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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