In a stunning decision, the Supreme Court has adopted the “initial permission rule”, which alters the omnibus clause of most, if not all, insurance policies and expands coverage to all subsequent users of an “initial permissive user.” In Kentucky, coverage is now afforded to anyone who is granted permission by an initial permissive user, regardless of the owner’s intent.

In Mitchell v. Allstate, the Supreme Court overturned a summary judgment that found no coverage under Allstate’s omnibus clause. Taylor gave her friend, Warner her husband’s car for use for an indefinite term. While the car remained in Taylor’s name, both parties were named insureds on the automobile policy issued by Allstate. Ms. Warner’s son, Allan, was allowed by Ms. Warner to drive the car to work. At one point during the day, he picked up two friends, and drove them around. Unfortunately, he had an accident and was killed. His two friends were seriously injured.

Allstate intervened seeking a declaratory judgment that it did not owe coverage because Allen did not have permission of the owner “Taylor” to drive the car. This was based on statements by Taylor that Allan was forbidden from driving the car by her and Ms. Warner. However, there were also statements by Ms. Taylor, as well as other facts, which indicated that Allan may not have been barred from using the car. In the alternative, Allstate argued that Allan exceeded the scope of his permission, and that this deviation was major, which would not provide coverage. (The minor deviation rule.)

The Supreme Court discussed the purpose of the omnibus clause, which is “to maximize the availability of insurance proceeds for the benefit of the general public.” It noted three types of thought on how to analyze whether a deviation from the scope of permission should negate coverage. The intermediate rule used by Kentucky called the “minor deviation rule”, which grants coverage when a minor deviation from the initial permission takes place. The more liberal rule is the “initial permission rule”, which allows for coverage even if the use of the vehicle was “not within the contemplation of the parties or was outside any limitations place upon the initial grant of permission.”

The majority believed that the adoption of the “initial permission rule satisfies the policy reasons and purpose behind Kentucky’s Motor Vehicle Reparations Act.” “By adopting the initial permission rule, we fulfill the general spirit and intent of KRS 304.39-030 to provide a victim the right to compensation for his/her injuries.” (emphasis in original). In doing so, the majority noted three other jurisdictions, which had adopted the “initial permission rule”, including Louisiana, Nevada, and West Virginia. Under this new rule, the summary judgment was improper.

Justice Minton and Abramson concurred in the result only. Justice Minton believed that the facts were in dispute regarding the permission granted to Allan, and that fact alone prevented summary judgment. He did not believe that the Court needed to delve into the “initial permission” issue. He also believed that this determination was best left to the legislature after public debate.

Perhaps more interesting is Justice Minton’s discussion regarding the actual purpose of the MVRA and how it did not compel the result sought by the majority. He believed that the MVRA actually reflects a policy choice “to provide liberal wage loss and medical benefits without the victim’s being forced into litigation regarding fault.” He opined that the “prompt and liberal recovery” discussed by the MVRA actually relates to no-fault benefits. In fact the MVRA actually limits tort liability. He believed that the sought after reduction in lawsuits meant fewer lawsuits over minor accidents and not necessarily less lawsuits over whether coverage existed.

Clearly summary judgment was inappropriate in this case based on the dispute among the parties regarding the actual permission granted. However, the majority takes it one step further and simply abandons decades of Kentucky law. In doing so, they base their decision on questionable precedent. The entire citation regarding the purpose of the initial permission rule is based on secondary sources and an afterthought mention of a New Mexico case. The majorities’ reliance on the MVRA is likewise broad and mostly misplaced. The majority apparently does not differentiate between tort liability and no-fault benefits or the affect of the no-fault act, which is actually to REDUCE tort liability, not extend it.

The logical extension of the majority’s reasoning is that no exclusion or denial of coverage is permissible in Kentucky, because its affect is to render a party uninsured, which is a public policy violation based on the MVRA. Contrary to the majority’s view, I do not think that the MVRA was passed to insure compensation for every automobile accident victim or to provide a social welfare network for uninsured cases. This majority’s consistent use of such assertions, its reliance on secondary legal sources, and adoption of minority views, appears to be an indication that it will not hesitate to overrule decades of established Kentucky law to accomplish its objectives. I find this to be particularly disturbing.

That being said, one can certainly sympathize with the injured persons who would have no likely source of recovery otherwise. This would be a harsh result especially since they are not aware of the permission granted Allan, and most likely would assume he had permission to drive the vehicle. Unfortunately, the purpose of liability insurance is not to insure that every driver who operates the vehicle is an insured driver. AND as I have mentioned before, liability insurance is not designed to compensate victims, it is designed to protect negligent drivers. The proper way to reach an adoption of the “initial permission rule” is to determine how it would be fair to Allan, to deny him coverage when the scope of his permission (or lack of permission) was never determined and when he apparently had express permission from his mother, who had possession of the car. While the result may be the same, the path is different, but avoids the broad ramifications the majority adopts.

