Cooperative Fire Insurance Assoc. v. Gray

NOTICE:  This opinion is subject to motions for reargument under V.R.A.P. 40
as well as formal revision before publication in the Vermont Reports.
Readers are requested to notify the Reporter of Decisions, Vermont Supreme
Court, 111 State Street, Montpelier, Vermont 05602 of any errors in order
that corrections may be made before this opinion goes to press.


                                No. 89-463


                                             Supreme Court
Cooperative Fire Insurance Association
of Vermont
                                             On Appeal from
     v.                                      Lamoille Superior Court

Victor Gray, Laurie Gray and                 February Term, 1991
Bonnie Gray

     v.

American Protection Insurance Company


Linda Levitt, J.

Charity A. Downs of Conley & Foote, Middlebury, for plaintiff-appellee

David A. Williams of Williams and Green, Morrisville, for defendants-
   appellees

James W. Coffrin of Pierson, Wadhams, Quinn & Yates, Burlington, for
   defendants-appellants



PRESENT:  Allen, C.J., Gibson, Dooley, Morse and Johnson, JJ.


     JOHNSON, J.    This case requires us to decide whether either of two
insurance policies, a homeowner's policy and an automobile policy, provides
liability coverage for negligent entrustment of an automobile and negligent
supervision of a minor.  The action before the Court is one for a declara-
tory judgment brought by the issuer of the homeowner's policy against its
insureds and a third-party complaint filed by the insureds against their
automobile insurer.
     On May 4, 1988, Victor Gray, son of defendants Laurie and Bonnie Gray,
was involved in a single car accident causing injuries to two passengers,
Lisa and David Sanders.  The Sanders filed suit in Lamoille Superior Court
alleging negligence against Victor Gray and, against Laurie and Bonnie
Gray, negligent entrustment and negligent supervision in allowing their son
to own and operate an automobile.
     At the time of the accident, Laurie and Bonnie Gray were named insureds
on the homeowner's insurance policy issued by plaintiff Cooperative Fire
Insurance Association of Vermont (Cooperative).  Victor Gray, as their
resident minor son, was also covered under that policy.  The Grays requested
Cooperative to defend them in the case filed by the Sanders.  Cooperative
filed this declaratory judgment action seeking relief from liability and
from the obligation to defend.  The court granted summary judgment in
Cooperative's favor, and the Grays appeal that ruling.
     Laurie Gray was the owner of the automobile policy issued by American
Protection Insurance Company (American).  Victor's car was not listed on the
policy, and was insured under a separate policy.  The Grays filed a third-
party complaint requesting a declaratory judgment that American was required
to defend and cover them in the action by the Sanders.  American moved for
summary judgment, claiming that the automobile policy excluded coverage in
this case.  The motion was denied, and American appeals that ruling.
     We affirm the trial court's ruling as to Cooperative and reverse and
remand as to American.
                                    I.
     We first address the Grays' contention that the trial court should have
required Cooperative to defend them under the provisions of their home-
owner's insurance policy.
     We note at the outset that the duty of Cooperative and American to
defend the Grays under the relevant policies "'is measured by the allega-
tions upon which the claim is stated.'" Commercial Union Insurance Co. v.
City of Montpelier, 134 Vt. 184, 185, 353 A.2d 344, 345 (1976) (quoting
Commercial Ins. Co. v. Papandrea, 121 Vt. 386, 390, 159 A.2d 333, 335
(1960)).  The complaint against the Grays alleges the facts of the accident;
it also alleges the involvement of the parents in the purchase of their
son's car, their failure to inspect it, their assistance in registering it,
and their assent to the issuance of a driver's license to their son, who
was under eighteen years of age.  Although the claims of law are phrased in
various terms, their substance is that the injuries arose as a result of the
parents' negligent failure to supervise their son by permitting him to own
and operate a motor vehicle, and their negligent entrustment to him of a
motor vehicle. (FN1)
     The Cooperative policy includes the following exclusion:
         This policy does not apply to liability which results
         directly or indirectly from:

              . . . .

