Herrick v. State Farm Mutual

SUPERIOR COURT

CIVIL ACTION

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oTATE OF MAINE

CUMBERLAND, ss.

STEPHEN HERRICK,

Plaintiff C

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STATE FARM MUTUAL

AUTOMOBILE INSURANCE ,

COMPANY ORDER ON PARTIES’

_yees’ MOTIONS FOR JUDGMENT AS A

MATTER OF LAW

Interested Party

UNIVERSAL UNDERWRITERS

Defendant

This matter is before the court on the parties’ motions for judgment as a matter

of law on the stipulated record.

FACTUAL BACKGROUND

This case arises out of an automobile accident that occurred while the plaintiff,

Stephen Herrick, was test-driving a vehicle owned by Bill Dodge Buick Pontiac GMC

Cadillac, Inc. (“Bill Dodge”).

According to the stipulated facts, on August 27, 2003 the plaintiff and his wife

went to Bill Dodge and asked to test-drive a 2003 Kia Spectra (“the vehicle”) owned by

Bill Dodge. A Bill Dodge employee granted the plaintiff permission to test-drive the

vehicle and the plaintiff, accompanied by his wife and the Bill Dodge employee, drove

the vehicle. During this test-drive, the plaintiff struck another vehicle. As a result of the

accident, the vehicle sustained physical damage in the amount of $13,793.

At the time of the accident, Bill Dodge had a policy of insurance issued by the

defendant, Universal Underwriters (“Universal”), providing insurance coverage for all

of its vehicles, including the vehicle that the plaintiff was test-driving. Universal

reimbursed Bill Dodge for the physical damage to the vehicle. Universal then instituted

a subrogation action against the plaintiff in the name of Bill Dodge to recover the

$13,793.

At the time of the accident, the plaintiff had in place a personal automobile

liability policy issued by State Farm. State Farm has undertaken the plaintiff's defense

in the subrogation action. The plaintiff has filed the instant declaratory judgment action

seeking a declaration that Universal must provide coverage for Bill Dodge’s claim, that

Universal's coverage is primary, that the purported exclusions to the contrary in the

Universal Policy are either void or inapplicable, and that State Farm’s coverage is

excess. The subrogation action has been stayed pending the outcome of this case.

DISCUSSION

29-A M.R.S.A. § 1612: Maine’s Financial Responsibility Law

29-A MLR.S.A. § 1612 (Supp. 2004) is the statute at the heart of this dispute and

upon which a determination as to whether Universal or State Farm is the primary

insurer rests. Under section 1612, car dealerships are required to procure lability

insurance coverage for both owners and operators of dealer-owned vehicles. That

section reads in relevant part:

The Secretary of State may not issue a dealer... . license or

registration plates .. . until the applicant has procured and filed with the

Secretary of State a certificate showing that the applicant is covered by an

automobile bodily injury and property damage liability insurance policy

providing coverage as set forth in this Title with respect to the plates

issued, approved by the Superintendent of Insurance, insuring against any

legal liability in accordance with the terms of that policy for personal

injury or death of any one person in the sum of $ 100,000 and for any

number of persons in the sum of $ 300,000 and against property damage

in the sum of $ 100,000 when injury, death or damage may result from or

have been caused by the operation of any vehicle bearing such

y file with the

tat surety company

authorized to do business in the State in the amount of at least $ 100,000

at acteeniat: it geese bs. cue alec otl oe Ae PWerean and endhient. te week

UIL ALCCOUTLLE OF Hyuly to OF Geaul OF cll Ly UTLe PELSuUlL aL LCL SUBJECL LU SUuCcrL

limits as respects injury to or death of one person; of at least $ 300,000 on

account of any one accident resulting in injury to or death of more than

one person; and of at least $ 100,000 for damage to property of others.

29-A M.R.S.A. § 1612.

In addition, pursuant to 24 M.R.S.A. § 2909 (2000), the coverage required by

section 1612 must be provided “for both the owner and operator of the motor vehicle.”

24 M.R.S.A. § 2909(2). Section 2909(3) further provides that “(t]he owner's policy must

provide primary coverage up to the limits specified in Title 29-A, section 1612. Any

other valid and collectible insurance policy available to an operator who is not the

wner must provide excess coverage.” 24 M.R.S.A. § 2909(3). “{O]wner" as used in

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section 2909, “means the owner of a motor vehicle, the owner's agent, employee or

independent contractor.” 24 M.R.S.A. 2909(1).

