STATE FARM MUT. AUTO. INS. CO. v. Echols, 3037.

• Decision Date: 23 August 1999
• Docket Number: No. 3037.,3037.
• Citation: 337 S.C. 86,522 S.E.2d 345
• Court: South Carolina Court of Appeals
• Parties: STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Respondent, v. Olin JAMES and Robert Echols, Defendants, of whom Robert Echols, is the Appellant.

337 S.C. 86

522 S.E.2d 345

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Respondent, v. Olin JAMES and Robert Echols, Defendants, of whom Robert Echols, is the Appellant.

No. 3037.

Court of Appeals of South Carolina.

Heard June 9, 1999.

Decided August 23, 1999.

Marvin P. Jackson, Jr., of Florence, for appellant.

James W. Peterson, Jr., of Clark, Johnson, Peterson & McLean, of Florence, for respondent.

HOWELL, Chief Judge:

In this case, the circuit court upheld State Farm Automobile Insurance Company's (State Farm) employee exclusion clause barring Robert Echols from liability coverage. Echols appeals. We affirm.

I.

Olin James operated his remodeling and construction business from his home.¹ Echols worked for James in this business, was paid weekly, and was provided a daily ride to and from work.

On July 25, 1994, pursuant to his normal routine, James picked up Echols for work in James's Pontiac Bonneville. The two then returned to James's residence to retrieve work supplies. James normally used his GMC truck for hauling supplies and transportation to and from work sites. However, on this day, he was driving a Chevrolet truck (the Chevrolet truck) lent to him by Freddie J. Frierson, who was repairing James's GMC truck. After loading the Chevrolet truck with the tools and equipment needed for work that day, James attempted to start the truck. Unfortunately, the attempt failed. At James's direction, Echols poured gasoline into the carburetor before James again turned the ignition. Once more, the truck failed to start. On the next try, still at James's direction, Echols continued to pour gasoline into the carburetor while James simultaneously turned the ignition. A small explosion resulted, burning Echols's right arm, right hand, right shoulder, and the right side of his face. James testified he was paying Echols when the incident occurred.

The insurance policy covering James's GMC truck provided liability coverage of $100,000/300,000/25,000. James owned other vehicles that were not involved in the incident, but had no UIM coverage on any of his vehicles.

Frierson owned the Chevrolet truck and three other vehicles. All policies on Frierson's automobiles provided liability coverage of $25,000/50,000/25,000 and, with one exception, contained UIM coverage.² Both James and Frierson insured their vehicles with State Farm. Every policy on both James's and Frierson's vehicles contained an exclusion barring recovery for injuries to an insured's employees arising out of employment.

Echols sued James for negligence. State Farm filed a declaratory judgment seeking a judicial declaration that its policies did not provide coverage for Echols's claims. Echols answered and counterclaimed against State Farm seeking further compensation under Frierson's policies. The circuit court upheld State Farm's employee exclusion clause and found that Echols was only entitled to UIM benefits on the Chevrolet truck involved in the accident.

II.

The central issues in this case concern whether or not Echols's injuries were excluded from liability coverage under both the policies on the Chevrolet truck and James's GMC truck.³ The exclusionary clause at issue excludes coverage for any bodily injury to "any employee of an insured arising out of his or her employment."⁴ South Carolina Code section 38-77-220 provides:

The automobile policy need not insure any liability under the Workers' Compensation Law nor any liability on account of bodily injury to an employee of the insured while engaged in the employment, other than domestic, of the insured, or while engaged in the operation, maintenance, or repair of the motor vehicle nor any liability for damage to property owned by, rented to, in charge of, or transported by the insured.

S.C.Code Ann. § 38-77-220 (1989) (emphasis added). Specifically, the parties disagree as to whether James is "the insured" and whether Echols was "engaged in" his employment at the time of the incident.

Insurance policies are subject to general rules of contract construction. This Court must give policy language its plain, ordinary, and popular meaning. Ambiguous or conflicting terms in an insurance policy must be construed liberally in favor of the insured and strictly against the insurer. However, if the intention of the parties is clear, courts have no authority to torture the meaning of policy language to extend or defeat coverage that was never intended by the parties.

