McPherson By and Through McPherson v. Michigan Mut. Ins. Co.

• Decision Date: 16 April 1991
• Docket Number: No. 1730,1730
• Citation: 412 S.E.2d 445,306 S.C. 456
• Parties: Jonathan McPHERSON, By and Through his Guardian ad Litem, Theresa McPHERSON, and the City of Charleston, Respondents-Appellants, v. MICHIGAN MUTUAL INSURANCE COMPANY and The State Budget and Control Board of the State of South Carolina, Division of General Services Insurance Reserve Fund, Defendants, of whom The State Budget and Control Board of the State of South Carolina, Division of General Services Insurance Reserve Fund is, Appellant--Respondent. . Heard
• Court: South Carolina Court of Appeals

Page 445

412 S.E.2d 445

306 S.C. 456

Jonathan McPHERSON, By and Through his Guardian ad Litem Theresa McPHERSON, and the City of Charleston Respondents-Appellants, v. MICHIGAN MUTUAL INSURANCE COMPANY and The State Budget and Control Board of the State of South Carolina Division of General Services Insurance Reserve Fund, Defendants of whom The State Budget and Control Board of the State of South Carolina, Division of General Services Insurance Reserve Fund is, Appellant--Respondent.

No. 1730.

Court of Appeals of South Carolina.

Heard April 16, 1991.

Decided Dec. 2, 1991.

Rehearing Denied Jan. 15, 1992.

Certiorari Granted April 21, 1992.

Frank R. Ellerbe, III, of Robinson, McFadden & Moore, and William L. Pope, of Pope & Rodgers, Columbia, for appellant-respondent.

Robert G. Clawson, Jr., of Clawson & Staubes, Ray P. McClain and G. Daniel Bowling, Charleston, for respondents-appellants.

BELL, Judge:

This is an action to recover money alleged to be due under a contract of liability insurance. Jonathan McPherson (by his guardian ad litem Theresa McPherson) and the City of Charleston, South Carolina, sued the South Carolina State Budget and Control Board Division of General Services Insurance Reserve Fund and the Michigan Mutual Insurance Company. The Insurance Reserve Fund is an agency of the State of South Carolina created to provide insurance coverage to governmental bodies. The Fund issued an automobile liability policy and a general tort liability policy to the City of Charleston. Michigan Mutual is a private insurance company which contracted with the Fund to reinsure all risks within the coverage of the general tort liability policy.

McPherson's claim arises from permanent brain injuries he received when he was struck by a police car owned by the City and operated by a City policeman in the course of his duties. The Fund denied the claim under the general tort liability policy, asserting that it came within an automobile exclusion clause. The circuit court held the policy afforded coverage as a matter of law and granted summary judgment to McPherson and the City. The court also held McPherson and the City had no direct cause of action on the reinsurance contract and granted summary judgment dismissing the case against Michigan Mutual. The Fund appeals on the issue of coverage. McPherson and the City cross appeal on the issue of the reinsurer's contractual liability to them. We reverse the judgment on the coverage question and affirm on the question of the reinsurer's liability.

The facts material to the appeals are as follows. In 1986, McPherson sued the City and Wayne Sojourner, a City policeman. The complaint alleged two causes of action against each defendant: the first in common law tort and the second for acting under color of state law to deprive McPherson of his civil rights in violation of the Constitution and laws of the United States. After a mistrial due to juror misconduct, the case was settled.

The evidence showed the occurrence in question arose from a routine police call in the early morning hours of August 18, 1984. A resident of downtown Charleston telephoned the police department to report a prowler on Drake Street. The first police officer to respond was Kevin McGowan. He arrived in the vicinity, left his police car, and approached on foot a man fitting the description given by the caller. When he identified himself as a police officer, the suspect ran. McGowan gave chase on foot.

Officer Sojourner also responded to the Drake Street call. As Sojourner approached the vicinity in his police car, he heard McGowan radio that he was chasing the suspect down Reid Street. Sojourner turned into Reid Street. As he headed toward McGowan and the fleeing suspect, the suspect turned into America Street. Sojourner pursued in his automobile.

According to Sojourner's testimony, the suspect was running on the sidewalk on the right hand side of America Street. Sojourner drove his car down the center of the street. He first coasted abreast of the suspect to get a good look at him. He then intended to accelerate past the suspect to a point ahead of him, stop, get out of the car, and either pursue or block the suspect on foot while McGowan came from the rear. As Sojourner took his eyes off the suspect and looked ahead to make sure there were no cars down the street, and just as he began to accelerate, he saw the suspect in his path. He jerked the steering wheel to the left. The suspect rolled over his hood and fell off the car to the left as Sojourner slammed on the brakes. The victim turned out to be McPherson. He was never arrested for or charged with any offense.

