Indiana Ins. Co. v. Auto-Owners Ins. Co.

• Decision Date: 14 May 2004
• Docket Number: Docket No. 241171.
• Citation: 260 Mich. App. 662,680 N.W.2d 466
• Parties: INDIANA INSURANCE COMPANY, Plaintiff-Appellee, v. AUTO-OWNERS INSURANCE COMPANY, Defendant-Appellant.
• Court: Court of Appeal of Michigan — District of US

680 N.W.2d 466

260 Mich. App. 662

INDIANA INSURANCE COMPANY, Plaintiff-Appellee, v. AUTO-OWNERS INSURANCE COMPANY, Defendant-Appellant.

Docket No. 241171.

Court of Appeals of Michigan.

Submitted October 8, 2003, at Grand Rapids.

Decided February 19, 2004, at 9:00 a.m.

Released for Publication May 14, 2004.

Willingham & Cote, P.C. (by John A. Yeager and Curtis R. Hadley), East Lansing, for the defendant.

Kluczynski, Girtz & Vogelzang (by Mark T. Ostrowski), Grand Rapids, for the plaintiff.

Before: GRIFFIN, P.J., and NEFF and MURRAY, JJ.

MURRAY, J.

In this declaratory judgment action, defendant Auto-Owners Insurance Company appeals as of right from the circuit court's order granting plaintiff Indiana Insurance Company's motion for summary disposition pursuant to MCR 2.116(C)(10). We affirm.

The main issue in this appeal is whether Auto-Owners is contractually responsible for half of the settlement and legal costs paid on behalf of plaintiff and defendant's insured for injuries sustained by two students kidnapped while being discharged from the insured's school bus.¹ We conclude that Auto-Owners, the insured's automobile liability carrier, is responsible for these costs.

I. Material Facts And Proceedings

The facts from the underlying suit that are material to this case are undisputed. They are also tragic. Two elementary school-aged girls, ages nine and six, respectively, attended school in a Michigan school district. The school district had two bus routes for its students, one for the gray bus and the other for the red bus. The girls were assigned to the gray bus route.

On March 21, 1997, three male adults, named Ron, Lee, and Ricky, who several weeks earlier decided to abduct the girls, drove to the school district's bus garage where one of them gave a note to Lewis, who was the director of transportation for the school district and the driver of the gray bus on that day. The note requested that the girls be transferred to the red bus so that they could be dropped off at their babysitter's house.² Without any contact with the school office, Lewis took the girls to the red bus and instructed Earl, the red bus driver, to drop the girls off with a babysitter at the location stated in the note. However, when the girls refused to get out of the bus at that location because it was not their normal bus stop, Earl decided to return with the girls to the bus garage. After the girls were not dropped off as requested in the note, one of the kidnappers called the bus garage and, falsely claiming to be the girls' parent, wanted to know why the girls had not been dropped off as requested in the note, and asked that the girls be dropped off at the next bus stop, a trailer park. This oral request for a second drop off location was conveyed by the school transportation department to Earl.³ The three men met the bus at the trailer park. According to Earl, the first man (whom she did not know) stepped onto the first step of the bus, while the second man (whom she recognized but did not know) came onto the second step of the bus. After the two men were let on the bus by Earl, the girls (now crying)⁴ were taken by their arms by Ron and escorted off the bus.⁵ As one of the girls more directly characterized the situation while testifying at the criminal trial of Lee, Ron "dragged me and my sister off the bus." Several days after the abduction, the three men were apprehended in Florida with the girls.

As a result of the events described above, the three men were convicted of multiple felonies in the United States District Court for the Western District of Michigan. Ricky pleaded guilty to one count of conspiracy to kidnap and two counts of kidnapping, while Ron pleaded guilty to conspiracy to kidnap, two counts of kidnapping, two counts of transporting by motor vehicle a minor in interstate commerce with the intent that such individual engage in criminal sexual activity, and two counts of crossing a state line with intent to engage in a sexual act with a person under the age of twelve years. Lee was convicted by a jury of conspiracy to kidnap and two counts of kidnapping.

