Holland Supply Corp. v. State Farm Mut. Auto. Ins. Co

• Decision Date: 11 June 1936
• Citation: 186 S.E. 56
• Parties: HOLLAND SUPPLY CORPORATION. v. STATE FARM MUT. AUTOMOBILE INS. CO.
• Court: Virginia Supreme Court

186 S.E. 56

HOLLAND SUPPLY CORPORATION.

v.STATE FARM MUT. AUTOMOBILE INS. CO.

Supreme Court of Appeals of Virginia.

June 11, 1936.

Error to Circuit Court, Nansemond County.

Action by the Holland Supply Corporation against the State Farm Mutual Automobile Insurance Company. To review a judgment for defendant, plaintiff brings error.

Affirmed.

Argued before HOLT, HUDGINS, GREGORY, CHINN, and EGGLESTON, JJ.

Thomas L. Woodward, of Suffolk, for plaintiff in error.

Rixey & Rixey and C. C. Sharp, all of Norfolk, for defendant in error.

HUDGINS, Justice.

This writ of error brings before this court for construction a provision in an au tomobile indemnity insurance policy, reading:

"(1) Risks not Assumed by the Company.

"The Company shall not be liable, and no liability or obligation of any kind shall attach to the company for losses or damage; * * *

"(E) Caused while the said automobile is being driven or operated by any person whatsoever * * * violating any law or ordinance as to age or driving license. * * * "

The Holland Supply Corporation purchased from defendant an indemnity insurance contract covering a Chevrolet truck owned by it. On May 8, 1934, this truck, while operated by Reuben Warren, a servant of plaintiff, struck and injured Edward Reid, who later instituted an action against the Holland Supply Corporation to recover $2,500 for personal injuries caused by the impact. State Farm Mutual Automobile Insurance Company, after receiving due and timely notice of the accident, declined to defend the action on the ground that at the time Edward Reid was injured, Reuben Warren, the driver, had not obtained a driving license or permit from the motor vehicle commissioner. Holland Supply Corporation employed its own attorney, and in the trial was acquitted of any actionable negligence. It then instituted this action to recover $300, the amount of attorney fee incurred in defending the claim of Edward Reid. Upon an agreed statement of facts the trial court held that the insurance company was not liable for the amount of attorney fee, and entered judgment for defendant.

The question presented is whether the trial court was correct in holding that there could be no recovery under the policy for expenses incurred in defending a claim for damages inflicted by the truck while it was being operated by a driver, in violation of law as to driving license.

The last paragraph of the agreed statement of facts reads thus: "Reuben Warren is 30 years old and at the time of the accident had worked for plaintiff, Holland Supply Corporation, off and on for about five years. His regular duties were to do labor around the plaintiff's warehouse. The plaintiff had another employee whose regular duties were to drive the truck, which was the only truck owned by the plaintiff. On occasions when the regular driver was sick or not available for any reason, Reuben Warren was entrusted by the plaintiff with the driving, which was the situation at the time of the accident. Reuben Warren had been driving automobiles and trucks for at least twelve years and was a competent driver. In the action of Edward Reid v. Holland Supply Corporation, Reuben Warren's competency as a driver was not questioned, either in the pleadings or the evidence, nor was his failure to have a chauffeur's permit questioned or asserted as an act of negligence."

Plaintiff contends that recovery on the policy should be permitted on three grounds: (1) That the failure of Reuben Warren to obtain a driving license was not a defense, because it was not the proximate cause of the accident and injury to Edward Reid; (2) that even if the exclusion clause in the policy relieves the insurance company of liability for loss or damages suffered by Edward Reid, the $300 attorney fee expended by the insured in the defense of a groundless action is recoverable under the service clause of the policy; and (3) the 1934 Amendment to Code section 4326a expressly "outlawed" the exclusion provision of the policy.

