Fidelity & Guar. Ins. Underwriters, Inc. v. McManus
| Decision Date | 31 March 1982 |
| Docket Number | No. C-438,C-438 |
| Parties | FIDELITY & GUARANTY INSURANCE UNDERWRITERS, INC., Petitioner, v. James Richard McMANUS, Respondent. |
| Court | Texas Supreme Court |
Vinson & Elkins, Michael G. Terry, Houston, for petitioner.
Funderburk & Funderburk, Larry Funderburk and Douglas S. Sandage, Houston, for respondent.
This is an appeal from a declaratory judgment granted to Fidelity & Guaranty Insurance Underwriters, Inc. The trial court held Fidelity had no duty to defend the insured, James Richard McManus, in a suit alleging negligent entrustment. The Houston (1st Dist.) Court of Civil Appeals reversed the trial court judgment and rendered judgment that Fidelity had a duty to defend the insured. 615 S.W.2d 877. We reverse the court of civil appeals judgment.
Harold McManus purchased a trail bike for his son James. James allowed his friend, Craig Wooley, to use the bike. While using the bike, Wooley collided with a bike ridden by Daniel Garcia. Garcia sued Craig Wooley and James McManus alleging that James McManus negligently entrusted the trail bike to Wooley.
James McManus was an insured under a Texas Homeowner's Policy issued by Fidelity. The policy provides:
Coverage D-Personal Liability
To pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of bodily injury or property damage, and the company shall defend any suit against the insured alleging such bodily injury or property damage and seeking damages which are payable under the terms of this policy, even if any of the allegations of the suit are groundless, false or fraudulent; but the company may make such investigation and settlement of any claim or suit as it deems expedient.
Exclusions-coverage D shall not apply;
4.a. to the ownership, maintenance, operation, use, loading or unloading of;
(3) any recreational motor vehicle owned by any insured, if the bodily injury or property damage occurs away from the resident premises; ....
Fidelity sought a declaratory judgment that it had no duty to defend James McManus. Fidelity contends coverage is excluded because the allegations by Garcia against McManus arose out of the "ownership, maintenance, use, loading or unloading of ... any recreational motor vehicle owned by any insured."
The jury found the McManus trail bike was a recreational motor vehicle. There is no dispute that the accident occurred away from the McManus' premises. The district court rendered judgment in favor of Fidelity.
The court of civil appeals held negligent entrustment does not involve the "ownership, maintenance, operation, use, loading or unloading" of a vehicle by the insured. Negligent entrustment, the court held, is a separate and distinct cause of action involving the permission to use not the use of a vehicle. 615 S.W.2d at 881.
An insurer is required to defend only those cases within the policy coverage. Furthermore, the insurer is entitled to rely on the plaintiff's allegations in determining whether the facts are within the coverage. If the petition only alleges facts excluded by the policy, the insurer is not required to defend. See Heyden Newport Chem. Ins. Co. v. Southern Gen. Ins. Co., 387 S.W.2d 22, 24-25 (Tex.1965); Maryland Cas. Co. v. Moritz, 138 S.W.2d 1095, 1097 (Tex.Civ.App.-Austin 1940, writ ref'd).
The issue before this Court is whether, under the facts here, negligent entrustment arises out of the ownership, maintenance operation, use, loading or unloading of a recreational motor vehicle away from the residence. We hold it does and; thus, coverage under the homeowner's policy is excluded.
This issue has never been decided by this Court. However, the court of civil appeals as well as McManus and Fidelity considered two lines of cases in foreign jurisdictions addressing the problem. The first line of cases holds the insurance company is obligated under the basic homeowner's policy to defend the insured in a negligent entrustment action. 1 These cases hold negligent entrustment is a distinct and specific cause of action. Liability is founded upon the act of negligent entrustment rather than the "use" of the vehicle. Representative of the decisions upholding coverage is Upland Mutual Ins., Inc. v. Noel, 214 Kan. 145, 519 P.2d 737 (1974). The Kansas Supreme Court held even though the immediate cause of the injury and death was the operation of the automobile, the basis of the action was the alleged negligence of knowingly entrusting an automobile to a careless and reckless driver. Id. 519 P.2d at 741.
The second line of cases, and majority view, recognizes negligent entrustment as a distinct and specific cause of action derived from the more general concepts of ownership, operation, and use of a vehicle. 2 This position renders the exclusion in the homeowner's policy applicable; thus denying coverage. The leading case supporting this view is Cooter v. State Farm Fire and Cas. Co., 344 So.2d 496 (Ala.1977) in which the Alabama Supreme Court criticizes the cases upholding coverage by stating:
While liability (apart from coverage) for negligent entrustment is not conditioned upon the entrustor's ownership or use of the vehicle, negligent use by the one to whom it is entrusted is essential to recovery. It is the concurrence of these dual elements-negligent entrustment by the owner or custodian of the instrumentality plus its negligent use by the entrustee-that is missing in the rationale of those cases upholding coverage.
Although the cases making up the two lines of authority contain facts similar to the ones presented to us here, they are not entirely on point. In Cooter, for instance, it was alleged the named insured negligently entrusted his automobile to his insured minor son who was using it at the time of the accident. Likewise, in Upland Mutual the named insureds entrusted their automobile to their insured minor son who was using the car when the accident occurred. However, as noted by the court of civil appeals, in this case the insured minor son entrusted the trail bike to a non-insured third party who was using it when the accident giving rise to the cause of action occurred.
This distinction, however, is not controlling. In Texas, to recover under negligent entrustment a plaintiff must prove: 1) entrustment by the owner or custodian; 2) to a driver the owner knows or should have known is a...
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