In the instant case, plaintiff contends that, under section 1612, Bill Dodge was

required to procure insurance coverage for “any legal liability” resulting from or

caused by Herrick’s operation of the vehicle during his test drive. According to

plaintiff, that statutorily mandated insurance coverage necessarily includes coverage

not only for personal injury or property damage caused to others but also for damage

to the owner's (in this case, Bill Dodge) own property. Plaintiff areues that the

insurance policy issued by Universal covers damage to Bill Dodge’s vehicle caused while

plaintiff was operating it during his test drive. Therefore, plaintiff argues, Universal

cannot seek payment for that damage from plaintiff or from State Farm, the insurance

company that issued plaintiff's personal automobile in surance. Plaintiff further argues

that, to the extent that the Universal policy contains exclusionary clauses purporting to

exclude from coverage any damage to property, including automobiles, owned by Bill

42

to the public policy behind the statute, and are therefore void.

Universal, on the other hand, argues that under the clear language of the

insurance policy, Universal expressly excluded from coverage any injury to “personal

property, including autos, owned by, rented or leased to, used by, in the care, custody

or control of, or being transported by the insured.” Def’s Motion at 3. With respect to

property damage, Universal further argues that the insurance coverage required by

section 1612 only provides primary coverage for damage caused to the property of

others. According to Universal, the statutorily mandated coverage for “any legal

liability” does not include damage to the covered vehicle itself. Rather, “to the extent

that any such damage is covered at all, coverage is provided to the dealership alone

under [another Universal] policy of automobile property damage coverage, otherwise

known as ‘collision insurance.’” Def’s Motion at 6.

The Universal Policy

The coverage that is primarily at issue here is the “Garage Unicover Coverage

Part,” (Garage Policy). See Pl’s Motion at 3-4; Det’s Motion at 3. Under the Garage

Policy, Universal “will pay all sums the insured legally must pay as damages (including

punitive damages where insurable by law) because of injury to which this insurance

applies caused by an occurrence arising out of garage operations or auto hazard.”

Complaint at Exh. 1, p. 39. “Auto hazard,” as defined in the Garage Policy “means the

ownership, maintenance, or use of any auto you [Bill Dodge] own or which is in your

care, custody and control and (1) used for the purpose of garage operations.” The

parties agree that the vehicle test-driven by the plaintiff in this case was owned by Bill

Dodge and, at the time of the accident, was being used for the purpose of garage

operations. See Def’s Motion at 4. An “insured,” with respect to auto hazard includes

not only the owner of Bill Dodge and his employees, but also “[alny other person or

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coverage part within the scope of your permission.” Complaint at Exh. 1, p. 42. The

parties do not dispute that the plaintiff was an insured under the Garage Policy. See

Det’s Motion at 4. They do dispute, however, whether the exclusions contained in the

policy, are valid in the face of section 1612.

Under the “Exclusions” section of the Garage Policy, the insurance coverage

provided by Universal “does not apply to... injury .. . to: personal property, including

autos, owned by, rented or leased to, used by, in the care, custody or control of, or

being transported by the insured. ...” Complaint at Exh. 1, p. 45. Arguing that section

1612 requires coverage for “any liability,” not just liability for personal injury or

damage to the property of others, plaintiff maintains that this exclusion from coverage

of damage to Bill Dodge's vehicle is violative of section 1612 and therefore void. The

court disagrees.

The court has been unable to find, and the parties have not provided, any

binding case law in Maine that is directly on point. Instead, it appears that the only case

in which a court has addressed the question of whether section 1612 mandates coverage

for damage to an owner's property arose in the Maine District Court. In Carrolls’s Auto

Sales v. Brown-Michaud, No. 93-CV-172 (Me. Dist. Ct. 2, Presque Isle, Nov. 1, 1995), in

which Universal was a third-party defendant, the district court held that where an

insurance policy excludes damage to the owner’s vehicle, that exclusion is not violative

of section 1612 and, so long as it is clear and unambiguous, is enforceable. Id. In that

case defendant Michaud was operating a vehicle owned by Carroll’s Auto sales when

the vehicle was involved in an accident. Michaud was insured under a policy procured

by Carroll’s Auto and issued by Universal very similar to the policy at issue in this case.

Id. Michaud also was insured under a personal auto policy. Id. In granting Carroll’s

Auto and Universal summary judgment, the court explained that “[wlhile [Michaud

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was] insured under the liability coverage portion of the [Universal] policy, damage to

the vehicle was excluded.” Id. According to the court, “24-A M.R.S.A. § 2909 and 29

M.R.S.A. § 832 mandate liability insurance coverage for negligent operation of dealer-

owned vehicles but do not mandate property damage or collision insurance.” Id.