         3. the ownership, operation, maintenance, use,
         occupancy, renting, loaning, entrusting, supervision,
         loading or unloading by an insured of motorized vehicles
         . . . .

(Emphasis added.)  On its face, the policy excludes liability for a
comprehensive list of activities by an insured in connection with a motor
vehicle.  The only claims made against the Grays were for injuries arising
out of the automobile accident.  As noted above, Victor, the operator of
the motor vehicle, was an insured under this policy.  Therefore, coverage
for liability arising directly or indirectly from his operation of an auto-
mobile is expressly excluded.  Also expressly excluded is liability that
results directly or indirectly from entrustment or supervision of a motor
vehicle by any insured, which includes Laurie and Bonnie Gray. (FN2)
     In an effort to avoid the effect and plain meaning of the exclusion,
the Grays advanced the theory that a cause of action predicated on negligent
entrustment or negligent supervision is separate and distinct from the
underlying tort of the entrustee or supervisee, and thus outside an
exclusion for the "operation, maintenance and use" of an automobile.  The
cases cited by the Grays are inapposite. (FN3) The language of the Cooperative
exclusion is not limited to liability arising from "operation, maintenance
and use" of an automobile.  Unlike language interpreted in cases cited by
the Grays, it explicitly excludes coverage for liability arising from the
entrustment or supervision of an automobile.  Insurance contracts must be
interpreted according to their terms and the evident intent of the parties,
as gathered from the contract language.  Sanders v. St. Paul Mercury Ins.
Co., 148 Vt. 496, 500, 536 A.2d 914, 916 (1987).  Cooperative was not
obligated to defend the Grays, and summary judgment in its favor was
appropriate.
                                     II.
     American contends that the trial court erred in obligating it to defend
the negligent entrustment and supervision action against the Grays.  The
covered vehicles under the American automobile policy were a 1985 Plymouth
Voyager and a 1986 Subaru GL 10, but not Victor's Pontiac Firebird, which
was insured under another policy.  The named insured on the American policy
was Laurie Gray.
     The insurance policy covered "damages for bodily injury or property
damage for which any covered person becomes legally responsible because of
an auto accident."  The policy contained, however, the following exclusion
and exception:
         We do not provide Liability Coverage for the ownership,
         maintenance or use of: . . .

         3. Any vehicle, other than your covered auto, which is:

              a. owned by a family member; or

              b. furnished for the regular use of any family
              member.

         This exclusion does not apply to your maintenance or
         use of any vehicle which is:

              a. owned by a family member; or

              b. furnished for the regular use of a family
              member.

(Emphasis added.)  The reference to "your" in the exclusion refers to the
named insured and spouse, if a resident of the same household.  Thus, the
policy excluded coverage for family cars not specifically listed in the
policy, unless liability arose from the insureds' own maintenance or use of
such cars.  The car involved in the accident was Victor's automobile, an
unlisted vehicle owned by a family member and therefore excluded from
coverage.  The Sanders did not allege that their injuries arose from
maintenance or use of Victor's car by Laurie or Bonnie Gray.  Accordingly,
the exception to the exclusion does not apply.
     The Grays rely on decisions from other jurisdictions holding that
liability for negligent entrustment of an automobile arises out of the
"ownership, maintenance, or use of an automobile," and is therefore outside
the coverage of certain homeowner's policies.  Pedersen v. Republic Ins.
Co., 532 A.2d 183, l86 (Md. App. 1987) (homeowner's policy excluded
negligent entrustment); Fillmore v. Iowa Mutual Ins. Co., 344 N.W.2d 875,
878 (Minn. App. 1984) (homeowner's policy excluded negligent entrustment);
Potosky v. Fejes, 492 N.E.2d 494, 496 (Ohio Com. P. 1986) (homeowner's
policy excluded negligent entrustment).  The trial court relied on these
cases in granting summary judgment in favor of the Grays.  This argument,
however, ignores the plain language of the exclusion and exception, cited
above, which limits coverage to certain instrumentalities (the cars listed
on the policy) and certain persons (the insured and his spouse).  This
limitation on instrumentalities and persons operates to exclude coverage for
an accident involving an unlisted vehicle owned by a family member, or
furnished for his or her regular use, and not maintained or used by an
insured.
     The judgment in favor of Cooperative Fire Insurance Association of
Vermont is affirmed; the court's order denying American Protection Insurance
Company's motion for summary judgment is reversed.





