State Farm Mutual Automobile Insurance Company v. Automobile Underwriters, Inc. ( 1967 )

HASTINGS, Chief Judge.

This is an appeal from a judgment of the district court in a diversity action for declaratory judgment brought by State Farm Mutual Automobile Insurance Company, an Illinois corporation, against Automobile Underwriters, Inc., an Indiana corporation.

The district court held that Underwriters had a duty to defend a negligence action instituted against the driver of a car belonging to one of Underwriters’ insureds, and to pay any judgment and costs against the driver in such action not exceeding $25,000.

James W. Odie, a student at the University of Arizona, used and maintained a 1955 Pontiac automobile titled to his father, Wilbur C. Odie, of Noblesville, Indiana. The father was the named insured in an automobile insurance policy issued by Underwriters to him covering the Pontiac. The son was also insured according to the terms of the policy, which, with respect to persons covered, reads:

“(1) The Named Assured and any resident of the same household

“(2) any other person using such automobile provided the actual use thereof is with the permission of the Named Assured or an adult member of his household.”

On October 3, 1962, in Tucson, Arizona, David Franklin, a close friend of James Odie, who had used Odle’s Pontiac on a number of occasions, asked Odie for permission to use the Pontiac the following day for the purpose of returning from a garage to which he planned to take his own car for repairs.

While Odie was told that Franklin was going to drive the Pontiac, Franklin instead arranged for his wife, Sydney, to drive the Pontiac to the garage to pick him up, while Franklin at the same time drove his own car there to leave it for repairs. On the way to the garage, Sydney was involved in an accident which resulted in injuries to one Berkey B. Walker.

Walker filed an action for damages against David and Sydney Franklin in the Superior Court of Pima County, Arizona. State Farm Mutual, Franklin’s insurer, undertook the defense of the Arizona action and tendered such defense to Underwriters. Underwriters refused; and State Farm Mutual brought this declaratory judgment action against Underwriters.

The issue which the trial court decided adversely to Underwriters was whether, under the omnibus provisions of its policy, paragraph (2), quoted supra, Sydney Franklin was an additional insured. As framed by the trial court, the issue was

“whether Sydney Franklin, while using the borrowed Pontiac for the purpose for which it was loaned, and in the absence of a specific prohibition by the owner against its use by a second permittee, came within the provisions of the defendant’s policy affording protection to persons other than the named assured ‘provided the actual use thereof is with the permission of the named assured or an adult member of his household.’ ”

Underwriters contends that the coverage of the policy does not extend to a second permittee who has not received permission from the insured to drive the car. Underwriters has cited a number of treatises and cases to the effect that a permittee has no authority to confer permission upon a third party to drive an automobile as an additional assured. This correctly states the law in a number of jurisdictions.

Since the insurance policy was written and issued by Underwriters in Indiana, the law of Indiana is to be applied in its construction. There is, however, no Indiana case law directly in point, except the decision in Arnold v. State Farm Mutual Automobile Ins. Co., 7 Cir., 260 F.2d 161 (1958), in which this court set out the rule of law it believed Indiana courts would adopt in construing an omnibus clause in an automobile insurance policy.

The question in Arnold was whether an omnibus clause, insuring any person using the automobile with permission, extended to an employee who had an accident with the automobile while deviating from the purpose and use for which permission was given. Three different views on the question were distinguished: a strict rule in which the vehicle must have been used within the scope of the permission; a “minor deviation” rule under which only major deviations from the permitted use excluded coverage; and a liberal or broad rule under which we said that the permittee “need only to have received permission to take the vehicle in the first instance, and any use while it remains in his possession is ‘with permission’ though that use may be for a purpose not contemplated by the assured when he parted with possession of the vehicle.” Arnold, supra, at 164. We held there that the Indiana case law as found in American Employers’ Ins. Co. v. Cornell, 225 Ind. 559, 76 N.E.2d 562 (1948) and Mercer Casualty Co. of Celina, Ohio v. Kreamer, 105 Ind.App. 358, 11 N.E.2d 84 (1937) clearly indicated Indiana courts of appeal would accept the liberal rule as applied to the circumstances of that case. Arnold, supra, 260 F.2d at 164.

The decision of this court in Standard Accident Ins. Co. v. New Amsterdam Cas. Co., 7 Cir., 249 F.2d 847 (1957), a diversity case requiring the application of Illinois law, also involved the application of a broad rule of omnibus clause construction. There, a first per-mittee, properly using a car for a permitted purpose, requested another to drive the car for him in pursuance of that purpose. It was held that in Illinois, a first permittee has implied authority to permit another to use the automobile if the car is used for the same purpose for which initial permission was given and if the first permittee was present in the car.

The Indiana case of Kreamer, supra, holds that an owner can, through a blanket authority given a first permit-tee alone, extend policy coverage under an omnibus clause to second permittees not even known to the owner.

The Cornell case, supra, holds that permission sufficient to satisfy an omnibus clause for a second permittee’s use of a car can be implied from silence on the part of an insured owner who was present when the first permittee gave the permission.

The facts in the instant case are not directly within the holdings of these Indiana cases, nor that of the Arnold case, for here there was no blanket authority, the owner was not present when permission was given the second permittee to use his car, and there is no question of deviance in the use of the automobile.

In view of the Indiana cases cited and our determination in Arnold that Indiana follows a liberal or broad approach in the construction of omnibus clauses in automobile insurance policies, we hold that where the insured placed no prohibition or restriction, express or implied, upon the use or user of the automobile, and the use was within the scope of the permission given the first permittee, the second permittee was insured under the omnibus clause in the automobile insurance policy under construction in this case.

The instant holding is but one step removed from that in Standard Accident, the Illinois case, in that the first permittee was not physically present in the car when his wife was driving it for the intended purpose. If Franklin had driven the loaned car to the garage, while his wife drove his own car there to leave it for repairs, there could be little question but that the instant policy covered such use.

Here, since there was no deviation from the use intended and no prohibition against another using the car for the intended purpose, it seems clear to us that there was an implied permission given for the wife of the first permittee to drive the car, under the circumstances of this case, to accomplish the intended purpose. We conclude this is what the Indiana courts would hold.

The judgment of the district court is affirmed.

Affirmed.