Lead Opinion
This case was before us two years ago, in Faber v. Roelofs,
“That the Plaintiff, Kim Faber, is entitled to Judgment against the Defendant, Independent School District No. 581, Edgerton, in the amount of $50,000.00; that said Plaintiff is also entitled to Judgment for such additional amount as may be subsequently determined to have been covered by insurance in accordance with Minnesota Statutes 466.06, but not to exceed the sum of $44,770.00.”
This was the judgment which we affirmed. In 1974, Wilbert Faber died and Kim’s mother, Eleanor Faber, was substituted as a plaintiff for Wilbert Faber.
This appeal concerns the liability for this judgment on the part of two insurers, Tri-State Mutual Insurance Company and Mutual Service Casualty Insurance Company.
I
The Tri-State policy contained the following exclusion:
“The insurance does not apply to bodily injury or property damage arising out of the ownership, maintenance, operation, use, loading or unloading of any aircraft, automobile or watercraft owned, operated or hired by or for the insured or any officer, employee or member of the teaching, supervisory or administrative staff thereof. For the purpose of this exclusion the word ‘hired’ shall be deemed to include any contract to furnish transportation of pupils to and from schools.”
The school district was found liable because of its negligence (1) in acting or failing to act in establishing a bus route, and (2) in acting or failing to act in establishing bus loading and unloading procedures. Whether or not coverage was afforded for this liability under the terms of the policy, Tri-State is nevertheless estopped from denying coverage because of its action in controlling the defense of the action without a reservation of rights.
“The act of the plaintiff in error, in taking control and dominion of the action for damages, and keeping such control and dominion until judgment was entered, without notice to the defendant in error that it did not consider itself liable under the policy — thereby taking from the defendant in error the control and dominion of the action — is such a construction of the policy, by contemporaneous acts, as estops plaintiff in error from denying liability, now that that action is at an end. To take any other view of this case, would be to hold that the assurer could effectually tie the hands of the assured, in an action that might, or might not, on a close construction of the policy, be covered by the terms of the policy, and then, the cause being determined against it, insist that upon a closer reading of the policy, the assured ought to have been left to make its own defense, and at its own risk. This cannot be the law.”
Tri-State argues that the insured must be shown to have been prejudiced by the insurer’s conduct before the insurer can be estopped from raising the defense of noncoverage. Such is the
In Tozer v. Ocean Accident & Guarantee Corp.
Prejudice is presumed because the insurer, by taking control of the defense without a reservation of rights, takes away from the insured his right to control the defense as he sees fit and to make or negotiate a settlement. Oehme v. Johnson,
Tri-State then argues that it cannot be estopped by its action in controlling the defense because it was required to defend the action under Republic Vanguard Ins. Co. v. Buehl,
“It seems that if an action against one to whom a policy of liability insurance has been issued is based upon claims some of which are within the coverage of the policy and some not, then the insurer, by defending the action, is not, after recovery upon a claim not within the policy coverage, estopped from asserting such noncoverage.”
Before the Annotation rule can be considered, however, there must be asserted against the insured both a claim within and a claim without coverage. Tri-State argues that the claims upon which plaintiffs eventually recovered were without the coverage, but that there was asserted a claim within coverage — negligent supervision of the children at school. This contention is based upon the italicized language of count II, paragraph IV, of the complaint:
“That defendant Independent School District No. 581, Edger-ton, negligently, carelessly and contrary to applicable rules and regulations, failed to supervise and instruct the operators of buses relative to the loading and unloading of student passengers at the various schools for which said defendant school
The difficulty with this argument is that the Tri-State policy excludes “bodily injury * * * arising out of the * * * use” of the bus. Kim’s injuries arose out of the use of the bus. If that is sufficient to negate coverage under the Tri-State policy, then there is no claim in paragraph IV which is within coverage. It matters not that the italicized clause is a claim of general negligence; the injuries arose out of the use of the bus and the exclusion would apply. There not being any claim within coverage, the argument falls.
While Tri-State refers to Buehl as presenting a situation similar to the one at bar, the exclusion clause in Buehl was different. In that case, the policy did not apply “to the * * * use * * * of (1) automobiles.”
II
Mutual contracted as follows:
“To pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of
Mutual stipulated that the school district was an “additional insured” under the omnibus clause of the policy.
Kim Faber was run over by one of the school buses insured by Mutual. The driver and owner were both absolved of negligence. The school district was found negligent with respect to (1) establishment of bus routes, and (2) establishment of bus loading procedures.
Mutual’s contract requires it to indemnify the school district if the district is legally obligated to pay damages because of bodily injury sustained by Kim caused by accident and arising out of the use of the school bus. The school district is legally obligated to pay damages. The damages arose because of bodily injury sustained by Kim, caused by accident when he was run over by the school bus.
Mutual argues that the injuries did not “arise out of the use” of the school bus. It argues that neither the driver nor the owner was negligent, and that the injuries therefore “arose out of” some other event, e. g., the school district’s two-fold negligence with respect to bus routes and boarding procedures. This contention, if accepted, would result in rewriting the last phrase of the coverage clause to read “arising out of the negligent * * * use of the automobile.” That is not how the policy reads.
“The phrase 'arising out of’ is not to be construed to mean ‘proximately caused by.’ The thought expressed by the words ‘arising out of the use of an automobile’ is comprehensive and broad in service. The phrase itself is much broader than a phrase such as ‘proximately caused by the use of the automobile.’ The words ‘arising out of’ mean causally connected with, not ‘proximately caused by’ use. ‘ “But for” causation, i.e., a cause and re-
In Union Mutual Fire Ins. Co. v. King, 113 N. H. 39,
HI
The Tri-State policy provides for limits of liability of $50,000 for “bodily injury” to “each person” and $300,000 for “each occurrence.” Under “Limits of Liability” the policy states:
“Coverage A — The limit of bodily injury liability stated in the schedule as applicable to ‘each person’ is the limit of the company’s liability for all damages because of bodily injury sus
In Holtz v. Mutual Service Cas. Co.
“Quite clearly the policy means that $50,000 is the maximum amount of defendant’s exposure for all damages, including consequential damages, occurring to any and all persons by virtue of injury sustained by any one person in a single accident.”
In Holmgren v. Heisick,
“* * * Because Winton was a minor, Herbert Holmgren, his father and natural guardian, brought an action in Winton’s name for general damages and in his own name for special damages. Both of these claims constituted claims for injury to one person within the meaning of the policies of insurance of the type here involved.”287 Minn. 391 ,178 N. W. 2d 858 .
“Under policies fixing a maximum recovery for ‘bodily’ injury to one person, it has usually been held that the limitation was applicable to all claims of damage flowing from such bodily injury, and that therefore it is immaterial that some part of the damages may be claimed by a person other than the one suffering the bodily injuries. In other words, all damage claims, direct and consequential, resulting from injury to one person, are subject to the limitation.”
This appears to be the universal rule, as we have not been made aware of any jurisdiction which has held otherwise.
Minn. St. 466.12, subd. 3a, requires school districts to obtain liability insurance meeting the requirements of § 466.04. Subdivisions 1 and 2 of Minn. St. 1974, § 466.04, provided:
“Subdivision 1. Liability of any municipality on any claim within the scope of sections 466.01 to 466.15 shall not exceed
“a. $25,000 when the claim is one for death by wrongful act or omission and $50,000 to any claimant in any other case;
“b. $300,000 for any number of claims arising out of a single occurrence.
No award for damages on any such claim shall include punitive damages.
“Subd. 2. The limitation imposed by this section on individual claimants includes damages claimed for loss of services or loss of support arising put of the same tort.”
Kim Faber was awarded $94,770 for his bodily injuries; Wilbert Faber, Kim’s father, was awarded $42,900 for Kim’s medical expenses. In Faber v. Roelofs,
*441 “Minn. St. 466.04 limits a municipality’s liability to ‘any claimant’ to $50,000. Since the parent’s action is essentially separate from the child’s action, we feel that an injured minor and his father are both claimants under § 466.04 and that each may recover up to $50,000.”
The district court ruled that Tri-State was liable to both Kim and his father for up to $50,000 each, notwithstanding the express terms of the policy and the Holtz and Holmgren decisions. His initial reason for that ruling was that our interpretation of “each claimant” in Faber v. Koelofs, supra, was “incorporated” into the Tri-State policy as a matter of law.
The second reason the trial judge gave for his ruling was that Tri-State was estopped from asserting the policy limits because of its action in controlling the defense.
The judgment of the district court is affirmed in so far as it holds that there is coverage in this case under both the Tri-State and Mutual policies. It is reversed as to the issue of Tri-State’s limit of liability and modified to provide that each insurer is liable for $50,000, with $57,100 going to Kim Faber and $42,900 going to Eleanor Faber, and, as modified, is affirmed.
Notes
Defendant James Roelofs moved in this court for an order dismissing the appeal as to him. This opinion makes it unnecessary to rule on the motion.
The district court stated in a memorandum: “The Court is satisfied that the majority rule is that the insurer is estopped or has waived (the courts in these cases seem to use these terms interchangeably) its defense of no coverage in those cases in which it has assumed and directed the defense of an action against its insured. Here, Tri-State not only assumed control of and conducted the whole trial to verdict but it
Mann v. Employers Lia. Assur. Corp.
See, also, Peterson v. Maloney,
Minnesota Mutual Fire & Cas. Co. v. Benson,
Keeton, Insurance Law, § 6.4(f), p. 368. See generally, Annotation, 38 A. L. R. 2d 1148, 1157 to 1161.
That such is our law has been recognized in Boulet v. Millers Mutual Insurance Assn. of Illinois,
Mutual’s contention would be well founded if the following policy limitation applied to this case: “It is agreed that the insurance for Bodily Injury Liability and Property Damage Liability does not apply to injury, sickness, disease, death or destruction which arises out of the loading or -unloading of an automobile, if the accident occurs on premises (including the ways immediately adjoining) owned, rented or controlled either by the person or by the employer of the person against whom claim is made or suit is brought for such injury, sickness, disease, death or destruction. This limitation does not apply with respect to claims made or suits brought against the following insureds:
“(a) the named insured or, if the named insured is an individual, his spouse, if a resident of the same household;
“(b) a bailee or borrower of the automobile or an employee of either of them or of the named insured;
“(c) if the named insured is classified and rated as a truckman, any person or organization, or any agent or employee thereof, engaged in the business of transporting property by automobile for the named insured or for others; subject nevertheless to the limitations of any endorsement made a part of the policy and specifically applicable to truck-men;
“(d) any other person or organization but only with respect to his or its liability because of acts or omissions of an insured under (a), (b) or (c) above.”
Then, the school district would not have coverage unless its liability arose because of the acts or omissions of the driver or owner. Both the driver and owner were exonerated. However, the trial court found that
The other cases cited by Mutual deal with the question of whether someone was “using” the automobile so as to be an “additional insured” within the omnibus clause. Mutual has conceded that the school district is an additional insured, so those cases are not relevant.
The only Case which we have found which held to the contrary, Cotton States Mutual Ins. Co. v. Phillips,
The district court stated: “In that case the Supreme Court held that the father and his son are both claimants within the terms of 466.04 and that each may recover up to $50,000.
“It is evident that the school sought to cover its liability as set out in Chapter 466 by the purchase of insurance and Tri-State knew it was to insure the liability of the school within the provision of said Chapter. The school had every right to expect that the Tri-State policy covered liability to the extent of $50,000 for each claimant. The Tri-State policy incorporates Chapter 466 as a matter of law. Liability of the school district to the extent of $50,000 to each claimant is therefore covered by such policy.”
The court stated: “The rationale for the doctrine of estoppel and waiver is clearly seen in this case. The assumption of control and defense of a lawsuit by the insurer deprives the insured of its right to retain its own counsel so as to control its own defense and further requires the insured to cooperate with the insurer in such defense. In this case, Tri-State argued in post-trial motions and in the Supreme Court that the Fabers were one ‘claimant’ for purposes of 466.04 and at no time did it ever claim that there was no coverage if Fabers were one or two claimants. The school never knew it was facing an uncovered liability to the claimant father. Tri-State’s failure to raise this issue, to reserve its rights to deny coverage, denied the school the opportunity to retain its own counsel to protect it on this issue. In fact, the interests of Tri-State and the school are adverse on this issue and Tri-State should not now be allowed to deny full $50,000 coverage as to each claimant, father and son.”
We note that the interests of Tri-State and the school district were not adverse on this issue, contrary to the belief of the trial court. Throughout the main action, and in this court, Tri-State argued that Kim and his father were but one “claimant” for purposes of § 466.04. This was completely in accord with the school district’s interests, for,
Concurrence Opinion
(concurring in part and dissenting in part).
I concur in that portion of the majority opinion which holds that a liability insurer who undertakes control of the defense of a suit against its insured without giving notice of a reservation of rights is estopped from later denying coverage for the liability under the policy; and, further, that an insurer who contracts to pay on behalf of the insured all damages the insured is obligated to pay for bodily injury arising out of the use of an automobile
However, I dissent from that portion of the opinion which limits the maximum recovery to a total of $50,000' on each policy in this case. The trial court allowed father and son each a recovery of $50,000 under the Tri-State policy. The rationale for its decision is set forth in its memorandum:
“It is evident that the school sought to cover its liability as set out in Chapter 466 by the purchase of insurance and Tri-State knew it was to insure the liability of the school within the provision of said Chapter. The school had every right to expect that the Tri-State policy covered liability to the extent of $50,000 for each claimant. The Tri-State policy incorporates Chapter 466 as a matter of law. Liability of the school district to the extent of $50,000 to each claimant is therefore covered by such policy.
“The rationale for the doctrine of estoppel and waiver is clearly seen in this case. The assumption of control and defense of a lawsuit by the insurer deprives the insured of its right to retain its own counsel so as to control its own defense and further requires the insured to cooperate with the insurer in such defense. In this case, Tri-State argued in post-trial motions and in the Supreme Court that the Fabers were one ‘claimant’ for purposes of 466.04 and at no time did it ever claim that there was no coverage if Fabers were one or two claimants. The school never knew it was facing an uncovered liability to the claimant father. Tri-State’s failure to raise this issue, to reserve its rights to deny coverage, denied the school the opportunity to retain its own counsel to protect it on this issue. In fact, the interests of TriState and the school are adverse on this issue and Tri-State should not now be allowed to deny full $50,000 coverage as to each claimant, father and son.
“Even if this Court is in error in its position that Chapter 466 is included in Tri-State’s policy, Tri-State is estopped or has waived its right to deny the same.”
A school district had liability at the time of the accident only to the extent that it had insurance. If the school district took out liability insurance, it appears logical to me it intended to take the insurance to cover the limits and policy risks for which the statute allowed recovery. The trial court found that the school district did intend to do so and that Tri-State knew it was to insure that liability. The record, however, contains no testimony to support that finding. I would, therefore, remand to the district court for the sole purpose of determining whether the school district intended to take out insurance for the risks and the recovery limits contemplated by the statute, and whether the insurance was, in fact, so written.
The majority finds it difficult to find the insurance company liable for a risk it did not contemplate and for which it did not collect a premium. I would agree with that concern, but I find it just as objectionable that an insurance carrier would collect a premium for a contemplated risk and then not be obligated to pay when there was a loss within that risk.
(concurring in part and dissenting in part).
I join in the opinion of Mr. Justice Yetka.
(concurring in part and dissenting in part).
I join in the opinion of the Mr. Justice Yetka.
(concurring in part and dissenting in part).
I agree with Mr. Justice Yetka.