#25548-aff in part, rev in part & rem-JKM

2011 S.D. 2

                           IN THE SUPREME COURT
                                   OF THE
                          STATE OF SOUTH DAKOTA

                                    * * * *

STATE FARM AUTOMOBILE
INSURANCE COMPANY,                            Plaintiff and Appellee,
v.
ANDREW BOTTGER,                               Defendant
and
AMCO INSURANCE COMPANY,                       Defendant and Appellee,
and
SARAH R. KOSINSKI,                            Defendant and Appellant.

                                    * * * *

                   APPEAL FROM THE CIRCUIT COURT OF
                      THE FIRST JUDICIAL CIRCUIT
                     UNION COUNTY, SOUTH DAKOTA

                                    * * * *

                      HONORABLE STEVEN R. JENSEN
                                Judge

                                    * * * *

TIMOTHY A. CLAUSEN of
Klass Law Firm, LLP                           Attorneys for plaintiff
Sioux City, Iowa                              and appellee State Farm.

MICHAEL L. LUCE of
Murphy, Goldammer & Prendergast, LLP          Attorneys for defendant
Sioux Falls, South Dakota                     and appellee AMCO.

JAMES N. DAANE of
Buckmeier & Daane Lawyers, PC                 Attorneys for defendant
Sioux City, Iowa                              and appellant.

                                    * * * *
                                              CONSIDERED ON BRIEFS
                                              ON NOVEMBER 15, 2010

                                              OPINION FILED 01/12/11
#25548

MEIERHENRY, Justice

[¶1.]        While attempting to drive Alisia Ludwig’s car out of a ditch, Andrew

Bottger pinned Sarah Kosinski under the car. Kosinski sued Bottger for her

injuries. Both Ludwig (the owner of the car) and Bottger (the driver of the car) were

insured. Ludwig’s car was insured by State Farm Automobile Insurance Company.

Bottger was an insured driver on his mother’s insurance policy with AMCO

Insurance Company. The State Farm policy provided coverage to “any other person

while using such a car if its use is within the scope of consent of you and your

spouse[.]” The AMCO policy excluded coverage when an “insurer” was “[u]sing a

vehicle without a reasonable belief that ‘insurer’ [wa]s entitled to do so.” The

insurance companies sought declaratory judgment on whether coverage existed

under the omnibus clause of the State Farm policy or under the exclusion clause of

the AMCO policy. The trial court determined that Kosinski’s injuries were not

covered under either policy because Bottger did not have express or implied

permission to drive at the time Kosinski was injured. We affirm as to Ludwig’s

State Farm policy because Ludwig had expressly withdrawn permission for Bottger

to drive her car. We reverse and remand as to Bottger’s AMCO policy for the trial

court to determine whether Bottger had a reasonable belief that he was entitled to

drive the car at the time the accident occurred.

                                       FACTS

[¶2.]        Most of the facts are not in dispute and are not challenged as clearly

erroneous on appeal. The events leading up to Kosinski’s injury started in a corn

field in Union County, South Dakota, where Ludwig, Kosinski, and Darci Irwin


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attended a high school drinking party. Ludwig drove her car to the party but

needed a sober driver to drive the car back to her residence in Elk Point, South

Dakota. The three young women asked Bottger if he was sober and capable of

driving them to Elk Point in Ludwig’s car. Bottger assured them he was sober

enough to drive. Relying on his claim of sobriety, Ludwig allowed Bottger to drive

her car. The young women soon realized that Bottger was intoxicated and that his

fast and erratic driving on the gravel road was placing them in danger. Ludwig

directed Bottger to “pull the car over and stop.” Kosinski and Irwin also “yell[ed] at

[him] from the back seat to slow down or pull over.” Bottger disregarded their

requests. He continued speeding, missed a turn at a T-intersection, and crashed

into a steep ditch.

[¶3.]        No one was injured from the crash, but the car was wedged and stuck.

All the passengers, except Bottger, got out of the car. Ludwig angrily demanded

Bottger get of the car. Kosinski, who was standing in front of the vehicle, also told

Bottger to get out of the vehicle. Even so, Bottger remained behind the wheel in an

attempt to dislodge the vehicle by rocking it back and forth. Ludwig and Irwin

climbed out of the ditch onto the road where Ludwig used her cell phone to contact

someone to help remove the car from the ditch. A few minutes later, Bottger got the

car to move forward, but in doing so, pinned Kosinski under the car.

                                     ANALYSIS

State Farm coverage depends on Bottger’s status as an omnibus insured with express
or implied permission to drive.

