No. 8731 7
I N THE SUPREME COURT OF THE STATE OF MONTANA
1988
IOWA MUTUAL INSURANCE COMPANY,
Plaintiff,
-vs-
JEFFREY DAVIS a n d CURTIS BECK,
Defendants.
ORIGINAL PROCEEDING:
COUNSEL OF RECORD:
For P l a i n t i f f :
James E. A i k e n a n d S t e v e n T . P o t t s a r g u e d , J a r d i n e ,
S t e p h e n s o n , B l e w e t t a n d Weaver, P.C., Great F a l l s ,
Montana
For Defendants:
Gary M. Z a d i c k a r g u e d , U g r i n , A l e x a n d e r , Zadick and
S l o v a k , G r e a t F a l l s , Montana
E r i k B. T h u e s o n a r g u e d , H e l e n a , Montana
F o r Amicus C u r i a e :
W i l l i a m Conklin, ( F o r S t a t e F a r m ) , C o n k l i n , Nybo a n d
LeVeque, P.C., G r e a t F a l l s Montana
S u b m i t t e d : J a n u a r y 7 , 1988
Decided: March 1 8 , 1 9 8 8
Clerk
Mr. Justice L. C. Gulbrandson delivered the Opinion of the
Court.
Iowa Mutual instituted a declaratory judgment action in
United States District Court, Great Falls Division, to
determine whether it is under any obligation to indemnify or
defend Jeffery Davis (Davis) in a personal injury suit
brought by Curtis Beck (Beck). Beck brought suit against
Davis in the District Court of the Eighth Judicial District,
Cascade County. The United States District Court certified
the following question of law for review by this Court
pursuant to Rule 44, M.R.App.P.:
Do the provisions of Title 61, Chapter 6,
Part 3I Montana Code Annotated,
"Mandatory Liability Protection,"
prohibit exclusion of a named driver or
drivers from coverage under a motor
vehicle liability policy?
We answer the certified question in the affirmative.
The following facts are garnered from the parties'
briefs. Beck was a passenger in an automobile driven by
Davis and was injured when the vehicle left the road and
crashed. The automobile was owned at the time by Jeffery
Davis' parents, Donald and Betty Davis. The younger Davis
was operating the automobile with his parents1 permission.
Iowa Mutual insured the Davis1 1964 Oldsmobile involved
in the accident. On several occasions during the 1 9 7 0 ~ ~
Donald and Betty Davis requested that Jeffery Davis be
specifically excluded from insurance coverage during times
that Jeffery resided away from home. Mr. and Mrs. Davis
excluded Jeffery and their other children on these occasions
ostensibly to reduce their insurance premiums. On February
1, 1980, the last of these exclusions, Iowa Mutual
endorsement form 1607 (a), was executed by Mr. ~ a v i s . Iowa
Mutual ' s endorsement form 1607 (a) provided the following:
It is agreed that all insurance and
coverage under this policy shall be null
and void with respect to any claims
arising out of the operation, use, or
occupancy of the automobile described in
this policy, or out of the operation, use
or occupancy of any other automobile to
which the terms of this policy otherwise
extends, by the following named
person(s) :
Jeffery L. Davis (D.O.B. 12-03-59) & Alan
Davis (D.O.B. 8-25-57) Sons of Insured.
Provided, however, this endorsement shall
not be effective if the automobile is
operated by the named insured or the
described automobile is operated by any
person other than Jeffery or Alan and
such operation of the described
automobile is by and under the express
permission of the named insured.
The Davis' never requested that Jeffery again be added to
their auto insurance policy.
Subsequent insurance policies issued to cover the 1964
Oldsmobile included a "declaration" section which
incorporated the 1980 form 1607(a) endorsement by reference.
The 1980 endorsement was in effect in this manner at the time
of the accident in which Beck was injured. Iowa Mutual
contends that Jeffery Davis is excluded from his parents'
insurance coverage and that it is under no obligation to
indemnify or defend Jeffery Davis in the Montana District
Court action.
The parties cross-motioned for summary judgment in the
U.S. District Court. On February 2, 1987, the U.S. District
Court, the Honorable Judge Paul G. Hatfield presiding, issued
a memorandum and order in favor of defendants Davis and Beck.
