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Helmich v. Northwestern Mutual Insurance Co.

April 21, 1967

DONALD HELMICH, PLAINTIFF-APPELLANT,
v.
NORTHWESTERN MUTUAL INSURANCE CO., DEFENDANT-APPELLEE



Hastings, Chief Judge, and Swygert and Fairchild, Circuit Judges. Hastings, Chief Judge (concurring).

Author: Swygert

SWYGERT, Circuit Judge.

Donald Helmich, a citizen of Illinois, commenced this declaratory judgment action in the Circuit Court of Rock Island County, Illinois against Northwestern Mutual Insurance Company, a Washington corporation. The action was removed to the federal district court on the basis of diversity of citizenship pursuant to 28 U.S.C. § 1441. In his complaint the plaintiff requested a declaration that under a policy of automobile liability insurance issued by the defendant to the plaintiff's father, Burnell Helmich, the plaintiff was entitled to a defense of certain actions and coverage, in the event of liability, resulting from a collision in DeKalb County, Illinois on January 6, 1962. The plaintiff also sought an adjudication that the defendant's refusal to defend him in these actions was "vexatious and without reasonable cause" within the meaning of Ill.Rev.Stat. ch. 73, § 767, thus entitling him to an award of attorneys' fees. The plaintiff appeals from a judgment of the district court dismissing his complaint. The principal question concerns the interpretation of an exclusion clause in the insurance policy.

The facts are not in dispute. The plaintiff was a student at the University of Wyoming concluding a holiday vacation at his parents' home in Park Ridge, Illinois. On January 6, 1962, the plaintiff, desiring to obtain transportation back to the university, contacted George Tetzlaff, also of Park Ridge. Tetzlaff was an automobile buyer who purchased automobiles as an agent for various dealers throughout the country and who customarily arranged for the transportation and delivery of the purchased automobiles through "drive-away" agencies.*fn1 Tetzlaff informed the plaintiff that he had purchased an automobile in Evanston, Illinois for A & B Motors Company, Denver, Colorado and stated that the plaintiff could deliver the automobile to its new owner.

The plaintiff signed a contract produced by Tetzlaff. The agreement provided that the plaintiff was to drive the car from Chicago to Denver, there to deliver it to A & B Motors. The contract did not require the plaintiff to select any particular route, nor did it prescribe any other details with respect to the time or manner of travel. It did require, however, that the car be delivered to its destination within twenty-four hours after arrival in Colorado. It was also understood that the plaintiff was to bear the initial expenses of gasoline and oil for the trip. The contract provided that, in return for his efforts, the plaintiff was to receive thirty dollars from A & B Motors upon delivery of the automobile (intended as an allowance toward gas and oil expenses), plus his transportation to Denver.*fn2

After signing the agreement, the plaintiff picked up the automobile in Evanston, returned to Park Ridge to pack his belongings, and began his journey. A short time later the automobile was involved in a collision.

The insurance policy issued by the defendant to the plaintiff's father, as the named insured, was in effect at the time of the accident. There is no question that the plaintiff, as a "relative" residing in the household of the named insured, was an "insured" person covered by the liability provisions of the policy with respect to the operation of "non-owned" automobiles. The defendant denied coverage on the basis of the following exclusion contained in the policy:

This policy does not apply * * * (h) to a non-owned automobile while used (1) in the automobile business by the insured or (2) in any other business or occupation of the insured except a private passenger, farm or utility automobile operated or occupied by the named insured or by his private chauffeur or domestic servant, or a trailer used therewith or with an owned automobile.

"Automobile business" is defined in the policy as "the business or occupation of selling, repairing, servicing, storing or parking of automobiles."

The defendant's position is that the exclusion clause is subject to only one interpretation, that its obvious intention is to make the use to which the automobile itself is being put the controlling factor in determining whether the automobile is being "used in the automobile business." According to the defendant, because the automobile was involved in the "selling process" at the time of the accident, it was being used in the automobile business, and because the insured was operating the vehicle at that time, the exclusion applies. The plaintiff, on the other hand, contends that the exclusion clause is ambiguous and that the ambiguity must be resolved in his favor. The plaintiff argues that the phrase "other business or occupation of the insured" in subsection (2) indicates that the "automobile business" in subsection (1) refers to a business operated by the insured or one in which the insured is otherwise employed. The word "other" is meaningless unless it refers to an antecedent business of the insured. Thus, the plaintiff contends, it is the character of the insured's use of the non-owned automobile that determines whether the vehicle was being "used in the automobile business by the insured" at the time of the accident.

