United States v. Government Emp. Ins. Co., Inc.

• Court: U.S. District Court — Eastern District of Virginia
• Writing for the Court: CLARKE
• Citation: United States v. Government Emp. Ins. Co., Inc., 409 F.Supp. 986 (E.D. Va. 1976)
• Decision Date: 17 March 1976
• Docket Number: Civ. A. No. 75-256-N.
• Parties: UNITED STATES of America, Plaintiff, v. GOVERNMENT EMPLOYEES INSURANCE COMPANY, INC., Defendant.

409 F. Supp. 986

UNITED STATES of America, Plaintiff, v. GOVERNMENT EMPLOYEES INSURANCE COMPANY, INC., Defendant.

Civ. A. No. 75-256-N.

United States District Court, E. D. Virginia, Norfolk Division.

March 17, 1976.

Roger T. Williams, Asst. U. S. Atty., Norfolk, Va., for plaintiff.

J. Carroll Fears, Jr., Norfolk, Va. (Taylor, Gustin, Harris, Fears & Davis, Norfolk, Va.), for defendant.

OPINION AND ORDER

CLARKE, District Judge.

This matter is before the Court for disposition on its merits pursuant to a stipulation of facts entered into by the parties. The Court has received legal memoranda from the parties and is of the opinion, after receiving the memoranda, that oral argument would not be helpful in reaching a decision in the case. Oral argument, therefore, is dispensed with in accordance with a Consent Order entered January 9, 1976.

In this action, the United States asks for a Declaratory Judgment establishing the rights, duties and liabilities of the Government Employees Insurance Company, Inc. hereinafter referred to as GEICO, under an automobile insurance policy and compensatory damages for breach of the insurance contract. Specifically, the United States is seeking indemnity as an additional insured under an automobile liability policy issued to Herbert L. Moore by the defendant GEICO for payments made by the Government pursuant to the Federal Tort Claims Act. Jurisdiction is founded upon 28 U.S.C. § 1345, the United States being the plaintiff in this suit.

FINDINGS OF FACT

GEICO issued an automobile liability policy (No. 665-14-25) to Herbert L. Moore covering the operation of Mr. Moore's 1967 Mercury automobile. The policy was in effect when, on April 20, 1973, Mr. Moore was involved in a collision with one Joe Keen in Franklin, Virginia. The collision occurred while Mr. Moore, a civilian employee of the Department of Navy, was operating his automobile in the scope of his employment.

Pursuant to the provisions of 28 U.S.C. § 1346(b) and 28 U.S.C. §§ 2671-2680, Keen asserted a claim against the United States and the United States accepted liability. There is no claim that the acceptance of liability by the Government amounted to a breach of the terms of the policy and no such issue is raised in this case. The United States, claiming that it was an additional insured under the automobile liability policy issued to Moore, demanded that GEICO assume responsibility for the claim and, if it did not, stated that the United States would negotiate and settle the claim with Keen and then seek indemnity from GEICO. GEICO denied that the United States was an insured under said policy and refused to accept the claim. The United States paid Keen Fifteen Thousand Dollars ($15,000) in full settlement of his claim for bodily injuries and his unassigned interest in his property damage and paid One Thousand Five Hundred Fifty Dollars and Seventy-Two Cents ($1,550.72) to his property damage assignee, the United States Fidelity & Guarantee Company, his collision carrier, in settlement of his total property damage. Thereafter, the United States commenced this action against GEICO seeking indemnification for settlement of Keen's claim.

CONCLUSIONS OF LAW

At issue is whether GEICO by written endorsement may exclude the United States as an additional insured or whether such exclusion is forbidden by the Virginia "omnibus clause" statute.¹

GEICO does not contest that prior to 1961, a person injured due to the negligent operation of a motor vehicle by an employee of the Federal Government while in the scope of his employment could seek damages under the Federal Tort Claims Act. 28 U.S.C. §§ 1346(b), 2671 et seq. If the Federal employee had automobile liability coverage from a private insurance carrier, the United States, in turn, could seek indemnity under the policy's omnibus clause. The indemnity was possible because of judicial decisions which held that the United States was an additional insured under the language of the omnibus clause. See, Irvin v. United States, 148 F.Supp. 25 (S.D.1957); Rowley v. United States, 140 F.Supp. 295 (Utah 1956).