McPherson testified he was not the person seen by McGowan on Drake Street. He said he had spent the evening with friends at a party in the Elk's Hall on Cooper Street. After the hall closed, he started walking down America Street to go home. As he was walking down the sidewalk on the right side of the street, a car came and hit him. He did not remember if he tried to cross the street or how the accident occurred.

At trial, McPherson's theory was that he was an innocent passerby struck when Sojourner drove his car onto the curb while pursuing an unknown pedestrian suspect. McPherson maintained Sojourner engaged in a maneuver known as "channeling" in which the patrolman uses the patrol car itself to block the suspect's path, rather than blocking him on foot, as required by proper police procedure. This maneuver, he claimed, is an improper and reckless method of pursuing a pedestrian suspect.

At the time of the occurrence, the City had in effect two insurance policies issued by the Fund: an automobile liability policy and a general tort liability policy. The applicable limit of the automobile policy was $15,000; that of the general tort policy was $500,000. The City contended both policies covered McPherson's claim. The Fund acknowledged coverage under the automobile policy, but denied coverage under the general tort policy.

When the case resulted in a mistrial, McPherson and the City began negotiations to reach a settlement. The Reserve Fund declined to participate in these negotiations. A settlement was eventually reached.

Under the terms of the settlement, the City agreed to suffer judgment for $500,000, less a credit of $15,000 for proceeds from the automobile liability policy. In return, McPherson agreed to dismiss the action against Sojourner personally and to enter into a structured payment schedule requiring the City to pay McPherson $595 monthly for life plus certain costs and attorney's fees. The parties also agreed to pursue an action against the Reserve Fund to collect insurance proceeds under the general tort liability policy. They entered a written stipulation for the allocation of these proceeds if the action against the Fund succeeded. The settlement was reviewed and approved by the circuit court. The court then entered a consent judgment against the City. This action followed.

I.

The Fund argues that the general tort policy does not cover the City's liability to McPherson because of an automobile exclusion clause in the policy itself. The exclusion clause states:

This insurance does not apply:

* * * * * *

to personal injury or property damage arising out of the ownership, ... operation, use, loading or unloading of

(1) any automobile ... owned or operated by ... any insured, or

(2) any other automobile ... operated by any person in the course of his employment by any insured....

Although the facts surrounding McPherson's injuries are vigorously contested, for purposes of this appeal, we assume McPherson was an innocent passerby struck by the City's police car while Sojourner was using it to "channel" a fleeing suspect. We further assume the City's own negligent failure to establish and enforce proper procedures regarding the use of police cars to apprehend fleeing suspects was a contributing proximate cause of McPherson's injuries. Thus, the question for our decision is whether, as a matter of law, the City's liability for personal injury to McPherson comes within the automobile exclusion quoted above. We hold the clause excludes coverage.

It is undisputed that the police car which struck McPherson was owned by the City and operated by Sojourner in the course of his employment. The critical issue is whether McPherson suffered injuries "arising out of" the ownership, operation, or use of the police car within the meaning of the exclusion clause.

The words "arising out of" in a liability insurance policy have a broader meaning than "caused by." They connote not only "causal relation to," but also "incident to," "flowing from," or "having connection with." ¹ They import some relationship between the vehicle and the accident. Continental Casualty Insurance Co. v. City of Richmond, supra. Unless the injury is entirely disconnected from the ownership, operation, or use of an automobile, it falls within the "arising out of" provision. Schmidt v. Utilities Insurance Co., supra; Shinabarger v. Citizens Mutual Insurance Co., supra.

In this case, McPherson's injuries were, in fact, connected with the operation and use of the City's police car. The operation of the vehicle bore a direct causal relation to the accident in which McPherson was injured. Therefore, by the express terms of the City's general tort policy, its coverage "does not apply" to McPherson's injuries.

McPherson attempts to avoid this result by arguing that the City's failure to establish and enforce adequate procedures for the use of patrol cars was a concurrent cause of his injuries. He reasons that the doctrine of concurrent or contributing causation permits coverage of his common law and civil rights claims against the City for its own negligence. These claims, McPherson asserts, are separate from the City's vicarious liability for Sojourner's negligent operation of the patrol car.

It is well recognized that an act or omission need...