Rubins Contractors, Inc., a Maryland Corporation v. Lumbermens Mutual Insurance Company, General Accidentinsurance Company of America, Appellants. (two Cases), 821 F.2d 671 (D.C. Cir. 1987)

This case requires us to determine whether, under Maryland law,¹  an automobile insurance policy and a general business liability policy provide coverage for liability arising out of the negligent entrustment of an automobile. Each policy contains language that appears to apply broadly to automobile accidents: the automobile policy in expressing the coverage that is provided, the general business liability policy in expressing an exception from coverage. We conclude that Maryland would find the language applicable to negligent entrustment liability in both cases. Thus the automobile policy provides coverage and the general business liability policy does not.

To guard against vandalism, Rubins Contractors, Inc. arranged to park one of its trucks at the home of Wilbur Jackson, a Rubins employee. Jackson was to drive the truck to and from work but not to use it for personal purposes. On July 9, 1983 Jackson drove the truck to a wedding and was involved in an accident severely injuring Cassandra Gray. Gray sued Rubins on theories of respondeat superior and negligent entrustment, ultimately prevailing on both.

Shortly after the accident Rubins informed its automobile insurer, General Accident Insurance Company of America, of its predicament. General Accident agreed to provide Rubins a complete defense but reserved the right not to indemnity Rubins for damages awarded on the negligent entrustment claim. Rubins then turned to its business liability insurer, Lumbermens Mutual Insurance Company, but Lumbermens refused either to defend or indemnify Rubins, citing its policy's exclusion of all damage caused by the operation of automobiles.

Caught between the finger-pointing of the two insurers, Rubins sought a declaratory judgment as to the obligations of each.²  The District Court found that under Maryland law references to auto liability would be construed liberally when used to express coverage and strictly when used to create an exception from coverage. Accordingly, the District Court ruled that both policies afforded Rubins coverage. General Accident and Lumbermens appeal.³ 

Before addressing the merits of this dispute we must find jurisdiction to do so. See, e.g., Bors v. Preston, 111 U.S. 252, 4 S. Ct. 407, 28 L. Ed. 419 (1884). Lumbermens originally argued that the issue of coverage for negligent entrustment was not ripe for resolution when presented to the District Court, because a verdict had yet to be rendered on that claim and because General Accident had assumed the defense in the case.⁴  Although Lumbermens sought to waive the issue at oral argument, we have an independent obligation to determine whether jurisdiction was proper. See, e.g., Mitchell v. Maurer, 293 U.S. 237, 244, 55 S. Ct. 162, 165, 79 L. Ed. 338 (1934).

Whether a matter is ripe for resolution "turns on 'the fitness of the issues for judicial decision' and 'the hardship to the parties of withholding court consideration.' " Pacific Gas & Elec. Co. v. State Energy Resources Conservation & Dev. Comm'n, 461 U.S. 190, 201, 103 S. Ct. 1713, 1720, 75 L. Ed. 2d 752 (1983) (quoting Abbott Laboratories v. Gardner, 387 U.S. 136, 149, 87 S. Ct. 1507, 1515, 18 L. Ed. 2d 681 (1967)). The two policies' coverage of negligent entrustment of an automobile is a purely legal issue of contract interpretation that will not benefit from further factual development. Thus, the issue was clearly fit for judicial review when presented to the District Court. See Thomas v. Union Carbide Agricultural Products Co., 473 U.S. 568, 581, 105 S. Ct. 3325, 3333, 87 L. Ed. 2d 409 (1985).

