Nationwide Mut. Ins. Co. v. Fireman's Fund Ins. Co.

182 S.E.2d 571 (1971)

279 N.C. 240

NATIONWIDE MUTUAL INSURANCE COMPANY and Tux Bowers Motor Company, Inc. v. FIREMAN'S FUND INSURANCE COMPANY et al.

No. 44.

Supreme Court of North Carolina.

July 30, 1971.

*575 Thomas M. Starnes, Morganton, for plaintiff appellants.

Byrd, Byrd & Ervin, Morganton, for Charles P. Michaels, Admr. of Estate of Gerald D. Michaels, defendant appellee.

Mitchell & Teele, Valdese, for St. Paul Fire and Marine Ins. Co., defendant appellee.

Roy Walton Davis, Marion, for Barbara Lewis and Bis Ray Lewis, defendant appellees.

Uzzell & Dumont, Asheville, for Fireman's Fund Ins. Co., defendant appellee.

SHARP, Justice.

The verdict of the jury, which established that at the time of the accident on 25 October 1966 Terry was operating the 1961 Oldsmobile within the scope of his permission from Tux, is not challenged by any assignment of error. Therefore, plaintiffs' policy covered Terry's operation of that vehicle unless the assigned risk policy which Fireman's issued to Carson insuring the 1965 Oldsmobile covered Terry's operation of the 1961 Oldsmobile as a substitute vehicle for the 1965 Oldsmobile. If it did, Nationwide's coverage is excluded; otherwise, not. Fireman's concedes that the issue submitted "was the only one raised and presented under the pleadings and evidence, and about which there was contraverting or conflicting testimony."

The first question presented is: Who, within the purview of the Motor Vehicle's Safety-Responsibility Act of 1953 (N.C. Gen.Stats., ch. 20, art. 9A), was the owner of the 1965 Oldsmobile on 25 October 1966? As used in an owner's or operator's policy of liability insurance, the Safety-Responsibility Act (Act), G.S. § 20-279.1(9) defines the word owner as "a person who holds the legal title of a motor vehicle, or in the event a motor vehicle is the subject of an agreement for the conditional sale or lease thereof with the right of purchase upon performance of the conditions stated in the agreement and with an immediate right of possession vested in the conditional vendee or lessee, or in the event a mortgagor of a vehicle is entitled to possession, then such conditional vendee or lessee or mortgagor shall be deemed the owner for the purposes of this article."

Under this definition, the word owner embraces "the holder of title and a mortgagor, conditional vendee or lessee having right of purchase and the right of possession." Nationwide Mutual Insurance Co. v. Hayes, 276 N.C. 620, 630, 174 S.E.2d 511, 517. Indubitably Carson held the legal title to the 1965 Oldsmobile, and, having given his note for the balance of the purchase price and executed a conditional sales contract securing it, he was also a conditional vendee with the right of possession. Thus he was covered by every aspect of the statutory definition of owner. Furthermore, as noted in Nationwide Mutual Insurance Co. v. Hayes, supra, in enacting the 1963 amendment to G.S. § 20-72(b) (which provides that title to a motor vehicle cannot be transferred from one owner to another until the certificate of title has been duly executed and the vehicle delivered to the transferee), the legislature "used the word `title' as a synonym for the word `ownership'." The opinion also pointed out that "G.S. 20-38 defines `owner' under the Motor Vehicles Act and G.S. 20-279.1 defines `owner' essentially the same way." Id. at 630, 174 S.E.2d at 517.

Legal title to the 1965 Oldsmobile being in Carson, it is immaterial to decision *576 here that Terry may have had an equitable interest in the vehicle to the extent of the payments he had made on the purchase price. The purpose of the Act is to provide protection to the public from damages resulting from the negligent operation of automobiles by irresponsible persons. By its definition of an "owner," the legislature attempted to close all avenues of escape from its provisions. Nationwide Mutual Insurance Co. v. Hayes, supra; Harrelson v. State Farm Mutual Automobile Insurance Co., 272 N.C. 603, 158 S.E.2d 812; Indiana Lumbermens Mutual Insurance Co. v. Parton, 147 F. Supp. 887 (M.D.N.C.1957).

