State Farm Auto. Ins. Co. v. Dressler

• Decision Date: 17 February 1987
• Docket Number: No. 1,CA-CIV,1
• Citation: 153 Ariz. 527,738 P.2d 1134
• Parties: STATE FARM AUTOMOBILE INSURANCE COMPANY, a foreign corporation, Plaintiff-Appellee, v. Donald R. DRESSLER; Jeffrey Shawn Smith and Vicki Dill Smith, aka Vicki Dills Smith, husband and wife, Defendants-Appellants. 8896.
• Court: Arizona Court of Appeals

Page 1134

738 P.2d 1134

153 Ariz. 527

STATE FARM AUTOMOBILE INSURANCE COMPANY, a foreign corporation, Plaintiff-Appellee, v. Donald R. DRESSLER; Jeffrey Shawn Smith and Vicki Dill Smith, aka Vicki Dills Smith, husband and wife, Defendants-Appellants.

No. 1 CA-CIV 8896.

Court of Appeals of Arizona Division 1, Department C.

Feb. 17, 1987.

Reconsideration Denied April 2, 1987.

Review Denied June 23, 1987.

O'Connor, Cavanagh, Anderson, Westover, Killingsworth & Beshears, P.C., by Ralph E. Hunsaker, Phoenix, for plaintiff-appellee.

Donald R. Dressler, in pro. per.

Rex Hill Decker, Chandler, and Robert T. Nall, Phoenix, for defendants-appellants Smith.

OPINION

JACOBSON, Judge.

The issue in this case is whether a State Farm Automobile Insurance policy which specifically excludes coverage for a named individual, relieves State Farm from responsibility for an accident involving the excluded individual but where the action is against the named insured under a theory of negligent entrustment.

The pertinent facts are not in dispute. At some point before November 18, 1981 State Farm issued an automobile liability policy covering Donald R. Dressler as the named insured. State Farm later learned that Joyce M. Dressler, Donald Dressler's wife, had been convicted of driving while intoxicated. On November 18, 1981 State Farm informed Donald Dressler by letter that it would cancel or refuse to renew his policy unless he agreed to accept an endorsement in the following terms:

6023U DRIVER EXCLUSION ENDORSEMENT (Statutory)

In consideration of the premium at which the policy is written, the named insured agrees that the Company shall not be liable and no liability or obligation of any kind shall attach to the Company for losses or damage sustained while any motor vehicle insured hereunder is driven or operated by JOYCE DRESSLER.

The named insured further agrees that the Company shall not be liable and no liability or obligation of any kind shall attach to the Company for any negligence which may be imputed by law to the named insured arising out of the maintenance, operation or use of a motor vehicle by the person named above.

Donald Dressler agreed in writing to accept this endorsement.

On March 21, 1984 Joyce Dressler, while operating a 1984 Subaru owned by the Dresslers and covered by State Farm's policy, became involved in an automobile accident with appellants, Jeffrey and Vicki Smith. As a result of the accident appellants Smith and their insurer, Country Mutual Insurance Company, brought a negligence action (Maricopa County cause no. C-515189) against Joyce and Donald Dressler. Count I of the complaint alleged a claim against Joyce Dressler for negligently injuring the Smiths. Count II alleged a claim against Donald Dressler for negligently entrusting his vehicle to his wife Joyce when he knew or should have known that she was "unfit, unsuitable and incompetent to operate a motor vehicle." In Count III Country Mutual sought to recover money it had paid the Smiths under their uninsured motorist and collision coverages. State Farm notified the parties that due to the Driver Exclusion Endorsement Donald Dressler had previously accepted as part of his automobile liability policy, State Farm had no liability or obligation of any kind arising out of the Smiths' and Country Mutual's claims.

To establish this contention, State Farm brought the instant action against the Dresslers, the Smiths and Country Mutual seeking a declaration that State Farm's automobile liability policy afforded no coverage for the Smiths' and Country Mutual's claims. On cross-motions for summary judgment, the trial court ruled for State Farm. In the judgment, entered January 21, 1986, the trial court stated:

The Court finds that there are no genuine issues of fact in dispute. The Court also finds and declares that the negligent entrustment and negligence claims being asserted by the Smiths against Defendants Donald Dressler and Joyce Dressler in C-515189 are not subject to coverage under the State Farm insurance policy issued to Defendant Donald Dressler as a matter of law. The Court further finds that any coverage for such claims against Defendants Donald and Joyce Dressler is excluded from coverage under the State Farm policy by the clear and express terms of the valid Driver Exclusion Endorsement executed by Defendant Donald Dressler on November 21, 1981, pursuant to the terms of A.R.S. 28-1170(b)(3) and by Torrez v. State Farm Mutual Auto Insurance Company, 130 Ariz. 223, 228 (Ct.App.1981).