The only real question is whether the impact on Rubins of the insurers' disavowal of any liability was "sufficiently direct and immediate as to render the issue appropriate" for resolution by the District Court. Abbott Laboratories v. Gardner, 387 U.S. at 152, 87 S. Ct. at 1517. We believe that it was.⁵ 

If insurance provided only a right to reimbursement for final judgments entered against the insured, a finding of ripeness might be difficult on the facts of this case.⁶  But the policies' protections are considerably broader, including a right to the insurer's provision of a defense and active participation in settlement. See, e.g., Fireman's Fund Ins. Co. v. Continental Ins. Co., 308 Md. 315, 318, 519 A.2d 202, 204 (1987) (insurer has legal duty to attempt to settle claims against insured). An insurer's disclaimer of duty to pay, or reservation of rights, undercuts both of these duties.

In assessing how much to invest in litigative effort, an insurer is bound to consider its exposure. If the insurer believes, for example, that even in the event of an adverse judgment against the insured its chance of actually having to pay is only one in three, it will surely invest less effort in defense than if coverage were certain. Of course its laxity might give rise to a claim by the insured for partial breach of the duty to defend, and fear of such a lawsuit would in itself constrain the laxity. But in the meantime the insurer's conduct has exposed the insured to uncertainty where he sought certainty. Moreover, as litigation strategy is complex and subtle, a remedy based on an after-the-fact evaluation would be dicey to say the least; this would dilute the remedy's capacity to prevent insurer laxity.

A reservation of rights on coverage may affect the insurer's pursuit of its settlement duties even more directly.⁷  The process of defense is interwoven with the process of settlement and payment. See Fireman's Fund, 308 Md. 315, 318, 519 A.2d 202, 204. Indeed, General Accident's posture--agreeing to defend but repudiating any duty to indemnify--seems to us inherently contradictory. As the Third Circuit recently noted, the insurer's duties encompass an obligation to pay the settlement amounts agreed on. ACandS, Inc. v. Aetna Cas. & Sur. Co., 666 F.2d 819, 823 (3rd Cir. 1981) (finding that both the failure to defend and the disavowal of any duty to indemnify rendered a dispute over coverage an actual controversy ripe for resolution before issues of underlying liability were decided).⁸  See also Fireman's Fund, 308 Md. at 318, 519 A.2d at 204 (under Maryland law insurer has duty to attempt to settle claims within policy limits). It seems inescapable that uncertainty over coverage would skew the settlement process, see ACandS, 666 F.2d at 823; at oral argument counsel for Lumbermens conceded as much.⁹ 

In sum, to require Rubins to proceed without knowing if the insurance policies cover the negligent entrustment claim would prolong the insured's uncertainty over coverage and distort the insured's conduct in defense and settlement--a palpable and considerable hardship to Rubins. We therefore conclude that the coverage issue is ripe for resolution.

The District Court found Rubins entitled to indemnity under both policies for liability arising out of negligent entrustment of an automobile. We address the automobile and general business liability policies in turn.

A. Automobile Policy.

The General Accident policy provides that General Accident "will pay all sums the insured legally must pay as damages because of bodily injury or property damage ... caused by an accident and resulting from the ownership, maintenance or use of a covered auto." Policy No. BAP 34-68-44, Part IV(A) (emphasis deleted). General Accident essentially argues that damages awarded on the theory of negligent entrustment "result [ed] from" Rubins's negligent business decision to entrust the vehicle to Jackson and not from the "use" of the vehicle.¹⁰  We see no basis for such a crabbed reading of the policy.

The quoted language seems naturally to encompass the liability in question. The "bodily injury" undoubtedly "result [ed] from" "use" of the truck. The use was Jackson's, of course, but the policy does not require that it be the insured's. Conceivably one might parse the sentence as providing coverage for "sums the insured legally must pay as damages ... resulting from the ownership, maintenance or use of a covered auto," i.e., attaching the "resulting from" clause to damage liability rather than to injury. Indeed, this may be a better reading, for it is hard to see how bodily injury could ever result from "ownership" of an auto. But this analysis would not help General Accident, for the damage liability can be seen to have resulted from Rubins's ownership of the truck.

