Cooper v. State Farm Mut. Auto. Ins. Co.

• Decision Date: 11 July 1988
• Docket Number: No. 87-8492,87-8492
• Citation: 849 F.2d 496
• Parties: Kathy Marie COOPER, et al., Plaintiffs-Appellants, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Defendant-Appellee.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 496

849 F.2d 496

Kathy Marie COOPER, et al., Plaintiffs-Appellants, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Defendant-Appellee.

No. 87-8492.

United States Court of Appeals Eleventh Circuit.

July 11, 1988.

William C. Lanham, Johnson & Ward, Clark H. McGehee, Atlanta, Ga., for plaintiffs-appellants.

Mark G. Trigg, Powell, Goldstein, Frazer & Murphy, Atlanta, Ga., for defendant-appellee.

Appeal from the United States District Court for the Northern District of Georgia.

Before HILL, ANDERSON and GOODWIN ^*, Circuit Judges.

ANDERSON, Circuit Judge:

The only issue we address on this appeal involves the meaning of a relatively new clause in an automobile insurance policy. Because we find that the district court misinterpreted that clause, we reverse the grant of summary judgment for the defendant and remand for proceedings consistent with this opinion.

I. The Facts

The events leading to this lawsuit began in Havelock, North Carolina in late 1981. At some time in November or December, David Carlton started dating Kathy Cooper. David was sixteen years old, and Kathy was fourteen years old. On February 12, 1982, David and Kathy skipped school and spent the day at the beach. During the day at the beach, they decided to run away together.

They drove south in a 1973 Toyota owned by Darrell Carlton, David's father. As a general rule, David had used this car whenever he wanted. However, the parties disagree as to whether Mr. Carlton had placed temporary restrictions on David's use of the car shortly before David and Kathy ran away. In any event, David and Kathy drove to Bennettsville, South Carolina the first day. They stayed in a Bennettsville hotel for several days during which David gave Kathy informal driving lessons. Kathy had little, if any, previous driving experience, and she had no driver's license nor learner's permit.

After leaving Bennettsville, David and Kathy drove south toward Atlanta. As they approached Atlanta on I-85, David tired of driving. Kathy offered to relieve him. Even though it was raining and Kathy had not perfected the skill of shifting gears, David allowed her to drive. Shortly after Kathy began driving, David told her that they had missed their turn. Kathy swerved and lost control of the car. The car hit Forrest Jamison, a driver changing a flat tire. The accident caused permanent injury to Mr. Jamison.

On March 30, 1983, Mr. Jamison and his wife filed a diversity action in the Northern District of Georgia against Kathy, David, and David's father, Darrell. The Carltons' family insurance carrier, United States Automobile Association ("USAA"), provided primary liability coverage in the amount of $50,000. In addition, Kathy's father, Gerald Cooper, provided notice of the accident to his family insurer, State Farm Mutual Automobile Insurance Company ("State Farm"), and requested that State Farm defend Kathy. Gerald Cooper's policy provided for $100,000 in coverage.

State Farm, however, asserted that Kathy was excluded from the policy and refused to defend her. The Jamisons made a demand that USAA and State Farm settle for their combined policy limits of $150,000. USAA was willing to settle, but State Farm refused. State Farm took no action except to investigate the claim and to enter into a reservation of rights with the Coopers.

The suit was tried in March 1986. The jury returned a verdict against Kathy, David, and Darrell jointly in the amount of $375,000 plus interest. USAA then paid its $50,000 policy limit. This left Kathy, David, and Darrell with liability well in excess of State Farm's $100,000 policy limits.

Shortly after the trial court entered judgment in the original suit, Kathy, David, and Darrell brought this action against State Farm on behalf of the Jamisons. ¹ In Count One, they allege that State Farm is liable for failing to defend Kathy and to adjust the claim in the previous action. In Count Two, they allege that State Farm is liable because it negligently failed to settle the claim. The trial court entered summary judgment for State Farm holding that Kathy was excluded from Gerald Cooper's policy. The plaintiffs then brought this appeal.

For purposes of this appeal, the parties do not dispute that Gerald Cooper's policy would generally cover Kathy as a family member. Specifically, the policy provided:

We [State Farm] will pay damages ... for which any covered person becomes legally responsible because of an auto accident....

'Covered person' as used in this part means: 1. you or any family member for the ... use of any auto....

Policy at 4 (emphasis in original).

'Family member ' means a person related to you by blood ... who is a resident of your household.

Policy at 3 (emphasis in original).

