Marquis v. State Farm Fire & Casualty Co.

Larson, J.,

concurring and dissenting: I concur with the majority opinion as to its construction of the settlement agreement and what is said in (1) The Agreement. I also agree with the majority opinion insofar as it relates to Statute of Limitations, Estoppel, and Laches, (3) Factual Basis for Claims of Negligent Hiring, Retention, or Supervision, and (4) Respondeat Superior.

I disagree with and respectfully dissent from the conclusion and result of that portion of die majority opinion entitled: (2) Claims of Negligent Hiring, Retention, or Supervision.

I recognize that the provisions of the exclusions in the contractor’s policy and the homeowner’s policy do not contain the identical language. Because of this different wording, the majority has relied on our long-time rules of construction that where an insurer desires to limit or restrict coverage, it must use clear and unambiguous language to do so. As such, it is a reasonable argument that when the insurer failed to utilize the same wording in its exclusion in the contractor’s policy as it did in the homeowner’s policy, it was bound by the difference of its draftsmanship. Additionally, the majority continues the “theory of liability” argument of Upland Mutual Insurance, Inc. v. Noel, 214 Kan. 145, 519 P.2d 737 (1974), rather than looking to the facts underlying the cause of injury in determining liability under the contractor’s policy.

I would not, however, decide this case so easily, for even if “hiring, retention, and supervision” had been included in the contractor’s general liability exclusions, inventive counsel would then claim other failures of employer responsibility in an attempt to continue the Upland holding, allowing the legal theory of liability which has *336been alleged, rather than the factual cause of the injury, to govern the issue of whether coverage exists in Kansas. See Upland, 214 Kan. 145.

When this court decided Upland 24 years ago, there was support around the United States for the result we reached. We cited cases from New Jersey, New York, Minnesota, and Michigan that reached the same result, while we distinguished a case from Connecticut and those that relied on it on the ground that they were not negligent entrustment cases, but respondeat superior cases in which the negligence of the owner depended directly on the negligence of the driver. See 214 Kan. at 150-51.

While Upland may be the Kansas rule, there is considerable question that it should continue to be followed. When it was decided we relied on Shelby Ins. Co. v. U. S. Fire Ins., 12 Mich. App. 145, 162 N.W.2d 676 (1968); Republic Vanguard Ins. Co. v. Buehl, 295 Minn. 327, 204 N.W.2d 426 (1973); McDonald v. Home Ins. Co., 97 N.J. Super. 501, 235 A.2d 480 (1967); and Lalomia v. Bankers & Shippers Insurance Company, 35 App. Div. 2d 114, 312 N.Y.S.2d 1018 (1970). Since this court’s opinion, these cases have not fared well. McDonald has been distinguished almost out of existence by Williamson v. Continental Cas. Co., 201 N.J. Super. 95, 492 A.2d 1028 (1985) (holding McDonald applicable only where persons sued were not owners of car or insured under policy). New York courts have limited Lalomia to those cases involving homeowner’s insurance. See Monarch Ins. Co. v. Hetherly, 148 Misc. 2d 594, 597-99, 560 N.Y.S.2d 745 (1991), aff’d 182 App. Div. 2d 1138, 586 N.Y.S.2d 764 (1992). Similarly, Republic Vanguard has been distinguished on the language of the exclusion used in that case and held not to apply where the exclusion was for accidents “arising from the use of a motor vehicle.” See Faber v. Roelofs, 311 Minn. 428, 435, 250 N.W.2d 817 (1977). Even Shelby Ins. Co. has been distinguished on the grounds that it was never really a negligent entrustment case, and Michigan now follows the rule that the actual cause of accident rather than the theory of liability governs coverage. See Mich. Mut. Ins. Co. v. Sunstrum, 111 Mich. App. 98, 102-05, 315 N.W.2d 154 (1981).

