A legal dispute arose between insurance companies, State Farm Mutual Automobile Insurance Company and Southern Trust Insurance Company, concerning coverage following a car accident on November 10, 2007. The driver, Ralph Tallent, was operating a vehicle owned by Jimmy Wilson when he crashed into parked cars and a building. Tallent was using Wilson's car as a temporary substitute while his own vehicle was being repaired after a prior accident. Cheryl Farner, a merchant whose property was damaged, filed a lawsuit against both Tallent and Wilson, alleging Wilson's negligence in entrusting his vehicle to Tallent, whom he knew to have alcohol issues.
At the time of the accident, Tallent was insured by Southern Trust, while Wilson was covered by State Farm. Though both parties agreed that State Farm's auto policy was primary, they disputed the order of excess coverage. State Farm settled various claims and subsequently filed a declaratory judgment action against Southern Trust on February 2, 2010. State Farm sought a court ruling that Southern Trust's personal auto policy for Tallent was secondary and immediately excess to State Farm's primary coverage. Additionally, State Farm requested that its personal liability umbrella policy for Wilson would also be secondary and excess, contingent on the exhaustion of the primary auto coverage limits.
State Farm claimed that the amounts it paid in settlement were fair and reasonable, seeking a judgment of $262,589 against Southern Trust for payments exceeding the primary policy limit of $50,000. The Court of Appeals concluded that the trial court had erred by ruling that the driver's auto policy covered damages from the car owner's independent negligence, reversing and remanding the judgment accordingly.
Southern Trust denied that Wilson was an insured under its liability policies, asserting that its coverage was secondary and excess only concerning claims against Brian Tallent. It acknowledged that the State Farm and Southern Trust umbrella policies were secondary to auto coverages for claims against Tallent. Southern Trust contested that State Farm’s umbrella policy was secondary to its auto policy regarding claims against Wilson and emphasized its counsel’s attempts to stay informed about the Monroe County lawsuit initiated by Ms. Farner and the settlement discussions. Southern Trust’s counsel participated in the lawsuit on behalf of Ralph Tallent when State Farm's counsel refused to keep them updated. It was noted that State Farm intended to settle the case independently, which Southern Trust deemed unreasonable.
State Farm sought a summary judgment declaring that Southern Trust’s auto policy was secondary to its own auto policy and that any umbrella coverages were also secondary. The trial court determined the coverage priority on September 3, 2010, with State Farm’s auto policy taking precedence, followed by Tallent’s Southern Trust auto policy and then Wilson’s State Farm umbrella policy. A subsequent order on September 24, 2010, granted State Farm’s motion for summary judgment, though the issue of damages remained unresolved. After Southern Trust’s interlocutory appeal was denied, State Farm filed another motion for summary judgment for $262,589.84, supported by an affidavit asserting the fairness of the settlement amounts. Southern Trust opposed this motion, disputing the reasonableness of the paid amounts through affidavits from its claims manager and counsel. Ultimately, on November 10, 2011, the trial court ruled in favor of State Farm, awarding the specified amount. On appeal, Southern Trust contended that the trial court erred in prioritizing its auto policy over State Farm’s umbrella policy, in determining Wilson was an insured under its policy, and in concluding that Southern Trust waived its right to challenge the reasonableness of the damages.
Summary judgment is proper when there are no genuine material facts in dispute, allowing the moving party to receive judgment as a matter of law per Tenn. R. Civ. P. 56.04. Such judgments do not carry a presumption of correctness on appeal (BellSouth Adver. Publ’g Co. v. Johnson, 100 S.W.3d 202, 205). The reviewing court must independently verify compliance with Tenn. R. Civ. P. 56, considering evidence favorably to the non-moving party and determining if factual disputes exist (Hunter v. Brown, 955 S.W.2d 49; Godfrey v. Ruiz, 90 S.W.3d 692). If disputes arise, the court assesses their materiality and relevance to the claims at hand (Byrd v. Hall, 847 S.W.2d 208).
To shift the burden of production to the non-moving party, the moving party must disprove an element of the opponent’s claim or demonstrate the opponent's inability to prove a critical claim element (Hannan v. Alltel Publ’g Co., 270 S.W.3d 1). Contract interpretation and insurance coverage scope are both legal questions (Guiliano v. Cleo, Inc., 995 S.W.2d 88; U.S. Bank, N.A. v. Tenn. Farmers Mut. Ins. Co., 277 S.W.3d 381).