We have no statistics showing how many parents have insured an automobile to which they hold legal title for the benefit of a minor child under circumstances similar to those of this case. It is not, however, an unusual situation. See Smith v. Simpson, 260 N.C. 601, 133 S.E.2d 474. When a minor's negligent operation of such a vehicle causes injury and death, were the insurer permitted to escape liability by showing that the minor was the equitable owner of the vehicle it had insured, the purpose of the Act would be thwarted and the public subjected to the risk of injury from unnumbered, uninsured minor drivers. The legislature has perpetuated no such hoax. Available statistics show that in 37% of all automobile accidents in which licensed drivers were involved in North Carolina during the year 1970, the drivers were under the age of twenty-five years, and that half of these were in the 16-19 age group.

We hold that Carson, who had the legal title, was the owner of the 1965 Oldsmobile; that he had authority to control it; and that it was covered by his Fireman's policy, which listed it as an insured automobile and Terry "as driver." It is obvious that, in deciding otherwise, both the trial court and the Court of Appeals were misled by dicta in Underwood v. National Grange Mutual Liability Co., 258 N.C. 211, 128 S.E.2d 577.

The facts in Underwood, which are clearly distinguishable from those of this case, were these: Mrs. C purchased an automobile for her son, J, aged 17, and took title in her name. In her application for insurance she stated that she was the owner of the car but it would be operated by J "100% of the time." The risk was assigned to the defendant insurance company, which issued a policy meeting the requirement of G.S. § 20-279.21. In June 1958, two months later, Mrs. C moved to Florida after arranging for J to remain in North Carolina with plaintiff. On 9 June 1958 Mrs. C transferred title to the automobile to the plaintiff. On 27 June 1958 Mrs. C canceled the liability policy which had been issued to her, and application was made for a new policy to be issued to the plaintiff. The producer of record held this application pending payment of the premium, which was to accompany it. Because of a month's delay in refunding Mrs. C's unearned premium and an error in the amount of the refund, the premium for the plaintiff's policy was never paid. On 4 August 1958 the plaintiff's son was riding with J when the car overturned and both were killed. Plaintiff, as administrator of her son's estate, brought suit for his wrongful death against the administrator of J. She recovered judgment and sued the defendant insurance company when it declined to pay. In that suit, upon a waiver of jury trial, the judge found facts as detailed above. He also found that J was the beneficial owner of the automobile and that the producer of record had no authority from J or the plaintiff to surrender the policy to the defendant for cancelation. This Court reversed judgment for the plaintiff upon the ground that when Mrs. C transferred title to the automobile to the plaintiff, the defendant's insurance was terminated as a matter of law. The rationale was that an owner's motor vehicle liability policy is a contract between the insurance company and the owner, and there is no insurance separate and distinct from the ownership of the car. The opinion pointed out that the Safety Responsibility Act *577 makes no requirement that insurance follow the vehicle in case of transfer of title and that the policy expressly declared that "assignment of entry shall not bind the company (insurer) until its consent is endorsed hereon."

Following the statement of the court's decision, the opinion then said:

"It is not clear what significance the trial court placed upon its finding that Jerry Wayne Otwell (J) was the beneficial owner of the automobile. If the import is that he was the owner and had right of possession and control, there was most certainly no coverage. The insurance contract was with Mrs. Chaffin (Mrs. C) and the policy covered the named insurer, Mrs. Chaffin (plaintiff), and any other person while using the automobile, provided the actual use was with the permission of Mrs. Chaffin. In order to grant permission, as the word `permission' is used in the policy, there must be such ownership or control of the automobile as to confer the legal right to give or withhold assent. It is something apart from a general state of mind. If Jerry actually owned the automobile and had the right to possession and control, or if Mrs. Chaffin parted with the title (and it is undisputed that she assigned to Mrs. Underwood on 9 June 1958 such title as she had) then, in either event, the operation of the car by Jerry on 4 August 1958 was not with permission of Mrs. Chaffin within the purview of the omnibus clause of the policy. Insurer had no contract with or responsibility to or for Jerry apart from the ownership of the vehicle by Mrs. Chaffin." Id. at 219, 128 S.E.2d at 582-583.

