Mitchell v. Allstate Insurance Co.

Opinion of the Court by

Justice SCOTT.

Appellants, Eric Mitchell and Candace Slade, appeal from a Court of Appeals decision upholding a summary judgment ruling of the Harrison Circuit Court in favor of Appellee, Allstate Insurance Company. The summary judgment ruling held that a car insurance policy’s omnibus clause did not provide coverage for a non-owner driver of the vehicle because the vehicle’s named insured did not consent to the driver’s use of the vehicle. Appellants contend that the question of whether the driver had permission to use the vehicle, and hence had coverage under the policy’s omnibus clause, is a factual issue that should be submitted to a jury. Appellants further request that the “initial permission” rule, which defines the scope of permission one has to use a borrowed vehicle, be adopted in this state. For the reasons set out, we now reverse the Court of Appeals and adopt the initial permission rule.

*61In early 2001, Rita Taylor gave her friend, Virginia Warner, her husband Rodney Taylor’s 1989 Toyota Camry to use for an indefinite term. The car title remained in Mr. Taylor’s name and both Mr. and Mrs. Taylor were the named insureds on the automobile policy issued by Appellee.

On April 1, 2001, Ms. Warner’s son, Allan, asked her for permission to drive the car to work. Ms. Warner granted this request and Allan took the car. At some point during the day, Allan picked up two of his friends, the Appellants, and drove them around. Unfortunately, Allan had a car accident and was killed. Appellants were seriously injured.

In December 2003, Appellee intervened in Appellants’ suit against Allan’s estate seeking a declaration that Allan could not be deemed an insured under the omnibus clause1 of the Taylors’ policy because he did not have permission to drive the car. Supporting this position are statements from Mrs. Taylor indicating that Allan was forbidden from driving the car by her and from Ms. Warner that he exceeded the scope of permission he was granted by her since he was given permission only to drive to work, not to drive around with friends. However, other facts disclosed by Mrs. Taylor indicated that Allan may not have been completely barred from using the vehicle. Such facts include that the Tay-lors were going to let Ms. Warner have the vehicle to use as her own, that the Taylors had no intention of asking for their vehicle back, and that Mrs. Taylor, if asked, would have let Allan drive the vehicle on the day of his accident. Despite the seeming contradiction, the Harrison Circuit Court granted summary judgment to Appellee finding that there were “no issues of material fact in dispute” and Appellee was “entitled to judgment as a matter of law.”

The Court of Appeals upheld the summary judgment, finding that Appellants had “proffered no evidence that would permit a jury to disregard Mrs. Taylor’s expressly forbidding Allan from driving her car.” The Court of Appeals believed that Allan’s driving of the car, even with his mother’s permission, was a major deviation from the permission Mrs. Taylor conferred, and thus, under the “minor deviation” rule, no coverage was provided by the omnibus clause. In so deciding, the Court of Appeals acknowledged that had the “initial permission” rule applied, Allan’s use of the vehicle would be covered because his usage, though it frustrated Mrs. Taylor’s restriction, did not amount to a conversion of the vehicle.

I. The initial permission rule satisfies the policy reasons and purpose behind Kentucky’s Motor Vehicle Reparations Act

An automobile insurance company has a general responsibility to provide coverage for people who may not be named insureds in the written policy, but fall under the coverage provided for in the policy. 46 C.J.S. Insurance § 4045 (1993); see also KRS § 304.39-080(5) (requiring that insurance be provided for any vehicle that is operated by the insured or by someone who has the insured’s permission to operate the car). This responsibility is usually satisfied through the language of the policy’s omnibus clause which extends insurance protection to persons other than the *62named insured — including people who pay no premiums toward the policy and are in effect unknown to the insurer. 46 C.J.S. Insurance § 1045 (1998). The omnibus clause’s main purpose is to maximize the availability of insurance proceeds for the benefit of the general public. Id.; see also Burr v. Nationwide Mut. Ins. Co., 178 W.Va. 398, 359 S.E.2d 626, 632 (1987) (“the primary purpose of the omnibus clause in a policy is to maximize the availability of insurance proceeds; that the principal beneficiary of the clause is the general public; and that the clause is remedial in nature and must be construed liberally so as to provide insurance coverage where possible”). Frequently the omnibus clause’s language extends coverage to any individual properly using the insured vehicle. 46 C.J.S. Insurance § 1045 (1993). And generally, an individual is covered if the person driving the insured vehicle had permission to operate the vehicle. See Vezolles v. Home Indem. Co., New York, 38 F.Supp. 455, 459 (W.D.Ky.1941) (“The main purpose of the clause is to substitute the operator of the car for the owner of the car while the car is being operated with the permission of the owner.”); see also Maryland Cas. Co. v. Hassell, 426 S.W.2d 133, 137 (Ky.1967). Such permission can be either express or implied. Id. at 134-135.