[¶4.]        South Dakota law mandates that automobile liability policies insure

the person named in the policy and “any other person as insured, using any insured

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vehicle or vehicles with the express or implied permission of the named insured.”

SDCL 32-35-70. “The general rule is that the omnibus clause creates liability

coverage in favor of the omnibus insured ‘to the same degree as the [named]

insured.’” Northland Ins. Co. v. Zurich Am. Ins. Co., 2007 S.D. 126, ¶ 10, 743

N.W.2d 145, 148 (quoting Estate of Trobaugh v. Farmers Ins. Exch., 2001 S.D. 37, ¶

21, 623 N.W.2d 497, 502).

[¶5.]         The specific language of the State Farm omnibus clause provides

coverage if Bottger’s use of the car was “within [Ludwig’s] scope of consent.”

Undisputedly, Bottger initially had permission to drive Ludwig’s car. The trial

court, however, determined that “Ludwig expressly withdrew her permission and

consent almost immediately after Bottger started driving when it became apparent

to her that he was intoxicated.” For the most part, the trial court’s finding that

Ludwig expressly withdrew her permission disposes of the coverage issue under the

State Farm policy. *

[¶6.]         At the hearing, Ludwig testified that she allowed Bottger to drive

because he assured her he was sober. Ludwig also indicated that as soon as Bottger

started driving, she realized he was not sober and specifically asked him to stop so

she could find someone else to drive. As Bottger sped along the gravel road, Ludwig

claimed that she repeatedly told him to stop and pull over, and then told him –

more than once – to get out of the car after it crashed in the ditch. Bottger’s



*       Because we affirm based on Ludwig’s express revocation of permission, we
        need not address the trial court’s determination that Bottger’s intoxication
        was outside the scope of permission or a material deviation from Ludwig’s
        initial express permission.

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#25548

memory of the events was unclear. He did not remember if Ludwig told him to stop

driving or get out of the car.

[¶7.]        Kosinski argues that Ludwig “expressly consented to Bottger’s

operation of her car for the venture from the [party] to their homes in Elk Point.”

Further, Kosinski contends that Bottger’s attempt to get the car out of the ditch was

a continuation of the “original permitted objective,” regardless of Ludwig’s request

to “pull the car over and stop.”

[¶8.]        Kosinski points out that allowing one to avoid insurance coverage

merely by claiming that consent was withdrawn seconds before an accident would

contravene the purpose of the omnibus legislation. We are mindful of that concern.

We have said that to prove express permission, “the evidence must be of an

affirmative character, directly, and distinctly stated, clear and outspoken, and not

merely implied or left to inference.” Trobaugh, 2001 S.D. 37, ¶ 22, 623 N.W.2d at

502 (internal citation omitted). Proof of revocation of permission requires the same

level of proof. Thus, effective revocation of permission must be clearly expressed by

words or actions. One court explained that acts such as retrieving the keys, locking

the vehicle, or removing the permitted driver are relevant factors “in determining

whether permission has been revoked.” Valor Ins. Co. v. Torres, 303 Ill.App.3d 554,

558, 708 N.E.2d 566, 569 (1999). But “the law [does not] impose[ ] an affirmative

obligation to take such additional steps when the insured has expressly prohibited

the use of the vehicle.” Id.

[¶9.]        The trial court found that Ludwig expressly revoked Bottger’s

permission to drive. The evidence supports the trial court’s findings. Ludwig’s


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revocation was affirmatively, directly, and distinctly stated. It was “clear and

outspoken, and not merely implied or left to inference.” Trobaugh, 2001 S.D. 37, ¶

22, 623 N.W.2d at 502. Therefore we affirm the trial court’s determination that

there was no coverage under the State Farm policy’s omnibus clause.

AMCO covers Bottger as an insured unless Bottger did not have a reasonable belief
that he was entitled to drive Ludwig’s vehicle.

[¶10.]       The language of Bottger’s insurance contract, on the other hand,

requires a different analysis. Bottger had liability coverage as a named insured

under his mother’s AMCO policy. The policy covered Bottger when driving his own

vehicle as well as other vehicles. The policy contained an exclusionary provision

that read as follows: “We do not provide Liability Coverage for any ‘insured’ . . .

[u]sing a vehicle without a reasonable belief that that ‘insured’ is entitled to do so.”

AMCO claims the exclusion clause applies because Bottger did not have a

reasonable belief that he was entitled to drive Ludwig’s vehicle at the time of the

accident. Although Bottger’s permission, or lack thereof, determines coverage

under Ludwig’s State Farm liability policy, it does not necessarily determine

coverage under Bottger’s own liability policy.

