Payne v. Erie Insurance Exchange (Md. Ct. of Appeals)

Filed:  March 30, 2015

Opinion by:  Robert N. McDonald

Holding:  Where the first permittee is not present in the vehicle, omnibus coverage does not extend to a second permittee if that driver deviates from an authorized purpose.

Facts:  The named insured owned the vehicle, which was covered by Defendant’s insurance policy.  Defendant’s policy contained an omnibus clause which provided coverage to (1) relatives by blood, marriage, or adoption, and (2) drivers given permission by the named insured. 

Named insured had granted the first permittee unrestricted use of the car, but had forbidden the second permittee from driving the car for any reason.  Despite the named insured’s wishes, first permittee directed the second permittee to use the car to pick up the first permittee's children from school.  Instead of taking a direct route to the school, the second permittee first drove to a nearby gas station and subsequently collided with a car driven by Plaintiffs.

Plaintiffs filed a tort action against the second permittee, the named insured, Plaintiff’s insurer and Defendant insurer.  Writ of certiorari was granted to reconsider whether omnibus coverage extended to second permittee’s use of the car without the presence of the first permittee and outside the scope of authorized use.

Analysis:  Because the first permittee was undisputedly not present in the car when the accident occurred, the court’s analysis turned on the circumstances under which the second permittee operated the vehicle.  The court highlighted jurisprudence showing the disjunctive nature of the test for second permittees as illustrated by Kornke, Federal Insurance Co., and Bond:

“The general rule that a permittee may not allow a third party to use the named insured’s car has generally been held not to preclude recovery under an omnibus clause where (1) the original permittee is riding in the car with the second permittee at the time of the accident, or (2) the second permittee, in using the vehicle, is serving some purpose of the original permittee.”

The court noted the existence of two alternative situations.  In one, where the first permittee was a passenger of the vehicle, authorization of the driver’s actions could be presumed.  Even if the first permittee was not actively directing the car’s operation, mere presence of the first permittee indicated operation for his benefit.  But in the second situation, where the first permittee was absent, the court required clear evidence that the driver operated the vehicle for the benefit of the first permittee in order for the second permittee to retain omnibus coverage.

The court determined that the first permittee became entitled to omnibus coverage as a blood relative regardless of any implied or express consent.  Accordingly, the first permittee possessed unrestricted authority to delegate permission to the second permittee.  But because the second permittee lacked the discretion to use the vehicle as he pleased, his departure from the assigned task excluded him from omnibus coverage.

The full opinion is available in PDF.

Pennsylvania National Mutual Casualty Insurance Co. v. City Homes, Inc. (Maryland U.S.D.C.)

Filed: June 25, 2010
Opinion by Judge Catherine C. Blake.

Held: An insurance company will owe a duty to indemnify an insured for any judgment against it for negligence and/or negligent misrepresentation if the insured does not foresee or expect an injury resulting from a negligent act. The act of negligence is an “accident” under liability insurance.

Facts: An insurance company filed a declaratory judgment action claiming that it did not have a duty to indemnify and defend a rental property company and its president in a lawsuit filed by two minors who alleged they were exposed to lead paint. The rental property company counterclaimed and both sides moved for summary judgment.

The house in question had been a subject property in a “Lead-Based Paint Abatement and Repair & Maintenance Study.” It had undergone a lead-abatement intervention. During the time period in which the two minors lived in the house, the rental property company held commercial general liability insurance. After the rental property company sought indemnification from the insurance company, the insurance company argued that it did not owe a duty to defend or indemnify the rental property company because the underlying litigation did not involve an “occurrence,” as defined in the insurance contract.

The insurance company also argued that, even if the underlying case involved an “occurrence,” the contract’s exclusion for bodily injury that was expected or intended by the insured applies. The insurance company argued that the participation in the lead paint study showed the rental property company must have foreseen and expected the alleged injuries.

The insurance contract defined an “occurrence” as an “accident, including continuous or repeated exposure to substantially the same general harmful conditions.”

Analysis: The court applied the standard set forth in Sheets v. Brethren Mutual Insurance Company, 342 Md. 634, 679 A.2d 540 (1996). In Sheets, the Maryland Court of Appeals held that an act of negligence constitutes an “accident” under a liability insurance policy and identified the relevant inquiry to be whether the insured actually foresaw or expected the injury resulting from the insured’s negligent act. By this standard, the court held that it could not be inferred from the rental property company’s participation in the study and its knowledge of the risks of lead poisoning that it foresaw the injuries sustained by the two minors.

Granting the rental property company’s motion and denying the insurance company’s motion for summary judgment, the court held that the insurance company will owe a duty to indemnify the rental property company for any judgment against it if the rental property company is ultimately found liable for negligence and/or negligent misrepresentation because the alleged were accidental and caused by an “occurrence.”

The full opinion is available in pdf.