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Grimes v. Alfa Mutual Insurance Co.

Supreme Court of Alabama

January 27, 2017

Warren Grimes and Johanna Grimes
v.
Alfa Mutual Insurance Company

         Appeal from Coffee Circuit Court (CV-12-900141)

          BOLIN, Justice.

         Warren Grimes and Johanna Grimes appeal from a declaratory judgment holding that a liability policy issued by Alfa Mutual Insurance Company ("Alfa") did not provide coverage for a user of an automobile who did not have the express permission of the owner or drivers covered by the policy.

         Facts and Procedural History

         On May 7, 2010, Teresa Boop added liability coverage and uninsured/underinsured-motorist coverage for a pickup truck to her automobile insurance with Alfa. Boop also added her minor son as a driver under the policy. Boop's son was listed as the rated driver for the pickup truck and his addition was reflected in the rates charged by Alfa for the additional coverage. The liability provision of the policy provided:

"If this coverage is shown on your declaration, we will pay damages for bodily injury or property damage for which any covered person becomes legally responsible because of a car accident arising out of the ownership, use or maintenance of a covered car or non-owned car. We will settle or defend lawsuits asking for these damages until your coverage for such damage has been exhausted with attorneys hired and paid by us as we consider appropriate. In addition to our limit of liability, we will pay all defense costs we incur. We have the right to investigate, negotiate and settle any claim or suit. We have no duty to defend any suit or settle any claim for bodily injury or property damage not covered under this policy."

         The policy defined "covered person" as:

"1. You and your:
"2. Family members.
"3. Any other person while using the covered car with the express permission of you or a family member.
"4. Under Part A [liability coverage], any person or organization legally responsible for the use of the covered car by covered persons as defined under the three subsections above.
"5. Under Part D [uninsured/underinsured-motorist coverage], any person while occupying your covered car."

         On May 23, 2010, Amy Arrington was operating the pickup truck when it collided with a vehicle owned and occupied by the Grimeses. Both of the Grimeses suffered personal injuries as a result of the collision. The Grimeses' vehicle was insured by Liberty Mutual Group, Inc.

         On April 16, 2012, Liberty Mutual sued Arrington, alleging negligence and wantonness and seeking recovery of damages for the Grimeses' vehicle. On May 23, 2012, the Grimeses sued Arrington and Boop, alleging negligence, wantonness, and negligent entrustment, and seeking damages for their personal injuries. Arrington filed answers, arguing that she was a covered person under the terms of Boop's policy with Alfa and that Alfa, therefore, should provide her with a defense in the Grimeses' action and in Liberty Mutual's action.

         On October 15, 2012, Alfa filed a complaint, seeking a judgment declaring that the Alfa policy did not require it to defend either lawsuit or to pay damages caused by the collision. Liberty Mutual and the Grimeses filed a joint motion to dismiss Alfa's declaratory-judgment action, which the trial court denied. On February 14, 2014, Liberty Mutual filed a motion for a partial summary judgment, arguing that, under the Alabama Motor Vehicle Safety Responsibility Act, § 32-7-1 et seq., Ala. Code 1975 ("the MVSRA"), and the Mandatory Liability Insurance Act, § 32-7A-1 et seq., Ala. Code 1975 ("the MLIA"), Alfa was required to extend coverage to drivers of covered vehicles who have the implied permission of the insured to operate the vehicle. The trial court denied the motion.

         On August 19, 2015, Alfa's declaratory-judgment action went to trial with all the parties present. The trial court entered the following order:

"This matter comes before the Court upon the complaint of Alfa Mutual Insurance Company ('Alfa') seeking a declaratory judgment to determine coverage arising from an automobile accident which occurred on May 23, 2010. The court called the case for hearing at its scheduled time on August 19, 2015, and all parties were present with their respective attorneys of record. The court heard testimony, accepted exhibits, and considered various motions and arguments of counsel. Defendant Liberty Mutual Group was granted leave to submit a post-trial amendment to its motion for judgment as a matter of law filed in open court at the close of all the evidence. Based upon the relevant and competent evidence presented, the court finds and adjudges as follows:
"1. On the aforementioned date of May 23, 2010, Teresa Boop was the owner of a 1990 Chevrolet K1500 pickup truck covered by a policy of liability insurance issued by Alfa, namely, Policy number A2234762. Ms. Boop and her minor son, Ryan, were the primary drivers of the referenced vehicle.
"2. At the time of the May 23, 2010, accident, Amy Arrington was operating the Boop pickup when it collided on Highway 84 with a vehicle occupied by Warren and Johanna Grimes. Lawsuits were subsequently filed by Liberty Mutual Group against Amy Arrington and by the Grimeses against Teresa Boop and Amy Arrington to recover damages. After the suits were instituted, Amy Arrington called upon Alfa to extend bodily injury and property damage coverage to provide for her legal defense and satisfy any judgment returned against her.
"3. Part A of the subject Alfa policy in fact provides liability coverage 'for bodily injury or property damage for which any covered person becomes legally responsible because of a car accident arising out of the ownership, use or maintenance of a covered car.' A 'covered person' is elsewhere defined in the policy to include the insured, insured's family members, and any other person while using the covered car with the express permission of the insured or a family member. The policy contains no provision for liability coverage to users of the vehicle with implied permission.
"4. Alfa subsequently filed this action requesting a declaratory judgment be entered finding that it 'is without obligation to provide ... insurance protection or [indemnity] benefits' for the May 23, 2010, car accident because Amy Arrington did not have the requisite express permission to use the vehicle. Defendants not only contend that Ms. Arrington did have express permission from Ms. Boop and/or Ryan to use the vehicle, but further assert she had implied permission under all the attendant facts and circumstances and, therefore, Alfa is statutorily bound to extend liability coverage for the accident pursuant to Alabama Code § 32-7-22 (1975). Thus, a justiciable controversy exists between the parties as to the policy's liability coverage.
"5. In reiteration, the Alfa policy in question limits liability coverage to users of covered vehicles having express permission. Alabama Code § 32-7-22 (1975) is inapplicable in this instance. On the occasion of the May 23, 2010, vehicular collision involving the Grimeses and Amy Arrington, the latter was a non-insured operator of the Boop pickup truck as she did not have the express permission of the insured (or her son) to use same. Accordingly, there is no coverage under the subject policy and Alfa has no contractual or other legal obligation to defend the respective actions brought by the Grimeses and Liberty Mutual Group or to pay any damages they may recover."

         The Grimeses appealed.[1]

         Standard of Review

         When the trial court hears ore tenus evidence during a bench trial, this Court's review of a declaratory judgment is ordinarily governed by the ore tenus standard. Fort Morgan Civic Ass'n, Inc. v. City of Gulf Shores, 100 So.3d 1042 (Ala. 2012). "'However, the ore tenus rule does not extend to cloak a trial judge's conclusions of law, or incorrect application of law to the facts, with a presumption of correctness.'" Aetna Cas. & Sur. Co. v. Mitchell Bros., Inc., 814 So.2d 191, 195 (Ala. 2001)(quoting Eubanks v. Hale, 752 So.2d 1113, 1144-45 (Ala. 1999)).

         Discussion

         The Grimeses argue that the trial court erred when it failed to apply the MVSRA to its analysis of the underlying policy, which was issued pursuant to the MLIA. The Grimeses argue that the MVSRA and the MLIA should be read in pari materia. Specifically, the Grimeses argue that § 32-7-22, Ala. Code 1975, of the MVSRA requires the liability policy issued by Alfa to provide coverage for individuals operating the vehicle with either the express or implied permission of the insured. They argue that in Billups v. Alabama Farm Bureau Mutual Casualty Insurance Co., 352 So.2d 1097 (Ala. 1977), this Court held that an owner's liability insurance policy must insure the named insured and any other person who is using the insured vehicle with the express or implied permission of the named insured. The Grimeses also argue that the MLIA requires Alfa to provide liability coverage for individuals driving the insured's vehicle with the insured's implied permission.

         Alfa argues that the MVSRA does not require that a liability policy provide coverage for drivers whose permission to use the covered vehicle is implied unless the policy is a "motor vehicle liability policy" required as "proof of financial responsibility" under § 32-7-22, Ala. Code 1975. Alfa argues that this Court has recognized a distinction in the MVSRA between an "automobile liability policy" and a "motor vehicle liability policy." Alfa asserts that this Court has consistently refused to require all liability policies to provide coverage for users with implied permission. Lastly, Alfa argues that the language of the MLIA precludes any requirement that a liability policy provide coverage for a driver using a vehicle with implied permission.

         I.