Sometimes, as in this matter, an operator of a vehicle has initial express or implied permission to operate a vehicle, but arguably exceeds the scope of the permission granted. In these situations, it is necessary for the courts to determine whether such a violation is egregious enough to justify denying coverage despite the omnibus clause. There are three lines of thought on how to analyze whether the deviation from the scope of permission should negate coverage. See C.T. Dre-chsler, Annotation, Automobile Liability Insurance: Permission or Consent to Employee’s Use of Car Within Meaning of Omnibus Coverage Clause, 5 A.LR.2d 600 (1949); see also 46 C.J.S. Insurance § 1053 (1993) (discussing the different methods of analysis for determining whether the deviation from permissive use of vehicle causes the driver to be uninsured). The harshest rule is the “strict” rule which holds that coverage only exists if the use of the vehicle was one intended by the parties. Id. The intermediate rule is the “minor deviation” rule, where coverage is extended under an omnibus clause as long as the deviation from the granted permission in using the vehicle is “slight and inconsequential, but not if it is substantial.” Id. Kentucky courts have historically applied the “minor deviation” rule in determining whether or not a deviation from the scope of permission invalidates coverage. Hassell, 426 S.W.2d at 138.

The third rule is the “initial permission” rule which allows for coverage even if the use of the vehicle was “not within the contemplation of the parties or was outside any limitations placed upon the initial grant of permission.” 46 C.J.S. Insurance § 1053 (1993). Thus, as long as the original taking of the vehicle was with the permission of the named insured, any subsequent use of the vehicle by the borrower would be covered by the policy. 7 Am. Jur.2d Automobile Insurance § 235 (2007). Any subsequent change in the character or scope of the use does not require express permission from the insured. Id. Such a change in the character or scope may involve the vehicle’s initial borrower allowing a secondary user to borrow the car without the insured’s express permission. Id. Even a person who was specifically prohibited from using the vehicle by the named insured can be covered through the omnibus policy if that specific person obtained consent from the initial borrower. Id.; see also United *63Servs. Auto. Ass’n v. Nat’l Farmers Union Prop. & Cas., 119 N.M. B97, 891 P.2d 538, 540-541 (1995) (holding that coverage under omnibus clause extends to any subsequent permittee operating insured vehicle as long as named insured has given his or her initial permission to use vehicle, even if named insured prohibits use by anyone other than initial permittee). However, a use of the vehicle that amounts to conversion or theft is not covered under the initial permission rule. 46 C.J.S. Insurance § 1058 (1993).

This Court has yet to examine whether the “minor deviation” rule should remain the standard of analysis in light of the passage of the Motor Vehicle Reparations Act (MVRA), KRS §§ 304.39-010-304.39-340, in 1974. While Preferred Risk Mutual Insurance Co. v. Kentucky Farm Bureau Mutual Insurance. Co., 872 S.W.2d 469, 470-471 (Ky.1994), does state that the MVRA did not change the long-standing policy that one does not have insurance coverage if they did not have the owner’s permission to operate the vehicle, it did not analyze what standard should be applied if the person had the owner’s express or implied permission but arguably exceeded the scope of that permission in using the vehicle. Because of the spirit of the MVRA and for general policy reasons, the “initial permission” rule is an attractive choice as the proper standard for determining whether one’s use of a vehicle exceeded the scope of permission given to that person.

