The Indiana Court of Appeals today reversed a trial court decision adverse to Founder’s Insurance in a 2-1 opinion with Judge Robb writing the majority opinion and Judge Mathias concurring with Judge May writing the dissent. The case was Founders v. May (pdf). Founders insured a vehicle owned by May. Coomer took the vehicle without May’s permission (and without a valid driver’s license) and got in an accident with Hoke, killing him.
Founders filed a declaratory action requesting that a court recognize that its insuring contract imposed on the company no duty to defend or provide coverage for the accident. The insurance policy excluded coverage for a person operating the vehicle without a reasonable expectation that they were authorized to use the vehicle and also excluded coverage for a person operating the vehicle without a valid license. Hoke’s estate objected because Hoke was an innocent third party who wouldn’t be compensated if Founders wasn’t compelled to pay for the damages caused by the accident. The trial court granted summary judgment to Founders with respect to May and Hoke but denied as to Hoke’s estate. The Court of Appeals does not explain the trial court’s rational, if one was articulated.
The general argument in favor of tagging Founders with the bill seems to be that the fact that automobile insurance is compulsory in Indiana means the General Assembly recognized the danger of automobiles and that individuals who suffer loss due to the tragedy of accidents ought to have some means of recovery. But, as the majority recognized, this is not the same as “a social policy to guarantee compensation to all victims of motor vehicle accidents.” Founders had no relationship to Coomer. She took the vehicle without permission and without a license — both exclusions under the policy. Why look to Founders? If the policy is a generalized one to provide recovery to every innocent person hurt in an automobile accident, why not impose liability on the State or on every insurance company? Just because Founders would have provided insurance if May had been driving doesn’t mean they signed up to compensate everyone who crossed paths with that particular automobile. If May had satisfied the State’s financial responsibility requirements by posting a bond rather than buying insurance, would his bond be forfeit even if he had no involvement with the accident?
The majority lists some other practical difficulties with the trial court’s decision:
The trial court’s determination raises several practical questions, such as, if Founders has no duty to defend or indemnify May or Coomer, from where does a duty to Hoke’s Estate arise? How exactly
would the action proceed if Founders has no duty to defend May or Coomer? Does Founders appear in Hoke’s Estate’s lawsuit against May and Coomer and defend itself? Does Hoke’s Estate institute a direct action against Founders if it should succeed in its lawsuit against May and Coomer?
Could Founders assert the terms of the contract of insurance as a defense in any such action? What would be the limits of Founders’ liability to Hoke’s Estate if the contract is unenforceable as
to May or Coomer? If the exclusionary provisions of the contract are unenforceable, are the limits provisions nonetheless enforceable, and would that be a matter of judicially picking and choosing which provisions of the contract may be enforced and which may not? Because of our resolution of this case, however, we need not answer these questions.
The dissent acknowledges some of the difficulties raised by the majority but reasons that these are outweighed by good public policy which would provide for recovery by an innocent victim of an automobile accident. “An innocent victim’s ability to recover should not depend on an automobile owner’s income level.” The dissent does not believe non-motorist victims of automobile accidents should be at a disadvantage when compared to motorist victims. (That disadvantage, I believe, being that motorist victims have the opportunity to purchase uninsured/underinsured motorist coverage for when they are driving their own vehicles whereas bicyclists and pedestrians are not provided with an opportunity to buy such coverage.)
If we decide that the general public should have financial options if they are victims of automobiles — no matter who is driving or whether that driver contracted for insurance or paid premiums — that such victims don’t have if they are victims of most other hazards in the world, then, in my mind, we shouldn’t rely on insurance to do it. At that point, we’re talking about a need for general taxation.
Sounds like a general accident victims compensation fund, similar to what exists for medmal cases. That would be kind of interesting, except for probably putting me out of a job.
The case is interesting and I agree with the result. But what I keep stumbling over is the court’s attempt to differentiate a compulsory financial responsibility scheme from compulsory insurance schemes. It seems more a distinction without a difference. If Indiana law makes the exclusion enforceable, that is the end of the argument. It seems that the distinction is used only to differentiate the cases from GA and LA. But if the exclusion is enforceable under general theories of contract interpretation, the argument seems more make weight than meaningful. That being said, I am not a litigator and don’t read many insurance coverage cases. I could be missing something.
I support the insurer’s right to enforce such exclusions. But that being said, extending coverage to Hoke’s estate would not overturn the current underwriting policies and rate calculations of the entire P&C industry in Indiana. Cases such as Hoke’s are likely very infrequent.