In fact, General Accident offers no detailed construction of the language at all. Rather, it simply relies on cases giving an extremely narrow reading to similar language where it appears as an exception in a liability policy. In so doing, courts have clearly strained to assure coverage. For the reasons developed below, we believe Maryland would not make such a linguistic stretch even in that, more appealing, context. We are quite confident it would not do so in order to curtail coverage. Although Maryland resists the proposition that insurance contracts are to be construed "most strongly" against the insurer, it does apply to insurance cases the general maxim of construing contracts against the drafting party. Pennsylvania Threshermen & Farmers' Mut. Cas. Ins. Co. v. Shirer, 224 Md. 530, 536-37, 168 A.2d 525, 528 (1961).¹¹  We have no doubt that Maryland would find coverage under the automobile policy.

B. General Business Liability Policy.

The Lumbermens policy broadly covers "all sums which the Insured shall become legally obligated to pay as damages because of bodily injury or property damage." Policy No. MP-101841 Sec. B(I). It is agreed that this affirmative language would cover Rubins's liability for negligent entrustment to Jackson unless coverage is negated by an exclusion for "bodily injury or property damage arising out of the ownership, maintenance, operation, use, loading or unloading of ... any automobile ... owned ... by ... any Insured." Id. Sec. B(I) (A). Lumbermens argues that the bodily injury in question resulted from "use" of an automobile, so that any liability, whether on a theory of negligent entrustment or any other theory, is clearly excluded. We believe that Maryland would accept Lumbermens's contention.

A split exists among jurisdictions that have considered whether liability policies with similarly worded exclusions cover the negligent entrustment of a vehicle. See generally Annotation, Construction and Effect of Provision Excluding Liability for Automobile-Related Injuries or Damage from Coverage of Homeowner's or Personal Liability Policy, 6 A.L.R.4th 555 (1981). Many decisions, especially the more recent, see Fillmore v. Iowa Nat'l Mut. Ins. Co., 344 N.W.2d 875, 878-80 (Minn.Ct.App.1984), take the view that since operation or use of a motor vehicle is a necessary component of liability, the exclusion applies, see, e.g., State Farm Fire & Cas. Co. v. McGlawn, 84 Ill.App.3d 107, 39 Ill.Dec. 531, 404 N.E.2d 1122 (1980) (collecting cases). This line of decisions includes the one case we have been able to locate that addresses the coverage of a business liability policy. Ruggerio v. Aetna Life & Cas. Co., 107 A.D.2d 744, 484 N.Y.S.2d 106 (1985). Most of such cases refer to "negligent" operation as being an essential part of the plaintiff's claim, see, e.g., Cooter v. State Farm Fire & Cas. Co., 344 So. 2d 496, 498 (Ala.1977), but we see no reason why the principle would not apply even if the liability arose without negligence on the part of the vehicle's operator, see Safeco Ins. Co. v. Gilstrap, 141 Cal. App. 3d 524, 531 n. 5, 190 Cal. Rptr. 425, 430 n. 5 (1983).

Courts finding the exclusion inapplicable have argued that the owner's negligent entrustment is an independent and necessary component of the negligent entrustment tort; therefore, say such courts, the liability does not arise or result from the ownership or use of the automobile. See, e.g., United Fire & Cas. Co. v. Day, 657 P.2d 981 (Colo.Ct.App.1982) (collecting cases).¹²  Among the cases brought to our attention, this view has typically appeared in situations where the defendant evidently lacked any other insurance. See, e.g., id.; Upland Mut. Ins., Inc. v. Noel, 214 Kan. 145, 519 P.2d 737 (1974). The decisions rely heavily on general maxims to the effect that insurance policies are construed most strictly against the insurer. See, e.g., Shelby Mut. Ins. Co. v. United States Fire Ins. Co., 12 Mich.App. 145, 149, 162 N.W.2d 676, 678 (1968).

