FILED
NOT FOR PUBLICATION
MAR 16 2021
UNITED STATES COURT OF APPEALS MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
JAMES McGEE, No. 19-15859
Plaintiff-Appellant, D.C. No. 2:17 cv-4024-DGC
v.
MEMORANDUM*
ZURICH AMERICAN INSURANCE
COMPANY, a New York insurance
company,
Defendant-Appellee.
Appeal from the United States District Court
for the District of Arizona
David G. Campbell, District Judge, Presiding
Submitted May 5, 2020**
Seattle, Washington
Before: TASHIMA, W. FLETCHER, and RAWLINSON, Circuit Judges.
Dissent by Judge RAWLINSON
James McGee appeals from the summary judgment entered in favor of
Zurich American Insurance Company (“Zurich”) on his claims of breach of
*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
**
The panel unanimously concludes this case is suitable for decision
without oral argument. See Fed. R. App. P. 34(a)(2).
contract and insurance bad faith. We have jurisdiction under 28 U.S.C. § 1291,
and we review de novo. Whitman v. Mineta, 541 F.3d 929, 931 (9th Cir. 2008).
We reverse and remand.
Zurich issued a general insurance policy to Underwood Bros, Inc., doing
business as AAA Landscape (“AAA Landscape”). The policy provides business
auto liability coverage for bodily injury or property damages caused by an accident
“resulting from the ownership, maintenance or use of a covered ‘auto.’” The
policy defines “insured” as “[a]nyone . . . using with your permission a covered
‘auto’ you own.”
In 2012, AAA Landscape assigned a company vehicle to Elizabeth Foutz, an
employee. Three years later, Foutz was involved in a car accident with McGee.
Although McGee was found at fault for the accident, Foutz was cited for driving
while intoxicated. After McGee asserted a claim against Foutz, Zurich declined
coverage, concluding that Foutz failed to qualify as an insured under the policy,
because she had exceeded any permissible use by driving while intoxicated. Foutz
assigned her rights to McGee, and McGee sued Zurich for breach of contract and
bad faith.
The district court granted summary judgment on both claims to Zurich. The
court concluded that, because AAA Landscape never gave Foutz express or
2
implied permission to drive while intoxicated, her use at the time of the accident
was not permissive, and she therefore was not an insured. The court also noted
that Foutz had signed a Driver Policy and Agreement (“DPA”) requiring her to
“abide by all laws, including speed limits,” in her operation of the company
vehicle.
We reach a different conclusion. There is no dispute that Foutz was covered
by the policy if she was a permissive user at the time of the accident: both the
express terms of the policy and Arizona’s omnibus clause, Ariz. Rev. Stat. § 28-
4009(A)(2), extend coverage to permissive users. Under the omnibus clause,
moreover, permissive use encompasses minor deviations from the permission
granted. “[I]f the bailee’s use is not a gross, substantial or major violation, even
though it may have amounted to a deviation, protection is still afforded to the
bailee under the omnibus clause.” James v. Aetna Life & Cas., 546 P.2d 1146,
1148 (Ariz. Ct. App. 1976). A “deviation is ‘material’ or ‘major’ when the
deviation from the purpose for which the permission was originally granted was
substantial in terms of duration, distance, time, or purpose.” Id.
Here, viewed in the light most favorable to McGee, Gonzales v. CarMax
Auto Superstores, LLC, 840 F.3d 644, 648 (9th Cir. 2016), the record shows that
Foutz’s use of the vehicle at the time of the accident was permissive. First, the
3
evidence shows that Foutz was permitted to use the company vehicle for personal
errands after work. Foutz testified that the company vehicle was her “only source
of transportation,” that “AAA [Landscape] knew that” to be the case; that “if
[Foutz] needed the vehicle to run errands, go to the grocery, something quick after
work, it was okay” with AAA Landscape, and that Foutz’s supervisor was aware of
her use of the company vehicle to run errands. Foutz further testified that AAA
Landscape employees routinely used company vehicles “for personal errands after
work,” and that AAA Landscape’s executives were “well aware of that.”
Second, the evidence establishes at least a triable issue that Foutz’s use of
the vehicle at the time of the accident fell within the scope of that permitted use.
The accident occurred at around 8:45 p.m. following work, while Foutz was
driving home from a personal errand to a grocery store. Viewing the evidence in
the light most favorable to McGee, this use was either within the scope of her
permitted use or, at minimum, a minor deviation from that permission.
