Associated International Insurance v. Blythe

UNITED STATES COURT OF APPEALS
For the Fifth Circuit
___________________________
No. 01-20298
___________________________
ASSOCIATED INTERNATIONAL INSURANCE COMPANY,
Plaintiff-Counter Defendant-Appellee,
VERSUS
BOYD BLYTHE, ET AL.
Defendants,
BOYD BLYTHE; CHRISTOPHER SHAWN WOOD,
Individually and as Representative of Slade Zacharia Wood,
Defendants-Counter Claimants-Appellants.
Appeals from the United States District Court
for the Southern District of Texas, Houston Division
March 22, 2002
Before DAVIS, WIENER and BARKSDALE, Circuit Judges.
W. EUGENE DAVIS, Circuit Judge:
The question we must decide in this case is how broad a meaning we should attribute to
the phrase “using with your permission the covered auto” in an automobile liability policy. The
district court concluded that a person to whom general custody of a vehicle was given was not an
omnibus insured and therefore not covered when he negligently entrusted the vehicle to another
person whose negligent operation caused injury. We disagree and reverse and remand.
1
I.
In 1998, RNC, a corporation providing construction services to the communications
industry, contracted to perform work for Phonoscope, Inc., a Texas-based cable television
company (“Phonoscope”). The work consisted of hanging fiberoptic cable television wire on
utility poles in the Houston area (the “Phonoscope job”). RNC in turn hired Blythe, a non-
employee contract laborer. RNC authorized Blythe to recruit and supervise a four man crew to
work on the Phonoscope job. RNC provided a truck to be used in performing the work. The
truck was equipped with a bucket, that could be raised and lowered, and was large enough to
hold one man. RNC informed Blythe that its insurers would not permit him to operate the RNC
truck because of his driving record. It was understood that one of the men in Blythe’s crew
would actually operate the vehicle.
RNC provided Phonoscope with evidence of a commercial automobile liability insurance
policy issued to RNC by Progressive County Mutual Insurance (the “Progressive Policy”). The
Progressive Policy covered bodily injury and property damages in the amount of $1,000,000 per
accident. RNC was the named insured. In addition, the Progressive Policy extended coverage in
an omnibus clause to “[a]nyone else while using with [RNC’s] permission a covered auto.”1 The
policy specifies that it covers all bodily injury and property damage “caused by an accident and
1
The persons covered by the policy were defined as follows:
1. WHO IS AN INSURED
The following are insured:
a.. You [RNC] for any covered auto.
b. Anyone else while using with your permission a covered auto you own, hire
or borrow except [circumstances not here applicable].
2
resulting from the ownership, maintenance or use of a covered auto.”2 RNC also obtained an
excess insurance policy for the truck from Associated. The Associated Policy covered up to
$2,000,000 per occurrence. Coverage under the Associated Policy was triggered only when
coverage under the Progressive Policy had been exhausted. The Associated Policy, as a
“following form ” policy, adopted the coverage provisions and definitions of the underlying
Progressive Policy.
On April 24, 1998, Blythe’s crew was hanging cable television wire using RNC’s truck.
Blythe gave one of the crew members, George Eason (“Eason”), the keys to drive the truck. At
the time of the accident, Eason was driving the truck and Wood, another member of Blythe’s
crew, was in the raised bucket. Blythe was not present at the job site. At Wood’s request, Eason
moved the truck to allow Wood to get closer to a utility pole. Unfortunately, the bucket of the
truck hit power lines, causing a fire which severely burned Wood on over two-thirds of his body.
Wood brought suit in state court against Phonoscope, RNC, Blythe and Eason. RNC
obtained summary judgment in its favor. Eason was defended by Associated and Progressive.
Blythe was not offered counsel by either Progressive or Associated and represented himself pro
se. Under standard Texas legal instructions pertaining to negligence claims, the jury found Blythe
60% negligent, Eason 28% negligent and Wood 12% negligent. The jury awarded Wood total
damages of $4,175,000, exclusive of interest and costs, and awarded $10,000 to Wood’s minor
son, Slade Zacharia Wood, for loss of parental consortium.