Diamond State Ins. Co. v. Homestead Indus., Inc., 318 S.C. 231, 236, 456 S.E.2d 912, 915 (1995) (citations omitted).

Generally, "insurers have the right to limit their liability and to impose whatever conditions they desire upon an insured, provided they are not in contravention of some statutory inhibition or public policy." Pennsylvania Nat'l Mut. Cas. Ins. Co. v. Parker, 282 S.C. 546, 550-51, 320 S.E.2d 458, 461 (Ct.App.1984). "Reasonable exclusionary clauses which do not conflict with the legislative expression of the public policy of the State as revealed in the various motor vehicle insurance statutes are permitted." Id. However, if a policy provision conflicts with a statutory mandate, the statute controls. See South Carolina Farm Bureau Mut. Ins. Co. v. Mumford, 299 S.C. 14, 17-18, 382 S.E.2d 11, 13 (Ct.App.1989)

.

A.

Echols contends the statutory phrase "the insured" means only a policy's named insured and not an additional insured under an omnibus clause. Therefore, Echols argues that the statute only permits a policy to exclude coverage for bodily injuries sustained by employees of the named insured. We disagree.

Neither Echols nor State Farm present any South Carolina authority specifically addressing whether the statutory phrase "the insured" is limited to the named insured when determining an employee exclusion clause's applicability. Our own research likewise reveals no South Carolina case on point. Nevertheless, our understanding of the relevant statutory provisions and our review of the law of other states compels us to conclude that "the insured" is not limited to a policy's named insured. Several jurisdictions refuse to place a limited interpretation on the phrase "the insured" and define the phrase as the named insured or anyone using a vehicle with permission of the named insured. Other jurisdictions interpret "the insured" more narrowly, but still espouse an interpretation unhelpful to Echols. These jurisdictions define "the insured" as the "person seeking coverage" under a policy. To invoke an employee exclusion clause, these jurisdictions thus require the person seeking coverage under the policy to be the injured employee's employer. Stated differently, the allegedly negligent actor, or the insured alleged to have caused the injuries, must be the injured employee's employer. Compare, e.g., Baker v. DePew, 860 S.W.2d 318, 320-23 (Mo.1993) (en banc)

(holding employee exclusion did not apply where, in determining whether the acts causing the injuries at issue were committed by an employee of the insured, the court interpreted the phrase "the insured" separately with respect to each insured seeking protection under the policy) with State Farm Mut. Auto. Ins. Co. v. Dyer, 19 F.3d 514, 521-22 (10th Cir.1994) (applying employee exclusion where, in determining whether the acts causing the injuries at issue were committed by an employee of the insured, the court interpreted the phrase "the insured" to refer to any insured, not just the insured seeking protection under the policy); see generally, Charles W. Benton, Annotation, Validity, Construction, and Application of Provision in Automobile Liability Policy Excluding From Coverage Injury to, or Death of, Employee of Insured, 43 A.L.R.5th 149, 189-98 (1996).

We decline this opportunity to narrowly define "the insured" as referring only to a policy's named insured. As another court noted:

[T]he language is "the insured" and not "the named insured," the latter being the language used in the policy where the intention is to designate only the person to whom the policy is issued; and the omnibus coverage clause ... defines the word "insured" as used in the policy ... to include any person using the automobile with the permission of the named insured.

Lumber Mut. Ins. Co. v. Stukes, 164 F.2d 571, 573 (4th Cir.1947) (construing South Carolina law).

Furthermore, Echols alleged that James's negligence caused Echols to sustain injuries. Although James is not the named insured, James is an insured under Frierson's policy as a permissive user of Frierson's truck. Moreover, James is the insured seeking protection under Frierson's policy. Hence, even if we accepted a more limited interpretation of "the insured," State Farm's employee exclusion clause still applies in the case at bar because Echols's employer, James, is the person seeking coverage under the policy.

B

Echols further contends State Farm's employee exclusion does not apply because Echols was not "engaged in [his] employment" at the time of the incident as contemplated by the statute. We disagree.

"A suit for declaratory judgment is neither legal nor equitable, but is determined by the nature of the underlying issue." Felts v. Richland County, 303 S.C. 354, 356, 400 S.E.2d 781, 782 (1991). A suit...