“An innocent victim’s ability to recover should not depend on an automobile owner’s income level.”
I’m not quite sure how to work around the basic reality that even in a case of death or (especially) serious injury, it’s basically luck of the draw whether there will be sufficient proceeds to compensate the injured party or his survivors. I thought it was interesting that the opinion does not say what the Founders policy limits are. Indiana’s financial responsibility laws allow coverage limits as low as $25,000 per person, and $50,000 per occurrence. Even if May had been operating the car as a permissive user with a valid license, if this were a minimum limits policy then Hoke’s estate would have gotten a whopping $25,000 recovery. The same would be the case if Hoke owned a car with insurance and happened to be riding a bicycle that day. In that case, his uninsured motorist coverage would apply, but if he had a minimum liability policy, then again, he would get $25,000. Of course, even in the case of a cyclist killed by an insured driver, there always is the possibility of a jury verdict well in advance of that amount, but you can’t get blood from a turnip and negligence judgments are dischargeable in bankruptcy. Hoke’s estate would be in dramatically better shape if he had been killed by an Eli Lilly employee on a work-related errand. I would go so far as to say that in the vast majority of car accidents there is not sufficient coverage on either side to address a death or serious injury along the lines of quadriplegia.
As Doug notes, the only way to really rectify this is with some sort of expanded social insurance program. As a practical matter, upper and middle class persons can protect themselves with high limit insurance policies (including umbrella policies, which typically include UM/UIM coverage), life insurance, health insurance, disability insurance, and so on. And a carless person can purchase UM/UIM coverage as part of an umbrella policy. But as a practical matter, in Indiana the carless generally are carless for financial reasons, so that’s not much help. But even a contrary ruling in the case wouldn’t go very far at all regarding the above quote from Judge May’s dissent.
John M, you make a great point when you state that an adequate recovery for a wrongfully injured victim is the luck of the draw. The auto policy minimums in Indiana are laughable. But as a rational actor, we only purchase insurance to protect ourselves, not those whom we harm.Them that gots gets. Them that don’t get (well we know what the scatalogical term would be.)
Thanks. And I should add I agree with your comment about the financial responsibility/insurance distinction. I didn’t find it persuasive, but whatever we call our scheme, I don’t see a justification for inventing a new category of insured or beneficiary out of whole cloth. The insurance industry is highly regulated, and the legislature could mandate that auto policies somehow provide for the unfortunate uninsured pedestrian. Like you, I imagine these situations are rare enough that the insurance industry could provide coverage without hiking premiums in any meaningful way. Still, it strikes me as a legislative rather than judicial issue.
The problem is that many people just want to go cheap with insurance. In this case, why should the company have to pay when the vehicle was essentially stolen? Why didn’t Hoke himself have enough insurance that the estate, which is usually the next of kin, wouldn’t need any money? Well part of it is because people are told by ambulance chasing lawyers that they are owed something, and of course the attorney would be getting a cut of the something. If the answer is more government social programs to protect people, some of which who just want to spend an extra $500/year on booze instead of added life insurance, then maybe we should demand even more government micromanagement of automobile traffic? For example, how about we just mandate one certain type of compact, mid-sized, and larger passenger car? One type of small and large SUV? One type of truck? Then we could mandate that every single one of these approved designs have speed regulators, which today could use cell phone towers to regulate a maximum speed within the state (since states have different speeds). We could then levy additional vehicle taxes to speed up the research on in-car alcohol detection devices, which would likely reduce the 10K alcohol related fatalities by 90%.
If we want a big government all up in our lives, then lets go all out. Creating some taxpayer subsidized pool of money that the ambulance chasers can go bananas over should only be a very small part of a huge government take-over and change of traffic regulation.
Indy Guy 317
Is there a point to all of this?
The exclusion in this case rests on two policy exclusions, a driver without permission to use the vehicle and an exclusion for unlicensed drivers. I am a little suspicious of the first claim. It states in the opinion that “May really does not like anyone to drive his truck,” but let Coomer drive it, although he said as a designated driver. He also said he doesn’t like [Coomer] to use the truck when he is not around. But given the relationship between May and Coomer, I find this very equivocal. Perhaps better discovery or more aggressive questioning in the deposition would have demonstrated Coomer had tacit permission to use the truck when she wished. She obviously had access to the keys.
That being said, the unlicensed driver status of Coomer clearly excluded coverage, so the defense attorney did not need any more to make a plausible showing on the lack of permission argument. She/he had the unlicensed exclusion in the vest pocket.