2
The scope of liability coverage was defined as follows:
A. COVERAGE
We will pay all sums an insured legally must pay as damages because of bodily injury
. . . to which this insurance applies, caused by an accident resulting from the
ownership, maintenance or use of a covered auto.
3
Approximately two months after the jury rendered its verdict in the Wood Suit, Blythe
claimed coverage under the Progressive Policy and the Associated Policy. Associated reacted to
this demand by filing suit against Blythe and Wood for declaratory judgment in federal court.
Associated sought a declaration that Blythe is not covered under the Associated Policy and that
Wood is not entitled to any payment under the Associated Policy for Blythe’s liability. Blythe
counterclaimed, seeking declaratory judgment that he is covered under the Associated Policy and
alleging other various contract and tort claims. Both parties moved for partial summary judgment
on the issue of whether Blythe is covered by the Associated Policy.
The district court granted Associated’s motion for summary judgment. It concluded that
Blythe was not an insured under the omnibus clause of the Policy because he was not present at
the work site when the accident occurred and therefore was not “using” the vehicle. It rejected
Blythe’s theory that the negligent entrustment claim against him establishes his “use” of the truck
when it injured Wood. Accordingly, the court held that Associated had no duty to defend or
indemnify Blythe for the liability incurred as a result of the Wood suit. Because the district court
held that Associated had no duty to defend Blythe, it concluded that Blythe’s extra-contractual
claims, for injuries arising out of Associated’s failure to tender a defense in the Wood suit, must
also fail. Accordingly, it dismissed Blythe’s counter claim and entered final judgment. Blythe and
Wood appeal.
II.
This case is on appeal from the district court’s decision on Motions for Summary
Judgment and subsequent dismissal of Blythe’s counterclaims. We review a grant of summary
4
judgment de novo.3 Also, the only issue decided by the district court involved construction of
Associated’s policy, a question of law, which we also review de novo.4
III.
The question we must decide is whether, under the facts of this case, Blythe was “using”
the covered vehicle and therefore qualifies as an omnibus insured so as to be entitled to defense
and indemnity under the terms of the omnibus clause of Associated’s policy. The facts are
undisputed and both parties agree that Blythe can only be covered under the Associated Policy as
a “permissive user” under the omnibus clause, which provides coverage to “[a]nyone else while
using with [RNC’s] permission a covered auto.”
The parties have cited no decision of the Texas Supreme Court that resolves this question.
Accordingly, in deciding this case, this court sitting in diversity must apply Texas law, using its
best judgment as to what the Texas Supreme Court would do if presented with the same case.5
"When making an Erie-guess in the absence of explicit guidance from the state courts, we must
attempt to predict state law, not to create or modify it."6 In the absence of Texas Supreme Court
guidance, this court defers to the holdings of lower Texas appellate courts.7 Although no Texas
case clearly answers this question, no Texas case precludes recovery by Blythe and many include
3
Daniels v. City of Arlington, 246 F.3d 500, 502 (5th Cir. 2001).
4
American States Ins. Co. v. Bailey, 133 F.3d 363, 369 (5th Cir. 1998).
5
Farm Credit Bank v. Guidry, 110 F.3d 1147, 1149 (5th Cir. 1997).
6
United Parcel Service, Inc. v. Weben Industries, Inc., 794 F.2d 1005, 1008 (5th Cir. 1986).
7
Hamilton v. Segue Software, Inc., 232 F.3d 473, 479 (5th Cir. 2000), quoting United States
v. Johnson, 160 F.3d 1061, 1063 (5th Cir. 1998).
5
language that supports his position. Based on our review of decisions by Texas courts and courts
in other jurisdictions, we conclude that the Texas Supreme Court would follow the weight of
jurisprudence which would extend coverage under the omnibus clause to Blythe as a user of
RNC’s vehicle.
