NATIONWIDE MUTUAL INSURANCE COMPANY, a corporation, and James A. Queen, Plaintiffs,
v.
Aubrey McABEE d/b/a Pine Grove Service Station, Ira Earl Beach, William Ray Robertson and Federated Mutual Implement and Hardware Insurance Company, a corporation, Defendants.
No. 285.
Supreme Court of North Carolina.
October 19, 1966.*497 Kennedy, Covington, Lobdell & Hickman, by Charles V. Tompkins, Jr., Charlotte, for plaintiff appellants.
Craighill, Rendleman & Clarkson, by Hugh B. Campbell, Jr., Charlotte, for defendant appellees.
HIGGINS, Justice.
The court held both Federated and Nationwide liable within the limits of their respective policies for the personal injuries and property damages proximately caused by the negligence of Beach in the operation of Queen's Chevrolet on March 4, 1961. Federated did not appeal. Nationwide did appeal, contending that Beach was not Queen's agent, but was the agent of McAbee's at the time of the accident, and was using Queen's Chevrolet in McAbee's automobile business. If the contention is correct, the court committed error in holding Nationwide liable.
In construing insurance policies, the burden is on the insured to show coverage. If the insurer relies on a clause of the policy which excludes coverage, the burden is on the insurer to establish the exclusion. Fallins v. Durham Life Ins. Co., 247 N.C. *498 72, 100 S.E.2d 214; MacClure v. Accident & Casualty Ins. Co., 229 N.C. 305, 49 S.E.2d 742; Pearson v. Pearson, 227 N.C. 31, 40 S.E.2d 477. Unquestionably Queen called McAbee's Service Station, stating his Chevrolet needed repairs. McAbee's agreed to send for, repair, and return the vehicle to Queen's home. McAbee's sent its employee, Beach, for the vehicle, repaired it, and while Beach was returning it the accident occurred as a result of Beach's negligence. Beach at all critical times was McAbee's employee. Queen had an agreement with McAbee's not only for the actual repair work but to pick up and return the vehicle after the repairs. Queen was responsible to McAbee's for the repair bill, including the movement to and from the garage. There is nothing in the record to indicate the agreement between Queen and McAbee's that the latter should pick up the vehicle, repair and return it, was other than a regular and customary part of the repair service. Beach, at all times was under the control and direction of his employer, McAbee's. At no time was he under Queen's control. Beach's acts are covered by McAbee's garage policy. From that holding, McAbee's and Beach did not appeal.
In a similar situation the Court of Appeals of Virginia has held: "Obviously, if the operation of the car by Perdue [dealer's employee] was a use in the automobile business [insured by garage policy] * * * within the meaning of the insuring clause * * * it was a use in such automobile business within the meaning of the exclusion clause of United's policy." Universal Underwriters Ins. Co. v. Strohkorb, 205 Va. 472, 137 S.E.2d 913 (1964).
When McAbee's contracted to pick up the Chevrolet at Queen's home, service it, and return it to the owner, the custody and control of the vehicle passed from the owner to the garage at the time Beach took charge. During all the time involved, McAbee's agents were in control. The control began with the movement, continued through the repairs, and likewise was continuing at the time of the accident. In Karner v. Maynor, 415 P.2d 998 (Okla.) (1966) the Court held: "It seems clear from the questioned provision * * * that the insurer does not * * * provide liability insurance for any person or organization * * * employees or agents, who operate any of the * * * businesses specified [automobile business]. The reason for refusing to extend insurance coverage to such persons and organizations is obvious. When the named insured places his automobile in the custody of any * * repair shop, service station * * * the insured has no knowledge as to who will be entrusted with the operation * * * while it is in the control of such person or organization. Since the risks involved in the operation * * * by the agents or employees of such businesses is great, the [owner's] insurance company refuses to extend coverage * * *."
The appellees cite cases holding the transportation to and from a garage for repairs is not using the automobile in the garage business. Among the cases is Goforth v. Allstate Ins. Co., 220 F. Supp. 616, a District Court decision. On appeal the Fourth Circuit, by per curiam decision, 327 F.2d 637, said: "We agree with the District Court that a private automobile being driven from the place of business of the owner by a garage keeper to his garage for the purpose of effecting repairs * * * was not being used in the automobile business within the meaning of the exclusion clause in the owner's liability insurance policy." The court attempted to justify the reasoning by saying the business of the man driving the car did not determine the business in which the car was being used while he drove it. The decision has been soundly criticized. The Fifth Circuit, in Sanders v. Liberty Mutual Insurance Co., 354 F.2d 777, rejected the theory advanced by the Fourth Circuit and held the exclusion does apply. The Goforth decision holds the use was not in the automobile business, therefore not insured by the garage policy but by the owner's policy.
*499 In this case the use in the automobile business was found by the court and neither Beach nor McAbee's appealed. The judgment of the Superior Court on that question, therefore, becomes the law of the case as to them. Goforth does not fit the case before us.
The appellees cite Jamestown v. Mutual Ins. Co., 266 N.C. 430, 146 S.E.2d 410, as authority sustaining Judge Hasty's decision in this case. In that case William Clark Hamrick, the driver of the automobile belonging to Tedder Motor Company was in sole possession of and was driving the vehicle to determine whether he would purchase it. He was a textile worker living in the home of his father whose liability policy covered the members of his household. The policy contained an exclusion clause the same as Queen's in this case. Hamrick was not engaged in the automobile business. He had permission of the dealer to drive the vehicle but in doing so he was acting on his own. He was neither the agent nor was he working for Tedder Motor Company. The court properly held Hamrick was not using the vehicle in the automobile business. Hence the exclusion clause would not exempt Hamrick's insurance carrier from liability. Such was our holding in the Jamestown case. The holding, in so far as applicable, accords with our present decision.
We have considered the authorities cited in the appellees' excellent brief. However, upon the admitted facts we think sound reasoning compels the legal conclusion that McAbee's was using Queen's automobile in its automobile business as defined in Nationwide's policy. Under the stipulations it appears as a matter of law that Nationwide is not liable for the personal injury or property damage, or expenses of defending claims against Beach and McAbee's resulting from Beach's negligence. The judgment as to Nationwide is
Reversed.