This decision will impact every automobile insurer in the Commonwealth. Does the majority honestly believe that the business of insurance will simply continue as before, only permission will be an occasional issue for litigation? Every insurance company doing business in Kentucky must now account for the risk involved in insuring essentially everyone driving a car with someone’s (not necessarily the owner’s) permission. The result of course is higher premiums to account for this increased risk. Higher premiums results in a higher risk of uninsured vehicles on Kentucky’s roads. This result is certainly not one of the policy reasons behind the MVRA.

By the way, guess which two states were cited by the National Association of Insurance Commissioners in 2005, as being in the top ten most expensive states for automobile insurance, Louisiana (5) and Nevada (10). West Virginia was not far behind (15).

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The Court of Appeals has posted its minutes for January 25th, here. There were no published cases dealing with tort and insurance law.

The Kentucky Supreme Court has posted its first minutes of the new year. Click here to see the entire list of published and unpublished cases. I will be posting on those published Supreme Court cases discussing tort and insurance law shortly.

The Kentucky Law Review recently reported on several recently proposed legislative bills. Of interest was house bill 280, here, which seeks to raise the jurisdiction of small claims court to $5,000.00. No comment on what affect this would have on the district/circuit court maximum/minimum limit of $4,000.00, but presumably this would also need to be raised.

Of course the increase is probably long overdue. Several comments to the bill note that the current limit is outdated and it probably is. I recently tried a subrogation case in circuit court for about $4,200.00, so I know first hand the impact that the jurisdictional limit can have on your case. However, does this really matter on many cases, such as personal injury cases, when most of the damages are unliquidated. Can’t an attorney simply demand an extraordinary number for a subjective damage such as pain and suffering to get into circuit court? Doesn’t some of that go on in federal court, where the diversity limit is 75,000.00? Will this really impact the majority of cases, beyond property damage or contractual based claims? Does it need to be higher?

The Court of Appeals has published its minutes for January 18th, 2008, here.

One interesting published case involving a malicious prosecution case. In Craycroft v. Pippin, the Court of Appeals ruled that a prior finding of probable cause by a criminal court is not determinative of that issue in a case of malicious prosecution. Instead the court found this finding to create a “rebuttable presumption” that probable cause existed. The court overturned the summary judgment and remanded the case back to the circuit court to determine whether “other” evidence existed that would rebut the finding of probable cause.

In reaching its decision, the court relied on a law review article and a case from 1902. It tried to compare an indictment by the grand jury, which creates a rebuttable presumption, to the current one, which involved a court ruling AFTER evidence was presented at a preliminary hearing. Perhaps the worst part of this opinion is the fact that at the probable cause hearing the facts were undisputed, which made this a question of law for the court to decide. The court of appeals remanded the case back to the circuit court to determine if other evidence existed that would show the lack of probable cause.

Of course, the plaintiff had the option of showing this evidence to the district court in the original probable cause hearing, which he failed to do. He now gets two bites of the same apple. Worse yet, you have one court essentially reviewing a decision of another court and reviewing additional evidence that should have been presented at the first hearing (if it existed). There is something called issue preclusion (Res Judicata), which is specifically created to prohibit exactly the type of gerrymandering sought by the court of appeals.

The Court of Appeals has published its minutes for January 11th. Click here to view the entire list. Only one interesting published case closely related to torts, involved a reversal of a default judgment.

In Leedy v. Thacker, the Court addressed an appeal of a default judgment and award of damages in two separate cases dealing with the same subject matter. Even though Leedy filed a hand written answer to the complaint, he failed to include a return address. The Thacker’s sought to strike his answer for this failure, which was ultimately granted after Leedy failed to attend the hearings on the motion. (The motions were apparently never sent to him since no address was provided.) On appeal Leedy argued the defaults were erroneous, based solely on his failure to include a return address. The court of appeals essentially agreed, noting several instances of Leedy’s address in the court file and the fact that he and the plaintiffs had been neighbors for a number of years.

Mike Stevens of the Kentucky Law Review has recently posted some kind words about the Kentucky Tort and Insurance Law Journal here. Mike was one of the first of our kind to take his well respected and highly useful Louisville Law Wire to the Blogosphere. Since then, the Kentucky Law Review has replaced many attorneys’ local newspaper.

Mike imparted his own resolutions for the New Years in his post, Looking Ahead, Looking Back, Looking at Resolutions. In order to understand Mike’s valuable service to the legal community you need only look at a few of his accomplishments for 2007, which include;

* 150,000 visitors to the Kentucky Law Review/Blog site.
* In 2007, we exceeded 4000 actual posts.
* KLB has 425 subscribers to the site via email and RSS.
* One “theme” change for all the blawgs.
* Kentucky court report aka KYCases.com was in the top ten blawgs during December and has over 600 email subscribers!
* Louisville LawWire blawg was added to simply post the lawwires each week and nothing more.
* And all FREE for you. Much thanks to our volunteer editors who rarely require me to bring out the whips.

These numbers alone are impressive. More importantly, they are indicative of the viability of posting legal related content in an easily accessible and most importantly, free format. Despite his newly mentioned time constraints, I hope Mike will continue to lead the way for other Kentucky Bloggers. I know he has been a source of inspiration when my own Blog seemed like a useless unappreciated exercise in grandiosity.

If you’ve not found your way to one of Mike’s Blogs, click on the links to the right and take a look around. What you’ll find is truly special.