The view rejecting exclusion seems to us to require a torturing of the language in which the Maryland courts would not be likely to indulge. It seems an extraordinary non sequitur to say that liability has not resulted from ownership or use of an automobile merely because the tort has a component separate from motor vehicle operation. In effect, courts finding such exclusions inapplicable appear to read the language as if it excluded only liability arising exclusively from the insured's use of an automobile. Indeed, even so read the language might well be deemed to cover liability from negligent entrustment of an automobile: in Bankert v. Threshermen's Mut. Ins. Co., 105 Wis.2d 438, 443, 313 N.W.2d 854, 857 (1981), aff'd, 110 Wis.2d 469, 480, 329 N.W.2d 150, 155 (1985), the court found entrustment of the vehicle to be a form of "use."

Moreover, all vicarious liability for automobile accidents involves a component in addition to the conduct involved in the auto operation itself. Yet it is not suggested that liability under respondeat superior is outside such exclusions.¹³  Nor should it make a difference that the extra component here involves "negligence." Vicarious liability is not wholly removed from concepts of fault: at least one of its underlying principles has been the superior opportunity of the principal to avert accidents--by better training of its personnel, for example. W. Keeton, D. Dobbs, R. Keeton & D. Owen, Prosser & Keeton on Torts 500-01 (5th ed. 1984).

The exclusion is framed in terms of the instrumentality causing harm. Ordinary usage suggests no reason to suppose that the parties intended to qualify the exclusion by introducing a factor to which it makes no reference whatsoever--the theory underlying liability.

Maryland has yet to take a position on this issue, but we believe that it would adopt the majority view and find the Lumbermens policy inapplicable. As noted above, Maryland has rejected the policy of construing insurance policies "most strongly against the insurer" in favor of "the rule that the intention of the parties is to be ascertained if reasonably possible from the policy as a whole." Pennsylvania Threshermen & Farmers' Mut. Cas. Ins. Co. v. Shirer, 224 Md. at 536-37, 168 A.2d at 528. The exclusion in the Lumbermens policy is broadly worded and indicates that the policy was not intended to cover any injury resulting from the use of an automobile, irrespective of the theory on which liability rests. The prevalence of form policies, some applying exclusively to automobile accidents and others disclaiming them in broad terms, furthers this conclusion. Cf. Insurance Co. of N. Am. v. Waterhouse, 424 A.2d 675, 682 (Del.Super.Ct.1980) (applying New Jersey law). Maryland has stressed the public interest in the "prompt and reasonable settlement of lawsuits" and in averting "increased insurance and litigation costs." Fireman's Fund, 308 Md. at 321, 519 A.2d at 205. We believe that these concerns would lead it to avoid the sort of strained construction of insurance contracts that would be necessary to find coverage under the policy.

Our decision to address a question of first impression under Maryland law is not one we undertake lightly. The issue in this case is of the type the Supreme Court had in mind when extolling the virtues of certification, see Lehman Bros. v. Schein, 416 U.S. 386, 94 S. Ct. 1741, 40 L. Ed. 2d 215 (1974), and Maryland has the statutory procedures necessary to permit certification, Md.Cts. & Jud.Proc.Ann. Secs. 12-601 to 12-609 (1984). However, because the posture of the case mandates prompt resolution of this issue--the jury has already rendered a verdict against Rubins on the negligent entrustment claim--we believe it appropriate to forego certifying the matter.

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The finding below that the General Accident policy covers damages resulting from the negligent entrustment claim is affirmed; the finding that the Lumbermens policy also applies is reversed. General Accident shall pay Rubins's and Lumbermens's costs on appeal.

It is so ordered.

HARRY T. EDWARDS, Circuit Judge, concurring:

I concur only in the judgment in this case. In particular, because I find no significant issue on "case or controversy" or "ripeness," see, e.g., ACandS, Inc. v. Aetna Cas. & Sur. Co., 666 F.2d 819, 822-23 (3d Cir. 1981), I do not subscribe to any of the discussion or opinions expressed in Part II of Judge Williams' opinion.