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Farm Bureau Mutual Insurance v. John Schrock

March 22, 2011


Appeal from the District Court of the Fifth Judicial District of the State of Idaho, Twin Falls County. Honorable Randy J. Stoker, District Judge.

The opinion of the court was delivered by: J. Jones, Justice.

2010 Opinion No. 45

Stephen W. Kenyon, Clerk

The judgment of the district court is affirmed.

This is an appeal from a declaration of no coverage under an umbrella policy issued by Farm Bureau Mutual Insurance Company of Idaho ("Farm Bureau") to John and Lisa Schrock for a claim brought by their daughter Stacy Schrock. We affirm.



Facts and Procedural History

Farm Bureau issued two insurance policies to John and Lisa Schrock, the City Squire Policy (the "Squire Policy"),*fn1 and the Personal Umbrella Policy (the "Umbrella Policy"). The Squire Policy provides up to $500,000 in automobile liability coverage, while the Umbrella Policy provides supplemental liability coverage up to $1,000,000. The inquiry here is whether coverage is available under the Umbrella Policy for injuries sustained by John and Lisa's daughter, Stacy Schrock, in a single-car accident that occurred on October 24, 2008. Lisa Schrock owned the 2001 Isuzu Rodeo involved in the accident. However, Christa Springer, a friend of Stacy's, was operating the vehicle with Stacy's permission at the time of the accident. Christina Monroe, Michele Runyan and April Seitzinger were also passengers in the vehicle at the time of the crash. All passengers in the Rodeo sustained injuries, including Stacy, who "sustained significant and permanent injuries." Farm Bureau does not dispute its liability under the Squire Policy for Stacy's injuries because a claim by Stacy against Christa is covered under the policy. However, Stacy is also making a claim under the Umbrella Policy because the severity of her injuries is likely to exceed the $500,000 limit of the Squire Policy.

To determine its liability under the Umbrella Policy, Farm Bureau filed a declaratory judgment action against the Appellants, seeking a determination of no coverage. Specifically, Farm Bureau argued there was no basis for coverage under the Umbrella Policy for a claim against Christa because she did not qualify as an insured under the policy. The coverage grant in the Umbrella Policy provides that: "We will pay damages for which the insured becomes legally responsible caused by . . . an occurrence to which this insurance applies that results in bodily injury . . ."*fn2 A permissive driver is not an "insured" under the Umbrella Policy, unless the driver is an employee of a named insured. Therefore, Farm Bureau argued there is no coverage for a claim brought by Stacy against Christa, because Christa is not an employee of either John or Lisa.

Additionally, Farm Bureau argued that even if the policy were to be construed to generally provide coverage, two exclusions would apply to specifically prohibit coverage. These exclusions provide:

We do not cover: ...

9. A permissive driver. If state law requires that this policy apply to a permissive driver, however, our applicable limit of liability for an occurrence shall be reduced (see Part V Limit of Liability). This exclusion does not apply if the permissive driver is your employee [the Permissive Driver Exclusion]


16. Personal injury, bodily injury, or property damage, sustained by you, your spouse, your minor children, your relative, or any other insured [the Household Exclusion]

Subsequently, John Schrock, Stacy Schrock and Christina Monroe filed a counterclaim seeking a declaration of coverage under the policy. Farm Bureau filed a motion for summary judgment on the issue, and also sought a dismissal of the counterclaim. Several of the defendants filed a crossmotion for summary judgment.*fn3

Appellants argued before the district court that, while there may not be coverage for a claim by Stacy against Christa under the Umbrella Policy, there would be coverage for a claim brought by Stacy against Lisa, if Christa's negligence is imputed to Lisa pursuant to I.C. 49- 2417.*fn4 Additionally, they argued that Exclusion 8 in the Umbrella Policy is a savings clause*fn5 which incorporates the coverage provided by the Squire Policy into the Umbrella Policy. This section provides that:

We do not cover: ...

8. Bodily injury or property damage arising out of the ownership, maintenance, use, or entrustment to others of any motor vehicle unless covered by valid and collectible underlying insurance described in the Declarations, and then only to the extent such injury or damages are covered by such policy [Exclusion 8]

They argued that the Permissive Driver Exclusion and the Household Exclusion are in conflict with the savings clause and must be construed against Farm Bureau. Specifically, because the Permissive Driver Exclusion prohibits all coverage for permissive drivers, that exclusion would render meaningless the coverage for entrustment of an insured vehicle to another person covered by the savings clause and is, therefore, ambiguous, and should be construed in favor of coverage.

Additionally, because the Household Exclusion does not specifically apply to motor vehicle insurance coverage, it should be construed narrowly and not negate coverage under the savings clause. Alternatively, they argued that the Household Exclusion should be declared void under Farmers Ins. Group v. Reed, 109 Idaho 849, 712 P.2d 550 (1985), which held that an exclusion for household members in a primary motor vehicle policy violated statutory insurance requirements, and that such an exclusion is violative of public policy.

The district court granted summary judgment in favor of Farm Bureau, holding that the Umbrella Policy does not provide coverage for any of the named defendants. The court determined that Exclusion 8 limited coverage under the Umbrella Policy and was not a basis for additional coverage. As such, the court ruled that there was no ambiguity between Exclusion 8 and the Permissive Driver and Household Exclusions. The district court refused to extend Reed's prohibition of household exclusions in motor vehicle liability insurance policies to the Umbrella Policy at issue in this case. Further, the district court held that I.C. § 49-2417 only creates imputed liability under primary motor vehicle insurance coverage and does not affect umbrella policies.

II. Issues on Appeal

Appellants ask the Court to decide whether: (1) Exclusion 8 is properly construed as a savings clause; (2) if Exclusion 8 is a savings clause, is it in conflict with the Permissive Driver and Household Exclusions, rendering them ineffective to deny coverage for Stacy's claim; (3) I.C. § 49-2417 requires imputed liability up to the limits of the Umbrella Policy; (4) public policy bars Farm Bureau from using the Household Exclusion to deny coverage; and (5) Appellants are entitled to attorney fees on appeal.

III. Analysis

A. Standard of ...

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