State Farm Mutual Automobile Insurance Co. v. GTE Hawaiian Telephone Co.

Citations: 915 P.2d 1336; 81 Haw. 235; 1996 Haw. LEXIS 31Docket: 17936

Court: Hawaii Supreme Court; April 30, 1996; Hawaii; State Supreme Court

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State Farm Mutual Automobile Insurance Company (State Farm) appeals a judgment from the First Circuit Court favoring GTE Hawaiian Telephone Company, Inc. (GTE), Argonaut Insurance Company (Argonaut), and George D. Survant in a declaratory relief action concerning automobile liability insurance coverage. State Farm raises five arguments on appeal: 

1. Argonaut is estopped from denying coverage based on a precedent set in Sentinel Insurance Co. Ltd. v. First Insurance Co. of Hawai'i, Ltd.
2. The trial court mistakenly ruled that Survant was not a permissive user of the vehicle involved in the accident, thus not entitled to coverage under Argonaut's policy.
3. Argonaut's policy provides primary coverage for vehicles owned by GTE.
4. State Farm claims entitlement to reimbursement from Argonaut for costs related to a prior tort action.
5. State Farm asserts it is owed fees and costs for pursuing the declaratory relief action.

The Supreme Court of Hawaii affirms the trial court's ruling in favor of GTE and Argonaut, albeit for reasons differing from those of the lower court. The underlying facts include a November 13, 1987, accident involving Survant driving a GTE-owned vehicle, which was insured by Argonaut. The incident resulted in injuries to the driver and passenger of another vehicle, and there is a dispute regarding whether Survant had permission to use the vehicle according to GTE's company regulations, which mandate proper authorization for vehicle use and restrict use to company business. The Argonaut policy in question has a $100,000 limit for bodily injury liability.

Department heads are authorized to grant standing approval for specific management employees to use company vehicles or pool cars during working hours, with the requirement that a copy is provided to the motor pool attendant for pool vehicle use. Employees lacking standing approval must obtain permission from their department head or authorized personnel each time a vehicle is needed during working hours. Outside of regular hours, standing approval may be given to "call out" supervisors who are essential for critical work, contingent upon written submission to the Supply and Transportation Director.

In emergencies, such as severe equipment outages, department heads can authorize overnight use of pool cars for employees, with approval conveyed by phone to the Supply Transportation Director, who will then instruct the Motor Pool Attendant to release the vehicle. Such vehicles must be used strictly for official business, including travel between the emergency site and the employee's home.

Personal use of assigned company vehicles is permitted for the employee and their immediate family, but personal mileage is defined as any non-business driving, including commutes. Strict prohibitions exist against personal use of other company vehicles, particularly those removed from premises for standby conditions or convenience due to security concerns. Assignment of company vehicles requires written approval from the President. Additionally, a Code of Business Conduct mandates that employees must not misuse or improperly dispose of company property and must account for all company assets according to established guidelines. The vehicle involved in the incident was assigned to Survant as Acting Director of Supply and Transportation, but not personally to him.

Any use of Company property requires specific authorization from a supervisor or higher management. Supervisors are responsible for enforcing regulations regarding the handling of Company property and must exercise prudent judgment in the absence of specific guidelines. Employees are strictly prohibited from using or possessing alcoholic beverages and illegal substances on Company property or during work hours, with potential disciplinary actions for violations.

Survant acknowledged receipt of the Code of Business Conduct on April 30, 1986. On November 12, 1987, after work, he drove a Company vehicle to Henry Loui's Restaurant, where he consumed multiple alcoholic beverages with two co-workers and a friend. Survant admitted to drinking bourbon but could not recall the exact number of drinks consumed, estimating more than one and potentially up to ten. The group left the restaurant around 11:30 p.m., and Survant was involved in an accident while returning home in the Company vehicle.

After the accident, he was treated at St. Francis Medical Center, where a blood test indicated a blood alcohol level of 226 mg/dl. Argonaut, the insurance provider, paid Survant no-fault benefits totaling $3,756.17 and also covered damages to both Aoki's and GTE's vehicles. Aoki filed a lawsuit on December 22, 1988, against Survant and GTE for injuries sustained in the accident. GTE's Vice-President-General Counsel informed Survant on February 21, 1989, that based on their investigation, they would deny liability and would not defend him in the Aoki lawsuit, as Survant's actions were deemed outside the scope of his employment. Consequently, Survant was advised to secure his own legal representation and assume full responsibility for his defense.

