Nelson v. Progressive Cas. Ins. Co., S-11793.

Citation162 P.3d 1228
Decision Date29 June 2007
Docket NumberNo. S-11793.,S-11793.
PartiesKatherine NELSON as assignee of Siuleo Milo Ulisese, an individual, Lilii Ulisese, an individual, Anita Ulisese, an individual, Appellants, v. PROGRESSIVE CASUALTY INSURANCE COMPANY, a foreign corporation, Danny Withers, an individual, Matt Dufour, an individual, Appellees.
CourtSupreme Court of Alaska (US)

Jason Skala, Law Office of Jason Skala, Eagle River, for Appellant.

Gary A. Zipkin, Guess & Rudd P.C., Anchorage, for Appellees.

Before: FABE, Chief Justice, MATTHEWS, EASTAUGH, BRYNER, and CARPENETI, Justices.

OPINION

CARPENETI, Justice.

I. INTRODUCTION

This case concerns the validity and applicability of a named driver exclusion in an automobile insurance policy. The pedestrian victim of a hit-and-run accident involving an unlicensed and uninsured driver sued the driver's parents for negligently entrusting their vehicle to their son. The parents' auto insurance carrier refused to cover the victim's personal injury claim because the parents had previously excluded their son from coverage under the policy. The victim argues that the exclusion of the son under the policy should not bar coverage for the victim's claim against the parents for their negligent entrustment of the vehicle to their son. Because the tort of negligent entrustment rests upon the son's operation of the vehicle, which the parents elected to exclude from their insurance coverage, and because Alaska's insurance laws permit such exclusions, we affirm the superior court's grant of summary judgment to the insurance carrier.

II. FACTS AND PROCEEDINGS

The facts of this case are not in dispute. On June 14, 2001, Siuleo Milo Ulisese, a twenty-one-year old uninsured and unlicensed driver, drove his parents' minivan along Fifth Avenue in downtown Anchorage. The traffic signals at the intersection of Fifth Avenue and C Street were not working. While driving down Fifth Avenue, Siuleo turned left onto C Street, striking and injuring Katherine Nelson as she was crossing in the crosswalk.

Siuleo's parents, Anita and Lilii Ulisese, owned the vehicle Siuleo was operating at the time of the accident. Following the accident, Nelson filed an insurance claim with the Uliseses' automobile insurance carrier, Progressive Casualty Insurance Company. After conducting an investigation, Progressive informed Nelson and the Uliseses that it was denying coverage because Lilii had excluded Siuleo from coverage under the policy.1 Progressive based its denial on the "Named Driver Exclusion" language in the Uliseses' auto insurance policy, which states:

If you have asked us to exclude any person from coverage under this Policy, then we will not provide coverage for any claim arising from an accident or loss involving a vehicle or rental vehicle being operated by the excluded person. THIS INCLUDES ANY CLAIM FOR DAMAGES MADE AGAINST YOU, A RELATIVE, OR ANY OTHER PERSON OR ORGANIZATION THAT IS VICARIOUSLY LIABLE FOR AN ACCIDENT ARISING OUT OF THE OPERATION OF A VEHICLE BY THE EXCLUDED DRIVER.

Progressive further denied coverage on the basis of AS 28.20.440(l), which provides:

Notwithstanding any other provisions of law, a person who resides in the same household as the person named as insured or a person who is a relative of the person named as insured shall be excluded from coverage under a motor vehicle liability policy if the person named as insured requests that the person be excluded from coverage.

Nelson filed a claim against Siuleo for negligence and against the Uliseses for negligently entrusting their car to Siuleo. The claim was forwarded to Progressive. After investigating Nelson's claim, Progressive refused to cover the Uliseses for liability to Nelson or for the cost of defending against Nelson's complaint. The Uliseses agreed to confess judgment to Nelson's claims subject to arbitration on the amount of damages and an agreement by Nelson not to enforce the damage award against the Uliseses. The arbitration award amounted to $177,253 plus costs and fees. Anchorage Superior Court Judge Sen K. Tan confirmed the award. The arbitration award was forwarded to Progressive, which again denied coverage for the Uliseses' claims because "Siuleo Milo[] was an excluded driver; therefore, coverage does not apply for him, or any claims made against Lilii and Anita Ulisese arising out of the operation of a vehicle by the excluded driver."