In support of the first contention plaintiff cites and relies upon Maryland Casualty Co. v. Hoge, 153 Va. 204, 149 S.E. 448. The decision of this case turned not on the provisions excluding coverage, but on the omnibus provision in the policy extending coverage to persons not the owner, and operating the automobile insured with the owner's permission. The pertinent facts of this omnibus provision read: "The insurance provided by this Policy is hereby made available, in the same manner and under the same conditions as it is available to the named Assured, to any person operating * * * any of the Automobiles described in the Statements, provided the use and operation thereof are lawful and with the permission of the named Assured."

The facts were, that William Cecil Hoge, for personal injuries, recovered a judgment for $10,000 against Katherine Norwood. Execution was returned "no effects." The judgment creditor instituted an action against the Maryland Casualty Company to recover the amount of the judgment on the insurance policy issued to R. L. Norwood. One of the grounds on which the company resisted payment was that at the time of the injury to plaintiff, Katherine Norwood, without a permit, and in violation of the city ordinance, was driving on the streets of Roanoke, a car covered by the liability policy, and that this use and operation was unlawful and in violation of the provision of the policy quoted above. From the opinion in the case, it is inferred that no examination of Mrs. Norwood was required to entitle her to a permit from the city authorities. It is stated in the opinion that the ordinance requiring a permit only applied to residents of the city, and was restricted in application to the corporate limits of the municipality.

Such general provisions purporting to exempt insurance companies from liability as that under consideration in the Hoge Case, have been held invalid, or rather not applicable to the particular facts in numerous cases cited and relied upon by plaintiff. See McMahon v. Pearlman, 242 Mass. 367, 136 N.E. 154, 23 A.L.R. 1467; Messer-smith v. American Fidelity Company, 232 N.Y. 161, 133 N.E. 432, 19 A.L.R. 876; Rowe v. United Commercial Travelers of America, 186 Iowa, 454, 172 N.W. 454, 4 A.L.R. 1235; Hossley v. Union Indem. Co, 137 Miss. 537, 102 So. 561; Ferry v. Nat'l Motor Underwriters, 244 Ill. App. 241; Fireman's Fund Ins. Co. v. Haley, 129 Miss. 525, 92 So. 635, 23 A.L.R. 1470.

In several of these, and other cases, the courts have used expressions to the effect that in order for the provisions to be applicable, the defendant must prove a causal connection between the specific act alleged in violation of law, and the injury. However, if the proximate cause of the accident resulting in injury is the unlawful act of the operator in violating one or more of the traffic laws, which are now criminal offenses, is the sole test to defeat recovery by the assured, then indemnity insurance on motor vehicles is a myth and a delusion, or in the words of Mr. Justice Cardozo: "To restrict insurance to cases where liability is incurred without fault of the insured would reduce indemnity to a shadow." Messer-smith v. American Fidelity Company, supra. This test, as the sole criterion, must be rejected. To apply it in every case would defeat the very purpose that the contracting parties had in mind when the contract was executed.

This action is not based upon tort, in which one of the determinate factors is proximate cause, but upon contract. This contract does not purport to cover all operations of the truck insured. There are several operations which are expressly excluded, namely: (1) While the truck is be-ing operated by a person violating any law as to age, or under 14 years of age in any event; (2) while the truck is being operated by any person in violation of law as to driving license.

A truck, like a passenger automobile, while not in itself dangerous, is a source of potential danger to its occupants and other users of the highway when operated by an unskillful driver. When operated by a minor under 14 years of age the risk of injury to others is ordinarily much greater than when driven by a normal adult, hence the parties have agreed in the contract that the policy should not cover this enhanced risk. The premiums paid for insurance are, in a large measure, based upon the fact that the policy does not cover certain more hazardous risks.

While it seems that this particular provision, excluding coverage of the motor vehicle when operated by a minor under the minimum age fixed by law, in aft indemnity insurance policy, has never been applied by this court, it has been upheld in a number of other jurisdictions.

In State ex rel. Oleson v. Graunke, County Treasurer, et al, 119 Neb. 440, 229 N.W. 329, 330, this is said: "It is quite possible that some persons under the age of 16 years...