However, Policy Exclusion A-8 provides:

We do not provide Liability Coverage for any person: ... 8. Using a vehicle without a reasonable belief that that person is entitled to do so. ²

Policy at 4. The only issue presented on appeal involves the meaning of Exclusion A-8. State Farm argues that as a matter of law, Kathy could not have reasonably believed that she was entitled to drive Darrell Carlton's car on the day of the accident. Therefore, it claims it owed her no duty under the policy.

The district court held that for Kathy to show a reasonable belief of entitlement, she would have to show a reasonable belief both that she was in lawful possession of the car and that she had the legal right to drive. The court first found that there was a jury question as to whether Kathy had a reasonable belief that she was in lawful possession of the car. It then held that because Kathy could not have reasonably believed that she had the legal right to drive that she was excluded under the policy. On that basis, it granted summary judgment for State Farm. The first question we must address is whether the legal right to drive is a necessary prerequisite to entitlement as used in the exclusionary clause.

II. The License Issue

The parties do not challenge the district court's conclusion that North Carolina law governs this action. Unfortunately, the North Carolina courts apparently have never interpreted this relatively new clause in a reported case. Indeed, we are aware of only fourteen decisions from the entire country interpreting this clause. ³ In most of these decisions, the driver's legal right to drive was not in question, and the possessory right to the car was the only issue.

Two of these cases, however, involved unlicensed drivers, and the courts there squarely faced the issue of whether the legal right to drive is a necessary prerequisite to entitlement. Canadian Indemnity Co. v. Heflin, 151 Ariz. 257, 727 P.2d 35 (Ariz.App.1986); Safeco Ins. Co. v. Davis, 44 Wash.App. 161, 721 P.2d 550 (1986). ⁴ In both of these cases, the court interpreted the new "entitlement" clause much as the old "permissive use" clauses were interpreted--i.e. the legal right to drive is merely one factor in determining whether the unlicensed driver had permission. ⁵ More specifically, Heflin and Davis held that to show a reasonable belief of entitlement one must only show that he had a reasonable belief that he had the permission of the owner or apparent owner to drive the car. In both Heflin and Davis, the legal right to drive the car was at most one of several factors considered in determining whether the unlicensed driver had the permission of the apparent owner of the car. We know of no reported decisions interpreting the entitlement language which hold to the contrary.

In both Heflin and Davis, the court reasoned that the policy was ambiguous as to whether the legal right to drive was a prerequisite to entitlement. The court then applied the widely recognized rule that ambiguous provisions in insurance contracts are to be construed against the insurer and found that under this policy language the legal right to drive was not a prerequisite to entitlement.

We agree with the Heflin and Davis courts that reasonable minds can differ as to whether the legal right to drive is a prerequisite to entitlement. Furthermore, North Carolina adheres to the general rule that ambiguous provisions in insurance policies should be strictly construed against the insurer. Southeast Airmotive Corp. v. U.S. Fire Ins. Co., 78 N.C.App. 418, 337 S.E.2d 167 (1985), rev. denied, 316 N.C. 196, 341 S.E.2d 583 (1986); Wachovia Bank & Trust Co. v. Westchester Fire Ins. Co., 276 N.C. 348, 172 S.E.2d 518 (1970). Consequently, we see no reason to believe that North Carolina would decide the issue any differently than the Heflin and Davis courts did.

We hold that under North Carolina law one need not necessarily show that he had a legal right to drive to establish a reasonable belief of entitlement under the clause at issue here. We further hold that whether the person had a legal right to drive may be one factor bearing on whether that person reasonably believed that he was entitled to use the automobile. The district court erred in granting summary judgment for State Farm on this issue since it is a jury question.

III. The Second Permittee Issue

This conclusion does not end our inquiry. We may uphold the district court's summary judgment on other grounds if the record supports them. See, e.g., Church of Scientology of California v. Cazares, 638 F.2d 1272, 1281 (5th Cir.1981). ⁶ The record does present an alternative ground on which we might affirm the summary judgment for State Farm.

Under the old "permissive use" clauses, the North Carolina courts have held that "[o]rdinarily, one permittee does not have authority to select another permittee without specific authorization from the named insured. [citations omitted]." Bailey v. General Ins. Co. of America, Inc., 265 N.C. 675, 144 S.E.2d 898, 900 (1965). This principle has been consistently reaffirmed. Insurance Company of North America v. Aetna Life and Cas. Co., 88 N.C.App. 236, 362 S.E.2d 836 (1987), rev. denied, 321 N.C. 743, 366 S.E.2d 860 (1...