On March 25, 2004, Nelson, as assignee of the Uliseses' claim, filed a complaint against Progressive. The claim alleged that Progressive and its employees were negligent, that they breached their duty to defend the Uliseses, and that Progressive wrongfully breached its contract with the Uliseses when it refused to cover the negligent entrustment claim.2 Superior Court Judge Peter A. Michalski granted partial summary judgment to Progressive on the issue of coverage and dismissed Nelson's claims with prejudice. Nelson appeals.

III. STANDARD OF REVIEW

We will affirm summary judgment if there are no issues of material fact and the moving party is entitled to judgment as a matter of law.3 Contract interpretation presents a question of law, which we review de novo.4 When interpreting insurance contracts we look "to the language of the disputed policy provisions, the language of other provisions of the policy, and to relevant extrinsic evidence."5

IV. DISCUSSION
A. The Excluded Driver Exception to Mandatory Auto Insurance Coverage

Alaska law generally requires Alaska drivers to carry automobile insurance.6 Alaska Statute 28.22.101, a provision of the Alaska Mandatory Automobile Insurance Act (AMAIA), lays out general coverage requirements for motor vehicle insurance in Alaska. It provides that an owner's motor vehicle liability policy must "insure the person named against loss from the liability imposed by law for damages that arise from the ownership, maintenance, or use of a designated motor vehicle." Insurers are generally not permitted to issue auto policies containing provisions which reduce the scope of coverage below the statutory minimum.7

The AMAIA supplements the Motor Vehicle Safety Responsibility Act (MVSRA).8 The MVSRA requires an uninsured driver who has been involved in an accident to prove financial responsibility for the future by posting a bond or submitting a certificate of insurance.9 The MVSRA also requires automobile insurance policies to provide minimum coverages for a named insured and other persons using a vehicle with the named insured's permission.10 All policies issued in the state must meet the content requirements imposed by the MVSRA, regardless of whether the policies were required as proof under the act.

The AMAIA and the MVSRA coexist as part of Alaska's Uniform Vehicle Code.11 They are not, however, coextensive.12 As noted, the AMAIA "supplements, but does not supplant" the MVSRA.13

In 1997 the legislature enacted an exception to these general coverage requirements.14 Alaska Statute 28.20.440(l) provides:

Notwithstanding any other provisions of law, a person who resides in the same household as the person named as insured or a person who is a relative of the person named as insured shall be excluded from coverage under a motor vehicle liability policy if the person named as insured requests that the person be excluded from coverage.

Subsection .440(l) thus permits named insured policyholders to exclude select individuals from coverage. In this case, the Uliseses endorsed an exclusion that exempted their son Siuleo from coverage under their auto policy. Because Siuleo was excluded under the policy, Progressive refused coverage for Nelson's claim.

Nelson raises two arguments in support of her assertion that Progressive should cover her negligent entrustment claim: (1) because negligent entrustment is an independent tort, the claim does not "arise from" Siuleo's operation of the car; and (2) the named insured exclusion is unenforceable because it is ambiguous and contrary to Alaska law. We consider each in turn.

B. Nelson's Claim of Negligent Entrustment "Arises From" Siuleo's Negligent Act.

Alaska recognizes the common law tort of negligent entrustment and follows the definition in the Restatement (Second) of Torts § 390 (1965), which states:

One who supplies directly or through a third person a chattel for the use of another whom the supplier knows or has reason to know to be likely because of his youth, inexperience, or otherwise, to use it in a manner involving unreasonable risk of physical harm to himself and others whom the supplier should expect to share in or be endangered by its use, is subject to liability for physical harm resulting to them.[15]

Nelson relies on our discussion of negligent entrustment in Ardinger v. Hummell16 to support her claim that because negligent entrustment is considered an independent cause of action, it arises from the independent negligence of the entrusting defendant and is therefore complete upon the act of entrustment. In Ardinger, we noted that negligent entrustment is "an independent cause of action against the [vehicle] owner and is not dependent on theories of agency, joint venture, or other forms of vicarious liability."17 Nelson asserts that Form 9330 of the Progressive policy, which exempts from coverage claims that "aris[e] from an accident or loss involving a vehicle . . . operated by the excluded person" does not bar coverage because her claim arose at the moment the Uliseses entrusted their vehicle to Siuleo. In other words, Nelson contends that her claim arose before Siuleo began driving the vehicle.

Ardinger does not go as far as Nelson would propose. Ardinger indicates that an entrustor need not actively participate in or direct the entrustee's actions in order to be held liable for foreseeable harm done by the entrustee.18 This does not, however, mean that the entrustor's liability did not "arise from" the entrustee's negligence. The entrustee's act, and the...

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