The main reason for the adoption of the MVRA was to create a system to protect “the interests of victims, the public, policyholders and others.” KRS § 304.39-010. Specific purposes for the act include:

3) To encourage prompt medical treatment and rehabilitation of the motor vehicle accident victim by providing for prompt payment of needed medical care and rehabilitation;
5) To reduce the need to resort to bargaining and litigation through a system which can pay victims of motor vehicle accidents without the delay, expense, aggravation, inconvenience, inequities, and uncertainties of the liability system

Id. In furtherance of simplifying and speeding up the process of providing compensation for car accident victims, the MVRA must be interpreted liberally to accomplish its public policy goals.

[T]he specific requirements of Kentucky’s Motor Vehicle Reparation Act, and the public policy goals it means to address, supercede general principles of insurance law as broadly applied. The significant changes brought about by the MVRA were aimed at a specific objective: to insure continuous liability insurance coverage in order to protect the victims of motor vehicle accidents and to insure that one who suffers a loss as the result of an automobile accident would have a source and means of recovery. Our courts have explained that the MVRA is social legislation that must be liberally construed to accomplish those objectives.

Nat’l Ins. Ass’n v. Peach, 926 S.W.2d 859, 861 (Ky.App.1996) (internal citations omitted) (emphasis added).

Along those lines, the language of KRS § 304.39-030 broadly provides for basic reparation benefits for car accident victims. “If the accident causing injury occurs in this Commonwealth every person suffering loss from injury arising out of maintenance or use of a motor vehicle has a right to basic reparation benefits, unless he has rejected the limitation upon his tort rights as provided in KRS 304.39-060(4).” KRS § 304.39-030(1) (emphasis added). Importantly, basic reparation rights are not extended to those parties who have stolen or converted the vehicle, KRS *64§ 304.39-190, or those who intended to cause injury to himself or others with the vehicle, KRS § 304.39-200. A person is not considered a converter if he has used “the motor vehicle in the good faith belief that he is legally entitled to do so.” KRS § 304.39-190.

Further, this Court in Beacon Insurance Co. of America v. State Farm Mutual Insurance Co., 795 S.W.2d 62 (Ky.1990), held that a named driver exclusion clause violated public policy because it “rendered] a driver uninsured as to the compulsory statutory minimum limits” as mandated by the MVRA. Id. at 63. Beacon stated that “KRS 304.39-010(1) purposes to require, and KRS 304.39-080(5) does require, security for payment of tort liabilities arising from maintenance or use of a motor vehicle.” Id. Hence any exclusion provision was considered invalid because it “render[ed] a motor vehicle owner or operator uninsured and thereby violate[d] the legislatively mandated public policy of compulsory insurance.” Id. at 64, citing Bishop v. Allstate Ins. Co., 623 S.W.2d 865 (Ky.1981). While the legislature ultimately allowed certain people to be excluded from insurance coverage through the passage of KRS § 304.39-045, Beacon makes clear that this Court can and will see that the General Assembly’s clear intent — that all Kentucky motorists should have automobile liability coverage — is satisfied in all reasonable instances. Beacon, 795 S.W.2d at 63 (holding that the “clear and accurate enunciation of the express legislative intent set forth in the MVRA, and its rationale” would not allow an exclusion which would prevent a person from having automobile insurance to cover tort liability). The initial permission rule thus furthers the General Assembly’s goal of making sure an innocent driver, like Allan, is covered by insurance when given permission by his mother to borrow a car, while the “minor deviation” rule more often than not engenders litigation for this same purpose.

The initial permission rule is thus more consistent with Kentucky’s interpretation of the MVRA as well as its statutory intent than the “minor deviation” rule. By adopting the initial permission rule, we fulfill the general spirit and intent of KRS § 304.39-030 to provide a victim the right to compensation for his/her injuries. In addition, we believe that the initial permission rule will further the goals of KRS § 304.39-010 by speeding up the process of compensating victims because determining the scope of permission granted to the vehicle operator will no longer be as complex, or litigation prone, as it was under the minor deviation rule. See generally Am. Fid. Co. v. N. British & Mercantile Ins. Co., 124 Vt. 271, 204 A.2d 110, 114 (1964) (Shangraw, J., concurring) (opining that the minor deviation rule breeds litigation because it is flexibly applied and offers too many escape hatches). Moreover, such a rule will also remove any incentive on the part of an owner of a borrowed vehicle to unconsciously color his testimony in order to avoid potential personal liability for the lending of a vehicle.

