National Grange Mut. Ins. Co. v. Pinkney

• Decision Date: 10 April 1979
• Docket Number: No. 70,70
• Citation: 399 A.2d 877,284 Md. 694
• Parties: NATIONAL GRANGE MUTUAL INSURANCE COMPANY v. Michael James PINKNEY et al.
• Court: Maryland Court of Appeals

Page 694

284 Md. 694

399 A.2d 877

NATIONAL GRANGE MUTUAL INSURANCE COMPANY v. Michael James PINKNEY et al.

No. 70.

Court of Appeals of Maryland.

April 10, 1979.

Louis G. Close, Jr., Baltimore, for appellant.

William A. Franch, Annapolis (Ronald H. Jarashow and Goldsborough, Franch & Collett, Annapolis, on the brief), for appellees.

Argued before MURPHY, C. J., and SMITH, DIGGES, COLE and DAVIDSON, JJ.

SMITH, Judge.

In this case we shall hold that it is not permissible under Maryland law to apply the so-called "liberal" or "hell or high water" rule to the construction of an omnibus clause in a motor vehicle liability policy.

The parties have entered into an agreed statement of facts pursuant to Maryland Rule 828 g. It reflects that petitioner National Grange Mutual Insurance Company (National Grange), issued an automobile liability insurance policy on June 12, 1975, covering a Ford van. The parties afforded protection by the policy in addition to the named insured included "(a)ny other person while using (such) automobile with the permission of the named insured, provided his actual operation (was) within the scope of such permission . . . ." An accident took place at 3:22 a. m. while the van was being operated, by one of the respondents, Michael James Pinkney (Pinkney), an employee of the named insured. Seven passengers were in the cargo area of the van at that time. The president of the named insured said he gave Pinkney permission only to take the vehicle home at the end of the work day and to return with it at the beginning of the next work day. He claimed Pinkney was told that the vehicle was for use only in going to and from work. It was not to be used for any personal reason. Moreover, he said he told Pinkney there was to be no more than one passenger with him at any given time because the vehicle had only one passenger seat. On the other hand, Pinkney stated he was given permission to use the van for any purpose, including any personal reason, that he might use it as if it were his own. His work day ended at approximately 5:00 p. m. It was established by deposition that on the night previous to the accident Pinkney used the vehicle as a means of transportation for himself and various passengers who wished to bowl. He consumed a considerable quantity of alcoholic beverages on the night or morning in question prior to the accident.

National Grange instituted an action for declaratory judgment for the purpose of determining whether the omnibus clause was applicable to Pinkney's operation of the vehicle at the time of the accident. Pinkney and the Unsatisfied Claim and Judgment Fund Board, respondents here, were parties defendant to the proceeding, together with all others who could possibly be affected by such a determination. The trial judge entered a summary judgment against National Grange, holding that it was bound under the clause in question. He followed the reasoning of the Court of Special Appeals in Insurance Co. of N. Am. v. State Farm, 35 Md.App. 402, 370 A.2d 566 (1977), "adopt(ing) the 'liberal rule' of construction in regard to omnibus clauses in policies of insurance on motor vehicles." As he saw it, there was no triable issue of fact because the initial use of the vehicle was permissive and all of the disputed facts "relate(d) to whether the use was within the scope of the permission," which he found to be "no longer material" under the "liberal rule."

The Court of Special Appeals did, indeed, adopt the so-called "liberal" rule in Insurance Co. of N. Am. v. State Farm, Supra. We reversed in Insurance Co. of N. Amer. v. State Farm, 281 Md. 381, 378 A.2d 1344 (1977). In so doing we made two points. (1) The clause in question not only was virtually identical to that before the Court in Cohen v. Am. Home Assurance Co., 255 Md. 334, 258 A.2d 225 (1969), and Goodwin v. Home Indemnity Co., 255 Md. 364, 258 A.2d 220 (1969) (both decided the same day), but also the facts there were closely analogous to the facts in the latter cases, in each of which we had held coverage was not afforded the operator of the vehicle. Hence, we found Cohen and Goodwin to be "controlling (t)here." (2) The Court of Special Appeals relied in part for its decision upon the adoption by the General Assembly of what was at the time of its decision Maryland Code (1957, 1972 Repl. Vol., 1976 Cum.Supp.) Art. 661/2, § 7-101(a) (now Code (1977) § 17-104(a), Transportation Article) making it mandatory that every owner of a motor vehicle have liability insurance. Since the accident in question took place on September 6, 1972, and the statute did not become effective until January 1, 1973, we said, "(T)hat statute could have no effect in interpreting the policy provision . . . before the Court." This last statement has been seized upon by the respondents here as an indication that we might otherwise have agreed with the Court of Special Appeals. Ordinarily, we do not give advisory opinions. Because the accident in that case took place prior to the effective date of the new statute, we had no need to decide whether the new statute mandated a change in our prior holdings relative to the omnibus clause. We intended the statement to go no further than to indicate that the Court of Special Appeals had rested its opinion upon an improper foundation, a change of law which was not applicable in that case.

