Bill Atkin Volkswagen, Inc. v. McClafferty

NO. 83-522
IN THE SUPREME COURT OF THE STATE OF BIONTANA
1984

BILL ATKIN VOLKSWAGEN, INC.,
Plaintiff and Appellant,
-vs-
WILLIAM McCLAFFERTY,
Defendant and Respondent.
-_-________________----_-----_--_---_--__--
WILLIAM McCLAFFERTY,
Third Party Plaintiff and Respondent,
-vs-

UNIVERSAL UNDERWRITERS INSURANCE CO.,
Third Party Defendant and Appellant.

APPEAL FROM: District Court of the Second Judicial District,
In and for the County of Silver BOW,
The Honorable Arnold Olsen, Judge presiding.

COUNSEL OF RECORD:
For Appellants:
Anderson, Brown, Gerbase, Cebull & Jones; Rockwood
Brown argued, Billings, Montana
For Respondents:
Keller, Reynolds, Crake, Sternhagen & Johnson;
P. Keith Keller argued, Helena, Montana

Submitted: June 19, 1934
Decided: Oc-tober 29, 1984

Filed:

Clerk
Mr. Justice Fred J. Weber delivered the Opinion of the Court.
This is an appeal from the judgment of the Silver Bow
County District Court in an action to determine insurance
coverage between Universal Underwriters Insurance Company
(Universal), insurer of Bill Atkin Volkswagen, Inc. (Atkin

vw), and Safeco Insurance Company (Safeco), insurer of
William McClaf ferty (McClafferty) . The District Court
entered judgment in Safeco's favor and Universal appeals. We
affirm in part, reverse in part, and remand the cause for
further proceedings.
The issues are:
1. Does section 61-6-301(1), MCA require that an
automobile dealer maintain a liability insurance policy
extending coverage to a customer using a "loaner" vehicle
with the dealer's permission?
2. Which liability insurance policy provides coverage
where the vehicle owner's policy coverage is excess for any
person who becomes an insured as required by law, as does
McClafferty under the Universal policy, and the operator's
policy coverage with respect to a temporary substitute
automobile is excess over an17 other valid and collectible
insurance?
3. Is Home Insurance Company v. Pinski Rros., Inc.
(1972), 160 Mont. 219, 500 P.2d 945, authority for awarding
attorney's fees and court costs in a suit between two
insurers?
llcclafferty left his vehicle with Atkin VW, a Butte car
dealership, for repair. While his car was being repaired,
McClafferty drove a "loaner" vehicle owned by Atkin VFJ. On
November 12, 1980 PlcClafferty drove the loaner vehicle into a
parked car owned by Ogrin. McClafferty was admittedly at
fault.
 Ogrin sued McClafferty for damage to his automobile.
McClafferty tendered defense of the suit to Universal, Atkin
Vh7's insurer. Universal denied coverage. Safeco,
McClaf ferty's insurer, undertook defense of the suit and
settled Ogrin'~claim.
Universal partially reimbursed Atkin VW for the damage
to the loaner vehicle. Atkin W?, in its own and Universal's
behalf, sued McClafferty to recover for the damage to the
loaner vehicle. McClafferty in turn sued Universal as a
third party defendant, claiming to be insured under the
Universal policy. On behalf of Safeco, McClafferty sought
recovery the amount paid by Sa.feco to settle Ogrin's claim
and sought recovery of attorney's fees and costs.
Because the only issues in the case were questions of
law regarding insurance coverage, the parties executed an
agreed statement of facts, contentions and issues and
submitted the matter to the District Court for decision on
briefs and oral argument. The court entered findings,
conclusions and judgment in favor of McClafferty (Safeco) and
against Atkin VTFT and Universa-1. Universal appeals.
I

