State Farm Mut. Auto. Ins. Co. v. Ragatz

Decision Date09 September 1997
Docket NumberNo. 19964,19964
Citation1997 SD 123,571 N.W.2d 155
PartiesSTATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Plaintiff and Appellee, v. Randy D. RAGATZ, Jeffrey S. Bumpous and Deborah A. Pfeifle, Defendants, and Farm & City Insurance Company, Defendant and Appellant. . Considered on Briefs
CourtSouth Dakota Supreme Court

Roy A. Wise of Richardson, Roseclose, Wyly, Wise & Sauck, Aberdeen, for plaintiff and appellee.

Ronald A. Wager of Bantz, Gosch, Cremer, Peterson & Sommers, Aberdeen, for defendant and appellant.


¶1 Farm & City Insurance Co. (Farm & City) appeals the trial court's grant of summary judgment to State Farm Mutual Automobile Insurance Co. (State Farm) and denial of summary judgment to Farm & City. We affirm.


¶2 At the time this controversy arose, David McGaugh (David) had an automobile insurance policy issued by State Farm which covered his 1976 Chevrolet pickup. In mid-December, 1994, David gave permission to his adult son, Carl McGaugh (Carl), to use the pickup because Carl's vehicle had broken down. A few days later, David's pickup was involved in an accident. At the time of the accident, the pickup was being driven by Randy Ragatz (Ragatz), Carl's roommate. Carl was not present in the vehicle at the time of the accident, but had given Ragatz permission to drive the vehicle to Groton, South Dakota to retrieve a bed from the home of Ragatz's parents. Also present in the vehicle with Ragatz, at the time of the accident, were Jeffrey Bumpous and Deborah Pfeifle, also roommates of Carl and Ragatz. Bumpous and Pfeifle brought suit against Ragatz for injuries they sustained as a result of the accident.

¶3 Ever since Carl was old enough to drive, Carl had been instructed by David not to let anyone else drive David's vehicle. While David did allow Carl to use the pickup in mid-December, 1994, it is undisputed that David never gave Carl permission to let Ragatz use the pickup and neither Carl nor Ragatz requested such permission. Although David did not specifically instruct Carl not to let anyone else drive the pickup when Carl borrowed the pickup that December, Carl testified that these admonitions continued to apply as he advanced in years and that he broke David's rule by loaning David's pickup to Ragatz.

¶4 Carl was insured under a policy issued by Farm & City. David's insurer, State Farm, filed suit seeking a declaratory judgment that Farm & City was responsible for providing insurance coverage for the accident. State Farm's subsequent motion for summary judgment was granted. Farm & City's cross-motion for summary judgment was denied.

¶5 The following issues are present:

1. Whether the omnibus provision of the State Farm Policy and SDCL 32-35-70 require State Farm to provide liability coverage to Ragatz as a permissive user of the owner's vehicle?

2. Whether the grant of summary judgment in favor of State Farm was proper?


¶6 1. Whether the omnibus provision of the State Farm policy and SDCL 32-35-70 require State Farm to provide liability coverage to Ragatz as a permissive user of the owner's vehicle?

¶7 Construction of an insurance contract is a question of law, reviewable de novo. State Farm Mut. Auto. Ins. Co. v. Vostad, 520 N.W.2d 273, 275 (S.D.1994). Likewise, construction of a statute is a question of law. In re Estate of Chilton, 520 N.W.2d 910, 912 (S.D.1994).

¶8 Summary judgment is proper when there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Krambeck v. Sunshine Ins., 505 N.W.2d 131, 132 (S.D.1993); Garrett v. BankWest, Inc., 459 N.W.2d 833, 837 (S.D.1990). Summary judgment will be affirmed if there exists any basis which would support the trial court's ruling. King v. John Hancock Mut. Life Ins. Co., 500 N.W.2d 619, 621 (S.D.1993).

¶9 South Dakota's financial responsibility law, SDCL 32-35-113(1) permits motor vehicle owners to demonstrate financial responsibility by "[h]aving in force on the motor vehicle an owner's policy of liability insurance as provided in SDCL 32-35-70."

¶10 SDCL 32-35-70 provides in part:

An owner's policy of liability insurance referred to in § 32-35-68 shall insure the person named therein and any other person as insured, using any insured vehicle or vehicles with the express or implied permission of the named insured, against loss from the liability imposed by law for damages arising out of the ownership, maintenance, or use of the vehicle or vehicles within the United States....

