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

• Decision Date: 06 November 1990
• Docket Number: CA-CV,No. 1,1
• Citation: 807 P.2d 531,167 Ariz. 363
• Parties: STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Plaintiff-Appellant Cross Appellee, v. Karen NOVAK, Defendant-Appellee Cross Appellant, and Sandra Marie Shrefler; Steven F. Shrefler and Fern Shrefler, husband and wife, parents of Sandra Marie Shrefler, Defendants-Appellees. 88-526.
• Court: Arizona Court of Appeals

Page 531

807 P.2d 531

167 Ariz. 363

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Plaintiff-Appellant Cross Appellee, v. Karen NOVAK, Defendant-Appellee Cross Appellant and Sandra Marie Shrefler; Steven F. Shrefler and Fern Shrefler, husband and wife, parents of Sandra Marie Shrefler, Defendants-Appellees.

No. 1 CA-CV 88-526.

Court of Appeals of Arizona Division 1, Department B.

Nov. 6, 1990.

Review Denied April 9, 1991.

[167 Ariz. 364] Ridenour, Swenson, Cleere & Evans by James W. Evans, Phoenix, for plaintiff-appellant cross appellee.

Ostreicher & Vatz, P.C. by Jeffrey I. Ostreicher, Phoenix, for defendant-appellee cross appellant.

Paul F. Lazarus, P.C., Phoenix, for defendants-appellees.

OPINION

LANKFORD, Judge.

State Farm Mutual Automobile Insurance Company appeals from a judgment entered upon a jury verdict in favor of the defendants. Defendant Karen Novak cross-appeals from the judgment.

State Farm brought this action for declaratory relief against the named insureds, Steven and Fern Shrefler, who had purchased a State Farm motor vehicle liability insurance policy. State Farm also sued the Shreflers' sixteen-year-old daughter, Sandra Shrefler. Sandra collided with the other defendant, Karen Novak, while driving an uninsured vehicle owned by Sandra's boyfriend, Scott Heaslet. Sandra was not a named insured under her parents' insurance policy.

The State Farm policy provided liability coverage for the Shreflers' relatives, and it defined the word "relative" as follows:

Relative--means a person related to you or your spouse by blood, marriage or adoption who lives with you. It includes your unmarried and unemancipated children away at school.

(Emphasis original).

Five months before the accident, in March, 1984, Sandra had moved out of the Shreflers' home and into Heaslet's apartment. Sandra later testified that when she moved in with Heaslet, she had hoped they would marry. She explained to Fern Shrefler that she was moving in with Heaslet on a "trial basis." With the exception of a ten-day period in June 1984, Sandra continued to live with Heaslet until the end of 1984.

In June 1984, Steven Shrefler requested that State Farm's agent, Jim Wurbel, remove Sandra from the State Farm policy and reduce their premium because Sandra no longer lived with them and was not driving either of their automobiles. Steven Shrefler later testified that Wurbel agreed with him that there was no reason to continue to insure Sandra.

On the day of the accident, in August 1984, Sandra and Heaslet were at the Shreflers' home, caring for the Shreflers' son while they were in Las Vegas.

Shortly after the accident, State Farm obtained Sandra's affidavit, in which she stated that she had no insurance:

I have been on my own for at least five months. I have lived outside my parents home, other than for ten days in June while I was between apartments. However, even at that time I paid my own expenses. I have supported myself without support from them.

I did not have any insurance on the date of the accident.

My parents had no knowledge of or involvement in my trip on the date of the accident. I was going to see a girlfriend.

At trial, State Farm moved to preclude evidence offered by Novak on two issues. The first issue was whether State Farm's policy covered Sandra's negligence as a matter of law because the Shreflers, as signatories on Sandra's application for a driver's license, were statutorily liable for Sandra's negligence. ¹ The second issue was whether State Farm was estopped to deny coverage based on its conduct in handling the insurance claim.

Novak responded by raising a third issue: were the Shreflers entitled to coverage because they reasonably expected to be covered? See Darner Motor Sales, Inc. v. Universal Underwriters Ins. Co., 140 Ariz. 383, 682 P.2d 388 (1984). Novak argued that when Steven Shrefler requested that Sandra be deleted from the policy, State Farm's agent failed to warn him that the Shreflers would be statutorily liable for Sandra's negligence and that consequently, their reduced coverage would be incomplete.