[¶11.]       The legal inquiry and focus are different between the two policies.

With an exclusion clause, the legal inquiry changes from the automobile owner’s

perspective to the driver’s perspective. See Cooper v. State Farm Mut. Auto. Ins.

Co., 849 F.2d 496, 500 (11th Cir. 1988). The Supreme Court of Georgia described

the inquiry as “a mixed objective/subjective determination of the user’s state of

mind – the reasonableness of the user’s subjective belief of entitlement.” Hurst v.



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Grange Mut. Cas. Co., 266 Ga. 712, 713, 470 S.E.2d 659, 661 (1996). The Court

explained:

             The exclusion clause at issue differs from the traditional
             “omnibus” clause which authorizes coverage for a non-owner’s
             permissive use of a vehicle. The new clause is couched in terms
             of entitlement rather than permission, causing a shift in the
             inquiry from an objective determination – whether the owner or
             one in legal possession of the car gave the user permission – to a
             mixed objective/subjective determination of the user’s state of
             mind – the reasonableness of the user’s subjective belief of
             entitlement.

Id. (citations omitted). The Eleventh Circuit Court of Appeals also differentiated

the focus of an exclusion clause as follows: “permissive use clauses focus[ ] on the

owner’s perspective. Specifically, the inquiry center[s] on whether the owner ha[s]

expressly or impliedly given permission to the user. [An] entitlement clause

reverses the inquiry. It focuses on how the situation appear[s] to the user of the

automobile.” Cooper, 849 F.2d at 499-500.

[¶12.]       This approach is consistent with the risk assumed by the insurer. The

insurer assumes the risk that if its insured “reasonably believes that he or she has

the permission of the owner, the insured will be operating the other automobile

with the same degree of care as was initially anticipated by the insurer when it

issued the automobile policy.” 8A Lee R. Russ, et al., Couch on Insurance 3d §

118:33 (2010).

[¶13.]       As applied here, the focus of the AMCO policy exclusion is whether

Bottger reasonably believed that he was entitled to drive rather than whether he

had Ludwig’s permission. The subjective/objective test “for determining whether

the insured’s (Bottger’s) belief was reasonable is not necessarily what a reasonable


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#25548

person would believe, but is instead measured by the reaction of a reasonable

person of the same age, personality and social environment, subject to such

accompanying influences on the person’s judgment and mind as may be credibly

discerned from the subject evidence.” Id. Consequently, “[o]ne might have a

reasonable belief in his entitlement to use a vehicle, even though he has no

permission to do so, and one might have the owner’s permission to use a vehicle but

still have no reasonable belief that he is entitled to do so.” 46 C.J.S. Insurance §

1505 (2010).

[¶14.]         Whether an insured has a reasonable belief that he is entitled to drive

another’s vehicle is a question of fact. When an insurance company seeks to avoid

liability under a policy because of an excluded risk, it has the burden of proving the

facts that constitute the exclusion. State Auto. and Cas. Underwriters v. Ishmael,

87 S.D. 49, 202 N.W.2d 384, 386 (1972).

[¶15.]         The trial court’s determination that the AMCO policy did not offer

coverage focused on whether Bottger had “implied or express permission.” This was

a mistake because the trial court should have focused on whether Bottger

reasonably believed that he was entitled to drive the vehicle out of the ditch. The

trial court entered two findings concerning Bottger’s subjective belief. The trial

court found that (1) “Bottger subjectively believed that he was being helpful by

trying to remove the car from the ditch,” and (2) “Bottger subjectively believed he

had permission to operate the Ludwig vehicle.” The trial court, however, concluded

that “[c]overage for Bottger under the AMCO policy is excluded because he did not

have Ludwig’s express or implied consent.” Nowhere in the trial court’s


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memorandum decision or in the findings of facts or conclusions of law does the trial

court address the exclusion clause inquiry – whether Bottger had a reasonable

belief that he was entitled to drive the vehicle.

Conclusion

[¶16.]       We reverse and remand for the trial court to apply the language of the

exclusion clause under the subjective/objective test discussed above. The trial court

must determine whether Bottger believed he was entitled to drive the vehicle at the

time of the accident; and if so, whether that belief was reasonable “as measured by

the reaction of a reasonable person of the same age, personality and social

environment, subject to such accompanying influences on the person’s judgment

and mind as may be credibly discerned from the [ ] evidence.” See supra ¶ 13.

[¶17.]       Affirmed in part, reversed in part, and remanded.

[¶18.]       GILBERTSON, Chief Justice, and KONENKAMP, ZINTER, and

SEVERSON, Justices, concur.




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