Farm and City Ins. Co. v. Gilmore

• Decision Date: 25 October 1995
• Docket Number: No. 94-1076,94-1076
• Citation: 539 N.W.2d 154
• Parties: FARM AND CITY INSURANCE COMPANY and Gary M. Osweiler, Appellants, v. Charles K. GILMORE, Jeri Gilmore, Lynette Gilmore, A Minor, Heidi L. Gilmore, A Minor, Clint J. Schossow, Frank Tuma, and Bradden J. Tuma, A Minor, Appellees.
• Court: Iowa Supreme Court

Page 154

539 N.W.2d 154

FARM AND CITY INSURANCE COMPANY and Gary M. Osweiler, Appellants, v. Charles K. GILMORE, Jeri Gilmore, Lynette Gilmore, A Minor, Heidi L. Gilmore, A Minor, Clint J. Schossow, Frank Tuma, and Bradden J. Tuma, A Minor, Appellees.

No. 94-1076.

Supreme Court of Iowa.

Oct. 25, 1995.

David A. Scott of Cornwall, Avery, Bjornstad & Scott, Spencer, for appellants.

Richard J. Barry of Montgomery, Barry & Bovee, Spencer, for appellees.

Considered by McGIVERIN, C.J., and LARSON, LAVORATO, NEUMAN, and ANDREASEN, JJ.

ANDREASEN, Justice.

Farm and City Insurance Company (Farm & City) appeals a declaratory judgment ordering insurance coverage for personal injuries sustained by passengers in a single-vehicle accident. The accident occurred while the vehicle owned by Gary M. Osweiler (Gary) was being driven by Bradden J. Tuma (Tuma). Farm & City contends there is no liability coverage under an insurance policy it issued to Gary for two reasons: (1) The driver, Tuma, is not covered because of an exclusion in the policy; and (2) the vehicle owner, Gary, is not liable because the vehicle was being driven without his consent. The district court rejected Farm & City's contentions and declared both Tuma and Gary had insurance coverage under the circumstances of the case and the terms of the policy. We affirm.

I. Background Facts and Proceedings.

Gary owned a Ford Thunderbird covered by a Farm & City insurance policy. In the fall of 1991 he left the vehicle at his mother's farm to have it repaired and borrowed her car to go back to college in Des Moines, Iowa. Gary's younger brother, Brian Osweiler (Brian), started driving the vehicle regularly in January 1992 with Gary's knowledge and consent.

On the evening of February 21, 1992, Brian was driving the vehicle while Tuma, Clint J. Schossow, Heidi L. Gilmore, and Lynette Gilmore were passengers. The boys were drinking beer and Brian was not feeling well. Brian asked Schossow to drive but he refused. One of the Gilmore girls offered to drive but Brian asked Tuma to drive. At the time, Tuma was fifteen years old and his school driving permit was under concurrent revocation and suspension because of various motor vehicle violations. While Tuma was driving, he lost control of the vehicle on a curve, went into a ditch, and hit a tree. The Gilmore girls and Schossow were injured. Brian pled guilty to a charge of permitting an unlicensed person to drive the vehicle.

Farm & City filed a petition requesting the district court to enter judgment declaring that there was no coverage under Farm & City's policy for the claims resulting from the accident. The case was tried to the court as a law action. The court found Tuma was operating the vehicle with a reasonable belief that he was entitled to do so and with the implied permission or consent of Gary. Consequently, the court entered judgment that the Farm & City insurance policy provides coverage for both Tuma and Gary for the accident. Farm & City appeals.

II. Scope of Review.

Our review is for correction of errors at law. Iowa R.App.P. 4. The district court's findings of fact are binding if supported by substantial evidence. Iowa R.App.P. 14(f)(1).

III. Coverage for Tuma.

It is undisputed that Tuma is an "insured" under the insurance policy. Farm & City contends, however, there is no liability coverage for Tuma because of a policy exclusion stating coverage is not provided for any person "[u]sing a vehicle without a reasonable belief that that person is entitled to do so." Farm & City urges that, as a matter of law, Tuma could not have had a reasonable belief that he was entitled to drive Gary's vehicle because he was unlicensed, underage, had previous driving convictions, and had consumed four bottles of beer.

Insurance policy exclusions are strictly construed against the insurer. Kalell v. Mutual Fire & Auto. Ins. Co., 471 N.W.2d 865, 867 (Iowa 1991); IMT Ins. Co. v. Amundsen, 376 N.W.2d 105, 107 (Iowa 1985). Although coverage clauses are given a broad and comprehensive meaning, exclusionary clauses are given a narrow or restrictive construction. Grinnell Mut. Reinsurance Co. v. Employers Mut. Casualty Co., 494 N.W.2d 690, 693 (Iowa 1993); Kalell, 471 N.W.2d at 867. The insurer must define exclusions in clear and explicit terms and bears the burden of proving the applicability of an exclusion. West Bend Mut. Ins. Co. v. Iowa Iron Works, 503 N.W.2d 596, 598 (Iowa 1993); Kalell, 471 N.W.2d at 867; First Newton Nat'l Bank v. General Casualty Co., 426 N.W.2d 618, 628 (Iowa 1988). If exclusionary language is not defined in the policy, we give the words their ordinary meaning. West Bend, 503 N.W.2d at 599; Kalell, 471 N.W.2d at 867; Amundsen, 376 N.W.2d at 107. We will determine "what the insured as a reasonable person would understand the policy to mean, rather than what the insurer actually intended." First Newton, 426 N.W.2d at 628. An exclusion that is clear and unambiguous must be given effect. Essex Ins. Co. v. Fieldhouse, Inc., 506 N.W.2d 772, 776 (Iowa 1993). If an exclusion is fairly susceptible to two reasonable interpretations, the exclusion is ambiguous and the interpretation most favorable to the insured will be adopted. A.Y. McDonald Indus. v. I.N.A., 475 N.W.2d 607, 618-19 (Iowa 1991); Amundsen, 376 N.W.2d at 107.

