McPhee v. Tufty

MARING, Justice,

concurring in part and dissenting in part.

[¶ 68] I agree with parts I and II of the majority opinion. I respectfully dissent from parts III, A and B.

[¶ 69] The first question presented under the AMCO policy is whether there is coverage for Curtis Tufty for the liability, imputed to him by the family car doctrine, for the negligence of his son, Christopher, while driving an automobile.

[¶ 70] As the majority points out, the AMCO policy provides, “We will pay damages for ‘bodily injury’ or ‘property damage’ for which any ‘insured’ becomes legally responsible because of an auto accident.” This language would seem to provide coverage for Curtis Tufty, because his liability arises as a result of the death of Sandra McPhee in an auto accident. However, the AMCO policy contains an exclusion which states coverage is not provided “for the ownership, maintenance or use of ... [a]ny vehicle, other than ‘your covered auto,’ which is ... furnished or available for the regular use of any ‘family member.’ ” This exclusion seems to deny coverage in this case, assuming arguendo the Toyota does not fit within the definition of “your covered auto.” There is an exception to this exclusion, though, which provides “this exclusion (B.3) does not apply to your maintenance or use of any vehicle which is ... owned by a ‘family member;’ or ... furnished or available for the regular use of a ‘family member.’ ” McPhees argue the term “your ... use” in this exception is ambiguous.

[¶ 71] The rules regarding the construction of insurance policies are well established in North Dakota including that “any ambiguity or reasonable doubt as to the meaning of an insurance policy is strictly construed against the insurer and in favor of the insured.” Fisher v. American Family Mut. Ins. Co., 1998 ND 109, ¶ 6, 579 N.W.2d 599. “If the language in an insurance contract will support an interpretation which will impose liability on the insurer and- one which will not, the former interpretation will be adopted.” Aid Ins. Services, Inc. v. Geiger, 294 N.W.2d 411, 414 (N.D.1980). “Exclusions from broad coverage in an insurance policy are strictly construed against the insurer. An exception to an exclusion from broad *405coverage results in coverage.” Fisher, 1998 ND 109, ¶ 6, 579 N.W.2d 599 (citations omitted).

[¶ 72] McPhees argue a reasonable interpretation of “your ... use” would include employment for some purpose of the user and that purpose is the pursuit of family convenience, recreation and pleasure. As the majority states: “[Use] denotes the employment of the automobile for some purpose of the user.” 8 Lee R. Russ, Couch on Insurance § 111:35, at 111-61 (3d ed.1997) (footnotes omitted). The majority also correctly states: “In the context of insurance law, courts have usually given the term “use” a broad, rather than narrow, construction.” See, e.g., Woodrich Constr. Co. v. Indem. Ins. Co., 252 Minn. 86, 89 N.W.2d 412, 418 (1958). Most courts, including our Court, have taken the position a person need not actually operate a vehicle to “use” it. See, e.g., Hertz Corp. v. Amerisure Ins. Co., 627 So.2d 22, 23 (Fla.App.1993); BATS, Inc. v. Shikuma, 1 Haw.App. 231, 617 P.2d 575, 577-78 (1980); HeHz Corp. v. Gov’t Employees Ins. Co., 250 A.D.2d 181, 683 N.Y.S.2d 483, 487 (N.Y.App.Div.1998); Manock v. Donley, 139 N.W.2d 391, 392 (N.D.1966). The majority concludes the standard analysis applied in deciding whether an insured “used” a vehicle when the insured was not driving is “(1) whether the vehicle was under the supervision and control of the insured, and (2) whether the vehicle was being operated to serve a purpose of the insured.” Shikuma, 617 P.2d at 577. The Toyota was under the supervision and control of Curtis Tufty according to the findings of the trial court, and even the majority concedes the first inquiry. of the analysis is satisfied in this case. I am of the opinion the second inquiry is also satisfied.

[¶ 73] Curtis Tufty’s Lability is based on the family car doctrine. The majority concludes the evidence supports the trial court’s findings that Curtis Tufty had an ownership interest in the Toyota and furnished the vehicle for Christopher Tufty’s use as a family auto. The family purpose doctrine was first adopted in this state more than eighty years ago, and we reaffirm it today. See Ulman v. Lindeman, 44 N.D. 36, 176 N.W. 25, 27 (1919). “The decision was founded upon the theory that the driver of a family car, in pursuit of recreation or pleasure, was engaged in the owner’s business,” and thus the driver was either the agent or servant of the owner. Schobinger v. Ivey, 467 N.W.2d 728, 729 (N.D.1991) (emphasis added). Clearly the Toyota was being operated to serve and benefit the family purpose of Curtis Tufty, the owner.