                                   FOR THE COURT:



                                   ____________________________________
                                   Associate Justice



FN1.        The Grays argue that the Sanders allege negligent parenting as
distinct from negligent supervision.  Liability in tort depends, however,
on the breach of a duty.  In appropriate circumstances parents have a duty
to control, or supervise, their children.  Restatement (Second) of Torts {
316 (1965).  The essence of the Sanders claim is that the Grays breached
that duty.

FN2.       The Grays attempt to distinguish supervision of an automobile
from supervision of a person with respect to an automobile.  At best, they
contend the language is ambiguous and should be construed against the
drafter, Cooperative.  "A provision in a contract is ambiguous 'only to the
extent that reasonable people could differ as to its interpretation.'"
Agway, Inc. v. Marotti, 149 Vt. 191, 194, 540 A.2d 1044, l046 (1988)(quoting
Trustees of Net Realty Holding Trust v. Avco, 144 Vt. 243, 248, 476 A.2d 530, 533 (1984)).  Since supervision of an automobile is nonsensical, the
contested language could only have been intended to exclude liability
arising from supervision of a person in connection with an automobile; there
is no ambiguity.

FN3.      See Cone v. Nationwide Mutual Fire Insurance Co., 75 N.Y.2d 747,
750, 551 N.E.2d 92, 94 (1989) (interpreting the phrase "ownership, mainte-
nance and use"); Allstate Ins. Co. v. Reliance Ins. Co., 380 N.Y.S.2d 923,
926 (Sup. Ct. 1976) (interpreting the phrase "ownership, maintenance,
operation, [or] use"); cf. Standard Mutual Ins. Co. v. Bailey, 868 F.2d 893,
897 (7th Cir. 1989) (negligent entrustment of automobile excluded from
homeowner's policy; similar decisions cited from twenty-eight
jurisdictions).

------------------------------------------------------------------------------
                                       Concurring


NOTICE:  This opinion is subject to motions for reargument under V.R.A.P. 40
as well as formal revision before publication in the Vermont Reports.
Readers are requested to notify the Reporter of Decisions, Vermont Supreme
Court, 111 State Street, Montpelier, Vermont 05602 of any errors in order
that corrections may be made before this opinion goes to press.


                                No. 89-463


Cooperative Fire Insurance Association       Supreme Court
of Vermont

     v.                                      On Appeal from
                                             Lamoille Superior Court
Victor Gray, Laurie Gray and
Bonnie Gray                                  February Term, 1991

     v.

American Protection Insurance Company


Linda Levitt, J.

Charity A. Downs of Conley & Foote, Middlebury, for plaintiff-appellee

David A. Williams of Williams and Green, Morrisville, for defendants-
  appellees

James W. Coffrin of Pierson, Wadhams, Quinn & Yates, Burlington, for
  defendants-appellants


PRESENT:  Allen, C.J., Gibson, Dooley, Morse and Johnson, JJ.


