material fact and whether either party is entitled to judgment as a matter of law. Zimmerman v. Safeco Ins. Co. of America, 605 N.W.2d 727, 729 (Minn.2000); Washington v. Milbank Ins. Co., 562 N.W.2d 801, 804 (Minn.1997); see also Garrick v. Northland Ins. Co., 469 N.W.2d 709, 711 (Minn.1991). In this case there are no genuine issues of material fact, and we consider de novo what constitutes "conversion" under the "conversion or theft" exception to the initial permission rule.

Minnesota law provides that an owner of a motor vehicle may be held vicariously liable for a driver's use of that vehicle if the owner gives the driver express or implied permission. Minn.Stat. § 170.54 (2002). To effectuate this intent, automobile liability insurance policies contain an omnibus clause that creates liability insurance for permissive drivers. 8 Lee R. Russ & Thomas F. Segalla, Couch on Insurance § 111.1, at 111-5 to 111-6 (3d ed.1997). Whether and under what circumstances an automobile is considered to be used with the permission of the named insured within the meaning of the omnibus clause is the province of the courts. In construing the scope of coverage created by omnibus clauses, courts have followed one of three rules: (1) the strict or conversion rule; (2) the initial permission rule; or (3) the minor deviation rule. See C.T. Drechsler, Annotation, Automobile Liability Insurance: Permission or Consent to Employee's Use of Car Within the Meaning of Omnibus Coverage Clause, 5 A.L.R.2d 600, 622 (1949). In Milbank Mutual Insurance Co. v. United States Fidelity and Guaranty Co., we adopted the initial permission rule. 332 N.W.2d 160, 165 (Minn.1983) (noting that the policy behind Minn.Stat. § 170.54 [the Safety Responsibility Act] is to ensure "persons injured by the negligent operation of automobiles `an approximate certainty' of an effective recovery" when liability would not otherwise exist) (citation omitted). Under the initial permission rule, when permission to use a vehicle is initially given, subsequent use, short of actual conversion or theft, remains permissive even though the use is not within the contemplation of the parties or is outside the scope of the initial grant of permission. Id. at 167; see also 6C John Alan Appelman & Jean Appelman, Insurance Law and Practice § 4366, at 197, § 4367 (Richard B. Buckley ed. 1979) ("[Some] states have arbitrarily adopted a doctrine [known as the hell or high water rule, or the initial permission rule] that if the vehicle was originally entrusted by the named insured, or one having proper authority to give permission, to the person operating it at the time of the accident, then despite hell or high water, such operation is considered to be within the scope of the permission granted, regardless of how grossly the terms of the original bailment may have been violated."). In Milbank, we looked to legislative history and to our trend of interpreting the Safety Responsibility Act and omnibus clauses in liability insurance policies to conclude "that the public policy of this state favors protection of the uncompensated victims of automobile accidents over any interest of an owner-insured or his insurer that he be not subject to liability when his permittee exceeds the scope of the initial permission." 332 N.W.2d at 166-67.

The facts of Milbank are analogous to the instant case. In Milbank, an employee had permission to take a company truck home. Id. at 162. The employer told the employee that he was only to drive the truck home and back to work and was not to go "joyriding." Id. Nevertheless, the employee...