The superior court excluded evidence on all three of these issues. With respect to the estoppel and reasonable expectation issues, the court concluded that Novak had failed to properly raise those issues by pleading them as counterclaims or affirmative defenses. The court nevertheless decided to allow Novak to introduce as evidence of the Shreflers' reasonable expectations, the agent's statements to them, although the court excluded evidence that the agent failed to warn them about incomplete coverage. The court also held that evidence of State Farm's conduct, such as recording the statements of its insureds without notifying their counsel, would not be admitted because it was not a basis for estoppel.

In addition, the court later denied Novak's motion for a directed verdict based on the theory that the Shreflers' statutory liability for their daughter's negligence mandated coverage.

State Farm contended at trial that there was no coverage because Sandra was not a "relative" within the policy definition. Because the policy's definition of a relative rested in part on whether the putative insured lived with the named insureds, State Farm requested that the court instruct the jury to determine whether Sandra lived with the Shreflers by applying the six factors enunciated in Mid-Century Ins. Co. v. Duzykowski, 131 Ariz. 428, 641 P.2d 1272 (1982). The instruction requested by State Farm read as follows:

The sole issue for you to decide in this case is whether Sandra Marie Shrefler was a "relative" as defined by the State Farm policy issued to her parents on the day of the accident. The policy defines "relative" as follows:

Relative means a person related to Mr. and Mrs. Shrefler by blood, marriage or adoption who lives with Mr. and Mrs. Shrefler. It includes Mr. and Mrs. Shrefler's unmarried and unemancipated child away at school.

In determining whether Sandra Marie Shrefler was a "relative" as defined by the policy on the day of the accident, your considerations should include, but not be limited to, the following factors:

1. Sandra Marie Shrefler's presence in, or absence from, her parents' home;

2. The reasons or circumstances relating to Sandra Marie Shrefler's absence or presence from her parents' home;

3. The relationship of Sandra Marie Shrefler to her parents;

4. Sandra Marie Shrefler's living arrangement in earlier time periods;

5. Sandra Marie Shrefler's subjective or declared intent with respect to her place of residence on the day of the accident;

6. Whether or not Sandra Marie Shrefler had a second place of lodging on the day of the accident.

The superior court refused this instruction. It instead instructed the jury that the sole factor in determining whether Sandra was a relative was whether she was emancipated. The instruction given to the jury read as follows:

The sole issue for you to determine in this case is whether Sandra Marie Shrefler was emancipated as of August 17th 1984, the date of the automobile accident. If she was not emancipated, insurance coverage for the accident exists.

The term "emancipation" means the freeing of a child from the care, custody and control of the parents and from obligations to render services to them. It results not from the conduct of the child, but from the intention of the parents. Intent or intention to emancipate a child may be implied from the conduct of the parents from which termination of parental rights and termination of any duties owed by the child to the parents may be inferred. Emancipation cannot be accomplished by the acts of a child alone, but rather a product primarily of the act or omission of the parents.

If you find from the evidence that Sandra Marie Shrefler was emancipated as of the date of the accident, August 17, 1984, your verdict must be in favor of the Plaintiff and against the Defendants.

If you find from the evidence that Sandra Marie Shrefler was not emancipated as of the date of the accident, your verdict must be in favor of the Defendants and against the Plaintiff.

The plaintiff has the burden of proving that Sandra Marie Shrefler was emancipated as of August 17, 1984. In determining whether Sandra Marie Shrefler was emancipated, you may consider the evidence as to the circumstances and conduct of the parents and Sandra Marie Shrefler both before and after August 17, 1984.

The jury found for Novak, and the superior court entered judgment on the verdict in her favor.

State Farm's appeal and Novak's cross-appeal raise the following issues:

(1) Did the superior court err in instructing the jury that the sole factor in determining whether Sandra was a relative was whether she was emancipated?

(2) If the superior court did err in instructing the jury, was State Farm prejudiced by the error?

(3) Did the superior court also err in concluding that the Shreflers' statutory liability for Sandra's negligence did not require State Farm to cover Sandra?

(4) Did the superior court err in excluding evidence concerning the issues of estoppel and reasonable expectations?

I.

The superior court erred in instructing the jury that the sole factor in determining whether Sandra lived with the Shreflers, within the meaning of State Farm's policy, was whether she was emancipated.

The language of State Farm's coverage provision defining the word "relative" is dispositive. The policy covers as a relative any person who is related to the named insured and who "lives with" the named insured. There is no dispute that Sandra is related to her parents. The policy itself makes coverage turn on whether she "lives with" her parents, not whether she is emancipated.

The phrase used in this insurance contract, that the relative "lives with" the named insured, has an ordinary and plain meaning. Insurance policies must be read according to their ordinary meaning to a layman. American Nat'l Fire Ins. Co....