Worker Driving His Mother’s Car Entitled To Employer’s Auto Coverage

The 1st District Appellate Court recently held that an employee on his way to work in his mother’s automobile was entitled to his employer’s liability automobile coverage because the employee was using the automobile “in connection with” his employer’s business.

The court also addressed the adequacy of notice of the occurrence to the employer’s broker. First Chicago Insurance Co. v. Molda, 2015 IL App (1st) 140548 (1st Dist., June 26).

The employee, Michael Molda, was represented by Beverly & Pause. Coffman Law Offices P.C. represented the claimant, Nola Wilson. James P. Newman & Associates of St. Charles represented the employer’s insurer, First Chicago Insurance Co.

In 2005, on his way to a jobsite for his employer, Metrolift Inc., Molda was involved in an automobile accident with Wilson. Molda was driving an automobile owned by his mother. He did not live with his mother at the time. He had insurance coverage through State Farm with a $20,000 policy limit.

Wilson sued Molda in 2007, and he forwarded the suit papers to State Farm. He was not aware at that time of Metrolift’s coverage through First Chicago.

The commercial automobile policy issued by First Chicago to Metrolift provided coverage for various categories of autos. Category 9 listed “nonowned autos” – those not owned, leased, hired or borrowed by Metrolift but which were nevertheless used “in connection with” its business.

According to the policy description, this category included “autos owned by your [i.e., Metrolift’s] employees or members of their households but only while used in your business.”

Shortly following the accident, the person in charge of insurance for Metrolift, Stephen Harrison, contacted Metrolift’s broker, Associated Specialty Insurance, to report the accident. Harrison and the Associated agent discussed whether to report the accident to First Chicago, but they agreed to hold off to see whether a lawsuit was filed and because the accident happened during Molda’s lunch hour and he had his own personal insurance. As a result, First Chicago was not notified of the accident until 2008.

First Chicago then brought a declaratory action seeking a determination that it owed no coverage to Molda. One count alleged late notice of the lawsuit, although First Chicago did not press that count on appeal. A second count alleged late notice of the occurrence. A third count alleged that Molda was not an insured under the policy.

Molda filed a counterclaim seeking coverage and following a bench trial, the trial court found that he was an insured and that notice was timely. First Chicago brought this appeal.

Coverage

In an opinion by Justice Robert E. Gordon, the 1st District affirmed. He first addressed whether Molda’s vehicle qualified as a covered auto under the First Chicago policy.

Analyzing the description of Category 9 autos, he observed that it would qualify if it was not owned, leased, hired or borrowed by Metrolift, which it was not, and if it was used in connection with Metrolift’s business.

With respect to the language that the category “included” autos owned by Metrolift’s “employees or members of their households,” Gordon found it not a limitation and, in the circumstances here, “superfluous,” so the fact that Molda was not living with his mother was inconsequential.

Gordon further found that the “in connection with” requirement was met because Molda testified that he was on his way to a Metrolift construction site and was performing his job duties. It was not necessary, moreover, that the accident occur in the course of Molda’s employment such that Metrolift could be held vicariously liable.

The policy required only that Molda operate the vehicle “in connection with” Metrolift’s business, and that language was broad and vague and would be construed against the insurer.

Gordon then turned to whether Molda qualified as an insured under the policy. Among others defined as insureds were “anyone liable for the conduct of an ‘insured’ … but only to the extent of that liability.”

First Chicago argued that since Metrolift, the named insured, had been dismissed from the lawsuit, and since Molda could be an insured only “to the extent” of Metrolift’s liability, Molda could not qualify as an insured.

Gordon, however, took the position that coverage had to be determined as of the time of the accident. And, as of that time, he said, Metrolift had “potential” vicarious liability.

Thus, if Wilson obtained a judgment against Metrolift, it would be entitled to common-law indemnification against Molda. Based on this reasoning, Gordon concluded that Molda was liable for conduct of an insured – Metrolift – and, therefore, himself qualified as an insured.

Late Notice

Addressing the delayed notification issue, the trial court found that Associated, Metrolift’s broker, received timely notice of the accident from Metrolift as an apparent agent of First Chicago. Gordon agreed that the evidence established this.

The factors on which Gordon relied included the evidence that (1) First Chicago encouraged policyholders to report claims to their brokers, (2) First Chicago’s policy documents provided Associated’s contact information and expressly referred to Associated as “agent,” and (3) Metrolift’s course of dealings with Associated and First Chicago involved contacting Associated, not First Chicago, whenever there was a potential claim.

Gordon also commented on various circumstances pointing to the timeliness of notice and rejected First Chicago’s argument that the agreement between Metrolift and Associated not to notify First Chicago prevented the notice from being imputed to First Chicago.

He noted that while fraud and collusion can negate the effectiveness of notice, no evidence here indicated that Associated had an adverse interest to First Chicago or otherwise engaged in fraud.

The court therefore affirmed in favor of coverage for Molda.

Key Points

• Language in a commercial automobile policy requiring that an auto be used “in connection” with an insured’s business does not necessarily require that the driver be operating within the scope of employment for vicarious liability purposes.
• According to this court, coverage extending to persons “liable for the conduct of an insured” may be entitled to coverage even when the “insured” whose conduct is in question has been dismissed and incurred no liability.

Timely notice may be imputed to an insurer based on notice to an apparent agent of the insurer.