We begin our review of Texas law with the understanding that the Texas Supreme Court
has defined “use” in this context broadly. The court in Leleux v. Hamshire-Fannett Ind. School
Dist. made clear that “use” is broader than “operation” and includes putting or bringing a thing
into action or service and employing a thing for or applying a thing to a given purpose.8 In
contrast “operation” is defined as “a doing or performing of a practical work.”9
Blythe’s central argument is that, although he was not permitted to drive the truck, RNC
entrusted him with the vehicle to use it to accomplish the Phonoscope job. When Blythe
entrusted the operation of the truck to Eason, he was putting the truck into service to perform the
task assigned to him by RNC, the vehicle owner and named insured. He argues that his
entrustment of the vehicle to Eason constitutes “use” of the vehicle. Given RNC’s instructions
prohibiting him from operating the vehicle, Blythe argues that RNC necessarily understood that he
would be required to entrust its operation to members of his crew to do the work. At the time of
the accident, the vehicle was being operated to perform RNC’s work and its use was within the
scope of RNC’s permission which should constitute “use” by him.
8
Leleux v. Hamshire-Fannett Ind. School Dist., 835 S.W.2d 49, 51 (Tex. 1992) (quoting Mt.
Pleasant Independent. School Dist. v. Estate of Lindburg, 766 S.W.2d 208, 211 (Tex. 1989) (A
school bus was not in use related to a claim brought by a school girl who hit her head on the school
bus door.)
9
Id.6
The Texas Supreme Court case of Snyder v. Allstate Ins. Co. lends some support to
Blythe’s argument.10 Snyder addressed, among other issues, coverage of a person driving an
insured vehicle with the permission of the first permittee of the named insured under an Allstate
vehicle policy. The Allstate policy listed J. B. Rhodes as the named insured. Mr. Rhodes
purchased the insured vehicle for the use of his daughter Darla. At the time of the accident, the
vehicle was being driven by Robert Snyder at the request of Darla with Darla as a passenger. The
medical payment provision under that policy covered the named insured and “any other person
who sustains bodily injury, caused by accident, while occupying the owned automobile, while
being used by the named insured . . . or by any other person with the permission of the named
insured.. . .”11 Noting that this coverage was as broad as the liability coverage under the policy,
the court concluded that Snyder was a person occupying the owned automobile “while it was
being used by Darla Rhodes with the permission of her father, the named insured” and found
coverage.12 This language supports Blythe’s argument that the original permittee–at least while
she is a passenger in the vehicle–continues to be a “user” of the vehicle while it is being driven by
another within the scope of the first permittee’s permission. Associated seeks to distinguish
Snyder on the basis that the first permittee, Darla Rhodes, was a passenger in the car at the time
of the accident and Blythe was not in RNC’s vehicle at the time of the accident. However, the
Texas Supreme Court did not rely on this fact or recite any facts indicating that Darla was giving
instructions to the driver or otherwise exerting control over the driver.
10
485 S.W.2d 769 (Tex. 1972).
11
Id. at 772 (underlining added).
12
Id. (Emphasis added.)
7
A decision by the Texas Court of Civil Appeals also supports Blythe’s argument. In
Phoenix Ins. Co. v. Allstate Ins. Co., the named insured loaned his car to a local pastor for the
purpose of driving church members to an event.13 The pastor, after picking up the car and the
church members, asked to be dropped off at his rectory and entrusted the driving of the car to one
of the church members. This second permittee was driving when the accident occurred. The
issue in the case was coverage for the driver, not the pastor who was the original permittee, under
an omnibus clause. However, the court stated:
During this entire trip, from the time when the car was first picked up by James
DeLane [the driver] to and including the occurrence of the accident, Father Stiles
in his capacity as assistant pastor and Youth director was “using” the car for the
purpose for which it had been loaned by the named insured. Although he was not
in the car at the time of the accident, it was still being used by him for his benefit
and under his express instructions.14
Neither party cites cases decided by Texas courts indicating that those courts would
accept Associated’s narrow construction of “Use” in the omnibus clause of the policy. Although
the facts and issues presented in the Texas cases discussed above do not exactly match this case,
these decisions indicate to us that a Texas court would likely accept Blythe’s interpretation of this
clause and hold that he is entitled to coverage under Associated’s policy.
Our conclusion that a Texas court would accept Blythe’s interpretation of the policy is
buttressed by jurisprudence from other jurisdictions and commentary on insurance law. These
sources unanimously support Blythe’s position. Some of the commentary has been relied on by
Texas courts. For example, in United Services Auto. Asso. v. Stevens, the named insured left his
13
412 S.W.2d 331 (Tex. Civ. App. Corpus Christi, 1967)(no writ).
14
Id. at 336.