         A brief history of the MVSRA and the MLIA is necessary for our discussion. The MVSRA was enacted in 1951 with the purpose of protecting the public. American Southern Ins. Co. v. Dime Taxi Servs., Inc., 275 Ala. 51, 151 So.2d 783 (1963). Those who are answerable for damages resulting from their fault in the use and maintenance of an automobile who do not have automobile liability insurance or who are otherwise unable to financially respond to the resulting damages are subject to the loss of their driving privileges. State Farm Fire & Cas. Co. v. Lambert, 291 Ala. 645, 285 So.2d 917 (1973). It is a privilege, not a right, to operate a motor vehicle on public roadways, and licensing and registration are an exercise of state police powers to ensure safety on the public highways. Snavely v. City of Huntsville, 785 So.2d 1162 (Ala.Crim.App.2000).

         The first part of the MVSRA is retrospective in nature --it suspends the license and registration of a driver who has caused an accident and failed to establish financial responsibility under the MVSRA. In short, it requires the furnishing of collateral or proof of insurance or an ability to pay, after a motor-vehicle accident, so that victims of that accident may be assured of compensation. Section 32-7-5, Ala. Code 1975, of the MVSRA requires that any driver involved in an accident in Alabama where a person is injured or killed or that results in more than $250 in property damage must file an accident report with the Department of Public Safety ("DPS") within 10 days of the date of the accident. That report form was amended in 2011 following the adoption of the online insurance-verification system, discussed infra, a part of the MLIA.

         Under § 32-7-6, Ala. Code 1975, if, after receiving the report, DPS does not have evidence that the driver has been released from liability, has been adjudicated as not liable, or has agreed to pay installments for any injuries or damage for which the driver is liable, the director of DPS shall determine the amount of security needed to satisfy the damages. DPS then suspends both the license and the vehicle registration of the driver. The determination of the amount of security does not predetermine liability, which can be answered only in a judicial proceeding. Instead, the security protects the public from an "empty" judgment in the event fault is later established.

         Under § 32-7-6, if a driver involved in an accident was reported as being uninsured and had his or her driving privileges suspended but actually had in place an "automobile liability policy, " the driver is to submit a "Proof of Liability Insurance" form to the DPS. The driving privileges will then be reinstated, and no reinstatement fees shall be assessed if the proper documentation has been provided to the DPS.

         Section 32-7-7, Ala. Code 1975, sets out exceptions to providing security for an accident and suspending the driver's privileges in § 32-7-6. One of those exceptions is if, at the time of the accident, the owner's motor vehicle was being operated without the "permission, express or implied, " of the owner. § 32-7-7(3), Ala. Code 1975.

         A driver who has caused an accident and failed to establish financial responsibility in compliance with the MVSRA will have his or her license and registration suspended for three years. § 32-7-8, Ala. Code 1975. The three-year suspension will apply until (1) the driver has deposited the security required; or (2) two years have elapsed and the driver shows that the injured person has not pursued the recovery of damages; or (3) the driver has been released from liability, has been found not to be liable, or has entered into an installment agreement to pay the damages. § 32-7-8, Ala. Code 1975.

         The second part of the MVSRA is prospective. It requires "proof of financial responsibility" under certain circumstances, i.e., evidence of an ability to meet possible judgments arising from the future ownership, maintenance, or operation of a motor vehicle. Those circumstances include certain driving convictions. § 32-7-18, Ala. Code 1975. Also, a driver who has had his or her license and registration suspended because he or she caused an accident and failed to pay the minimum damages shall not have his or her license and registration renewed unless the judgment is satisfied under the MVSRA and the driver provides proof of financial responsibility. Section 32-7-22 sets out the requirements of a liability policy that suffices as "proof of financial responsibility."

         In 1965, the legislature amended the MVSRA to require policies to offer uninsured-motorist coverage. § 32-7-23, Ala. Code 1975. Section 32-7-23 allows a person purchasing automobile insurance to obtain, for an additional premium, protection against injury or death at the hands of an uninsured motorist as he or she would have had if the motorist had obtained for himself or herself a minimum liability insurance policy.

         In 1999, the legislature amended the MVSRA to provide that a person must provide proof of motor-vehicle liability coverage before he or she could register a vehicle for operation on Alabama highways. § 32-7-6.1, Ala. Code 1975. See Act No. 1999-430, Ala. Acts 1999. In 2000, the legislature repealed § 32-7-6.1 and enacted the MLIA. Act No. 2000-554, Ala. Acts 2000.

         The MLIA provides that no person can operate, register, or maintain registration of a vehicle (or allow another person to do so) for use on the public highways of Alabama unless the motor vehicle is covered by a liability insurance policy (§ 32-7A-4(b)(1), Ala. Code 1975); a liability bond (§ 32-7A-4(b)(2), Ala. Code 1975); or a cash deposit (§ 32-7A-4(b)(3), Ala. Code 1975). Section 32-7A-5, Ala. Code 1975, lists those vehicles and operators exempt from the provisions of the MLIA.

         Every operator of a covered motor vehicle, other than those exempted in § 32-7A-5, must carry evidence of insurance within the vehicle and demonstrate that the vehicle is covered by the requisite liability insurance policy. § 32-7A-6(a), Ala. Code 1975. Section 32-7A-6(a)(1) through (5) sets out what constitutes adequate proof of coverage. The Department of Revenue is responsible for administering the MLIA. § 32-7A-3, Ala. Code 1975. The MLIA provides that the Department of Revenue may select random samples of registrations subject to the MLIA and send the owners questionnaires designed to determine whether the vehicle is properly insured. § 32-7A-7, Ala. Code 1975. Owners who receive such questionnaires must respond in 30 days, § 32-7A-7(d), and owners who fail to respond are deemed to be in violation of the MLIA. § 32-7A-7(f).

         In 2011, the legislature amended the MLIA by adopting an act establishing the Online Insurance Verification System ("OIVS"). Act No. 2011-688, Ala. Acts 2011. The goal of the OIVS is to create an effective method for implementing the MLIA. Act No. 2011-688 amended parts of both the MVSRA and the MLIA. Act No. 2011-688 also added Chapter 7B to Title 32, Motor Vehicles and Traffic, regarding the duties of the Department of Revenue and insurance companies in complying with the OIVS. The OIVS allows a real-time response to an insurance inquiry. The Department of Insurance can fine an insurance company if it determines that the insurer violates one of the provisions of the OIVS.

         Section 32-7A-17, Ala. Code 1975, provides that no vehicle registration or renewal shall be issued unless the licensing official receives satisfactory evidence of insurance or verification of liability insurance through the OIVS. The vehicle owner is responsible for insuring the vehicle. The OIVS is accessible by the Department of Revenue, licensing officials, and law enforcement. In 2016, the legislature adopted Act No. 2016-361, Ala. Acts 2016, which provides for the civil enforcement of the MLIA by the Alabama Law Enforcement Agency.

         II.

         It is also necessary to review the rationale and analyses underlying this Court's decisions involving the MVSRA before the adoption of the MLIA.

         In State Farm Mutual Automobile Insurance Co. v. Sharpton, 259 Ala. 386, 66 So.2d 915 (1953), this Court affirmed a judgment denying the insurer's application for a temporary injunction regarding personal-injury actions against its insured pending the resolution of its declaratory-judgment action. The insurer sought a judgment declaring that the insurer had been discharged from liability to defend and indemnify its insured because of the insured's alleged noncooperation in the defense of the personal-injury actions. The insured contended that liability under the policy was controlled by the MVSRA and that what is now § 32-7-22 virtually eliminated the cooperation clause of the policy insisted on by the insurer. This Court held that the terms required by § 32-7-22 of the MVSRA apply only to those policies required to be certified as "proof of financial responsibility" to permit the vehicle to continue to be registered. There was no showing made in Sharpton that the policy involved was issued in response to the mandatory requirements of the MVSRA set out in what is now § 32-7-22. The Sharpton Court acknowledged that the MVSRA did not require all drivers or owners to carry liability insurance.

         The MVSRA references "automobile liability policy" in the first part of the act establishing it, which, as noted earlier, is retrospective in nature, and "motor vehicle liability policy" in the second part, which, as noted, is prospective. This Court discussed the distinctions between those terms in State Farm Mutual Automobile Insurance Co. v. Hubbard, 272 Ala. 181, 129 So.2d 669 (1961), which involved a "household-exclusion" provision in an insurance policy. The husband's car was insured by State Farm, and the policy excluded coverage for any member in the same household as the insured. The husband and wife were involved in an accident, and the wife was injured. She sought damages for her medical expenses. The wife refused a settlement offer. The wife filed the required report informing the director of DPS that she had been in an accident. The director notified the husband that he had to show the he had security to pay for damages arising out of the accident or his license and registration would be suspended. ...


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