(Emphasis added).

¶11 In accordance with SDCL 32-35-70, the State Farm policy at issue contained the following provision under § 4, sometimes referred to as the omnibus clause.

When we refer to your car ... insured means:

1. you;

2. your spouse;

3. the relatives of the first person named in the declarations;

4. any other person while using such a car if its use is within the scope of consent of you or your spouse; and

5. any other person or organization liable for the use of such a car by one of the above insureds.

(Emphasis added).

¶12 In order to find coverage in favor of Ragatz under the State Farm policy, Farm & City was required to demonstrate that there was either express or implied permission from the insured to Ragatz. SDCL 32-35-70.

¶13 The facts are uncontested that Ragatz did not receive express permission from the insured, David, to use the pickup. At issue then is whether there was a genuine issue of material fact for the trial court of implied consent flowing from David to Ragatz. The trial court answered in the negative. We agree.

¶14 In mid-December 1994 Carl's own vehicle became inoperable. Carl asked for and received permission from his father, David, to use his pickup. Neither Carl nor Ragatz asked for permission for Ragatz to operate the pickup. In fact, David had repeatedly told his son not to let others drive his vehicle. This restrictive admonition began when Carl was 14 and continued for several years. Farm & City appears to contend that since David did not specifically repeat this prohibition against third-party use at the very moment he gave Carl permission to use the vehicle in December 1994, somehow David had waived the restriction and impliedly permitted Ragatz to use the vehicle.

¶15 This Court has had previous occasion to consider the question of when a permittee is deemed to have the implied permission of the owner under an insurance policy's omnibus provision. Western Cas. & Sur. Co. v. Anderson, 273 N.W.2d 203 (S.D.1979). The Western Court recognized the "wide variation" 1 among the states in defining the scope of implied permission and decided against the more expansive classifications in favor of a more tempered reading of SDCL 32-35-70:

[I]mplied consent will not arise without a showing of course of conduct or practice known to the owner and acquiesced in by him that would lead to an implication of permission for a particular venture.

273 N.W.2d at 205 (citing National Farmers Union Property & Cas. Co. v. Ronholm, 153 N.W.2d 322 (N.D.1967) (failure by the owner to object to the use would not be deemed consent)).

¶16 The United States District Court for the District of South Dakota in American Family Insurance Group v. Howe, 584 F.Supp. 369, 372 (D.S.D.1984), sought to refine the test set forth by us in Western by stating that implied permission arises upon consideration of the following factors: (1) the past and present conduct of the insured; (2) the relationship between the driver and the insured; and, (3) the usage and practice of the parties over an extended period of time prior to the use in question. 2 These factors are appropriate as they are consistent with our totality of the circumstances analysis in Western. Furthermore, the district court properly placed the burden of proof upon the party attempting to show the driver had implied permission since the driver of the vehicle was a stranger to the policy. Id.

¶17 Application of the Western and American Family analysis support the trial court's grant of summary judgment. In the instant case, the past and present conduct of the insured reflect a long-standing prohibition against third-party use of his vehicle. There is no evidence of a course of conduct between the insured and Ragatz that would lead to an implication that David had given Ragatz permission to use David's pickup. There was no actual relationship between David and Ragatz. At the time of the accident, David had known Ragatz for less than one week. David had no knowledge that his son permitted third parties to use his own vehicle, so David cannot be said to have acquiesced in this respect.

¶18 Thus, it is necessary to determine the effect of Carl's disobedience.

If the owner of the car expressly forbids the permittee to lend his car to another, but the permittee nevertheless allows a second permittee to drive the car in violation of the named insured's express orders, the insurer is not liable while the second permittee is driving, on the theory that a prohibition against delegation is a restriction upon the use of the vehicle. [Thus, the second permittee] is not an omnibus insured.

12 Couch on Insurance 2d (Rev.Ed.)

§ 45:410, at 778 (1981). 3

¶19 Essentially, three different views have been expressed with regard to the scope of omnibus clauses where actual permission has been exceeded: (1) the strict or conversion rule; (2) the minor deviation rule; and (3) the liberal or initial permission rule. According to the "conversion rule" once initial permission is given by the owner of a vehicle to a permittee, the permittee must conform to the time, place and uses specified or intended by the parties as of the time of granting such permission. Couch on Insurance § 45.465, at 847. Under the strict "conversion rule" the slightest deviation from the time, place and use restrictions will preclude coverage under the omnibus clause. Id.

¶20 At the other end...

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