[¶ 74] The majority struggles to distinguish Rogers v. MFA Mut. Ins. Co., 262 Ark. 55, 554 S.W.2d 327 (1977). The only factual difference between Rogers and the present case is that the Supreme Court of Arkansas relied on an Arkansas statute that imputed the negligence of a minor child to a parent who signed the application of the minor for a permit or license. Id. at 329-30. Although the McPhees did not argue the applicability of N.D.C.C. § 39-06-09, it must be noted that this North Dakota statute imputes the negligence of a minor when driving a motor vehicle to the person who has signed the application for a permit or license. See Anderson v. Anderson ex rel., 1999 ND 57, ¶ 7, 591 N.W.2d 138 (interpreting N.D.C.C. § 39-06-09 to establish that a minor’s negligence as well as financial liability will be imputed to a parent who signed the application for a permit, barring recovery for injuries to that parent). The Rogers decision is persuasive. The Rogers court concluded the statute’s imputation of negligence was vicarious liability and placed the “parent in the position of an actual user of an automobile any time the parent knowingly permits a minor to drive an automobile upon a highway, ...” 554 S.W.2d at 330.

[¶ 75] Although Brabender v. Northern Assurance Co. of America, 65 F.3d 269 (2nd Cir.1995) is not factually directly on point, its analysis of the ambiguity of the *406term “use” is persuasive. Both the Bra-bender court and the Rogers court hold the term “use” as used in similar policies ambiguous. Brabender, 65 F.3d at 273; Rogers, 554 S.W.2d at 330. Both courts point out that “use” of an auto means more than operation of the auto by the insured. Bra-bender, 65 F.3d at 272; Rogers, 554 S.W.2d at 330. The Brabender court concluded it must construe the term “your use” in the insured’s favor when “[n]either the contract itself nor any other evidence submitted by the parties permits us to resolve the meaning and scope of the term ‘your ... use.’ ” 65 F.3d at 273. The majority does not cite to one case in support of its conclusion this term as used in an insurance policy is not ambiguous.

[¶ 76] I would conclude the term “your ... use” is ambiguous, construe it in favor of the insured in light of the public policy enunciated in the family purpose doctrine which is firmly established in this state and affirm the trial court.3

[¶ 77] The second question presented under the AMCO policy is whether the Toyota was covered as a “newly acquired vehicle.” The AMCO policy provides coverage for a private passenger auto on the date the insured becomes the owner. The policy then, however, states “this provision (J.2.) applies only if ... [the insured] acquirefe] the vehicle during the policy period ... [and the insured] ask[s] [the insurance company] to insure [the newly acquired vehicle] within 30 days after [the insured] ... become[s] the owner.” I would affirm the trial court and conclude that this language is ambiguous and when reasonably read means that a newly acquired vehicle is automatically covered during the thirty-day notice period, and notice is only a condition to obtaining coverage beyond the thirty-day period.

[¶ 78] The purpose of an automatic insurance clause is to provide insurance coverage when an owned vehicle is not listed in the insurance policy and to provide coverage for the newly acquired car at the earliest time the insured needs protection. 8 Russ, Couch on Insurance, supra, § 117:2, at 117-10 (footnotes omitted). Such clauses are for the benefit of the insured and can be found in most standard automobile liability policies. Id. “The ‘automatic insurance’ clause ... is intended to meet the need to maintain insurance coverage in the situation arising from the recognized custom among insured owners of acquiring other cars by replacement and new purchases during the life of their policies .... ” Id. In Adams v. Bartel, 129 N.W.2d 755, 758 (N.D.1964), our Court stated: “The purpose for the automatic insurance clause was to broaden coverage and not to restrict it.”

[¶ 79] The majority opinion has chosen to follow a minority view.4 Courts have *407almost unanimously recognized that an insured’s failure to give the insurer timely notice of a newly acquired vehicle does not affect automatic insurance coverage for liability arising during the notice period, but does bar insurance coverage for liability arising after the notice period. Annotation, Construction and Application of “Automatic Insurance” or “Newly Acquired Vehicle” Clause (“Replacement,” and “Blanket,” or “Fleet” Provisions) Contained in Automobile Liability Policy, 39 A.L.R.4& 229, § 2 (1985); 8 Russ, Couch on Insurance, supra, § 117:35, at 117-57-58. The insured’s duty to notify is a condition only to acquiring coverage after the grace period has expired. If an accident takes places within the notice or grace period, but before notice has been given, it is, therefore, generally held that the insured is afforded coverage. See Badger State Mut. Cas. Co. v. Stvenson, 404 N.W.2d 877, 879 (Minn.App.1987).

