Opinion
Civil Action No. 3:98-CV-533H
December 13, 1999.
MEMORANDUM OPINION
Petitioner, State Farm Mutual Automobile Insurance Company ("State Farm"), has filed a motion for summary judgment on its claim for declaratory relief. State Farm argues that the clear language of its insurance policies excludes coverage for unauthorized use and that such clauses are valid and enforceable. Respondents, Christopher Wilson ("Christopher"), Nancy and Garry Wilson, Donald Pegago, III, Donald Pegago and Donna Pegago, counter that the policies are ambiguous and should be liberally construed to afford coverage. The Court has discussed the pending motions with the parties at a conference. Each side has meritorious arguments.
I.
This case is based on events that transpired on or about August 22, 1997. Christopher is the 16-year-old son of Garry and Nancy Wilson. In the middle of the night, Christopher Wilson disabled his parents' alarm system and snuck out of his own house. His grandparents who lived next door were out of town. He gained entry in his grandparents' garage and took their car without permission. Christopher drove to the houses of two friends, who joined him for a teenage night on the town. Their adventure completed, the boys headed home. A police officer noticed them speeding and signaled for them to pull over; Christopher increased his speed to evade the arrest. While fleeing, Christopher lost control and flipped the vehicle. One of the passengers, Donald Pegago, III, is now suing Christopher and his parents in state court for injuries sustained in the accident. Christopher currently faces state criminal charges for wanton endangerment, speeding and evading the police but not with respect to unlawful possession of the car. State Farm is seeking declaratory judgment that it is not obligated to provide defense or liability coverage to Christopher Wilson or his parents.
II.
Two different State Farm policies are potentially at issue. Christopher's grandfather, Robert Davis, insured his car with State Farm. Christopher does not appear to be an insured under that policy. The policy defines an insured as the policy holder, his spouse and relatives, anyone the policy holder or his spouse has given consent to use the car, and any person or organization liable for one of the other insured's use of the car. Neither Davis nor his wife gave Christopher consent to use their car. Christopher is related to Davis, but the policy limits the definition of relatives to people who live with the policy holder. Christopher does not live with Davis. Defendants cannot make any serious arguments that the Davis policy covers Christopher in these circumstances. Therefore, Christopher is not an insured under Davis' policy and State Farm has no obligation under that policy.
The Pegago's attempt to extend Davis' policy to cover Christopher's actions by arguing that Christopher's parents had implied consent to use Davis' car, and because they are vicariously liable for Christopher's actions, Christopher's use falls within his parent's implied consent. This argument defies logic. The Pegago's cite no case law to support the position that implied consent can be extended to a party who lacks consent if someone with consent is liable for the actions of the party without consent. This Court finds no merit in this argument.
III.
Garry and Nancy Wilson's State Farm policy presents a more difficult analysis. The Wilson's son, Christopher is an insured, if he meets all other policy conditions. Pursuant to the non-owned vehicle provision, the Wilson's policy provides accident coverage for Christopher even if the involved vehicle is neither listed on the policy nor owned by the Wilson's. The ambiguity in this case arises from an exclusionary provision in the non-owned vehicle provision. While the policy does cover non-owned vehicles, it specifically exempts any car that is "not in the lawful possession of the person operating it." The Wilson's did not own the car that Christopher drove the night of the accident, and Christopher took the car without consent. Whiles he intended to return the car, his conduct is in apparent violation of KRS 514.100, which criminalizes the unauthorized possession of a motor vehicle. He and his parents even admitted Christopher was not in lawful possession of his grandfather's car in their answer to the complaint. Therefore, one might logically assume that State Farm would have no obligation to defend or indemnify under the policy. However, a close scrutiny of recent Kentucky cases reveals that a surprisingly different analysis is necessary.
In Healthwise of Kentucky, Ltd. v. Anglin, 956 S.W.2d 213 (Ky. 1997), the Kentucky Supreme Court held that an insurance policy exclusion defined by criminal behavior only applies when the insured is convicted of the crime. The court required a health insurance company to cover plaintiff's medical costs even though he had a blood alcohol level of .21, more than twice the legal limit while driving, and his insurance policy excluded "treatment for injuries sustained as a result of being under the influence of alcohol (legal intoxication as defined by Kentucky law) or the illegal use of drugs". Id. at 215, 218. The Court reasoned that the term "legal intoxication" was ambiguous because it had several possible definitions. Id. at 217. Ambiguities in insurance contracts must be liberally construed in favor of coverage. Id. Because one of the statutes defining intoxication begins "a person is guilty of legal intoxication when . . .", the Court interpreted "legal intoxication" to require a criminal adjudication of guilt. Id. at 217-18.