8
truck at an automobile dealership for a salesman to sell on a commission basis.15 The dealer
allowed Mr. Stevens to take the vehicle home to try out. Mr. Stevens allowed his daughter, an
unlicensed driver, to operate the vehicle and she collided with another vehicle. The principal issue
presented to the court was whether Mr. Steven’s daughter (the second permittee) had permission
to operate the vehicle. The court adopted the following test from 7 Am. Jur. 2d Automobile
Insurance § 117 (1963), which states:
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 the omnibus
clause (1) where 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 courts generally
reason that under such circumstances the second permittee is “operating” the car
for the “use” of the first permittee and that such “use” is within the coverage of the
omnibus clause.16
In Phoenix v. Allstate discussed above, the court considered several secondary materials,
including an annotation at 4 A.L.R. 3rd 10 entitled “Omnibus Clause of Automobile Liability
Policy As Covering Accidents Caused by Third Person Who is Using Car with Consent of
Permittee of Named Insured.” The author of this annotation summarizes decisions on coverage of
the original permittee and second permittee under omnibus clauses. In a statement of general
principle regarding coverage as to the original permittee, the annotation states “The omnibus
clause of the named insured’s automobile liability insurance policy has generally been held to
15
596 S.W.2d 955 (Tex. Civ. App. Amarillo 1980).
16
Id. at 959. (The issues in this case were whether there was sufficient evidence to establish
that Mr. Stevens and his daughter were using the vehicle with the implied consent of the named
insured and whether Mr. Stevens could delegate permission to use the car to his daughter, an
unlicensed driver. The named insured had left the car at a truck dealership to allow one of the
salespeople to sell it on his behalf on a commission basis.)
9
protect an original permittee as to liability arising from the operation of the car by a third person
with his consent where the named insured expressly authorized the first permittee to delegate his
right of use to other persons.”17 Under this rule, Blyth as the original permittee would be covered
under Associated’s omnibus clause because RNC, the named insured, authorized and even
required Blyth to delegate the right to use the vehicle to members of his crew.18
Case law from other jurisdictions is consistent with this conclusion. See for example,
17
4 A.L.R. 3rd 10, § 4. See also, 4 A.L.R.3rd 10, § 5, which states “An original permittee
having express authority from the named insured to allow others to use or drive the automobile has
been afforded protection under the omnibus clause as to liability arising from its operation by a third
person with his consent.”
18
Several of the cases cited under that annotation address fact situations similar to those
presented in this case with holdings consistent with the general rule stated above. In Hawkeye
Casualty Co. v. Rose, 181 F.2d 157 (8th Cir. 1950), the defendant David Rose had purchased an
automobile titled in the name of his wife Bell Rose. Bell Rose was t he named insured on their
automobile liability policy. The vehicle was stolen and later recovered Brooklyn, New York. At the
time, Bell Rose was seriously ill and delegated authority to reclaim the vehicle to her husband who
arranged for the Stanley and Lillian Schwartz to obtain possession of the vehicle from the New York
police and drive it back to their home in Kansas City. The Schwartz were injured in an accident in
the vehicle while in route and sued David Rose for failing to disclose latent defects in the vehicle.
Among other findings, the trial court found that David Rose was “using” the automobile. The Eighth
Circuit found that to be a permissible construction of the omnibus clause and affirmed. In Osborne
v. Security Ins. Co., 318 P.2d. 94 (Cal. App. 2d Dist. 1957), a mother was the named insured of an
automobile which was owned by her son and the son had permission to use the car and to allow his
friend, plaintiff Osborne, to use the car. The son, the original permittee, was found to be covered
under the omnibus clause for damages incurred when Osborne was in an accident in the insured
automobile. In both Rose and Osborne, the omnibus clauses contained a provision covering any
person “legally responsible” for the use of the automobile in addition to any person “using” the
automobile. In both cases, the courts found that the original permittee was covered under both
theories. See Rose at 159, Osborne at 99. In American States Ins. Co. v. Angstman Motors, Inc.,
343 F. Supp. 576 (D. Mont. 1972), Angstman Motors loaned a truck to Johnson on trial. Johnson
intended t o purchase it. Johnson assigned Hearn, one of his hands, to drive the truck. Hearn, an
unlicenced driver, was involved in an accident. The court found that Johnson, the original permittee,
was covered under the omnibus clause in Angstman’s policy. The clause covered both use and
operation of the vehicle so long as they were within the scope of the permission of the named insured.
10
Grange Ins. Assoc. v. Ochoa, 691 P.2d 248 (Wash. App. 1984) (Where employee was permitted
to drive employer’s pickup truck in connection with the business and for his personal use,
employee was “using” the pickup with employer’s permission and would be an insured under the
employer’s policy in relation to an accident while his uninsured son was driving alone in the
vehicle, if the use by his son was for a business or family purpose); and Bats, Inc. v. Shikuma, 617
P.2d 575 (Haw. Ct. App. 1980)(Named insured who rented a vehicle was “using” the rented van
when it was involved in a collision and thus covered under the his policy, even though he was not
in the van as the van was being driven by his friend on his behalf to return the van to the rental
office.) It is particularly telling that Associated fails to cite any case holding that the original
permittee in Blythe’s position is not covered by the omnibus clause for injuries caused by a second
permittee while using the insured vehicle with his permission.
Based on Woodrich Constr. Co. v. Indemnity Ins. Co., Associated argues that a person
claiming additional insured status under an omnibus clause must have actual control over a vehicle
in order to be considered “using” the vehicle. In Woodrich, a general contractor was found to be
covered under an omnibus clause for damages resulting from an accident which occurred while he
was directing the movement of the insured vehicle.19 We do not read this case as requiring actual
control or direction as a prerequisite to coverage. The great weight of authority as reviewed
above is otherwise. In discussing the concept of “use,” the Woodrich court notes that
The use of a motor vehicle does not require that the user, or the user's agent, be
its actual operator. It is common knowledge that the use of a motor vehicle may be
furnished by the owner to another with or without a driver. Many decisions have in
effect recognized use as going beyond the narrow meaning of the direct mechanical
operation performed by the driver and as encompassing the broader concept of
19
89 N.W. 2d 412 (Minn. 1958).
11
employing or putting the vehicle into one's service by an act which assumes at any
time -- with the consent of the owner or his agent -- the supervisory control or
guidance of its movements.20
Associated also relies on Great American Ins. Co. v. General Accident Fire & Life Assur.
Corp., a case from this circuit.21 In Great American, a power company hired a tree surgeon to
remove and transplant trees that were encroaching on power lines. The tree surgeon supplied the
truck and personnel to do the work. A worker employed by the tree surgeon was injured when a
palm tree he was transplanting made contact with the power company’s high voltage line. The
injured employee sued the power company, which claimed it was an omnibus insured under the
tree surgeon’s auto liability policy. This court concluded that the power company was not an
omnibus insured because it was not a permissive user of the truck and had no legal responsibility
for the truck. We do not find this case helpful in analyzing today’s case. We find no indication
from the facts recited in the opinion that the power company had any relationship of any kind with
the insured vehicle, except that it was owned and operated by a contractor. The court correctly
treated the power company as a “stranger” to the insurance contract.22 Because the power
company was not entrusted with the use or operation of the insured vehicle, it is not difficult to
see why the court found that the power company was not a permissive user of the vehicle.
Blythe’s relationship to RNC and the vehicle obviously presents a different factual and legal
scenario.
In summary, all of the case law from Texas while not conclusive, tends to support Blythe’s
20
Id. at 418.
21
321 F.2d 948 (5th Cir. 1963).
22
Id. at 950.
12
position on coverage. Insurance law commentary and cases from other jurisdictions we have
discovered unanimously support Blythe’s position and Associated cites no case law to the
contrary.
IV.
Based on our review of the case law in Texas and in other jurisdictions, we conclude that
under the allegations of Associated’s complaint, Associated had a duty to defend Blythe. As
Blythe has already been adjudicated liable to Wood in the Wood Suit, Associated also has a duty
to indemnify Blythe. The district court’s order dismissing Blythe’s and Wood’s extra-contractual
claims against Associated solely as a consequence of the district court’s conclusion on the
coverage issue must also be reversed and those claims are remanded for trial.
Accordingly, the district court’s judgment is REVERSED and REMANDED.
13