     DOOLEY, J., concurring.   Reluctantly, I concur.  As Justice Johnson
persuasively shows, the exclusions from both the homeowner's policy and the
automobile liability policy prevent us from finding coverage under either
policy.  I find this result to be unjust.  Despite two policies, the
insureds face the cost of a defense and personal damage liability in a suit
arising out of an automobile accident in a state where the Legislature has
required comprehensive automobile liability insurance.  Although the record
is not sufficiently complete to draw a firm conclusion, in large part
because the Grays have not raised the issue, there is a serious question
whether the result comports with the statutory insurance requirements and
minimum standards of public policy.
     I emphasize at the outset that I have no difficulty with the homeowner
policy exclusion.  Even with respect to policy language less explicit than
that present here, the majority of courts have held that homeowners'
insurance does not cover actions involving negligent entrustment of an
automobile.  See generally Leitner, Negligent Entrustment of a Motor Vehicle
and the Homeowner's Policy, 35 Fed. Ins. Counsel J. 335, 350 (1985).  It is
fair for homeowner's carriers to leave risks associated with automobiles to
automobile insurance and to exclude all coverage in that area.
     Although we have decided the question of American's coverage based on
the language of the specific exclusion for non-covered autos, American's
primary argument below was that negligent entrustment or supervision actions
are not covered by the basic insuring agreement because they do not arise
out of the "ownership, maintenance or use" of the auto involved in the
accident.  I agree with the United States Court of Appeals for the District
of Columbia Circuit that this argument involves a "crabbed reading of the
policy."  Rubins Contractors, Inc. v. Lumbermens Mutual Ins. Co., 821 F.2d 671, 675 (D.C. Cir. 1987).  I would hold that basic coverage extends to a
negligent entrustment or supervision action were it not excluded by the
language of the non-owned auto provision in this instance.
     This holding would be important because of the language of at least one
of our insurance statutes.  Since 1985, Vermont has been a compulsory
insurance state requiring owners and operators to have in effect an
automobile liability insurance policy in specified amounts for damages "in
any one accident."  23 V.S.A. { 800(a).  The legislature has provided that:
         (b) Every policy insuring against liability arising out
         of the ownership, maintenance or use of any motor
         vehicle shall provide insurance against loss resulting
         from the liability imposed by law for damages because of
         bodily injury or death of any person within the state
         . . . .

23 V.S.A. { 941(b).  That section applies because American's policy insures
against liability arising out of the "ownership, maintenance or use" of the
auto in this accident although not with respect to the claim being made.
The question is whether coverage can be excluded, as it was here, in view of
the Legislature's broad policy that compensation should be available to
victims of motor vehicle accidents from those legally responsible for their
injuries at least up to the statutory liability amounts.
     We have not had an opportunity to consider whether the advent of
compulsory insurance in Vermont affects the ability of carriers to include
particular exclusions in automobile liability policies.  A number of courts
have found particular exclusions to be so inconsistent with compulsory
insurance laws that they have invalidated them on public policy grounds.
See, e.g., Cotton States Mutual Ins. Co. v. Neese, 254 Ga. 335, 341, 329 S.E.2d 136, 141 (1985) (exclusion for accident occurring while insured is
"attempting to avoid apprehension or arrest"); Jennings v. Government
Employees Ins. Co., 302 Md. 352, 362, 488 A.2d 166, 171 (1985) (household
member exclusion); Mutual of Enumclaw Ins. Co. v. Wiscomb, 97 Wash. 2d 203,
213, 643 P.2d 441, 446 (1982) (same).
     I recognize that the plaintiffs in the underlying case are likely to
have some access to insurance because the car driven by Victor Gray was
insured under another policy.  The availability of alternative insurance may
be a factor bearing on the validity of this exclusion although it is little
comfort to the Grays who face personal liability, and the cost of a defense,
without insurance.  I also recognize that American has argued that the Grays
could have obtained coverage for the accident by including Victor Gray's car
as a covered auto.  I have some question whether Laurie and Bonnie Gray
could simply add the son's vehicle since coverage relates to "your covered
auto" (emphasis supplied).  In any event, this is an incomplete answer
applicable in only some negligent entrustment cases and presumably requiring
payment of a full premium for coverage limited only to negligent entrustment
or supervision cases.  All of this bears exploration in a proper case before
we conclude that insureds in this state face automobile negligence liability
with no realistic or appropriate ability to insure against the risk.




                               Associate Justice