Zurich argues that Foutz’s use was non-permissive because she did not have
express or implied permission to operate a company vehicle while intoxicated. We
assume for purposes of our analysis that AAA Landscape never gave Foutz
permission to operate the vehicle while intoxicated. We are not persuaded,
however, that this rendered her use of the vehicle non-permissive. Viewing the
4
evidence in the light most favorable to McGee, Foutz had permission to use the
vehicle for the purpose of running personal errands after work, and that is precisely
what she was doing. Her use, therefore, was permissive.
Foutz’s negligence (driving while intoxicated) does not negate the fact that
her use (running an errand) was permissive. In this respect, the Arizona Court of
Appeals decision in National Indemnity Co. v. North American Indemnity, No. 1
CA-CV 90-201, 1991 WL 263707 (Ariz. Ct. App. Dec. 17, 1991), although
unpublished, is persuasive:
On the one hand, it is tempting to conclude that permissive
usage should never entail permission to drive while drunk.
On the other hand, permissive usage might similarly be
argued to exclude permission to drive distractedly, to
exceed the speed limit, or to run red lights. If such
situational departures from reasonable care were treated as
beyond the scope of permissive usage, it would thwart the
overriding purpose of the Safety Responsibility Act, which
is “to provide security against uncompensated damages
arising from operation of motor vehicles on the highway.”
Chase v. State Farm Mut. Auto Ins. Co., 131 Ariz. 461, 641
P.2d 1305 (App. 1982). Indeed, to view egregious
departures from reasonable care as violating the implicit
terms of permissive usage would defeat coverage in
precisely the circumstances where the need for coverage
would most likely arise.
We are persuaded by the latter consideration to reject
the argument that [the permissive user’s] excessive
drinking alone took him beyond the scope of his permission
to use the bus. We conclude that permissive usage is
5
determined by reference to time, distance, duration, and
purpose. If a driver’s usage is permissive in accordance
with these referents, it will not be defeated by reference to
the unreasonableness of the driver’s conduct, including
consumption of alcoholic beverages, when the accident
occurs.
Id. at *4.
Zurich points out that the DPA required Foutz to “abide by all laws,
including speed limits,” and that, by driving while intoxicated, Foutz failed to
comply with the agreement. We are not persuaded, however, that this rendered
Foutz’s use non-permissive. First, although Zurich contends that this agreement
defined the scope of Foutz’s permission, the record suggests otherwise. The DPA
includes a number of provisions, including one stating that “Company vehicles are
not to be used for personal errands/use.” As discussed, the record evidence,
viewed in McGee’s favor, shows that this was not the case. Accordingly, there is,
at minimum, a genuine dispute of fact as to whether the DPA in fact defined the
scope of Foutz’s permissive use.
Second, even assuming that the DPA defined the scope of permission, the
agreement says nothing about driving while intoxicated or the consequences for
doing so. Cf. James, 546 P.2d at 1148–49 (Hathaway, J., specially concurring)
(concluding that an employee’s use was non-permissive where company rules
6
specifically provided that “[n]o one may drive a company vehicle after consuming
alcoholic beverages”). Nor does the agreement discuss insurance coverage.1 On
the contrary, the only sanction stated in the DPA for any breach is that “failure to
[abide by the agreement] may result in employee disciplinary action.” When a
permissive user deviates in a substantial way from an employer’s specific
instructions regarding the manner in which a vehicle should be operated, it may be
that coverage is defeated. That has not occurred here, however, even assuming that
the DPA defined the scope of permitted use. And, to repeat, nothing in the DPA,
or elsewhere in the record, supports the notion that a violation of the DPA results
in the retroactive withdrawal of consent previously given.
In sum, we conclude that there is at least a triable issue of material fact as to
whether Foutz’s use of the vehicle at the time of the accident was either permissive
or a minor deviation from the permission she was granted. We therefore reverse
the entry of summary judgment in Zurich’s favor on McGee’s breach of contract
and bad faith claims and remand for further proceedings consistent with this
disposition.
REVERSED and REMANDED.
1
Moreover, there is no indication that the agreement is intended to
benefit third parties, such as Zurich.
7
FILED
MAR 16 2021
McGee v. Zurich American Insurance Co., Case No. 19-15859
MOLLY C. DWYER, CLERK
Rawlinson, Circuit Judge, dissenting: U.S. COURT OF APPEALS
In this insurance coverage dispute, Appellant James McGee (McGee)
appeals the district court’s grant of summary judgment in favor of Appellee Zurich
American Insurance Company (Zurich). McGee alleged that he was severely
injured in an accident involving Elizabeth Foutz (Foutz), an employee of AAA
Landscape, who was driving a company vehicle while extremely intoxicated.
McGee contends that Zurich breached the insurance policy issued to AAA
Landscape and denied coverage for Foutz in bad faith. McGee maintains that,
pursuant to the “omnibus clause,” A.R.S. § 28-4009(A)(2),1 Zurich was obligated
to provide coverage because Foutz received AAA Landscape’s permission to use
the company vehicle.
The district court properly granted summary judgment in favor of Zurich on
McGee’s breach of contract claim because Foutz lacked permission to use the
company vehicle while intoxicated. Under Arizona law, “an implied permission
1
A.R.S. § 28-4009(A)(2) provides that an insurance policy:
shall insure the person named in the policy as the insured and any
other person, as insured, using the motor vehicle or motor vehicles
with the express or implied permission of the named insured against
loss from the liability imposed by law for damages arising out of the
ownership, maintenance or use of the motor vehicle or motor vehicles
within the United States . . .
1
generally arises from a course of conduct involving a mutual acquiescence in, or a
lack of objection to, a continued use of the car, signifying assent. It is usually
shown by the practice of the parties over a period of time preceding the day upon
which the insured vehicle was being used.” Gomez v. Great Am. Ins. Co., 548 P.2d
1206, 1208-09 (Ariz. Ct. App. 1976) (citation, alteration, and internal quotation
marks omitted).
AAA Landscape limited the scope of Foutz’s permissive use of the company
vehicle through its Driver Policy and Agreement, which required Foutz to “abide
by all state laws, including speed limits.” See, e.g., Stonington Ins. Co. v.
McWilliams, No. 1 CA–CV 09–0235, 2010 WL 2677119, at *4 (Ariz. Ct. App.
2010) (observing that “[i]f the company did give notice to [the employee] of its
vehicle use policy . . . then [the employee’s] permitted use was for business
purposes only and his use [of the vehicle] on the night of the accident was clearly
more than a minor deviation from that permitted use”) (citing James v. Aetna Life
& Cas., 546 P.2d 1146, 1148 (Ariz. Ct. App. 1976). Foutz fully acknowledged in
her deposition that she did not receive permission from anyone at AAA Landscape
to operate the company vehicle while intoxicated, she was “not operating the AAA
vehicle legally at the time of the accident,” and she violated the Driver and Policy
Agreement.
2
McGee failed to raise a material factual dispute precluding summary
judgment based on Foutz’s deposition testimony that she observed other
employees operate company vehicles while intoxicated. Foutz conceded that she
never informed AAA Landscape that other employees drove company vehicles
while intoxicated, and no other evidence was adduced that AAA Landscape
approved or ratified this conduct. As a result, McGee was unable to thwart entry
of summary judgment because Foutz’s testimony did not “reveal a single instance
in which [AAA Landscape] acquiesced in” the use of company vehicles by
employees who were intoxicated. Gomez, 548 P.2d at 1209 (citation omitted).
The district court also correctly held that Zurich did not contravene A.R.S. §
28-4009(A)(2) in denying coverage. In light of Foutz’s admissions that she
operated the company vehicle while extremely intoxicated in violation of the
Driver Policy and Agreement and did not receive permission from AAA
Landscape to use the vehicle after consuming alcohol, Foutz’s conduct was a
“material or major . . . deviation from the purpose for which the permission was
originally granted.” James, 546 P.2d at 1148 (citations and internal quotation
marks omitted).
Finally, summary judgment was warranted on McGee’s bad faith claim
because Zurich properly denied coverage based on its determination that Foutz did
3
not qualify as an insured under the policy. See Manterola v. Farmers Ins. Exch.,
30 P.3d 639, 646 (Ariz. Ct. App. 2001) (explaining that “a bad faith claim based
solely on a carrier’s denial of coverage will fail on the merits if a final
determination of noncoverage ultimately is made”) (citations omitted). Although
McGee maintains that Zurich failed to conduct an adequate investigation, Foutz’s
admissions reveal that there were no additional facts calling into question Zurich’s
denial of coverage.
I respectfully dissent from the majority’s contrary conclusion, which is not
supported by the facts or the law.
4