The district court's general approach to the question was in accord with that urged by the plaintiff, at least insofar as the court considered it necessary to determine whether the insured was "engaged" in the automobile business when the accident occurred. The court held, however, that the plaintiff was excluded from coverage under both subsections (1) and (2). As to subsection (1) the court stated that the plaintiff, at the time of the accident, was "engaged" in the automobile business because he was the "servant, agent, or employee" of Tetzlaff, who was in the business of "selling" automobiles. In addition, the court stated that the plaintiff was engaged in an "other" business under subsection (2), namely, that of "transporting" automobiles. The court relied upon Caster v. Motors Ins. Corp., 28 Ill.App.2d 363, 171 N.E.2d 425 (1961), and Walker v. State Farm Mut. Auto. Ins. Co., 40 Ill.App.2d 463, 190 N.E.2d 121 (1963).*fn3 We think the court erred in its conclusions that the plaintiff was engaged in the automobile business and the business of transporting automobiles, and we hold that the exclusion clause in the insurance policy issued by the defendant is not applicable under the facts of this case.

As the plaintiff points out, there is an ambiguity inherent in the use of the word "other" in the phrase "or in any other business or occupation of the insured" following the exclusion from coverage of non-owned automobiles used "in the automobile business by the insured." The ambiguity is presented because the words "by the insured" standing alone would tend to indicate that, for the exclusion to become applicable, the insured need not have an interest or be otherwise employed in the "automobile business" in which the non-owned automobile is being used. The insertion of the word "other", however, suggests that only the use of a non-owned automobile in an "automobile business" in which the insured is financially interested is excluded from coverage.*fn4 The resolution of this ambiguity in favor of the plaintiff is dictated both by general principles of construction and by the intended application of similar exclusion clauses.

First, the provisions of an insurance policy are construed strictly against the insurer, as their drafter, and ambiguities are invariably resolved in favor of the insured. Littrall v. Indemnity Ins. Co., 300 F.2d 340 (7th Cir.), cert. denied, 370 U.S. 919, 82 S. Ct. 1558, 8 L. Ed. 2d 499 (1962); Caster v. Motors Ins. Corp., supra. Second, exclusion clauses such as that in the instant case are designed to require an insured who uses non-owned automobiles in furtherance of his business or occupation to seek additional coverage for the added risks incident to such use. In Pollard v. Safeco Ins. Co., 52 Tenn.App. 583, 376 S.W.2d 730, 734 (1963), the court, commenting upon automobile-business exclusion clauses, stated that "such exclusionary clauses are sustained as reasonable and binding on the insured 'because of the increased hazard growing out of the use of non-owned cars by [automobile] establishments while in their legal custody.'" The court added: "It would be grossly unfair to the insurer to hold that an insured engaged in the automobile business could take out a policy on his privately owned and operated car and then on the basis of the same small premium claim protection for any and all non-owned automobiles used in such business." Ibid. The pertinent inquiry in interpreting automobile-business exclusion clauses, therefore, in harmony with their general purpose, should be one of determining the relationship, if any, between the insured's use of the non-owned automobile and some business or occupational interest of the insured. This principle is borne out by Caster v. Motors Ins. Corp., supra.

In Caster, one Dempsey borrowed an automobile from an automobile agency for his personal use over a week-end to determine whether he was interested in purchasing it. Dempsey later exchanged cars with a friend, Woodside, in order to obtain the latter's recommendations. While Woodside was driving the automobile, he caused its total destruction. Woodside had a policy of insurance in effect at the time of the accident. The policy provided coverage for non-owned automobiles but it contained a clause with respect to such automobiles excluding coverage for "any accident arising out of the operation of an automobile sales agency, repair shop, service station, storage garage, or public parking place." In a declaratory judgment action by ...


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