Decisions relative to the interpretation and application of omnibus clauses have been placed by the textwriters into three categories. One of these is referred to as the "liberal" or the "hell or high water" rule. Of it 6C J. A. Appleman and J. Appleman, Insurance Law and Practice § 4367 (Buckley ed. 1979), declares:

A number of states have apparently felt that even an ordinary automobile liability insurance contract is as much for the benefit of members of the public as for the benefit of the named or additional insured. Therefore, upon an injury occurring they have felt it undesirable to permit litigation as to the use made of the vehicle, the scope of permission, purposes of the bailment, and the like. These states have arbitrarily adopted a doctrine that if the vehicle was originally entrusted by the named insured, or one having proper authority to give permission, to the person operating it at the time of the accident, then despite hell or high water, such operation is considered to be within the scope of the permission granted, regardless of how grossly the terms of the original bailment may have been violated. This rule is also, albeit less colorfully, known as the initial permission rule. It should be noted however, that a minority of jurisdictions have rejected the rule. (Id. at 196-99 (footnotes omitted).)

Of the second or "conversion" rule Appleman states:

The majority of jurisdictions adhere to the conversion rule, namely, that where the use made of the automobile by the bailee sufficiently exceeds the scope of the permission given so as to make the bailee liable to the insured in an action for conversion such use is not covered. This means, fundamentally, that the vehicle must be used for a purpose reasonably within the scope of the permission granted, within the time limits imposed or contemplated by the parties, and operated within geographical limits so contemplated. Nor is this an unreasonable rule. It would be odd, rather, to say that the automobile is operated with the permission or consent of the insured in order to impose liability on the insurer, and yet to say that such use is not with the permission of the named insured if he should sue the bailee for conversion. Of course, this does not mean that every immaterial deviation would automatically cut off the policy protection. It merely declares that such use must be reasonably within the intention of the parties at the time consent is given, or a use to which the insured would have consented had he known of it. (Id. at 204-05 (footnote omitted).)

Of the third or "minor deviation" rule the same authors state:

A third rule adopted by various courts may be termed, for the sake of brevity, the rule of minor deviation. Under that doctrine, if the use made by the bailee is not a gross violation of the terms of the bailment, even though it may have amounted to a deviation, protection is still afforded such additional insured. Thus, if the automobile is being used upon the route contemplated at a time when permission was in force and effect, it is immaterial that the purpose of such use was different than that for which consent had been given by the named insured. And a slight deviation will not change the permissive character of the use. (Id. at 216-17 (footnote omitted).)

12 G. Couch, Cyclopedia of Insurance Law §§ 45:463, 464, 468, 470 (2d ed. R. Anderson 1964) is in accord with the position taken by Appleman. In referring to what it calls the "moderate or minor deviation rule," the latter work states, "Increasingly, the courts have taken an intermediate position between the two more extreme rules . . . ." Id. at 462.

This Court has had occasion to consider the omnibus clause in past litigation in a number of cases in addition to Insurance Co. of N. Amer. v. State Farm, supra; Goodwin v. Home Indemnity Co., supra; And Cohen v. Am. Home Assurance Co., supra. See, e. g. Federal Ins. Co. v. Allstate Ins. Co., 275 Md. 460, 341 A.2d 399 (1975); Keystone Ins. v. Fidelity & Cas., 256 Md. 423, 260 A.2d 275 (1970); Unsat. C. & J. Fund v. U. S. F. & G., 256 Md. 412, 260 A.2d 279 (1970); Am. Home Assur. Co. v. Erie Ins., 252 Md. 116, 248 A.2d 887 (1969); Melvin v. American Auto Ins. Co., 232 Md. 476, 194 A.2d 269 (1963); and Selected Risks v. Miller, 227 Md. 174, 175 A.2d 584 (1961).

As our discussion in Insurance Co. of N. Amer. indicates, we have not adopted the so-called liberal rule. We have specifically held persons not covered by an omnibus clause using language similar to that in the case at bar because their actual operation of the motor vehicle...