Survant contacted State Farm for defense against the Aoki suit, which State Farm agreed to provide under a reservation of rights, covering all associated legal fees. On May 25, 1990, State Farm and Argonaut (representing GTE) settled the suit for $90,000, stipulating the amount was fair and reasonable, with each party contributing $45,000. Survant was informed of the settlement only after it was finalized, and both insurers reserved the right to seek reimbursement for their costs. State Farm's counsel agreed with GTE's counsel that $20,000 of the settlement was for punitive damages exposure, a decision made without Survant's knowledge or consent.

Following the Aoki settlement, Chang claimed injuries from a separate 1987 accident, leading to another settlement of $45,000, also shared equally by State Farm and Argonaut. Both insurers acknowledged their legal fees from the Aoki defense as reasonable, despite disputes over reimbursement entitlements. 

On August 21, 1990, State Farm sought declaratory relief against GTE and Argonaut, asserting they had a primary duty to defend and indemnify Survant and claimed reimbursement for defense costs and settlement amounts. GTE and Argonaut counterclaimed, asserting Survant was not a permissive user of the vehicle and sought reimbursement from State Farm. State Farm's motions for partial summary judgment on related issues were partly granted and denied. The case proceeded to trial in January 1994, culminating in a trial court finding that GTE had policies regarding company vehicle use, with Survant categorized as an employee with a vehicle assigned to his position.

Survant was assigned a company vehicle for business use during regular hours, requiring permission from his supervisor, Lee Toole, for any other use. On November 12, 1987, Survant took the vehicle home without obtaining Toole's express permission, although he had a history of using the vehicle for personal purposes about 50 times a year. On that date, Survant's personal vehicle was in repair, and he had a company meeting the next morning. Despite the lack of explicit permission, it was argued that the company's established practice implied consent for Survant to take the vehicle home.

However, on the night of the incident, Survant was severely intoxicated, with a blood alcohol content of 226 mg/dl, and was not performing any company-related duties. GTE Hawaiian Tel had a Code of Business Conduct that prohibited misuse of company vehicles and alcoholic consumption on company property, which Survant violated by driving under the influence. Although he may have had implied permission to drive the vehicle home, his decision to consume alcohol and detour to a bar significantly deviated from any such permission. Consequently, the trial court found that Survant was not considered an "insured" under the Argonaut insurance policy at the time of the accident.

Argonaut is entitled to reimbursement from State Farm for $67,500 paid to settle claims against Survant due to no coverage under the Argonaut policy. Additionally, Argonaut can recover pre-judgment interest from State Farm from the settlement dates of June 4, 1990, and July 10, 1992. Under Hawaii law, when two insurers share a duty to defend and one does not, the defending insurer can recover half of the defense costs from the other. Consequently, State Farm can seek $4,809.90 from Argonaut for half of the legal fees incurred in defending Survant. The trial court's judgment aligns with these findings and conclusions, leading to a timely appeal by State Farm. 

State Farm challenges specific findings of fact (FOF) and conclusions of law (COL), asserting that the appellate court should review the COLs de novo and the FOFs under a clearly erroneous standard. The court has established that a breach of the duty to defend does not automatically lead to an irrebuttable presumption of an obligation to indemnify, as confirmed in Sentinel Insurance Co. Ltd. v. First Insurance Co. of Hawai'i, Ltd. State Farm contends that differences in Argonaut's reasons for denying a defense and coverage warrant the application of estoppel, citing precedents where estoppel was appropriate due to an insurer's inconsistent positions or prejudice to the insured.

State Farm contends that Argonaut has altered its stance on defense and coverage in denying Survant a defense for an accident. State Farm notes that Argonaut's initial denial was based on Survant being outside the scope of employment, while it later argued that Survant lacked permission to operate a company vehicle. However, Argonaut has consistently maintained that there was no coverage for Survant regarding the accident. The argument highlights that in contrast to the Tomerlin case, where an insurer took contradictory positions, Argonaut did not indicate any intention to defend Survant or provide coverage.

The analysis emphasizes that estoppel does not apply when an insurer refuses to defend on the basis of no coverage, as there is no detrimental reliance by the insured on the insurer's representations. The court reinforces that blanket application of estoppel could unjustly benefit the insured, allowing them coverage not originally agreed upon. Additionally, the principles of estoppel require demonstrable detrimental reliance, which State Farm fails to establish in this case. Therefore, Argonaut is not precluded from asserting its coverage defenses.