Although the court recognizes that the Carroll’s Auto decision is not binding on

this court, it finds the analysis persuasive for two reasons. First, the interpretation of

the statute upon which the Carroll’s Auto decision rests is consistent with well-

established principles of insurance law and does not run counter to public policy in

Maine.

Contrary to the plaintiff’s assertions, there is no indication in either the statute or

applicable case law that the liability coverage mandated by section 1612 must insure

permissive users of dealer-owned vehicles for damage caused to the covered vehicle.

See 29-A M.R.S.A. § 1612. Although the plaintiff is correct that the Law Court has

announced, in the context of a similar statute relating to rental car companies, that

Maine’s Financial Responsibility Law is intended “to protect both the public and the

operators” of “loaner” vehicles, the court does not agree that the Universal policy at

issue in this case runs counter to that objective. See State Farm Mut. Auto. Ins. Co., v.

Universal Underwriters Ins. Co., 513 A.2d 283, 285 (Me. 1986) (discussing 29 M.R.S.A. §

831, repealed and replaced by P.L. 1991 ch. 793 § 13 (codified at 29-A M.R.S.A. § 1611)).

Under the clear language of section 1612, car dealerships must insure operators

for liability that “may result from or have been caused by the operation of” a dealer-

owned vehicle. 29-A M.R.S.A § 1612. The Universal policy, by insuring the plaintiff for

personal injury and damage caused to the property of others accomplishes the

objectives of the statute and protects the plaintiff against liability. The court concludes,

"29 M.R.S.A.§ 832 was repealed in 1993 and replaced by 29-A M.R.S.A. § 1612, the statute at

issue in this case. See P.L. 1993, ch. 683, § A-1.

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however, that because pro

fall within the widely accepted definition of “liability,” section 1612 does not mandate

that the plaintiff be effectively held harmless for the damage caused to the Bill Dodge

vehicle. See Universal Underwriters Group v. Pierson, 787 N.E.2d 296, 298 (outlining the

“widespread consensus on the meaning of the term ‘liability’ insurance: ‘Since the

liability policy is, by definition, one of liability to others, and not for personal or

property damages sustained by the named insured, there can be no coverage of loss

sustained by him or her to his or her person or his or her property when he or she is

operating the insured vehicle.’. . . Liability insurance is designed to protect an insured

from claims for damages owed to a third person, and not from losses that the insured

suffers directly.”). Id. (quoting 7 L. Russ & T. Segalla, Couch on Insurance, § 110:11, at

110-19 through 110-20 (3d ed. 1997)).

Second, the plaintiff’s suggested construction of section 1612 would require this

court to read and interpret the statute in a piecemeal fashion and render its two

separate provisions inconsistent with one another. Pursuant to section 1612, the

Legislature has mandated that car dealers procure liability insurance on their vehicles.

See 29-A M.R.S.A.§ 1612. The necessary coverage for personal injury and property

damage is specified and car dealerships are given two alternative means of fulfilling the

requirement: with either a liability insurance policy or an insurance bond. Although the

plaintiff is correct that the section discussing insurance policies requires coverage for

“any liability,” the section discussing insurance bonds clarifies that, with respect to

property damage, the statute requires coverage for damage to the property of others

and not for damage to the covered vehicle. As the district court noted in Carroll’s Auto,

the statute does not mandate collision insurance. See Carroll's Auto, No. 93-CV-172 (Me.

Dist. Ct. 2, Presque Isle, Nov. 1, 1995). For this court to conclude that the nature and

scope of the coverage required under section 1612 differs depending on whether a

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and contrary to the clear legislative intent behind the sta

concludes that the exclusions contained in the Garage Policy are not violative of section

1612. Further, because the court concludes that the exclusions are clear and

unambiguous and not counter to public policy, they are enforceable. See Gross v. Green

Mountain Ins. Co., 506 A.2d 1139 (Me. 1986) and Allstate Ins. Co. v. Elwell, 513 A.2d 269

(Me. 1986). Pursuant to the exclusions, damage to the vehicle is not covered by the

Garage Policy. See Complaint at Exh. 1, p. 45. Accordingly, Defendant’s Motion for

Judgment as a Matter of Law is GRANTED.

The entry is

Defendant’s Motion for Judgment as a Mater of Law is GRANTED.

Plaintiff's Motion for Judgment as a Matter of Law is DENIED.

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Dated at Portland, Maine this > day of June, 2005.

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obert E. Crowley

Justice, Superior Court

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GAVIN MCCARTHY ESQ o-

PIERCE ATWOOD .

ONE MONUMENT SQUARE

PORTLAND ME 04101

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MARSHALL TINKLE ESQ AD

TOMPKINS CLOUGH HIRSHON & LANGER

PO BOX 15060

PORTLAND ME 04112-5060