The foregoing statement was obviously unnecessary to the decision of the case, and all suggestions therein that Jerry Wayne Otwell may have been the owner of the automobile are disapproved. "A decision of the Supreme Court must be interpreted within the framework of the facts of that particular case." Howard v. Boyce, 254 N.C. 255, 265, 118 S.E.2d 897, 905. Accord, International Service Insurance Co. v. Iowa Nat. Mutual Insurance Co., 276 N.C. 243, 172 S.E.2d 55. In Underwood, at the time of the damage in suit, the holder of the legal title to the automobile involved had no liability insurance on the vehicle, and the former owner had canceled the insurance she carried on the car prior to the time she transferred title to it. The automobile which J was driving was indeed an uninsured vehicle. In this case, the 1965 Oldsmobile was an insured automobile described in a policy of insurance issued to the owner, the holder of the legal title.

It is too clear for argument that at all times Terry used the 1965 Oldsmobile with his father's unqualified permission. Carson took title to the vehicle in his name, assumed responsibility for the balance of the purchase price, and procured liability insurance upon it for the sole purpose of providing his minor son with an automobile. During the six months intervening between the purchase of the 1965 Oldsmobile and the day it was delivered to Williams Paint and Body Shop to be repainted, Carson himself never drove it over twice, if he drove it at all. Had Terry been driving the 1965 Oldsmobile on the evening of 25 October 1966 he would undoubtedly have been covered by the policy which Fireman's had issued to Carson. We hold that Carson was the owner of the 1965 Oldsmobile and that it was covered by the policy which Fireman's had issued to him.

The next question is whether Fireman's policy covered the 1961 Oldsmobile as a "temporary substitute automobile" for the 1965 Oldsmobile. Such an automobile is (1) one not owned by the insured or his spouse and (2) one which is being temporarily used for an insured automobile while it is "withdrawn from normal use because of its breakdown, repair, servicing, loss or destruction." It is undisputed that neither Carson nor his wife owned the 1961 Oldsmobile which Terry was driving at the time of the accident. Tux admits its ownership of that vehicle.

It is equally clear that while the 1965 Oldsmobile remained in the Williams *578 Paint and Body Shop for the removal and replacement of outside paint which had proved defective, the insured vehicle had been withdrawn from normal use "because of its * * * repair * * *." A substitution provision in a policy of automobile liability insurance "is for the insured's benefit and is to be construed liberally in favor of the insured if any construction is necessary." 7 Am.Jur.2d Automobile Insurance § 103 (1963). See Hunnicutt v. Shelby Mutual Insurance Co., 255 N.C. 515, 122 S.E.2d 74; 4 N.C. Index 2d Insurance § 84 (1968). As the court said in Sanz v. Reserve Insurance Co. of Chicago, 172 So. 2d 912, 913 (Fla.App.1965), the terms of a substitution provision in an automobile policy "should be defined and given their every day `man-on-the-street' understood meaning." When the outside paint on the body of an automobile "spiderwebs" and peels off, leaving the metal exposed, the vehicle is in need of immediate repairs.

Nothing this Court said in Ransom v. Fidelity & Casualty Co., 250 N.C. 60, 108 S.E.2d 22, impinges upon the foregoing statement. In Ransom, it was held that an insured automobile, which was not used because it was "low on gas," was not "withdrawn from its customary use because of its breakdown, repair, servicing, loss or destruction," and the substitute automobile which insured borrowed for the evening was, therefore, not covered by his policy. The Court rejected the plaintiff's contention that the insured vehicle had been temporarily withdrawn for "servicing." Fireman's contention that Ransom v. Fidelity & Casualty Co., supra, is authority for the proposition that, before an insured automobile can be replaced by a temporary substitute vehicle, it must be withdrawn from use because of some mechanical defect cannot be sustained. We hold that on 25 October 1966 the 1965 Oldsmobile had been temporarily withdrawn from normal use for repairs and that the 1961 Oldsmobile was a temporary substitute for it.

The remaining question is whether the 1961 Oldsmobile was being used with Carson's consent on the evening of 25 October 1966. If so, it became an insured automobile, temporarily replacing the 1965 Oldsmobile in Carson's policy just as it had replaced its actual use.