*337Also, since our decision in Upland, the overwhelming majority of other jurisdictions have held that the negligent entrustment of an automobile which results in an accident falls under an insurance policy exclusion for accidents arising out of the use of an automobile. See Cooter v. State Farm Fire & Cas. Co., 344 So. 2d 496 (Ala. 1977); Lumbermens Mut. Cas. Co. v. Kosies, 124 Ariz. 136, 602 P.2d 517 (1979); Safeco Ins. Co. v. Gilstrap, 141 Cal. App. 3d 524, 190 Cal. Rptr. 425 (1983); Northern Ins. Co. of New York v. Ekstrom, 784 P.2d 320 (Colo. 1989); Gargano v. Liberty Mut. Ins. Co., 384 So. 2d 220 (Fla. Dist. App. 1980); Pedersen v. Republic Ins. Co., 72 Md. App. 661, 532 A.2d 183 (1987); Barnstable County Mut. Fire Ins. Co. v. Lally, 374 Mass. 602, 373 N.E.2d 966 (1978); Shelter Mut. Ins. Co. v. Politte, 663 S.W.2d 777 (Mo. App. 1983); Pulleyn v. Cavalier Ins. Corp., 351 Pa. Super. 347, 505 A.2d 1016 (1986); Fidelity & Guar. Ins. Underwriters v. McManus, 633 S.W.2d 787 (Tex. 1982); Mutual Service Cas. Ins. Co. v. Koenigs, 110 Wis. 2d 522, 329 N.W.2d 157 (1983).

Similarly, the majority of those courts which have addressed the question of whether a claim of negligent hiring, retention, and supervision fits within the policy exclusions where the accident complained of is an automobile accident, as is the fact situation in the case at hand, have found that the policy exclusion applies. See Alfa Mut. Ins. Co. v. Jones, 555 So. 2d 77 (Ala. 1989); Jones v. Horace Mann Ins. Co., 937 P.2d 1360 (Alaska 1997); National American Ins. Co. v. Coburn, 209 Cal. App. 3d 914, 257 Cal. Rptr. 591 (1989); Cesarini v. American Druggist Ins. Co., 463 So. 2d 451 (Fla. Dist. App. 1985); Allstate Ins. Co. v. Pruitt, 177 Ill. App. 3d 407, 532 N.E.2d 401 (1988); Mahlum v. Baker, 639 So. 2d 820 (La. App. 1994); American Universal Ins. Co. v. Cummings, 475 A.2d 1136 (Me. 1984); Northern Assurance Co. v. EDP Floors, 311 Md. 217, 533 A.2d 682 (1987); Gorzen v. Westfield Ins. Co., 207 Mich. App. 575, 526 N.W.2d 43 (1994); Citizens Sec. Mut. Ins. v. Levinson, 445 N.W. 2d 585 (Minn. App. 1989); Cameron Sod Farms v. Continental Ins. Co., 700 A.2d 290 (N.H. 1997); Daus v. Marble, 270 N.J. Super. 241, 636 A.2d 1091 (1994); Phillips v. Estate of Greenfield, 859 P.2d 1101 (Okla. 1993); Farmers Insurance Group v. Nelsen, 78 Or. App. 213, 715 P.2d 492 (1986); Great Central *338Ins. Co. v. Roemmich, 291 N.W.2d 772 (S.D. 1980); Taylor v. American Fire and Cas. Co., 925 P.2d 1279 (Utah App. 1996); Bankert v. Threshermens Mut. Ins. Co., 110 Wis. 2d 469, 329 N.W.2d 150 (1983). The theory of these cases, as stated in American Universal Ins. Co. v. Cummings, is that the motor vehicle exclusion is “not based upon the theory of liability inherent in a claim. Rather, the policy is said to not apply to any claim regardless of the theory of liability when that claim is for bodily injury arising out of operation of any motor vehicle owned by the insured”. 475 A.2d at 1137-38.

In only two cases involving automobile accidents have courts found that an exclusion such as the one at issue does not apply to claims of negligent hiring, retention, or supervision. In Smith v. USAA Cos. Ins. Co., 532 So. 2d 1171, 1174 (La. App. 1988), the Louisiana Court of Appeals found that a policy exclusion for the operation of a vehicle is not applicable where the asserted negligence or cause in fact of the injuries is independent of the vehicle’s operation. The court noted that Louisiana law applies coverage where the insured’s act is a result of negligence independent of the use of the vehicle, even though such use may be concurrent with the use of the vehicle. 532 So. 2d at 1174. Smith, therefore, used an analysis consistent with the one this court employed in Upland, which focuses on the theory of liability rather than the actual cause of the accident.