Iowa Mutual then moved to vacate the U.S. District Court
order and requested that the question be certified to this
Court. The U.S. District Court vacated its February 2, 1987,
order and certified the aforementioned question of law to
this Court. This Court ordered simultaneous briefs from
plaintiff Iowa Mutual and defendants Davis and Beck. State
Farm Mutual Automobile Insurance Company filed an amicus
brief in support of Iowa Mutual's position.
We note that each party attempts to rephrase the
certified question to present other issues. Certain parties
have also presented affidavits for the first time to this
Court. The additional issues and facts are outside the scope
of the certified question and will not, therefore, be
addressed in this opinion. For future reference, arguments
to this Court regarding questions of law certified under Rule
44, M.R.App.P., must be confined to the four corners of the
question and facts as defined by the certifying court.
Iowa Mutual first contends that neither the express
terms of § 61-6-301, MCA, nor the statute's legislative
history prohibit exclusion of named persons in a motor
vehicle liability insurance policy. Section 61-6-301(1) and
(2), MCA, provide as follows:
(1) Every owner of a motor vehicle which
is registered and operated in Montana by
the owner or with his permission shall
continuously provide insurance against
loss resulting from liability imposed by
law for bodily injury or death or damage
to property suffered by any person caused
by maintenance or use of a motor vehicle,
as defined in 61-1-102, in an amount not
less than that required by 61-6-103, or a
certificate of self-insurance issued in
accordance with 61-6-143.
(2) A motor vehicle owner who prefers to
post an indemnity bond with the
department in lieu of obtaining a policy
of liability insurance may do so. The
bond shall guarantee that any loss
resulting from liability imposed by law
for bodily injury, death, or damage to
property suffered by any person caused by
accident and arising out of the
operation, maintenance, and use of the
motor vehicle sought to be registered
shall be paid within 30 days after final
judgment is entered establishing such
liability. The indemnity bond shall
guarantee payment in the amount provided
for insurance under subsection (1).
Iowa Mutual argues that the above statute does not dictate
the terms of a particular insurance policy, but merely
requires motor vehicle owners to insure their vehicles.
According to Iowa Mutual, named driver exclusions are valid
because the mandatory liability protection laws do not
expressly prohibit such exclusions.
This Court rejected a similar argument in Bill Atkin
Volkswagen, Inc. v. McClafferty (Mont. 1984), 689 P.2d 1237,
41 St.Rep. 1981. In Bill Atkin, McClafferty was involved in
an automobile accident while he drove a "loaner" vehicle
owned by an automobile dealership. The dealership sued
McClafferty for damages to the "loaner" vehicle. The
dealership's insurance carrier refused to defend McClafferty
so McClafferty sued the insurance carrier as a third-party
defendant. The district court ruled in McClafferty's favor
and the dealership and its insurance carrier appealed.
The first issue on appeal in Bill Atkin was whether
"section 61-6-301 (1), MCA, require [s] that an automobile
dealer maintain a liability policy extending coverage to a
customer using a 'loaner' vehicle with the dealer's
permission?" Bill Atkin, 689 P.2d at 1238-1239 (additions
ours). The appellant insurance company argued that
McClafferty was excluded from coverage under the dealership's
insurance because $ 61-6-301, MCA, did not specifically
require that coverage be extended under the circumstances.
Bill Atkin, 689 P.2d at 1239. We disagreed with the
appellant's argument and reasoned that there were no
exceptions, other than those listed in $ 61-6-303, MCA, to
the statutory requirement that "every owner of a motor
vehicle registered and operated in Montana by the owner or
with his permission [is] to provide insurance for liability
caused by maintenance or use of the motor vehicle."
Bill Atkin, at 1239, 1240 (citing § 61-6-301 (1), MCA) .
Similarly, the absence of a specific statutory prohibition on
named driver exclusions in this case does not support Iowa
Mutual's position.
Iowa Mutual and State Farm cite Rooney v. Agricultural
Ins. Co. (1970), 156 Mont. 118, 476 P.2d 783, for the
proposition that this Court has ruled that named driver
exclusions are valid. Rooney, however, was decided more than
eight years before the enactment of Montana's mandatory
liability protection laws and is not persuasive.
To determine the validity of the named driver exclusion
in this case, we must first consider the requirements of the
mandatory liability insurance statutes and then compare those
requirements with the terms of the insurance policy. Bain v.