Fireman's first contends that permission to use one automobile does not constitute permission to obtain and use a substitute vehicle; that only Carson, the named insured, could authorize the procurement of a substitute automobile and grant permission for its use, and he did neither. This contention ignores the fact that, notwithstanding Terry procured the 1961 Oldsmobile from Tux "on his own" and without his father's knowledge, Terry forthwith took the car to his father's home and kept it there under circumstances which clearly implied his consent for Terry to use the vehicle. Carson testified that Terry "used it and drove it where he wanted to and in the same manner he had driven the 1965 Oldsmobile before it was put in the shop to be repainted." Carson's purpose in taking title to the 1965 Oldsmobile was to provide general transportation for his son. When Bowers delivered the 1961 Oldsmobile to Terry as a temporary substitute for the 1965 Oldsmobile he was merely furthering Carson's previously permitted purpose. See Hemphill v. Home Insurance Company, 121 Ga.App. 323, 174 S.E.2d 251.

Section III(a), the omnibus provision of Fireman's policy, provided in pertinent part that "the unqualified word `insured' includes the named insured and * * * any person while using the automobile * * *, provided the actual use of the automobile is by the insured or spouse or with the permission of either * * *." Under G.S. § 20-279.21(b) (2), such permission may be either express or implied. "[T]his implication may be a product of the present or past conduct of insured. Implied permission is not confined alone to affirmative action, and is usually shown by usage and practice of the parties over a sufficient period of time prior to the day on which the insured car was being used. It may be established *579 by a showing of a course of conduct or relationship between the parties, including lack of objection to the use by the permittee which signifies acquiescence or consent of the insured." 7 Am.Jur.2d Automobile Insurance § 113 (1963). Accord, International Service Insurance Co. v. Iowa Nat. Mutual Insurance Co., supra; 4 N.C. Index 2d Insurance § 87 (1968).

Fireman's second contention is that because Carson did not own the 1961 Oldsmobile, he could not authorize its use by another. Since a "temporary substitute automobile" within the meaning of a liability policy is a vehicle not owned by the insured, to adopt Fireman's contention would be to hold that such an automobile could be covered only while being operated by the named insured himself. Such a construction would defeat the purpose of the omnibus clause, and the policy will not permit it. Under Part I, Coverage A and B, and Part IV(3), a temporary substitute automobile being operated by the insured or any person with his express or implied consent is an insured automobile. See Hardware Mutual Casualty Co. v. Hopkins, 106 N.H. 412, 213 A.2d 692, and Davidson v. Fireman's Fund Indemnity Co., 4 A.D.2d 759, 165 N.Y.S.2d 598.

The object of the substitution clause is to afford temporary insurance which will protect the insured's operation of a borrowed vehicle while the automobile specified in the policy is being repaired and until it can be restored to normal use. "The provision is not to be unreasonably extended to materially increase the risk contemplated by the insurer. Neither is it to be narrowly applied against the insured for the clause was designed for his protection." Harte v. Peerless Insurance Co., 123 Vt. 120, 124, 183 A.2d 223, 226.

In Hemphill v. Home Insurance Co., supra, 121 Ga.App. at 333, 174 S.E.2d at 259, it is said: "The purpose (of a substitution clause) is not to defeat liability but reasonably to define coverage by limiting the risk to one operating vehicle at a time for a single premium."

We have found no decision involving facts "on all fours" with those of this case, and the parties have cited none. The decisions in Tanner v. Pa. Thresherman & Farmers Mut. Cas. Insurance Co., 226 F.2d 498 (6th Cir. 1955) and Grundeen v. United States Fidelity & Guaranty Co., 238 F.2d 750 (8th Cir. 1956), cited by Fireman's, involve facts so different from those sub judice that they require no discussion.

We hold that on 25 October 1966 Terry was operating the 1961 Oldsmobile with Carson's consent; that it was an automobile covered by Fireman's policy; and that Terry was an insured driver.

The decision of the Court of Appeals affirming the judgment of the Superior Court that Nationwide is obligated to defend the actions instituted against Terry and to pay any judgments which might be entered against him to the extent of its policy limits and that Fireman's has no obligation to Terry with respect to these actions is reversed. The cause is returned to the Court of Appeals for remand to the Superior Court for entry of judgment that Fireman's is obligated to defend the actions instituted against Terry on account of his operation of the 1961 Oldsmobile on the evening of 25 October 1966 and to pay any judgments which may be entered against him to the extent of the policy limits and that Nationwide has no obligation with reference to those actions.

Reversed and remanded.