In 1961, the Federal Tort Claims Act was amended to provide, in essence, that the remedy embodied in the Federal Tort Claims Act was to be "exclusive of any other civil action or proceeding by reason of the same subject matter against the employee" for property damage or personal injury resulting from the operation of any motor vehicle while acting within the scope of his employment.² Subsequent to the effective date of this amendment in March 1962, private automobile insurance carriers began to assert that the United States no longer fell within the omnibus clause of automobile policies by operation of law. In general, this contention of the insurance industry has not been successful. The courts adhere to the position that the purpose of 28 U.S.C. § 2679(b) is to relieve Federal employees of the burden of insuring themselves against motor vehicle accidents occurring within the scope of their employment, but that Federal employees are not prohibited from acquiring insurance coverage for such accidents. United States v. Myers, 363 F.2d 615, 620 (5th Cir. 1966). If insurance coverage is available to Federal employees for accidents occurring in the scope of their employment, the courts have held that an insurance company is bound by the terms of its contract and prior judicial decisions which have interpreted omnibus clauses to include the Federal Government as an additional insured.³ The 1961 amendment to the Federal Tort Claims Act (Federal Drivers Act), therefore, has not altered the legal conclusion that the United States is an additional insured under an automobile policy's omnibus clause.

The insurance industry responded to decisions holding that the United States is an additional insured in policies written after 1962 by seeking permission from Insurance Commissions in many states to endorse policies to exclude coverage of a Federal employee while operating his automobile on Government business. (Exhibit 4 — Affidavit of Bartlett R. Hendrickson, Vice President, Home Office Underwriting Dep't, GEICO) For example, in an action similar to the instant case, the Government sought to hold the private insurance carrier responsible for all damages resulting from the negligent operation of an automobile by the insured while on Government business. Government Employees Insurance Company v. United States, 400 F.2d 172 (10th Cir. 1968). The Court of Appeals for the Tenth Circuit was confronted with an endorsement to the insured's policy excluding the United States as an omnibus clause insured. The Government asserted that the endorsement was not properly made a part of the insurance contract. Finding that the endorsement was a part of the contract governing the relationship of the insurance company and the United States, the Court concluded that the terms of the endorsement precluded the Government from coverage. Cf. Stephan v. Madison, 223 F.Supp. 256 (E.D. N.Y.1963).

In Virginia, the efforts of the insurance industry have resulted in Administrative Order No. 6680, dated June 28, 1962, and Administrative Order No. 6857, dated July 9, 1974, issued by the State Corporation Commission. The State Corporation Commission is charged by Virginia law with the regulation of the insurance industry. Each of these orders approve identical standard endorsement forms excluding the United States from the omnibus clause incorporated by statute into all Virginia automobile liability insurance policies as well as excluding the named insured from liability coverage in claims cognizable under 28 U.S.C. § 2679.⁴ The defendant GEICO incorporated the approved endorsement, "Federal Employees Using Automobiles in Government Business — A786," into its automobile liability insurance contract with the insured, Herbert L. Moore.⁵

Notwithstanding the administrative directives of the State Corporation Commission and the embodiment of the approved endorsement form into GEICO's automobile insurance policy, the United States contends that Virginia law prohibits exclusion of the Government from the operation of Virginia's omnibus clause. Specifically, the United States maintains that Section 38.1-381(a2) of the Virginia Code Annotated (1950, as amended) by its terms and as interpreted by the Supreme Court of Virginia make any endorsements in contravention of Va.Code Ann. § 38.1-381(a) wholly void. The Government, therefore, seeks to be classified as an additional insured under Virginia insurance law so as to qualify as an indemnitee under the automobile policy of Herbert L. Moore.

GEICO defends its use of the A786 endorsement form on the theory that the interpretation of Va.Code Ann. § 38.1-381(a2) asserted by the United States would "thwart the very intent and purpose" of the Federal Drivers Act, 28 U.S.C. § 2679(b)-(e). GEICO contends, therefore, that the Virginia statute should be construed in such a manner as to avoid contradictory construction of the state and federal statutes.⁶ In support, GEICO points to the administrative action of the State Corporation Commission in twice approving the endorsement form utilized by the defendant. GEICO also takes comfort in the language of Southside Distributing Company v. Travelers Indemnity Company, 213 Va. 38, 189 S.E.2d 681 (1972), prohibiting any exclusions from policy coverage except those expressly provided for "by statute" contending that the Federal Drivers Act qualifies as such a statute.

Superficially, the Virginia statute and the Federal statute under consideration do not appear to harmonize. As such, the Court must ascertain whether the Virginia statute violates the Supremacy Clause of the United States Constitution (Art. VI, Cl. 2) which provides as follows:

"This Constitution, and the Laws of the United States which shall be made in Pursuance thereof; and all Treaties made, or which shall be made, under the Authority of the United States, shall

...