[¶ 80] In Hobby v. Farmers Ins. Exchange, 212 Mich.App. 100, 537 N.W.2d 229, 230 (1995), the Michigan Court of Appeals held that an automatic insurance clause extended coverage to a replacement vehicle despite the insured’s failure to notify the insured of her replacement. The court explained the rationale for its decision, in stating:

[The insurer] contracted to provide insurance coverage with or without notice for thirty days, so its risk is not in any way increased or altered by this holding. Once the thirty-day period expires, of course, coverage is terminated unless timely notice has been provided.
To hold otherwise would permit an insurer to contract to assume a risk and accept a premium for coverage of the replacement vehicle for the thirty-day grace period, and then retroactively cancel or withhold coverage in the event the risk becomes an actuality in the form of an accident involving the replacement vehicle. We find no justification for such a retroactive cancellation in the face of the plain language of the contract to the contrary.

Id. at 230-31.

[¶ 81] The policy language in Hobby provided that replacement vehicles would be covered by the insured if the insurer was told about the replacement “within 30 days after the date of acquisition.” Id. at 230. The court stated that until the thirtieth day following the acquisition of a new vehicle, coverage extends automatically regardless of notice from the insured. Id. at 231.

[¶ 82] Rationales similar to that of Hobby are applied throughout the majority of jurisdictions. Both the Arizona Court of Appeals and the Minnesota Court of Appeals have concluded that the purpose and effect of an “automatic insurance” clause operates to make notice a condition precedent to extension of coverage beyond the grace period. Daniels v. State Farm Mut. Auto. Ins. Co., 177 Ariz. 340, 868 P.2d 353 (App.1994); Swenson, 404 N.W.2d 877. The language in Daniels is nearly identical to the language here. 868 P.2d at 354. It provided coverage for a newly acquired car “but only if you ... tell [the insurer] about it within 30 days after its delivery[;] ... tell [the insurer] which [policy] is to apply; and ... pay [the insurer] any added amount due.” Id. The court initially noted that most jurisdictions have held that the purpose and effect of such a clause is to provide automatic insurance coverage during the grace period, but to preclude coverage after that period unless the insured has given the necessary notification. Id. The court reasoned that since coverage is automatic during that thirty-day notice period it is immaterial that the insured did not notify the insurer of the new car and never paid additional premiums. Id. at 355. Whether notification was received by the insurer during the grace period is only material to the existence of coverage following the thirty-day notice period. Id.

*408[¶ 83] In this case, the insurance clause creates a grace period to allow the insureds, Curtis and Debra Tufty, to notify AMCO of their newly acquired vehicle as a condition precedent to obtaining coverage subsequent to the thirty-day period. The Tuftys are provided with automatic insurance coverage for thirty days following the purchase of a new vehicle. Failure to ■ notify AMCO of the purchase of their new car is immaterial to coverage during the grace period and material only to coverage extending beyond the thirty-day notice period. To hold otherwise is contrary to the weight of authority from other jurisdictions addressing the issue. See, e.g., Barnard v. Fireman’s Fund Ins. Co., 996 F.2d 246, 248 (10th Cir.1993); Republic Mut. Ins. Co. v. State Farm Mut. Auto. Ins. Co., 527 F.2d 1002, 1003-04 (4th Cir.1975); Hobby, 537 N.W.2d at 230-31; Daniels, 868 P.2d at 354; Swenson, 404 N.W.2d at 879; Nat’l Union Fire Ins. Co. v. Falcia-ni, 87 N.J.Super. 157, 208 A.2d 422, 430 (1965); Annot., 39 A.L.R.4th 229, § 23[a]. But see Annot., 39 A.L.R.4th 229, § 23[b] (jurisdictions rejecting the majority view). Furthermore, to hold otherwise frustrates the purpose behind our financial responsibility laws, that is, to provide protection for innocent third parties. Richard v. Fliflet, 370 N.W.2d 528, 532 (N.D.1985) (acknowledging “the Legislature’s purpose in enacting our financial responsibility laws was to protect innocent victims of motor vehicle accidents from financial disaster”); Nodak Mut. Ins. Co. v. Loeffler, 225 N.W.2d 290, 293 (N.D.1974) (stating “[i]n construing the terms of an automobile insurance policy, it must be kept in mind that the public has an interest in having automobiles covered by liability insurance”).

