Milbank Mut. Ins. Co. v. US Fidelity

• Decision Date: 01 April 1983
• Docket Number: No. CO-82-469.,CO-82-469.
• Citation: 332 NW 2d 160
• Parties: MILBANK MUTUAL INSURANCE COMPANY, Respondent, v. UNITED STATES FIDELITY AND GUARANTY COMPANY, et al., Appellants, Philip Carlton Solum, Respondent, Township of Cromwell, Respondent, Charles Virgil Jensen, by Delores Winjum, his guardian ad litem, Respondent, Rebecca Marie Jensen, by Charles B. Odegaard, her guardian ad litem, et al., Respondents.
• Court: Minnesota Supreme Court

332 N.W.2d 160 (1983)

MILBANK MUTUAL INSURANCE COMPANY, Respondent, v. UNITED STATES FIDELITY AND GUARANTY COMPANY, et al., Appellants Philip Carlton Solum, Respondent Township of Cromwell, Respondent Charles Virgil Jensen, by Delores Winjum, his guardian ad litem, Respondent Rebecca Marie Jensen, by Charles B. Odegaard, her guardian ad litem, et al., Respondents.

No. CO-82-469.

Supreme Court of Minnesota.

April 1, 1983.

Cahill Law Offices and Steven J. Cahill, Moorhead, for appellants.

Vogel, Brantner, Kelly, Knutson, Weir & Bye and Carlton J. Hunke, Fargo, N.D., for Milbank Mutual Ins. Co.

Dosland, Dosland & Nordhougen, and Duane A. Lillehaug, Moorhead, Arvesen, Donoho, Lundeen, Hoff, Svingen & Athens and Norman D. Arvesen, Fergus Falls, for Solum.

Kennedy & Nervig and Charles R. Kennedy, Wadena, for Cromwell Tp.

Rufer, Hefte, Pemberton, Schulze, Sorlie, Sefkow & Kershner and Gerald S. Rufer, Fergus Falls, Gjevre, McLarnan, Hannaher, Vaa, Skatvold & McLarnan and Alden H. Gjevre, Moorhead, for Jensen.

Considered and decided by the court en banc without oral argument.

KELLEY, Justice.

In this declaratory judgment action, United States Fidelity and Guaranty Company (USF&G) appeals from an order of the Clay County District Court granting judgment notwithstanding the verdict of the jury to respondent Milbank Mutual Insurance Company (Milbank). The trial court held that USF&G, as the liability insurer of an employer who had permitted one of its employees to operate one of its vehicles, was the primary liability insurer obligated to defend and indemnify the employee and the employer in actions asserting claims against the employee, and that Milbank, the insurer of the employee's personal vehicles, was a secondary or excess insurer. We affirm.

In the summer of 1979, Twin City Construction Company (TCCC), a North Dakota corporation, was engaged in a construction project near Beulah, North Dakota (approximately 275 miles from Fargo). On this project, TCCC's standard practice was to have its employees work four 10-hour days per week, thereby allowing them to return to their homes, generally in the Fargo area, for a long weekend. The employees provided their own transportation between their homes and the work site. Some of them "pooled" rides to and from the job site.

On August 17, 1979, a Friday, the TCCC project superintendent, Dennis Bittner, had requested that three employees remain at the job site. This departure from normal practice resulted in the three missing rides home for the weekend, so the superintendent assured them that TCCC would transport them home after work on Friday. Charles Jensen, TCCC's labor foreman, was one of the three who worked that Friday morning. Following completion of the work around noon, Bittner, the job superintendent, Jensen and two others left the job site at Beulah driving a truck owned by TCCC and insured by USF&G.

Bittner and Jensen arrived at Bittner's home near Downer, Minnesota, approximately 25 miles from Fargo. Jensen did not have a ride from Bittner's home to his own home. TCCC's company rules expressly forbade use of company vehicles for personal trips. Notwithstanding the rule, Jensen asked for and received Bittner's permission to drive the TCCC truck home.¹ It is undisputed that Bittner attempted to limit the scope of this permission by telling Jensen, in essence, that he was only to drive the truck home and not drive it around. Jensen was told to take the truck home and park it and not go "joyriding." The two agreed Jensen would return the truck to Bittner either later that night or early the next morning. It is further undisputed that Jensen intended to return the truck to Bittner and had no intention of converting it.

The vehicle was a pickup truck. At the time, Jensen was considering the purchase of a similar vehicle. Upon his arrival home, he and his wife decided to "test drive" the TCCC vehicle. With his wife and infant son in the vehicle, Jensen drove the truck north and east toward Hitterdahl, Minnesota, and then west toward Cromwell Township. The route chosen was north of and away from Bittner's home. The vehicle was involved in a two-car collision in Cromwell Township. Serious injuries resulted.

Milbank, the insurer of three vehicles owned by Jensen, commenced this declaratory judgment action seeking a determination that USF&G, as the insurer of the TCCC pickup truck, was the primary insurer of Jensen and TCCC with responsibility to defend them and pay any damages assessed against them as the result of claims of the injured claimants.