Even the precedential value of Smith is in doubt. A separate circuit of the Louisiana Court of Appeals expressly declined to follow Smith in Mahlum v. Baker, 639 So. 2d 820. The court in Mahlum stated that in order to determine coverage under an automobile use exception, the two questions that must be answered are: whether the conduct of the insured of which the plaintiff complains was a legal cause of the injury; and whether it was a use of an automobile. 639 So. 2d at 824. Thus, in a case like Upland, that circuit of the Louisiana Court of Appeals would apply an analysis which looked at the conduct complained of, i.e., the negligent entrustment of an automobile, and hold that it constituted a use of an automobile and was therefore excluded from coverage.

*339The second case, Worcester Mutual Ins. Co. v. Marnell, 398 Mass. 240, 241, 496 N.E.2d 158 (1986), is somewhat unusual. In Worcester, the plaintiff was injured in a car accident caused by the minor son of the insured, who had become intoxicated at a parly given at the insured’s home. The plaintiff sued on a negligent supervision theory.

The Worcester case is unusual because Massachusetts is one of the jurisdictions which has held that a policy exclusion such as the one at issue applies where the claim is one for negligent entrustment. See Barnstable County Mutual Fire Ins. Co. v. Lally, 374 Mass, at 606. Nevertheless, the court in Worcester found that the policy exclusion did not apply to the claim for negligent supervision under the unique facts of the case. The court found that the negligent supervision of the insured’s son allowed him to become intoxicated and that this intoxication was independent of his use of the vehicle and was therefore not subject to the exception in the policy. As a result, the court found coverage. 398 Mass, at 245-46.

Of these two cases, only Smith seems to support the application of our holding in Upland. While Worcester does focus somewhat on the independent nature of the theory of negligent supervision, it appears to be more a results oriented attempt to find coverage and is questionable in light of other Massachusetts case law.

As can be seen by the above cases, Kansas appears to be completely out of step with all the holdings around the United States with regard to our interpretation of these provisions. The overwhelming majority of states, in determining coverage, look to the underlying cause of the injury rather than the specific theory of liability alleged. The majority viewpoint presents a compelling argument. An insurer contracts with an insured regarding the particular risks it will undertake and the risks it will not assume. To allow an insured to avoid a clear exclusion merely by pleading a theory of liability which is not exempted serves to provide the insured with coverage beyond the policy terms bargained for and agreed upon between the insurer and insured. See Taylor v. American Fire and Cas. Co., 925 P.2d at 1284.

Our holding in Upland is not only contrary to the almost unanimous weight of authority in other jurisdictions, but has also been *340to some extent disregarded by our own Court of Appeals. See United Services Auto Ass’n v. Morgan, 23 Kan. App. 2d 987, 939 P.2d 959 (1997) (intentional act of insured causally connected to use of car, automobile exclusion of homeowner’s policy applies, Upland not mentioned); Newton v. Nicholas, 20 Kan. App. 2d 335, 887 P.2d 1158 (1995) (Upland not mentioned, negligent acts were failure to inspect and secure a water tank on a truck, directly connected to use, no coverage); Farmers Ins. Co. v. Rosen, 17 Kan. App. 2d 468, 839 P.2d 71 (1992) (negligent instruction claimed, Upland distinguished, theory of liability test ignored, no coverage found).

The Upland test and theory has not survived the logic and judgment of other states. It is an unsupportable minority. It needs to be abandoned. It is also confusing and allows coverage beyond that anticipated in the policy. Nevertheless, it was unfortunately reaffirmed in this court as recently as 1992. See Catholic Diocese of Dodge City v. Raymer, 251 Kan. 689, 697, 840 P.2d 456 (1992) (citing Upland for the proposition that “[u]nlike Michigan, Kansas does not look to the underlying cause of the injury to determine coverage, but to the specific theory of liability alleged”).

The time has come for Kansas to join the majority of jurisdictions. I would hold the factual cause of the injury governs the construction of the exclusion language. We should not hold that coverage exists under the contractor’s general liability policy.

We might also look at the “entrustment” of the use of a motor vehicle as including the underlying hiring, training, retention, supervision or other inventive theory of liability (without fimitation) charged to an employer. All of these actions are merged into and become a part of the entrustment of the motor vehicle to the driver who may ultimately negligently cause an accident which results in damages. This is exactly what logic tells us was clearly intended by the exclusion in the contractor’s general liability policy. There is not coverage under the facts of this case under the contractor’s general liability policy.

McFarland, C.J., and Six, J., join in the foregoing concurring and dissenting opinion.