In our case, the Wilson policy requires "lawful possession" of a non-owned vehicle. While this policy language may seem relatively clear, like that in Healthwise it implies reference to criminal law. Examining the Kentucky Penal Code for relevant definitions, the Court finds, as in Healthwise, that several might apply. The most relevant is KRS 514.100. That statute begins the same way as the statute in Healthwise. ("A person is guilty of the unauthorized use of an automobile or other propelled vehicle when . . ."). Following the Supreme Court's rationale in Healthwise, State Farm's exclusionary language is ambiguous because it never defines "unlawful possession" and appears to refer to an unidentified criminal statute. Therefore, this Court must construe the ambiguous policy language in favor of coverage, if possible. Because the policy language seems to rely on the criminal code for clarification, the rationale in Healthwise compels the Court to interpret the policy as excluding coverage only after adjudication of criminal guilt. In this case, Christopher has not been convicted of unlawful possession of a vehicle.
Notwithstanding this analysis, the Court notes that most, if not all, crimes codified in the Kentucky Penal Code begin "a person is guilty of . . . when . . .". While no one disputes that criminal liability requires a conviction, it is less clear why an insurance policy exclusion based on misconduct necessarily should require one. After all, a person steals even if they are not convicted of theft. This Court is inclined to agree that there is a certain illogic not countenanced by the language of the insurance policy or public policy in requiring a criminal conviction rather than merely a clear violation of the law. See Healthwise, at 220-21. Cite. Criminal conviction is often avoided on procedural grounds or for other reasons unrelated to the guilt or innocence of the person. See Healthwise, at 221. Nevertheless, the majority opinion draws a bright line, which seemingly avoids the possibility of ambiguity and affords maximum protection to the policyholders. Over the years these two objections have been among the consistent public policies applied to Kentucky insurance law.
As a foundation of its opinion, the Supreme Court in Healthwise seems to have adopted the doctrine of reasonable expectations. Petitioners say that this policy was written so that a lay person could easily understand the extent of coverage. Petitioners reasonably suggest that one would not normally expect that a conviction be required to exclude coverage. This Court sees much merit in this suggestion. The Kentucky Supreme Court, however, seems to take a different view. It is a view based upon its strong belief that insurance policies should be both strictly and liberally construed to provide coverage, where possible. This Court respects that view and its historical foundations. If, indeed, it is ambiguous in a health policy to exclude coverage where the injuries are sustained "as a result of being under the influence of alcohol (legal intoxication as defined by Kentucky law)", then this Court must conclude that it is no less ambiguous in an automobile policy to exclude coverage where an otherwise insured person is not in "lawful possession" of the vehicle.
Petitioner has pointed out that some circumstances of our case differ from those in Healthwise. The language of the policies, the section of the policy and the statutes referenced are all somewhat different. Nevertheless, the Court is not inclined to search for some factual distinction in order to evade the Supreme Court's fundamental rule. The Kentucky Supreme Court's view on this issue seems quite clear and broad enough to apply here. A federal court sitting in diversity has an obligation to apply state substantive law. Hanna v. Plumer, 380 U.S. 460, 464-65, 85 S.Ct. 1136, 1140 (1965). The Court is convinced that the holding and analysis of Healthwise require finding ambiguity in this policy language and interpreting the exclusion to mandate a conviction of unlawful conduct. Therefore, State Farm must provide coverage and a defense for Christopher Wilson and his parents.
The Court will enter an order consistent with this Memorandum Opinion.
ORDER
Petitioner has moved for summary judgment on its declaratory judgment action. Having reviewed the memoranda, heard arguments and being otherwise sufficiently advised,
IT IS HEREBY ORDERED that Petitioner's motion for summary judgment as to the Davis policy is SUSTAINED and is DENIED as to the Wilson policy.
IT IS FURTHER ORDERED that on or before January 13, 2000, the parties shall advise the Court of other actions necessary to conclude this case.