State Farm Mut. Auto. Ins. Co. v. Universal Underwriters Ins. Co., CC990

• Decision Date: 12 July 1989
• Docket Number: No. CC990,CC990
• Citation: 181 W.Va. 609,383 S.E.2d 791
• Court: West Virginia Supreme Court
• Parties: STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, a Corporation v. UNIVERSAL UNDERWRITERS INSURANCE COMPANY, a Corporation.

Page 791

383 S.E.2d 791

181 W.Va. 609

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, a Corporation v. UNIVERSAL UNDERWRITERS INSURANCE COMPANY, a Corporation.

No. CC990.

Supreme Court of Appeals of West Virginia.

July 12, 1989.

Syllabus by the Court

1. The omnibus clause requirements in W.Va.Code, 17D-4-12(b)(2), are by operation of law made a part of an automobile liability policy.

2. Since the enactment of W.Va.Code, 17D-2A-1, et seq. (1981), our Motor Vehicle Safety Responsibility Law is designed to require mandatory insurance coverage for motor vehicles owned in this State.

3. A dealership's garage owner's policy, which defines an additional insured as any other person required by law to be an insured while using an automobile within the scope of the dealership's permission, covers a driver who has been permitted to use an automobile owned by the dealership. This is by virtue of the mandatory omnibus clause requirements of W.Va.Code, 17D-4-12(a), and W.Va.Code, 33-6-31(a).

4. "We adopt the rule that when a pro-rata clause and an excess clause appear in the automobile liability policies of both the driver and the owner of an automobile, the insurer of the owner is primarily liable and must bear the whole loss, within the limits of the policy." Syllabus Point 1, Allstate Ins. Co. v. State Auto. Mut. Ins. Co., 178 W.Va. 704, 364 S.E.2d 30 (1987).

Robert J. Louderback, Louderback & Louderback, Charleston, for State Farm.

Arden J. Curry, II, Pauley, Curry, Sturgeon & Vanderford, Charleston, for Universal Underwriters Ins.

MILLER, Justice:

In this case, we are asked whether an automobile dealer's liability policy has primary coverage for an accident involving a car loaned by the dealer to a customer in the regular course of business.

I.

Honeycutt Pontiac-Buick-GMC is a motor vehicle dealership located in Logan, West Virginia. On December 6, 1986, Alex P. Bucci drove his 1985 Pontiac automobile to the dealership for repairs. The dealership provided Bucci with a temporary substitute vehicle for his use while the repairs were made. In his use of the substitute, Bucci negligently pulled from a parking lot and struck another vehicle driven by Zella Pigman.

The dealership was an insured under a garage liability policy issued by the defendant, Universal Underwriters Insurance Company. This policy provided coverage for "AUTO HAZARD," ¹ which was defined to include "the ownership, maintenance, or use of any AUTO YOU own ... [that is] furnished for the use of any person or organization." An omnibus clause extended coverage to anyone "required by law to be an INSURED while using an AUTO covered by this [policy] within the scope of YOUR permission." Omnibus coverage provided by the policy was said to be excess over other collectible insurance.

Bucci was an insured under a motor vehicle liability policy issued by the plaintiff, State Farm Mutual Insurance Company. The State Farm policy contained a drive-other-cars clause which read, in part: "[L]iability coverage [hereunder] extends to the use, by an insured, of a ... temporary substitute car...." This coverage in the State Farm policy was also deemed to be excess.

Universal refused to pay a liability claim submitted by Ms. Pigman. Its refusal was founded on the view that its policy did not provide omnibus coverage to Bucci or, in the alternative, that such coverage was excess and that of State Farm was primary. State Farm paid the sum of $853.47 in settlement of Ms. Pigman's claim and, on February 23, 1988, filed this suit in Kanawha County Circuit Court. In its complaint State Farm requested a declaration of the coverages provided by the State Farm and Universal policies and damages against Universal in the sum of $853.47, plus interest and costs.

Universal moved for summary judgment, but its motion was denied. On joint motion of the parties, two questions have been certified to us. We may summarize these questions as follows: first, does the Universal policy provide coverage to Bucci by virtue of its omnibus clause; and second, if Bucci is an omnibus insured, which of the two liability policies is primary? We consider these questions in sequence.

II.

Universal first contends that Bucci was not within the scope of its omnibus clause. Under its policy, coverage was provided to all persons "required by law to be an INSURED" while a permissive user of the dealership's vehicles. Universal concedes that Bucci used the substitute vehicle with the dealership's permission. ² What forms the substance of its dispute is whether West Virginia law requires Bucci to be an omnibus insured.

