Royal Indemnity Company v. Clingan

• Decision Date: 12 February 1965
• Docket Number: Civ. A. No. 4344.
• Citation: 238 F. Supp. 448
• Parties: ROYAL INDEMNITY COMPANY v. Henry CLINGAN, Linda Clingan and Robert D. Bluford.
• Court: U.S. District Court — Eastern District of Tennessee

238 F. Supp. 448

ROYAL INDEMNITY COMPANY v. Henry CLINGAN, Linda Clingan and Robert D. Bluford.

Civ. A. No. 4344.

United States District Court E. D. Tennessee, S. D.

February 12, 1965.

Noone, Moseley & Bell, Chattanooga, Tenn., for plaintiff.

Schoolfield & Taylor, Chattanooga, Tenn., for defendants Clingan.

Horace Smith, Jr., Chattanooga, Tenn., for defendant Bluford

FRANK W. WILSON, District Judge.

This is an action for declaratory judgment upon an automobile liability insurance policy. The case was tried by the Court sitting without a jury. Much of the evidence was in the form of admissions and stipulations and the facts were largely undisputed. The Court finds the relevant and material facts to be as follows:

Royal Indemnity Company, the plaintiff in this action, issued an automobile liability insurance policy in standard form designating Mabel R. McGee as the named insured and describing a 1955 Chevrolet as one of the two insured vehicles under the policy. The period of the policy was from July 24, 1963, to July 24, 1964, and the policy limits were $5,000.00 for each person injured, $10,000.00 for each occurrence, and $5,000.00 property damage. The policy was issued upon the representation that Gene McGee, the unmarried minor son of Mrs. McGee, who however was living away from home, would drive the automobile, but that Mrs. McGee was the owner. The facts in this regard were that Mrs. McGee purchased the automobile in her name for the use of her son as he was a minor, but that he was making the payments upon the car and would eventually become the owner of the car. Mrs. McGee gave specific instructions to her son that he was not to permit anyone else to drive the automobile.

Upon December 11, 1963, during the policy period, the insured automobile, while being driven by the defendant, Robert Bluford, was involved in an accident in Hamilton County, Tennessee, with a vehicle driven by the defendant, Henry Clingan, who was accompanied at the time by his daughter, Linda Clingan, both of whom received injuries in the accident and are parties defendant to this lawsuit along with Robert Bluford. At the time of the accident Bluford was driving the insured automobile unaccompanied and without the knowledge or permission of the named insured. He was upon a mission in which neither the named insured nor Gene McGee had any interest. Bluford had obtained permission from Gene McGee to use the car, however, representing that he was going on a service call for his employer, an automobile parts dealer, such permission being given by Gene McGee contrary to the express instructions of his mother, the named insured in the policy.

Upon December 19, 1963, Bluford filed an accident report and insurance coverage report, being Forms SR-1 and SR-21, with the Department of Safety, State of Tennessee, in compliance with the Financial Responsibility Law of this State. The plaintiff, Royal Indemnity Company, did not in any way participate in the filing of these forms. Thereafter, under date of January 14, 1964, the Director of the Financial Responsibility Division forwarded the SR-21 form to the plaintiff for confirmation of the insurance coverage. The letter of transmittal referred to the case as the "Mabel R. McGee" case, but the SR-21 form enclosed reflected the fact that Bluford was the operator of the vehicle claimed to be insured. The letter of transmittal advised the plaintiff that "Unless acknowledgement is submitted within ten days from the date of this letter, we will assume no coverage is in effect for any of these subjects." However, actually the reverse of this was testified to as being the practice, the Supervisor of the Division of Financial Responsibility testifying that unless the insurance carrier affirmatively notified his office of any denial of coverage, coverage was assumed to be in effect. The plaintiff, by stipulation, acknowledged that it was aware that this "negative approach" was followed. That such important business would be transacted by an official of the State and acceded to by insurance carriers in the manner testified to would be unbelievable were it not stipulated in the record. The plaintiff made no response to the Financial Responsibility Division, at least not until November of 1964 when it forwarded a copy of its letter to Bluford denying him coverage. The original of this letter had gone out to Bluford under date of January 27, 1964.