Does section 61-6-301(1), MCA require that an automobile
dealer maintain a liability insurance policy extending
coverage to a customer using a "loaner" vehicle with the
dealer's permission?
The liability policy issued by Universal to Atkin VW
extends coverage to the named insured, Atkin VW, its
corporate family, and to " [alny other person or organization
required & - to be an INSURED while using an AUTO covered
law
by this Coverage Part within the scope of YOUR permission"
(emphasis added). Whether McClafferty was covered under the
Universal policy therefore depends upon whether Montana law
requires Atkin V to provide liability insurance covering
customers such as McClafferty while using loaner vehicles
with permission. The District Court concluded that section
61-6-301, MCA requires auto dealers to provide liability
coverage for permissive users and that McClafferty was
therefore an insured under the Universal policy.
,
Section 61-6-,301(1) MCA provides:
"Every owner of a motor vehicle which is registered
and operated in llontana 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 ." ..
Universal a.rgues that this section does not require Atkin VW
to insure all permissive users. It argues that except for
constitutional, statutory or public policy limitations,
parties to an insurance contract are free to bargain for and
agree to whatever terms and covera.ge they desire. Here, it
contends, the parties limited coverage of permissive users to
only those cases where the law requires coverage. They
contend that section 61-6-304, MCA requires operators of
motor vehicles to maintain liability coverage and that
McClafferty did through his Safeco policy. Universal
contends that both Atkin VTV and McC,-afferty complied with
these respective mandatory liability provisions by
maintaining coverage for themselves. Viewed in this light,
Universal argues that section 61-6-301, MCA requires that the
vehicle owner insure only itself against liability. Because
the statute does not require coverage of McClafferty, it
contends, the policy excludes McClafferty from coverage. We
disagree.
Section 61-6-301(1), MCA requires every owner of a motor
vehicle registered and operated in Montana by the owner or
with his permission to provide insurance for liability caused
by maintenance or use of the motor vehicle. Section
61-6-303, MCA provides a list of vehicles exempt from the
mandatory liability insurance law. Eight classifications of
vehicles are specifically excluded from the liability
insurance requirement. There is no exclusion for vehicles
owned or used by automobile dealerships. Because the
Legislature did not exclude dealers from the mandatory
liability insurance requirement, dealers are included in the
general statutory language "every owner of a motor vehicle."
Section 61-6-301, MCA clearly applies to Atkin VW. This
section requires coverage where the vehicle is "operated in
Montana by the owner or with his permission." The statute
makes no exception where an operator is covered under a
separate Liability insurance policy. In fact, without
deciding the question, it appears section 61-6-304, MCA is
complied with if an operator is covered under the vehicle
owner's policy, even if the operator maintains no policy of
his own. In any event, the fact that an operator maintains
his own policy does not exempt an owner from the statutory
requirement of insuring against liability from permissive use
of its vehicles.
Universal also appears to argue that section
61-6-,301(1), MCA requires liability coverage only as a
prerequisite to registration of a motor vehicle, that
automobile dealers do not "register" inventory vehicles, and
the statute therefore does not require liability coverage for
permissive users. If this position were correct, however,
section 61-6-301 would not even require auto dealers to
insure against liability resulting from their own use of such
vehicles. Universal concedes, however, that the statute
requires that Atkin VW insure itself. If the statute
requires the dealer to insure itself, clearly it also
requires that permissive users be insured.
We hold that section 61-6-301(1), MCA requires that an
automobile dealer maintain a liability insurance policy
extending coverage to a customer using a "loaner" vehicle
with the dealer's permission. The District Court correctly
concluded that McClafferty was an insured under the Universal
policy.
Universal argues that the District Court erred in also
finding coverage under the Universal policy on grounds that
the loaner vehicle was "leased or rented" to McClafferty and
that coverage extends to vehicles leased or rented to a
customer for a term of two months or less as a temporary
replacement of the customer's auto. Universal argues that a
vehicle that is loaned "gratis" is not considered leased or
rented within the meaning of an insurance policy, citing
Mountain States Casualty Company v. American Casualty Company
(1959), 135 Mont. 475, 342 P.2d 748. Because we have
concluded that McClafferty is covered under a separate
provision of the Universal policy, we need not address this
issue.
I1

Which liability insurance policy provides coverage where
the vehicle owner's policy coverage is excess for any person
who becomes an insured as required by law, as does
f