[¶84] I would follow the majority of the jurisdictions, which recognize a premium has already been paid for this thirty-day grace period and would not retroactively cancel the coverage.

[¶ 85] Although the majority opinion concludes notice that Tuftys had purchased a new vehicle was given, it determines such notice was “insufficient as a matter of law” because Debra Tufty did not specifically state: “I request coverage under the AMCO policy.” The trial court, however, found “the report of the accident and conversation with the agent by Debra Tufty [on November 27, 1994,] was a request for coverage under both [the Farm and City and AMCO] policies.” Under Rule 52(a), N.D.R.Civ.P., we will not set aside a trial court’s findings of fact unless it is clearly erroneous. In the Matter of the Estate of Nelson, 553 N.W.2d 771, 773 (N.D.1996). “We give great deference to the trial court’s opportunity to observe the witnesses and determine credibility.” Luna v. Luna, 1999 ND 79, ¶27, 592 N.W.2d 557.

[¶ 86] An insured provides sufficient notice when the insured gives the insurer notice within the specified number of days of the acquisition of a new vehicle. 8 Russ, Couch on Insurance, supra, § 117:28, at 117-46 (footnotes omitted). Notice is complete so long as the insured has clearly relayed to the insurer that he or she has acquired a new vehicle. Requiring the insured to state more than was stated here, limits the application of an automatic insurance clause and is contrary to the intent of the policy. Lay persons’ statements to an insurance agent regarding the acquisition of a new vehicle are intended to invoke notice to the insurer that coverage is requested.

[¶ 87] The trial court after hearing the testimony and reviewing the log entries found Debra Tufty contacted the insurance agent and stated to him that she and her husband had purchased a different vehicle for their son, Christopher, and that he had been in an accident. Her statements could reasonably be construed to request coverage under both policies. What reason would Debra Tufty have for making this phone call other than to “request coverage.” She did not specifically request coverage under either policy. It was the *409agent who decided which company to submit the loss to.

[¶ 88] The majority states that neither the insurance agent nor the insured had the intention of adding the Toyota as a covered vehicle under the AMCO policy. The insurance agent’s log entries, however, suggest otherwise. The insurance agent maintained a file diary for both the AMCO policy and the Farm and City policy. Upon receiving the call from Debra Tufty regarding the accident, the agent made a log entry in both policy diaries. Such evidence supports the trial court’s findings and indicates the insurance agent believed the Toyota would be covered as a newly acquired vehicle under both policies.

[¶ 89] The majority states the only reasonable inference to be drawn from Debra Tufty’s call to the insurance agent is that she requested coverage under the Farm and City policy. I disagree. I agree with the trial court that this is not the only reasonable inference to be drawn and would affirm the trial court, who heard the testimony of the agent and obviously did not find him credible.

[¶ 90] Because I conclude that Curtis Tufty was “using” the vehicle; that the insurance policy provides automatic coverage during the grace period without regard to notice; and that the notice given, nevertheless, was sufficient to invoke coverage, I respectfully dissent. Accordingly, I would affirm the judgment of the trial court.

[¶ 91] Mary Muehlen Maring.

. The special concurrence of Justice Neu-mann Concludes this interpretation of the exception “completely gobbles up the exclusion, making it meaningless.” That is not true. The exclusion would still apply to the use of a vehicle furnished for a family member by a relative, a friend, a neighbor, etc. In addition, our Court has held an exclusion clause that violates public policy is not valid. See Hughes v. State Farm Mut. Auto. Ins. Co., 236 N.W.2d 870 (N.D.1975) (holding the “household or family exclusion clause” in a policy of liability insurance violated public policy as expressed in our financial responsibility laws and was thus void). The family car doctrine is based on the public policy of giving an injured party a right to pursue a financially responsible defendant. “The overriding purpose of our financial responsibility laws is to protect innocent victims of motor vehicle accidents from financial disaster.” Richard v. Fliflet, 370 N.W.2d 528, 534 (N.D.1985). The family car doctrine imposes liability on the parent who furnishes the child a vehicle for family purposes. Our Legislature has imposed financial liability for the negligence of a child ón a parent who signs the application for a permit to drive a motor vehicle. N.D.C.C. § 39-06-09. If this liability is construed the way the majority suggests, there is no way for a parent to insure against this vicarious liability under these facts.

. The trial court held the “newly acquired vehicle” clause ambiguous following the majority of jurisdictions addressing this issue. The majority and special concurrence cast aside the issue of whether the conditions ap*407ply to the first 30 days of coverage or cover after 30 days of automatic coverage.