By separate order the trial court awarded State Farm $2,661.50 as attorney's fees pursuant to A.R.S. § 12-341.01. This timely appeal followed, ¹ over which we have jurisdiction pursuant to A.R.S. § 12-2101(B).

As the trial court noted, this court's opinion in Torrez upheld the validity of exactly the same exclusion as is present here against a variety of attacks. The issue presented in this case, but not decided in Torrez, is whether the exclusion is permissible under the statute if interpreted to exclude the direct negligence of the named insured in allowing the specifically excluded driver to operate the insured vehicle. Appellants reason that although A.R.S. § 20-1631(C) permits an automobile liability insurer to exclude coverage for any negligence that "may be imputed by law" to the named insured resulting from an excluded person's operation of a motor vehicle, and that A.R.S. § 28-1170(B)(3) allows specified drivers to be excluded by name "as insured," neither § 20-1631(C) nor § 28-1170(B)(3) authorize the insurer to exclude coverage for a named insured's "independent liability" for his own "actual or direct negligence." They accordingly argue that State Farm's attempted exclusion of coverage for Donald Dressler's potential negligent entrustment liability was ineffective.

State Farm asserts that we previously resolved this issue in Torrez v. State Farm Mutual Automobile Insurance Company, 130 Ariz. 223, 635 P.2d 511 (App.1981). Even if Torrez is not controlling, State Farm asserts that liability for negligent entrustment does not necessarily arise out of the ownership, maintenance or use of a vehicle, and the Arizona Safety Responsibility Act accordingly permits the parties to exclude by mutual agreement the named insured's liability for negligently entrusting the insured motor vehicle. Finally, State Farm argues that appellants' construction of A.R.S. §§ 20-1631(C) and 28-1170(B)(3) is contrary to the purpose of both statutes.

As previously indicated, in our opinion Torrez did not resolve the issue presented here. Torrez only addressed the question of whether the language of State Farm's driver exclusion endorsement actually operated to exclude coverage of claims that arose from the named insured's negligently entrusting the insured vehicle to the named excluded driver. The court stated in pertinent part:

The endorsement contains two paragraphs.... The first paragraph absolves appellee of liability for damages sustained while Brian is operating any insured vehicle. Since Brian was driving the insured Rambler at the time of the accident, appellee's liability is controlled by this paragraph which provides that appellee "shall not be liable and no liability or obligation of any kind shall attach to the company for losses or damage sustained" while Brian is operating an insured vehicle. Therefore, the exclusion is effective to absolve appellee of any liability arising from this accident. (emphasis in original)

130 Ariz. 223, 228, 635 P.2d 511, 516. In our opinion, the statement in Torrez that "the exclusion is effective to absolve appellee of any liability arising from this accident" refers only to an interpretation of the language of State Farm's driver exclusion endorsement, and not with a determination of the validity of that language under A.R.S. §§ 20-1631(C) and 28-1170(B)(3). Indeed, the opinion in Torrez nowhere purported to resolve or even discuss this issue.

State Farm argues, however, that because a defendant may negligently entrust a vehicle he neither owns, maintains nor uses, liability for negligent entrustment does not rest on the ownership, maintenance or use of a motor vehicle, and therefore A.R.S. § 28-1170(B)(2) does not require automobile liability policies to cover negligent entrustment claims against the named insured. State Farm's reasoning on this point is flawed. The fact that negligent entrustment liability is theoretically possible in a case where the defendant neither owned, maintained nor used the vehicle in question does not logically imply that liability for negligent entrustment of a vehicle can never arise out of the defendant's ownership, maintenance or use of such a vehicle. This very case is an obvious counterexample to the proposition State Farm urges. From the undisputed facts, Donald Dressler's potential liability for negligent entrustment in this case unquestionably arises out of the ownership and maintenance of the insured 1984 Subaru. ² Accordingly, considered without regard to any exclusion that may be permitted under A.R.S. § 28-1170(B)(3), A.R.S. § 28-1170(B)(2) would require that State Farm's liability policy provide statutory minimum coverage for Donald Dressler's potential negligent entrustment liability.

We now turn to appellants' central contention on appeal--that even though State Farm's driver exclusion endorsement excluded coverage for Donald Dressler's potential liability for negligent entrustment as interpreted in Torrez, neither A.R.S. § 28-1170(B)(3) nor A.R.S. § 20-1631(C) actually authorize such an exclusion. A.R.S. § 28-1170(B) provides in pertinent part:

The owner's policy of liability insurance must comply with the following requirements:

* * *

* * *

2. It shall insure the person named in the policy as the insured and any other person, as insured, using the motor vehicle or motor vehicles with the express or implied permission of the named insured against loss from the...