Gleason (Mont. 1986), 726 P.2d 1153, 1155, 43 St.Rep. 1897,
1900. In Bain we recognized that "it is the public policy of
[the State of Montana] ... that every owner of a motor
vehicle [licensed and] operated in Montana must procure a
policy of insurance which continuously provides coverage up
to the limits set forth in [ $ 61-6-103, MCA] .I1 Bain, 726
P.2d at 1156 (emphasis added; additions ours); see also,
Transamerica Ins. Co. v. Royle (1983), 202 Mont. 173, 656
P.2d 820 ("household exclusions" in automobile policies are
invalid because they conflict with the mandatory liability
insurance requirements of S 61-6-301 (I), MCA). Insurance
policy provisions which countermand or diminish the statutory
requirements "nevertheless will be considered to provide the
statutory requirements." Bain, at 1156. We will not depart
from the public policy embodied in Montana's mandatory
insurance protection laws.
Michigan's legislature has seen fit to allow named
driver exclusions in insurance policies written in that state
so long as the insured authorizes such an exclusion and the
policy contains conspicuous notice of the exclusion. Mich.
Comp. Laws S 500.3009(2) (1987). Prior to the enactment of
Mich. Comp. Laws, S 500.3009(2), the courts of Michigan
construed that state's motor vehicle responsibility laws to
invalidate named driver exclusions. Allstate Insurance Co.
v. Motor State Ins. Co. (Mich. Ct. App. 1971), 190 N.W.2d
352. The Michigan legislature enacted S 500.3009(2) in 1971
as a response to Allstate, supra. Detroit Auto. Inter-Ins.
Exch. v. Commissioner of Ins. (Mich. Ct.App. 1979), 272
N.W.2d 689, 691; see generally, J. Braden, Statutory Coverage
- Exclusions - - Limitations - Automobile Liability
of From and on
Coverage, 61 Mich.B.J. 554 (1982).
Amicus curiae, State Farm Mutual Automobile Insurance
Company, asserts that policyholders and insurers cannot be
denied the freedom to contract for named driver exclusions in
order to control the cost of liability insurance. We
disagree. It is clear that the mandatory liability insurance
law seeks to protect members of the general public who are
innocent victims of automobile accidents. Dullenty v. Rocky
Mountain Fire & Cas. Co. (Idaho 19861, 721 P.2d 198, 202.
Montana's mandatory liability insurance laws were
patterned after Idaho's compulsory liability insurance laws.
Hearings on H.B. 708 Before the House Committee on Highways
and Transportation, 1979 Legis. Sess., Februarv 15, 1979,
page 2 (statement of Rep. Paul Pistoria); compare S 61-6-301,
MCA, with Idaho Code S 49-233 (1987). The Idaho Supreme
Court stated the following in Dullenty with regard to that
state's automobile insurance laws:
We deem the legislative intent in the
field of automobile insurance to be
relatively clear. It is the public
policy of this state that any owner or
operator of a motor vehicle, within
certain self-insured exceptions, purchase
automobile liability insurance
... While obviously such a scheme
contemplates insurance against risk of
such monetary loss on the part of the
owner or operator of the insured vehicle,
it carries out a further public policy of
providing some protection to the general
public who may be injured as a result of
the operation of the named motor vehicle
Dullenty, 721 P.2d at 202. As with Idaho's statute,
S 61-6-301, MCA, was enacted for the benefit of the public
and not for the benefit of the insured.
It is axiomatic that laws established for the benefit
of the public cannot be contravened by private contract.
Section 1-3-204, MCA. Iowa Mutual and Mr. Davis contracted
to exclude Jeffery Davis from insurance coverage. Although
not expressly prohibited, such a named driver exclusion is
contrary to the express public policy of S 61-6-301 (1), MCA,
and is, therefore, invalid. Section 28-2-701(2), MCA.
Although the issue presented for our review is one of
first impression in Montana, other jurisdictions have been
confronted with similar issues. A case on point is Fields v.