A civil action was filed in state court by the conservator of the girls' estates. In that suit it was alleged that Earl, Lewis, and other employees of the school district were grossly negligent in that they acted with willful and wanton disregard for the safety of the girls in the "operation" of a motor vehicle. Specifically, it was alleged that Earl drove the children to an ultimate destination that was not assigned or approved by the board of education and the administrative office, and allowed the kidnappers to enter the bus and remove the girls into their custody. Indiana provided a defense in the underlying action and settled the claims. Thereafter, Indiana, which had issued a general commercial policy to the school district,⁶ filed the instant complaint for declaratory judgment. Indiana asserted that, pursuant to Auto-Owners policy of no-fault automobile insurance,⁷ Auto-Owners promised to defend and indemnify the school district in regard to claims for bodily injury arising out of the ownership, maintenance, or use, including the loading and unloading, of its school buses. Indiana alleged that the allegations in the amended complaint in the underlying action fell within the coverage provided to the school district by Auto-Owners. Indiana further asserted that the general commercial liability policy that it issued to the school district specifically excluded liability for bodily injury arising out of the ownership, maintenance, use, or entrustment to others of any automobile.

Auto-Owners moved for summary disposition pursuant to MCR 2.116(C)(7) and (C)(10), arguing that Indiana's basis for its declaratory action contradicted the prior opinion and order entered in the underlying case. Auto-Owners argued that the circuit court had already held that the provisions of the no-fault act were not applicable because there was no motor vehicle accident, and that this ruling was a prior judgment entitling it to summary disposition pursuant to MCR 2.116(C)(7).

Auto-Owners subsequently filed a supplemental motion for summary disposition. In that supplemental motion, Auto-Owners argued that despite Indiana's characterization of the allegations, it was clear that the direct causes of the injuries to the girls were the felonious kidnapping and the subsequent assault by the kidnappers. Citing Thornton v. Allstate Ins. Co., 425 Mich. 643, 391 N.W.2d 320 (1986); Wakefield Leasing Corp. v. Transamerica Ins. Co., 213 Mich.App. 123, 539 N.W.2d 542 (1995); and Kangas v. Aetna Casualty & Surety Co., 64 Mich.App. 1, 235 N.W.2d 42 (1975), Auto-Owners asserted that injuries from criminal acts are not covered by no-fault insurance because they do not meet the requirement of being "foreseeably identifiable with the normal use, maintenance and ownership of the vehicle."

Indiana filed a response to these motions and also moved for summary disposition pursuant to MCR 2.116(C)(10). Indiana argued that the Auto-Owners policy provided coverage that was broader than that required by the no-fault act and clearly encompassed the claims made in the underlying action. Indiana further argued that the policy provided coverage for bodily injury that arose out of the "use" of the school bus, which was defined to include transportation of students to and from school and any operations necessary and incidental to such use. Indiana argued that "[c]learly the injuries alleged arose out of the transportation of the ... girls and the operations which were necessary and incidental to such use," relying in large part on Pacific Employers Ins. Co. v. Michigan Mut. Ins. Co., 452 Mich. 218, 549 N.W.2d 872 (1996).

On March 4, 2002, a hearing was held on the parties' motions for summary disposition. Counsel for Auto-Owners stated that he thought the issue really came down to whether this type of criminal act was "foreseeably identifiable" with the normal use of a motor vehicle, arguing that the kidnapping could have easily happened on or off school grounds. The trial court held:

This is a close call, and I acknowledge that—And I believe that I'm right. There are no material facts at issue. Everybody agrees on, essentially, what happened—at least with regard to the purposes of this motion.

I believe after having studied these cases—And I have studied them and revisited them—that Pacific Insurance is—is the case that is most persuasive because it is a school bus case. It speaks directly to disembarking children at a predetermined and approved location, and it's the—it is the most recent pronouncement. In other words, Wakefield, Thornton, and Kangas (phonetic) were all decided before Pacific Insurance was decided. And I think the Supreme Court in Pacific Insurance took great pains to emphasize that incidental use of a—of a school bus includes the discharging of students at a proper location.

Quite frankly, this is a case where there are several alleged acts of negligence or intentional torts. The Court could conceive of a theory where the school district would be liable—if only on a case of employee behavior or misbehavior or employee negligence; where the bus drivers are liable because of their own acts of negligence; where [Ron, Lee, and Ricky] are liable because of their criminal acts; and that there were several causes of the injuries complained of. In other words, Indiana might be liable generally because of school district shortcomings where Auto-Owners could be liable because of the operation of the bus.

I think when—under the facts presented here where the school bus drivers engaged in behavior that, by its very nature, had to raise flags. This isn't a case of a school bus, you know, stopping at a—at a red light and someone just happen to bust in on the bus. Here the school bus was used as a — as a vehicle— unwittingly, of course, to further the acts—the criminal acts—of [Ron, Lee,...