Survant was determined not to be a permissive user of the company vehicle, leading State Farm to argue that the trial court incorrectly concluded he lacked permission to use it, thus not qualifying as an "insured" under the Argonaut policy. The "omnibus" clause of the policy states that anyone using a covered auto with permission is an insured, though "permission" is not explicitly defined in the policy. Relevant Hawaii statutes (HRS 431:10C-301(a)(2) and HRS 287-25(2)) stipulate that liability insurance must cover anyone using the vehicle with the express or implied permission of the named insured.

Survant could be classified as an "insured" if he had either express or implied permission from GTE. Express permission must be clearly stated, while implied permission can derive from the conduct and relationship between the parties, including a lack of objection to the use, demonstrating consent. The court in Columbia Casualty Co. v. Hoohuli established that if a vehicle is given to an operator by consent, a presumption exists that the use falls within the scope of that consent. This interpretation underscores that permission need not be explicitly stated but can be inferred from the surrounding circumstances and prior conduct of the parties involved.

Overcoming the presumption of consent requires clear evidence of either express withdrawal of consent before use or that the use significantly deviated from the permitted purpose, which could lead to a temporary tortious conversion. The term "temporary tortious conversion" is defined as a substantial deviation from the permission granted. 

Survant did not have GTE's express or implied permission to operate the company vehicle during the accident. Although the vehicle was assigned to him for work, GTE's policies mandated that he obtain permission from his supervisor, Lee Toole, to use it outside of business hours. Survant failed to secure this permission before taking the vehicle home on November 12, 1987.

In assessing implied permission, the trial court noted Survant had previously driven the vehicle home about fifty times, suggesting implied consent. However, following the Hoohuli decision, the court determined that Survant's actions—driving to a restaurant, consuming alcohol, and subsequently driving home—constituted a "gross deviation" from any implied permission. GTE contended that the trial court correctly applied Hoohuli's standards, while State Farm argued the court erred in this assessment. Nonetheless, the court upheld the finding of gross deviation, emphasizing that consent in employer-employee contexts must be demonstrated by mutual conduct, and mere silence may not suffice to imply permission.

No implied permission exists when an employee uses a vehicle without the knowledge of the named insured. The court previously affirmed this principle in Vicente, where it was highlighted that the named insured did not know the second permittee was driving the vehicle and had not shown any consent or relationship with that individual. The ruling emphasizes that permission must be explicitly granted and cannot be inferred solely from possession or use of the vehicle without the named insured's knowledge. Implied consent relies on circumstantial evidence indicating a mutual understanding or lack of objection between the parties involved. Additionally, one claiming implied permission must provide evidence of a recognized course of conduct that the owner has acquiesced to. If the vehicle's use is without the owner's knowledge, the necessary permission cannot be established. Prolonged and habitual use with the owner's knowledge, however, may indicate authorization. Overall, implied permission is generally supported by established practices and behaviors known to all parties involved.

Before applying the presumption of permission established in Hoohuli, the court must first determine whether the vehicle operator was given consent to use the vehicle. In this case, the trial court found that consent existed through acquiescence; however, there was no evidence presented that GTE was aware of Survant's prior use of the company vehicle. Notably, Survant's supervisor was not deposed, and no evidence indicated GTE knowingly allowed Survant to take the vehicle home. The burden of proof lies with the party attempting to hold the insurer liable under the omnibus clause, and without evidence, State Farm failed to demonstrate permissive use. Although the trial court erred in concluding that Survant had implied permission to use the vehicle, it ultimately reached the correct outcome by determining that Survant did not have GTE's permission at the time of the accident. Therefore, the court affirmed the judgment in favor of GTE and Argonaut, and did not address State Farm's additional arguments regarding coverage and fees. The relevant insurance policy provisions were outlined, confirming coverage and conditions related to the insured and the vehicle.

Coverage includes payment for damages an insured is legally obligated to pay for bodily injury to others and property damage, including loss of use, due to an accident related to the ownership, maintenance, or use of the insured's car. The insurer will also provide legal defense for any lawsuits concerning such damages, using attorneys of their choice, but will cease to defend once the liability limit for the incident has been reached. The liability coverage is applicable to the use of newly acquired cars, temporary substitute cars, or non-owned cars. If any of these vehicles has its own liability coverage, the insurer's coverage acts as excess. Additionally, GTE cross-appealed the trial court's partial summary judgment favoring State Farm regarding Argonaut's duty to defend but later withdrew this cross-appeal by stipulation.