Western Preferred Cas. Co. (La. 1983), 437 So.2d 344. Fields
appealed a lower court ruling that the person responsible for
causing an auto accident was excluded from the vehicle
owner's (Munholland) insurance coverage. The issue presented
to the Louisiana Second Circuit Court of Appeals was:
whether the statutory omnibus coverage of
[Louisiana' s mandatory liability
insurance laws] applies to negate or
override the effect of the endorsement
which says that no liability coverage
shall be afforded while Munholland's
insured vehicles are being driven by a
particular employee.
Fields, 437 So.2d at 345. The Fields issue is remarkably
similar to the certified question in this case.
The Louisiana court noted that the purpose of the
compulsory liability insurance laws was to protect persons
injured by the operation of motor vehicles and not to protect
owners and operators of those vehicles. 437 So.2d at 346.
Much like Montana's laws, Louisiana requires every registered
motor vehicle to he covered by liability insurance, a
liability bond, or a certification of self-insurance.
La.Rev.Stat.Ann. $5 32:861, 32:900 (1987). The Fields court
applied these statutory provisions to hold that Louisiana's
mandatory liability insurance laws require minimal coverage
and "override or supersede a policy provision or endorsement
excluding a named driver." Fields, 437 So.2d at 346-347. We
find the reasoning in Fields to be persuasive in this case.
Iowa Mutual next asserts that the legislature could not
have intended to prohibit motor vehicle liability insurers
from excluding named drivers from coverage because
S 61-6-143, MCA, allows self-insurers to only pay judgments
against themselves. General principles of respondeat
superior lead us to the conclusion that Iowa Mutual's
argument in this regard is without merit.
Both Iowa Mutual and State Farm contend that
invalidation of named driver exclusions will thwart public
policy. The insurance companies argue that some families
will not be able to afford insurance if they are not able to
exclude family members with poor driving records. The
insurance companies go on to foretell that, because Montana
families will continue to drive out of necessity, our ruling
today will result in more uninsured vehicles on the state's
highways.
We are convinced that the opposite is true. Our ruling
today will eliminate yet another avenue through which the
compensation of innocent automobile accident victims can be
sidestepped. Our ruling does not, however, prohibit an
insurer from entering into agreements with their insureds to
limit coverage to the statutory minimum amounts as set forth
in 5 61-6-103, MCA. Other states have reached similar
conclusions.
The Supreme Court of Utah invalidated a named driver
exclusionary endorsement only to the extent that the
endorsement excluded statutorily required minimum liability
coverage in Allstate Ins. Co. v. U.S. Fidelity & Guaranty
(Utah 1980), 619 P.2d 329. The Utah court held that the
exclusion was enforceable as to any insurance coverage above
minimum limits and noted the following:
Our decision does not, however, read the
named driver exclusionary endorsement out
of the contract entirely. Rather,
contracting parties are free to limit
coverage in excess of the minimum
required limits, and the exclusion found
in the contract is valid in relation to
any coverage exceeding the minimum
amounts. Thus, a balance is struck
between the necessity of securing minimum
automobile liability coverage and the
availability of lower premiums because of
the exclusion of high insurance risks.
This effectuates the express twofold
purpose of the Utah No-Fault Insurance
Act which is to require the payment of
certain prescribed benefits in respect to
motor vehicle accidents while stabilizing
the rising costs of automobile accidents
insurance.
Allstate, 619 P.2d at 333. The Oklahoma Supreme Court
reached a similar conclusion in Young v. Mid-Continent Cas.
Co. (Okla. 1987), 743 P.2d 1084. In holding that an
exclusion was invalid, the Young court noted that the intent
of Oklahoma's compulsory liability insurance statutes was not
so broad as to "eliminate all possible bargaining regarding
liability exclusions . .
. " but that the intent did "require
a minimum of protection to any party who is not a party to
the contract." Young, 743 P.2d at 1088.
The enforcement of minimum statutory coverage is
mandated by statute in Montana and is a minor burden on
insureds when compared to increased protection of the general
traveling public. Iowa Mutual's attempt to exclude Jeffery
Davis from coverage is contrary to the mandatory liability
coverage requirements of § 61-6-301, MCA, and is repugnant to
this state's interest in protecting innocent victims of
automobile accidents. The United States District Court is
instructed that the provisions of Title 61, Chapter 6, Part
3, MCA, prohibit the exclusion of named drivers from
statutory minimum coverage under a motor vehicle liability
policy.
Question answered in the affirmative.
We concur: