Taking Another Look at What Can Trigger (or Exclude) Commercial Auto Coverage
Most states have a “financial responsibility” law that requires all drivers—as well as corporate vehicle owners—to carry auto liability coverage in connection with their vehicles traveling on state, county and local roadways.
What happens, however, when an unauthorized driver gets into an accident, or an employee violates a company policy (for example, by using a company vehicle while intoxicated), such that there is no longer a “permissive use” being made of a vehicle?
Do financial responsibility laws establish (in effect) strict liability that overrides any policy exclusions (at least up to statutory minimum policy limits), regardless of the driver or type of use—or can company rules and insurance contracts be designed to limit the scope of coverage in situations involving misuse or unauthorized use of a vehicle?
Under the law of some states, the answers to the above questions come down to whether an insurance exclusion or company rule concerns the “use” or the “operation” of a vehicle.
Recently, the Supreme Court of Missouri agreed to review a trial court’s “no coverage” determination in a case involving an employee’s violation of a company rule prohibiting driving a company vehicle while intoxicated. Like many other states, Missouri generally employs a common-law “use” versus “operation” test to determine whether coverage applies—though the case under review, Griffitts v. Old Republic Ins. Co. (No. SC96740), provides the high court an opportunity to scrutinize whether the test is actually consistent with the state’s financial responsibility law.
This article discusses how Missouri and many other states employ the “use” versus “operation” test and other approaches to determine whether their financial responsibility laws mandate commercial auto coverage in a given set of circumstances, regardless of any policy exclusions or company rules that would otherwise exclude coverage. Using the Griffitts case as a backdrop and Couch on Insurance and other cases to discuss the issues generally in play, this article reviews what insurers and employers may or may not be able to do to limit their exposure, or at least reduce accidents and claims.
Background on Omnibus Clauses
States adopting a financial responsibility law typically require insurance contracts to contain an “omnibus clause,” which extends coverage beyond the named insured. These clauses generally extend coverage to all persons using the insured vehicle with the “express or implied permission of such named insured.” As such, all persons using an insured vehicle with the permission of the named insured are afforded the same coverage and protections, as though each were listed as an insured driver. The public policy behind such mandatory coverage is to ensure adequate resources and compensation are available for those injured on roadways as a result of negligent driving. Though the public policy in support of mandatory omnibus coverage is laudable, requiring insurers to provide coverage beyond those named in the insurance contract necessarily results in increased costs.
In the business world, many entities have company vehicles driven by their employees. Generally speaking, employees are covered under their employer’s commercial auto policy so long as they are permissive users of the vehicles being driven. This expansive coverage results in larger premiums and out-of-pocket deductibles because the policies are required to cover a wide range of persons using insured vehicles. To reduce accidents and limit claims, commercial insureds often create restrictive company policies limiting who can use their insured vehicles, when those vehicles can be used, and for what purposes.
Inevitably, these company policies come into conflict with financial responsibility laws. Three common-law approaches have emerged to resolve the conflict: (1) the initial permission rule (i.e., the “hell or high water” rule), whereby once an initial permission is given, “the permittee is covered regardless of how grossly he or she deviates from the terms of the permission granted”; (2) the minor deviation rule, whereby “material deviations from the scope of permission are not covered, but slight deviations are”; and (3) the conversion rule, whereby the omnibus clause applies only when the vehicle is being used squarely within the permission granted. 8 Couch on Ins. § 113:1.
In addition, many states have read into their financial responsibility statutes a distinction between the words “use” and “operate.” Most omnibus clauses mandate coverage for all situations when a person is using a vehicle with the permission of the named insured. And “use” is generally considered the utilization of a “vehicle as an instrumental means to an end in any manner intended or contemplated by the insured.” 8 Couch on Ins. § 111:31. On the other hand, “operation” is a subset of “use” and is generally defined as the actual “exercise of direction and control over the vehicle necessary to move the vehicle from one point to another.” Under these definitions, all operators are users but not all users are operators. Commonly, an individual is given broad permission to use a vehicle but may be limited in how he or she is to operate the vehicle. For example, an employee may be able to “use” a vehicle for work purposes but may not “operate” the vehicle after consuming alcohol. In most states, the omnibus coverage would extend to any permitted user whether or not he or she is abiding by the operation instructions (e.g., regardless of whether the employee abides by an alcohol ban).
The “Use” vs. “Operation” Dichotomy in Action
By way of example, Missouri has adopted this “use” versus “operation” distinction. In effect, this adoption has resulted in Missouri using a “hell or high water” approach in determining whether coverage exists under an omnibus clause. In particular, Missouri courts have routinely determined that any type of restriction placed on a permitted user is an “operation” restriction and does not affect the person’s permitted “use” of the vehicle. See, e.g., Weathers v. Royal Indem. Co., 577 S.W.2d 623 (Mo. banc 1979); Farm Bureau Mut. Ins. Co. v. Broadie, 558 S.W.2d 751 (Mo. App. 1977).
Broadie is a typical illustration of this principle in action. There, a grandfather allowed his grandson Duane to use a pickup truck, so long as Duane’s friend drove. 558 S.W.2d at 752-53. When the pair were out on the road, however, Duane got behind the wheel and caused an accident. Despite the grandfather’s express prohibition on Duane driving, the court held that the restriction was an “operation” rule and did not affect Duane’s status as a permitted user. Thus, the grandfather’s insurance carrier was required to provide coverage under the omnibus clause.
The same analysis usually applies for businesses in Missouri: Once an employer grants an employee permission to use a vehicle for some project or period of time, any restrictions on use are treated as “operating” rules that do not affect coverage. See, e.g., United Fire & Cas. Co. v. Tharp, 46 S.W.3d 99 (Mo. App. 2001). In United Fire, the court determined that an employee remained a permissive user of a company vehicle despite his violation of rules barring non-employee passengers and prohibiting driving while intoxicated. The court treated both rules as “operation” restrictions (not “use” restrictions); therefore, the employee remained a permissive user.
Taking Another Look: The Griffitts Case
In granting review in Griffitts, Missouri’s high court has the opportunity to examine whether what has amounted to a “hell or high water” approach is appropriate from a policy standpoint—or at least whether the “use” versus “operation” distinction is consistent with the applicable financial responsibility statute. Other states (and certainly insurance companies providing commercial auto coverage in jurisdictions like Missouri) likely will take note of how the court resolves the issues in play.
In particular, the court will examine whether employers should be able to place reasonable restrictions on the use of their vehicles and, in effect, limit coverage. Briefly, for purposes of analysis, below are the pertinent facts.
Campbell was an employee of BNSF, which carried commercial auto insurance through Old Republic Insurance Company. In a company rule, BNSF stated that no employee could be in a company vehicle while intoxicated. In March 2009, Campbell needed to travel out of state for an assignment and was given a company vehicle to use. After arriving at his destination, he decided to drink a copious amount of alcohol and then drive down the street to an eating establishment. On his way, however, he caused a collision with another individual: Griffitts. When the police arrived, they determined Campbell had a 0.182% blood alcohol content (BAC)—more than twice the legal limit in Missouri.
As a result of his conduct, Campbell was fired and Griffitts sued to recover under BNSF’s insurance policy. BNSF and Old Republic have maintained that coverage is not provided in this situation because Campbell was not a permitted user of the vehicle under BNSF’s anti-alcohol rule. The trial court agreed and granted summary judgment in favor of BNSF and Old Republic, and the court of appeals affirmed. But Missouri’s high court accepted “transfer” (the state’s term for discretionary review, which involves examining the trial court’s judgment rather than the appellate court’s decision). The case has been fully briefed (including the involvement of amici representing the interests of plaintiff’s and defense lawyers) and, as of this writing, awaits decision.
Potential Outcomes Based on What Other Courts Have Done
May employers like BNSF place reasonable restrictions on the use of their company vehicles, in effect excluding coverage if an employee decides to deviate from those restrictions? Or does an employee have carte blanche to do as he or she pleases after getting permission to use a company vehicle?
In Griffitts, if the court sticks with precedent, the “hell or high water” approach may remain in place. Earlier decisions have largely rested upon public policy concerns favoring compensation for those injured on public roads. But if the court applies the financial responsibility statute as written (which does not include or mention a “use” versus “operation” distinction), a different outcome is possible. Indeed, many other states’ financial responsibility statutes likewise do not contain a “use” versus “operation” distinction. And in some of those states, such as South Carolina, any semantic distinction is not material to whether a person is a permitted user.
In particular, in South Carolina, violations of company policies render employees non-permissive users of company vehicles. See, e.g., State Farm v. Logan, 444 F.Supp.2d 622 (D.S.C. 2006) (employee’s violation of company rule requiring vehicle to be driven only to and from work, and not be used after consuming alcohol, rendered employee a non-permissive user at time of accident and therefore not covered by omnibus clause). Even the Eighth Circuit, when applying Missouri law, has determined that the state’s omnibus statute does not give employees carte blanche to do as they please after receiving permission to use a company vehicle. Hawkeye-Security Ins. Co. v. Bunch, 643 F.3d 646 (8th Cir. 2011).
Whether Missouri and other states are willing to follow in South Carolina’s (and the Eighth Circuit’s) footsteps and permit employers to reasonably limit the scope of coverage using company rules is yet to be determined. In Griffitts, a decision in favor of the employer may create a wider debate regarding the propriety of “hell or high water” approaches to omnibus statutes.
A shareholder and leader of the Appellate and Complex Litigation Team at Sandberg Phoenix & von Gontard P.C. in St. Louis, Missouri, Tim Sansone has served as appellate counsel in residence during multiple high-stakes trials receiving national attention, and regularly serves as an appellate consultant for claims professionals and lead trial counsel at all stages of litigation. In addition to product liability defense and appellate practice, he focuses in the areas of business litigation, class action defense, and insurance coverage.
Cody Hagan is an associate in the Kansas City office of Sandberg Phoenix & von Gontard P.C.
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