The USF&G policy which provided liability insurance on vehicles owned by TCCC contained an "omnibus clause" which provided:

D. WHO IS AN INSURED:

1. You are an insured for any covered auto.

2. Anyone else is an insured while using with your permission a covered auto you own, hire or borrow * * *.

This policy contract was entered into between USF&G and TCCC in North Dakota.

At the trial, the jury, in its answer to a sole interrogatory,² found that Jensen, at the time of the accident, was not operating the truck within the scope of the initial permission given him by Bittner. At the trial, Milbank vigorously urged the applicability of the "initial permission" rule. This rule holds that when permission to use a vehicle is initially given, subsequent use short of actual conversion or theft remains permissive within the meaning of the omnibus clause, even if such use was not within the contemplation of the parties or was outside any limitations placed upon the initial grant of permission. Instead, the trial court, in essence, instructed the jury on the "minor deviation" rule found in 4 Minn. Dist.Judges Ass'n, Minnesota Practice, JIG II, 305S (2d ed. 1974). Under this rule, gross departures from the scope of initial permission void liability insurance coverage under the omnibus clause while slight deviations do not. The trial judge, apparently following a motion by Milbank for judgment notwithstanding the verdict, made findings of fact, conclusions of law and order for entry of judgment.³ In ordering entry of judgment in favor of respondent Milbank, the trial court held that since the insurance contract between USF&G and TCCC was entered into in North Dakota, North Dakota law governed the construction and effect of the policy. It further held that in construing omnibus clauses in automobile liability insurance policies North Dakota follows the "initial permission" rule.

The trial court's decision that North Dakota law was applicable was based on its belief that "the law of the state where a contract is made governs construction of the contract." At one time this was a correct statement of the law, see, e.g., Combined Insurance Co. of America v. Bode, 247 Minn. 458, 463-64, 77 N.W.2d 533, 536 (1956). However, this court has abandoned the lex loci doctrine in favor of the "choice influencing considerations" methodology. Milkovich v. Saari, 295 Minn. 155, 161-64, 203 N.W.2d 408, 412-13 (1973). This approach is likewise applicable to conflict-of-law cases involving the interpretation of insurance contracts. Hime v. State Farm Fire & Casualty Co., 284 N.W.2d 829, 832-33 (Minn.1979), cert. denied, 444 U.S. 1032, 100 S.Ct. 703, 62 L.Ed.2d 668 (1980).⁴ Moreover, the trial court's conclusion that North Dakota would follow the "initial permission" rule is open to some doubt. In no case has the North Dakota court been called upon to specifically adopt the "initial permission" rule. Although it did note in Persellin v. State Automobile Insurance Association, 75 N.D. 716, 719, 32 N.W.2d 644, 646 (1948), that a number of jurisdictions had adopted such a rule, it was unnecessary there for the court to decide whether North Dakota would also do so, since the initial permission in Persellin had been, in fact, unlimited.

In making the findings of fact and conclusions of law on March 5, 1982, the trial judge, though not specifically saying so, in effect granted judgment notwithstanding the verdict because, in his view, he had instructed the jury on an erroneous theory of law, to-wit, the "minor deviation" rule. Our decisions hold that judgment notwithstanding the verdict may not be granted for errors of law such as improper jury instructions, but rather that a new trial should be granted. Olson v. Penkert, 252 Minn. 334, 350, 90 N.W.2d 193, 205 (1958); Coble v. Lacey, 252 Minn. 423, 433, 90 N.W.2d 314, 322 (1958); Northwestern Marble & Tile Co. v. Williams, 128 Minn. 514, 515-16, 151 N.W. 419, 420 (1915). See also Minn.R.Civ.P. 59.01(6). Therefore, if North Dakota law follows the "initial permission" rule and Minnesota follows the "minor deviation" rule, this case should be remanded for entry of judgment in favor of USF&G since the jury found under appropriate instructions that Jensen was not operating the pickup truck at the time of the accident within the scope of the express or implied consent of TCCC. However, if Minnesota follows the "initial permission" rule the trial court reached the correct result because (1) there was no dispute that the initial permission was given to Jensen by Bittner, a person authorized by TCCC to give permission; and (2) there is no evidence contradicting Jensen's statement that he never intended to steal the truck. Correct decisions based upon incorrect reasons should not be reversed. Kahn v. State, 289 N.W.2d 737, 745 (Minn.1980); Schoeb v. Cowles, 279 Minn. 331, 336, 156 N.W.2d 895, 898 (1968). Accordingly, we must decide whether Minnesota will follow the "initial permission" rule when a motor vehicle is entrusted to an adult.

In our recent case of Jones v. Fleischhacker, 325 N.W.2d 633 (Minn.1982), we held that when an adult gave initial permission to a minor under Minn.Stat. § 170.54 (1982), the adult was liable for claims arising out of negligent use of the vehicle by the minor, notwithstanding that at the time and place of the accident the minor was violating explicit instructions of...