A lawsuit was filed by the Clingans against Bluford in the state court and Bluford was required to provide his own defense. In May of 1964 a judgment went down against him for $5,185.00 in favor of Henry Clingan and for $10,000.00 in favor of Linda Clingan. These judgments, plus the cost of Bluford's defense, which is agreed to have been in the sum of $750.00, constitute the claims of the defendants against the plaintiff in this lawsuit.

Upon this state of facts it is contended by the plaintiff that Bluford is not an insured under the policy, both by reason of having used the automobile at the time of the accident without either the express or implied permission of the named insured and by reason of having used the automobile for a non-covered business use. The defendants, upon the other hand, contend that Bluford was an insured under the policy as he had both the express permission of Gene McGee, who as the real owner and exclusive user of the automobile was the insured authorized to give permission, and therefore likewise had the implied permission of Mrs. McGee, the named insured. The defendants further contend that in any event the plaintiff was estopped to deny coverage by reason of its failure to advise the Financial Responsibility Division of its denial of coverage. The defendants seek to recover the full amount of the judgments in favor of the Clingans and the reasonable cost of Bluford's defense in the sum of $750.00.

The first issue for resolution by the Court therefore is whether, under the above stated facts and the terms of the policy, which are stipulated, Bluford was an insured. The relevant language in the policy in this respect is as follows:

"The following are insureds under Part I: . . .

"(1) The named insured and any resident of the same household.

"(2) Any other person using such automobile provided the actual use thereof is with the permission of the named insured . . .

* * * * * *

"Under Part I `named insured' means the individual named in Item I of the declaration . . ."

Since Bluford was driving the insured automobile not only without the knowledge and permission of the named insured, but against her express instructions, it is apparent that he could be an omnibus insured only if Gene McGee, the son of the named insured, were held to be authorized to grant permission for use of the car.

As a general rule, where the named insured in an automobile liability insurance policy grants permission to another to use the automobile but expressly instructs such permittee not to allow anyone else to drive the automobile and, in violation of that instruction, the permittee does permit a third person to drive, it is held that such third person driver is not an additional insured. American Automobile Ins. Co. v. Jones, 163 Tenn. 605, 45 S.W.2d 52; Pollard v. Safeco Ins. Co., Tenn.App., 376 S.W.2d 730; 7 Am.Jur.2d, "Automobile Insurance," Sec. 116. However, where the insured car is purchased by the insured for the exclusive use of a minor, there is a split of authority between those courts holding that authority to delegate permission will be assumed from the fact that the permitee has general custody of the car and those holding that no such authority will be implied. 7 Am.Jur.2d "Automobile Insurance," Sec. 116. This exact issue does not appear to have ever been ruled upon in Tennessee. The better rule would appear to be that the named insured may expressly forbid the use of the car by anyone other than the permittee, even though the latter has exclusive use of the car. Hamm v. Camerota, 48 Wash.2d 34, 290 P.2d 713; Baesler v. Globe Indemnity Co., 33 N.J. 148, 162 A.2d 854. Moreover, this would appear to be in accord with the holding of the Tennessee Court in the case of Messer v. American Mutual Liability Ins. Co., 193 Tenn. 19, 241 S.W.2d 856, wherein the Court held that where the named insured gave her son permission to use the car but instructed him not to let anyone else use the car, a third person using the car with permission of the son would not be an additional insured. See also American Automobile Ins. Co. v. Jones, 163 Tenn. 605, 45 S.W.2d 52; Card v. Commercial Casualty Ins. Co., 20 Tenn.App. 132, 95 S.W.2d 1281; 7 Am.Jur.2d "Automobile Insurance," Sec. 116. The Court therefore concludes that Bluford had neither the express nor the implied permission of the named insured to use the insured car and consequently he would not be covered as an additional insured under the terms of the policy.

The remaining issue for decision by the Court resolves itself into determining whether the plaintiff is estopped to assert its lack of coverage of Bluford. It is the insistence of the defendants that the plaintiff's failure to affirmatively notify the Division of Financial Responsibility of the State of Tennessee of its denial of coverage upon Bluford would operate to estop or prevent the plaintiff from now asserting such denial of coverage. In support of this position the defendants rely principally upon the case of Erwin v. State Farm Mutual Automobile Ins. Co., (D.C., E.D.Tenn., 1964) 232 F.Supp. 530, and the cases therein cited, particularly those from the State of Wisconsin. Upon the other hand, the plaintiff contends that the Tennessee Financial...