The exclusionary language, "using a vehicle without a reasonable belief that that person is entitled to do so," contain words or phrases not defined in the Farm & City policy. There is no definition for the term "entitled" nor is there a definition for the phrase "reasonable belief." Applying the term "entitled" to the facts of this case leads to more than one reasonable interpretation. "Entitled" could mean a legal right or authority to drive under the applicable law. Under this definition, a person must have a valid driver's license to reasonably believe that he is entitled to use a vehicle. Another equally reasonable interpretation is "consent" or "permission" from the vehicle owner or apparent owner. Finally, "entitled" could require both consent and legal entitlement.

We find that the term "entitled" in the policy exclusion is ambiguous and we adopt the interpretation most favorable to the insured. Accordingly, coverage is excluded when a person is using a vehicle without a reasonable belief that he or she had permission of the owner or apparent owner to do so. If Farm & City intended to exclude coverage for unlicensed drivers, it could have easily done so in clear and explicit terms. See 6C J. Appleman, Insurance Law and Practice § 4401, at 278 (1979).

Other courts addressing identical exclusionary language under similar facts also found the exclusion to be ambiguous and adopted a similar interpretation. In State Farm Mutual Automobile Insurance Co. v. Moore, 375 Pa.Super. 470, 544 A.2d 1017, 1018 (1988), the daughter of the vehicle owner gave permission to an unlicensed friend to drive the vehicle. The insurer argued the term "entitled" in the exclusion means the person must have the owner's permission and a valid driver's license. Id. 544 A.2d at 1019. The court interpreted the exclusion to mean a person can reasonably believe he is entitled to use a vehicle once permission is obtained from the owner or a person in lawful possession of the vehicle. Id. at 1020. In Canadian Indemnity Co. v. Heflin, 151 Ariz. 257, 259, 727 P.2d 35, 37 (Ct.App.1986), the insurer argued that the driver could not have reasonably believed that he was entitled to drive the vehicle because he was unlicensed underage, and speeding. The court interpreted the exclusion to mean "coverage was excluded only where the insured was driving a non-owned vehicle without a reasonable belief that he had the permission of the apparent owner." Id. at 258, 727 P.2d at 36. In Safeco Insurance Co. v. Davis, 44 Wash.App. 161, 721 P.2d 550, 551 (1986), a fourteen-year-old girl was given permission to drive a car by an acquaintance who regularly drove his parents' car to school. The court found that the unlicensed girl had a reasonable belief that she was entitled to drive the vehicle. Id. 721 P.2d at 553. See also Cooper v. State Farm Mut. Auto. Ins. Co., 849 F.2d 496, 499 (11th Cir.1988) (under North Carolina law the legal right to drive is not a necessary prerequisite to establish a reasonable belief of entitlement under the exclusion); Safeway Ins. Co. v. Holmes, 194 Ga.App. 160, 390 S.E.2d 52, 54-55 (1989) (statute forbidding fifteen-year-old drivers to operate a vehicle unless accompanied by a licensed driver at least eighteen years old does not abrogate the fact a fifteen-year-old driver received permission to drive a vehicle from the appropriate source resulting in a reasonable belief that she was entitled to do so); State Auto. Mut. Ins. Co. v. Ellis, 700 S.W.2d 801, 802 (Ky.Ct.App.1985) (policy does not specify whether "entitled" means obtaining permission from the owner or whether a valid driver's license is also required); Aetna Casualty & Surety Co. v. Nationwide Mut. Ins. Co., 326 N.C. 771, 392 S.E.2d 377, 380 (1990) (a person knowingly driving a vehicle without a driver's license may nevertheless have a reasonable belief that he was entitled to use the vehicle). But see Safeway Ins. Co. v. Jones, 202 Ga.App. 482, 415 S.E.2d 19, 20 (1992) (an unlicensed driver could not have reasonably believed that he was entitled to drive any vehicle regardless of whether he had permission to do so).

Other courts, also applying the exclusion to unlicensed drivers, have found the exclusion to be unambiguous by adopting a "state of the mind" approach. See General Accident Fire & Life Assurance Corp. v. Perry, 75 Md.App. 503, 541 A.2d 1340, 1348 (1988). These decisions, however, are distinguishable because the unlicensed drivers did not have proper permission to use the vehicle, while here, Brian clearly granted Tuma permission to drive the vehicle. See Cincinnati Ins. Co. v. Plummer, 213 Ga.App. 265, 444 S.E.2d 378,...