State Farm maintains that under our Motor Vehicle Safety Responsibility Law, W.Va.Code, 17D-4-12(b)(2), a motor vehicle liability policy must include as an insured "any other person ... using any [covered] vehicle or vehicles with the express or implied permission of [the] named insured." ³ This omnibus requirement, like the more general one contained in W.Va.Code, 33-6-31(a), is automatically engrafted onto all policies issued in this State. It is for this reason that Bucci becomes an additional insured under Universal's policy because, in the terminology of the policy, he is "required by law to be an INSURED."

We have traditionally held that the statutory omnibus clause requirements contained in W.Va.Code, 33-6-31(a), are by operation of law made a part of every automobile liability policy issued in this State. In Burr v. Nationwide Mut. Ins. Co., 178 W.Va. 398, 359 S.E.2d 626 (1987), we stated this principle in Syllabus Points 2 and 3 as follows:

"2. Any provision in an insurance policy which attempts to contravene W.Va.Code, 33-6-31(a), is of no effect.

"3. The mandatory omnibus requirements imposed by W.Va.Code, 33-6-31(a), indicate that the legislature has demonstrated a clear intent to afford coverage to anyone using a vehicle with the owner's permission as a means of giving greater protection to those who are involved in automobile accidents. The statute should be liberally construed to effect coverage."

See also Bell v. State Farm Mut. Auto. Ins. Co., 157 W.Va. 623, 207 S.E.2d 147 (1974).

This same law requires the conclusion that the omnibus clause requirements in W.Va.Code, 17D-4-12(b)(2), are by operation of law made a part of an automobile liability policy. ⁴ Thus, under this section Bucci is an insured of Universal as he was using the dealership's vehicle with its permission.

We are referred by Universal to cases that discuss the omnibus clause requirements contained in the financial responsibility statutes of other jurisdictions. These cases state the principle that if a motor vehicle policy is not certified as proof of financial responsibility, the omnibus clause requirements do not apply. Universal Underwriters Ins. Co. v. State Farm Mut. Auto. Ins. Co., 166 Mont. 128, 531 P.2d 668 (1975); Bob-Boyd Lincoln Mercury v. Hyatt, 32 Ohio St. 3d 300, 513 N.E.2d 331 (1987); Stout v. Universal Underwriters Ins. Co., 320 Pa.Super. 240, 467 A.2d 18 (1983). These cases were decided under statutes that did not provide for compulsory automobile insurance. ⁵

It is clear that our safety responsibility statute, W.Va.Code, 17D-1-1, et seq., requires the "owner or registrant of a motor vehicle licensed in this state to maintain certain security during the registration period for such vehicle." W.Va.Code, 17D-2A-1. ⁶ The types of security that will satisfy this requirement are set out in W.Va.Code, 17D-2A-3(a), one of which is

"an insurance policy delivered or issued for the delivery in this state by an insurance company authorized to issue vehicle liability and property insurance policies in this state within limits which shall be no less than the requirements of section two [§ 17D-4-2], article four, chapter seventeen-d of this code[.]"

In order to secure registration for license plates to a motor vehicle, it is necessary under W.Va.Code, 17A-3-3(a)(5), to supply proof of insurance or other acceptable security. ⁷ Moreover, under W.Va.Code, 17A- 3-7(2), one of the grounds for which the Department of Motor Vehicles may refuse to issue a title or to transfer registration of a vehicle is "[t]hat the applicant fails to present a statement of insurance or proof of other security as required pursuant to the provisions of section three [§ 17A-3-3] of this article[.]"

There are also provisions in W.Va.Code, 17D-2A-4 and 17D-2A-5, requiring insurance companies to issue a certificate of insurance and to notify the Department of Motor Vehicles if the insurance is cancelled. If notice of cancellation is received, the Department is authorized to "suspend the operator's ... license of the owner of such vehicle ... and shall suspend the motor vehicle registration until proof of insurance is presented to the department." W.Va.Code, 17D-2A-5(a).

It is clear from the foregoing statutes, and particularly since the enactment of W.Va.Code, 17D-2A-1, et seq. (1981), ⁸ that our Motor Vehicle Safety Responsibility Law is designed to require mandatory insurance coverage for motor vehicles owned in this State. See VanMeter v. West Virginia Dep't of Motor Vehicles, 173 W.Va. 129, 313 S.E.2d 405 (1984).

There is a distinction made between financial responsibility statutes, which require that the driver have or post security after an accident occurs, and compulsory insurance statutes, which require a minimum amount of liability insurance in order to obtain a license plate or title to a vehicle. This difference is set out in 6B J. Appleman, Insurance Law & Practice § 4299 at 301-02 (1979):

"These [compulsory insurance] statutes ... make it unlawful to register or operate an automobile without insurance or some other indicia of financial responsibility. This is distinguished from the standard Financial Responsibility Act which requires security only after an accident has occurred, or the operator is classified as an habitual offender....

"The typical compulsory liability statute requires...