State Farm Mut. Auto. Ins. Co. v. United States F. & G. Co.

• Decision Date: 09 January 1974
• Docket Number: No. 73-1496.,73-1496.
• Parties: STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, a mutual insurance company organized and existing under the laws of the State of Illinois, Appellant, v. UNITED STATES FIDELITY AND GUARANTY COMPANY, a corporation, et al., Appellees.
• Court: U.S. Court of Appeals — Fourth Circuit

490 F.2d 407 (1974)

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, a mutual insurance company organized and existing under the laws of the State of Illinois, Appellant, v. UNITED STATES FIDELITY AND GUARANTY COMPANY, a corporation, et al., Appellees.

No. 73-1496.

United States Court of Appeals, Fourth Circuit.

Argued October 2, 1973.

Decided January 9, 1974.

Jack A. Mann, Beckley, W. Va. (Lynch, Mann & Knapp, Beckley, W. Va., on brief), for appellant.

Ben B. White, Jr., Princeton, W. Va., for appellees.

Before HAYNSWORTH, Chief Judge, and RUSSELL and FIELD, Circuit Judges.

FIELD, Circuit Judge:

This appeal involves a controversy relative to the rights and obligations of two insurance companies under their respective policies of automobile liability insurance. The factual background of the dispute is not an unfamiliar one.

A & T Pontiac-Buick, Inc., of Bluefield, West Virginia (A & T), delivered a 1967 Mustang automobile to Earnest P. Watkins, a prospective purchaser, on March 16, 1970, so that he might try it out to determine whether he would buy it. A few days later, on March 19th, Mrs. Watkins, at the direction of her husband, called the garage, advising them that Watkins did not desire to purchase the car and requesting that they send someone to get it. The garage had no one available to pick up the car on that day, and on the following day Watkins permitted his son to drive the automobile on personel business. While driving the car the younger Watkins lost control of the vehicle and wrecked it, killing one of his passengers and injuring two others. Claims were asserted by the injured passengers and by the administrator of the deceased passenger against the Watkins as well as A & T.

At the time of the accident State Farm Mutual Automobile Insurance Company (State Farm) had in effect a liability policy which covered Earnest P. Watkins, his wife, and his son as named insureds, the vehicle described in the policy being a 1969 Buick. By its terms the policy extended protection to the Watkins while using a nonowned automobile. A & T was covered by a garage liability policy issued by United States Fidelity and Guaranty Company (U.S.F. & G.), which policy contained an omnibus clause subject, however, to a limited coverage endorsement.

The district court was presented with two issues: (I) Was the vehicle being used by Watkins' son in the automobile business at the time of the accident within the meaning of the exclusionary provision of State Farm's policy; and (II) what effect should be given to the respective "other insurance" provisions of the State Farm and U.S.F. & G. policies.

I.

The State Farm policy contained a provision that its coverage did not apply to a non-owned automobile "while maintained or used by any person while such person is employed or otherwise engaged in an automobile business of the insured or of any other person or organization." State Farm takes the position that since the Mustang was delivered to Earnest R. Watkins as a customer of an automobile dealer, it was a non-owned automobile which was being used in the automobile business at the time of the accident and the foregoing exclusionary provision would apply. Upon a review of the stipulated facts, the district court concluded that any dealer-customer relationship terminated at the time Mrs. Watkins advised A & T her husband did not intend to purchase the car, and that any subsequent use of the car by Watkins or his son was for their own personal convenience and in no way incidental to the automobile business. The district judge further concluded that since Watkins' son was driving the vehicle with the permission of A & T, he was covered by the non-owned automobile provision of the State Farm policy.

While the stipulated facts support this conclusion of the district court, we are of the opinion that the plain language of the policy itself also requires such a result. The policy defines "Automobile Business" as "the business or occupation of selling, leasing, repairing, servicing, storing or parking of land motor vehicles or trailers." The exclusionary provision by its terms applies only where the person for whom coverage is sought is himself employed or engaged in the automobile business within the definitional terms of the policy, and as stated in Jamestown Mut. Ins. Co. v. Nationwide Mut. Ins. Co., 266 N.C. 430, 146 S.E.2d 410, 417 (1966), "it would be a strained construction of the phrase `used in the automobile business' to apply it to a prospective purchaser of a vehicle who is "trying it out" to see if he likes it." We think that the policy provision with respect to the use of a nonowned automobile, like the standard omnibus clause, should receive a liberal interpretation in favor of the insured to protect not only him but the general public as well. See Chatfield v. Farm Bureau Mut. Auto Ins. Co., 208 F.2d 250 (4 Cir. 1953), and Goforth v. Allstate Insurance Company, 220 F.Supp. 616 (W.D.N.C.1963), aff'd per curiam, 4 Cir., 327 F.2d 637. Since we conclude that young Watkins was not using the vehicle in the automobile business at the time of the accident, the exclusion does not apply.

II.

The second issue with respect to the question of the "other insurance" provisions of the policies presents a more troublesome problem.

The State Farm policy had a limit of liability of $20,000 for each person and $40,000 for each accident and contained a provision that the insurance thereunder with respect to non-owned automobiles "shall be excess over other collectible insurance." The U.S.F. & G. policy was designed primarily to cover A & T in the conduct of its automobile sales and service business and contained limits of liability of $100,000 for each person and $300,000 for each occurrence. The policy, however, carried the following endorsement:

"LIMITED COVERAGE FOR CERTAIN INSUREDS

"In consideration of the reduced rate of premium made applicable to the Garage Liability Insurance, it is agreed that garage customers are not Insureds with respect to the automobile hazard except in accordance with the following additional provisions:

1. If there is other valid and collectible insurance, whether primary, excess or contingent, available to the garage customer and the limits of such insurance are sufficient to pay damages up to the amount of the applicable financial responsibility limit, no damages are collectible under this policy.

2. If there is other valid and collectible insurance available to the garage customer, whether primary, excess or contingent, and the limits of such insurance are insufficient to pay damages up to the amount of the applicable financial responsibility limit, then this insurance shall apply to the excess of damages up to such limit.

3. If there is no other valid and collectible insurance, whether primary, excess or contingent, available to the garage customer, this insurance shall apply but the amount of damages payable under this policy shall not exceed the applicable financial responsibility limit.

4. As used in this endorsement:

`applicable financial responsibility limit\' refers to the applicable limit of the financial responsibility law of the state where the automobile is principally garaged. * * *."

Under West Virginia's financial responsibility law¹ the limits of the liability of U.S.F. & G. under this enforsement were $10,000 for each person and $20,000 for each accident.

Confronted with a conflict between the "excess clause" of the State Farm policy and the "escape clause" of the U.S.F. & G. policy, the district judge concluded that the escape clause of the U.S. F. & G. policy should prevail over the excess clause of the State Farm policy and accordingly that State Farm was the primary insurer. While West Virginia has no decisional or statutory law controlling on this issue, we are inclined to the opinion that the highest court of that state would reach a conclusion different from that of the district...