The initial issues raised by Southern Trust involve whether the trial court incorrectly prioritized Southern Trust's auto policy over State Farm's umbrella policy and if Wilson was insured under Southern Trust's auto policy. These issues are interconnected and evaluated together, referencing **Modern Service Casualty Insurance Co. v. Aetna Casualty, Surety Co.**, where the court clarified insurance policy prioritization in a vehicle accident case. The ruling affirmed that the owner’s insurance policy is primary when the vehicle is operated with permission, and any additional coverages are secondary until the owner's policy limits are exhausted, as stated in Tenn. Code Ann. 56-7-1101(a).
MSI contended that both Aetna policies should be exhausted before the MSI policy could be accessed, arguing they were owner policies. The court rejected this assertion after examining the relevant policy provisions and the legislative history of Tenn. Code Ann. § 56-7-1101(a). The court noted that the statute was enacted to clarify insurance coverage application when a driver is involved in an accident with someone else's vehicle, establishing that the insurance on the vehicle involved is primary. The statute emphasizes that "owner's policy" is singular, indicating legislative intent to restrict the scope to one auto insurance policy.
Further, the court interpreted the Aetna umbrella policy as not constituting an automobile insurance policy but rather a broader liability coverage. It highlighted that the umbrella policy is excess, as payment is contingent upon liabilities exceeding the minimum limits of primary insurance policies. Consequently, the court determined that the Aetna umbrella policy is excess to the MSI policy, which is itself excess to the primary coverage provided by Aetna's auto policy.
In this context, the court established the priority order for insurance coverage: Wilson's State Farm auto policy is primary, followed by Tallent's Southern Trust policy. Similar to the umbrella policy in a previous case, the State Farm umbrella policy is also classified as excess, requiring underlying insurance policies and only paying for liability exceeding a specified limit. The court confirmed that Southern Trust's auto policy does provide coverage for liabilities not covered by State Farm's auto policy, particularly concerning Tallent’s negligence.
The central issue in this case is whether Southern Trust's auto policy provides coverage for Jim Wilson concerning claims of negligence related to his decision to loan his vehicle to Ralph Brian Tallent. The allegations against Wilson assert that he was negligent for allowing Tallent, who had a known history of alcohol abuse and was recently involved in a drunk driving incident, to use his truck. The complaint highlights Wilson's knowledge of Tallent's alcoholism and his prior actions of posting bail for him shortly before the incident in question.
The court notes that Wilson cannot be held vicariously liable for Tallent's actions under agency principles. Thus, the focus shifts to whether Southern Trust's policy covers Wilson's alleged negligent acts. In interpreting the insurance contract, the court applies standard contract construction rules, emphasizing that the language should be given its ordinary meaning and that ambiguities are construed against the drafter.
Both parties agree that Tallent was driving a vehicle classified as “your covered auto” under the policy. The critical policy provision defines “insured” to include any person concerning legal responsibility for acts of a covered individual. State Farm argues this provision allows Wilson to be considered an insured for his own negligence, asserting that the policy's language regarding legal responsibility is not limited. However, the court finds State Farm's interpretation unconvincing.
The key provision limits legal responsibility to acts or omissions of a covered person, interpreted as referring to Tallent. Wilson is not liable for acts of a covered person; instead, he is liable for his own acts or omissions. The trial court incorrectly granted summary judgment favoring State Farm regarding Wilson's negligent entrustment claims, as a factual issue exists concerning the settlement contributions by State Farm related to these claims.
Regarding Southern Trust, the trial court ruled it waived the right to contest the reasonableness of damages paid by State Farm due to its denial of liability coverage for Wilson. However, this reasoning is rejected. State Farm's citation of a precedent case does not apply as Southern Trust was not the primary insurer for negligent entrustment claims against Wilson. Southern Trust entered an appearance for Tallent without denying coverage, and only one of the underlying claims led to litigation, leaving no basis to assert waiver for the other claims.
Consequently, the trial court's judgment is reversed, and the case is remanded for further proceedings, with costs of the appeal assessed against State Farm.