Indeed, several other jurisdictions have found multiple benefits and justifications in adopting an “initial permission” rule under their statutory schemes. See Norton v. Lewis, 623 So.2d 874, 875 (La.1993) (“The primary justification for the ‘initial permission’ rule is that it effectively furthers the state’s policy of compensating and protecting innocent accident victims from financial disaster. Moreover, its application serves to discourage collusion between lender and lendee in order to escape liability and to greatly reduce a most costly type of litigation.”); U.S. Fid. & Guar. Co. v. Fisher, 88 Nev. 155, 494 P.2d 549, 551-552 (1972) (stating that the “initial permission rule” not only reduces litigation, but allows for the wrongfully injured to have financially responsible people to look to*65ward for damages); Universal Underwriters Ins. Co. v. Taylor, 185 W.Va. 606, 408 S.E.2d 358, 364 (1991) (“We think that the ‘initial permission’ rule best effectuates the legislative policy of providing certain and maximum coverage, and is consistent with the language of the standard omnibus clause automobile liability insurance policies.”).

For the foregoing reasons, we now adopt the initial permission rule as the standard for determining whether a non-owner’s use of a vehicle exceeds the scope of permission given to that person. Now as long as permission is initially given to a person to use a vehicle, insurance coverage may extend to subsequent vehicle users through the language of the omnibus clause as long as those subsequent users have permission from the initial borrower to use the vehicle. This coverage applies even if the subsequent usage of the vehicle was not contemplated by the parties at the time the initial permission was granted. However, our initial permission rule must be limited: use of a vehicle which amounts to conversion is not covered through the omnibus clause unless the clause specifically allows for such coverage. See KRS 304.39-190; Preferred Risk, 872 S.W.2d at 470-471 (holding that the MVRA did not create a duty for vehicle owners to carry insurance for one who operates the vehicle after converting it). Further, the initial permission rule analysis must also take into consideration the bar for benefits arising from usage of a vehicle when the operator intentionally attempts to injure someone with a vehicle. See KRS 304.39-200.

II. Summary judgment was improper because under the initial permission rule, Allan had the permission of his mother, Ms. Warner, to use the vehicle

The Harrison Circuit Court granted and the Court of Appeals upheld summary judgment in favor of Appellee because they both believed that, under the previous minor deviation standard, it was undeniable that Allan either did not have permission to operate the vehicle the day of his car accident or that he exceeded his scope of permission. However, under the initial permission rule, Allan is not barred from coverage.

It is undisputed that Mrs. Taylor allowed Ms. Warner to use the vehicle. This permission made Ms. Warner the initial borrower of the vehicle under the initial permission rule and gave her the authority to allow others to use the vehicle, including Allan. Even if Ms. Warner was expressly prohibited by Mrs. Taylor from allowing Allan to use the vehicle, since Ms. Warner gave Allan permission to use the vehicle, Allan receives coverage through the policy’s omnibus clause. There is no evidence that Allan’s usage of the vehicle rose to the level of conversion or that he intentionally caused the accident to injure himself or others which would eliminate coverage. With the initial permission rule in mind, we therefore do not believe that Appellee was entitled to judgment as a matter of law.

Thus, we reverse the Opinion of the Court of Appeals and the summary judgment in favor of Appellee, and remand the matter to the Harrison Circuit Court for further proceedings.

All sitting. LAMBERT, C.J.; CUNNINGHAM, NOBLE and SCHRODER, JJ., concur. MINTON, J., concurs in result only by separate opinion, with ABRAMSON, J., joining this opinion.

. The parties agree that the omnibus clause of the Taylors' insurance policy defines "insured person” as:

1. You and any resident relative; 2. Any other person while in, on, getting into or out of an insured auto with your permission; 3. Any other person who is legally entitled to recover because of bodily injury to you, your resident relative, or an occupant of your insured auto with your permission.