Motorists Mutl Ins v. Hammond

• Court: Court of Appeals for the Sixth Circuit
• Decided: January 15, 2004
• Docket: 02-5577
• Status: Published

Opinion

RECOMMENDED FOR FULL-TEXT PUBLICATION Pursuant to Sixth Circuit Rule 206 2 Motorists Mutual No. 02-5577 ELECTRONIC CITATION: 2004 FED App. 0024P (6th Cir.) Ins. v. Hammond File Name: 04a0024p.06 Before: COLE and CLAY, Circuit Judges; QUIST, District Judge.* UNITED STATES COURT OF APPEALS _________________ FOR THE SIXTH CIRCUIT _________________ COUNSEL

MOTORISTS MUTUAL X ARGUED: Henry K. Jarrett III, JARRETT & INSURANCE COMPANY , - CAMPISANO, Louisville, Kentucky, for Appellant. Kenneth Gates Doane, Jr., WARD, TYLER & SCOTT, New Albany, Plaintiff-Appellee, - Indiana, for Appellee. ON BRIEF: Henry K. Jarrett III, - No. 02-5577 - JARRETT & CAMPISANO, Louisville, Kentucky, J. v. > Leonard Rosenberg, Louisville, Kentucky, for Appellant. , Kenneth Gates Doane, Jr., WARD, TYLER & SCOTT, New - VAKISHA L. HAMMOND , as Albany, Indiana, for Appellee. - Mother and Legal Guardian of - _________________ VANIQUA HAMMOND , a - minor, - OPINION Defendant-Appellant. - _________________ - - CLAY, Circuit Judge. In this diversity action premised on - Kentucky law, Defendant Vakisha Hammond appeals the - November 26, 2001, order of the district court granting N summary judgment in favor of Plaintiff Motorists Mutual Appeal from the United States District Court Insurance Company (“Motorists Mutual”), declaring that she, for the Western District of Kentucky at Louisville. as mother and legal guardian of Vaniqua Hammond, is not No. 99-00803—Thomas B. Russell, District Judge. entitled to recover any amount from Motorists Mutual pursuant to its automobile insurance policy for Albin Used Argued: December 12, 2003 Cars, Inc (“Albin”). She also appeals the district court’s April 5, 2002, denial of her motion for reconsideration of the Decided and Filed: January 15, 2004 November 26, 2001, order. For the reasons that follow, this Court finds that Albin owned the car that Vaniqua Hammond was occupying at the time of the accident, and, therefore, she

* The Honorable Gordon J. Quist, United States District Judge for the W estern District of Michigan, sitting by designation.

1 No. 02-5577 Motorists Mutual 3 4 Motorists Mutual No. 02-5577 Ins. v. Hammond Ins. v. Hammond

was an insured pursuant to the Motorists Mutual policy and Hammond, would not recover any amount from Motorists was entitled to underinsured motorist benefits thereunder. Mutual under its insurance policy with Albin. In response to Accordingly, this Court REVERSES the district court’s the Hammonds’ motion for reconsideration, on April 5, 2002, grant of summary judgment and denial of reconsideration and the district court reaffirmed its previous grant of summary VACATES the related declaratory judgment. judgment. Vakisha Hammond, on behalf of Vaniqua Hammond, noticed her appeal on April 25, 2002. I. B. Substantive Facts A. Procedural History The following undisputed facts are taken from the district On September 16, 1998, a vehicle driven by Patricia court’s memorandum opinion and order of November 26, Hastings struck a 1988 Mercury being operated by Vakisha 2001, as well as from the parties’ joint stipulation of the facts. Hammond. Hammond’s daughter, Vaniqua Hammond, and For ease of reference, they are set out in bullet-point format: another individual were passengers in the Mercury at the time of the accident. Vaniqua allegedly suffered “catastrophic • On August 12, 1998, Zina Merkin traded in her car, a injuries.” Vaniqua Hammond eventually settled with Ms. Mercury, to Swope Auto Center (“Swope”). Merkin executed Hastings’ insurer for $50,000, representing Hastings’ policy a request for a duplicate title, a power of attorney to Swope limit. Vakisha Hammond had purchased the Mercury from and an odometer statement. Swope prepared a Notice to Albin, which is insured by Motorists Mutual. Albin had County Clerk of Vehicle Acquisition form, but did not file it purchased the Mercury at auction from Swope Auto Center, with the County Clerk. which is insured by Motorists Insurance Company. Because Vakisha Hammond had no automobile insurance at the time, • On August 18, 1998, Swope auctioned the Mercury, and she, on behalf of her daughter, sought underinsured motorist Albin obtained possession. benefits from Motorists Mutual and Motorist Insurance Company. Vaniqua Hammond eventually settled her claim • On August 26, 1998, Swope requested a duplicate title on against Motorist Insurance Company (Swope’s insurer). the Mercury, which Swope received prior to September 3, 1998. On December 17, 1999, Motorists Mutual (Albin’s insurer), an Ohio corporation, filed a complaint for declaratory • On August 27, 1998, Albin still had no title documents judgment in the district court against the Hammonds, from Swope, but nevertheless sold the Mercury to Vakisha residents of Kentucky. The Hammonds’ suit against Hammond, who took possession of the car. At the time, Motorists Mutual, filed in state court, subsequently was Hammond executed an odometer disclosure statement and a removed to federal court and consolidated with the district retail installment contract, financing the purchase price of the court action where jurisdiction was premised on diversity of vehicle through Albin. Hammond also executed a Kentucky citizenship. After reviewing the parties’ cross-motions for Automobile Dealer Association Form 13, granting Albin summary judgment, on November 26, 2001, the district court permission to deliver the necessary title work to the County entered a declaratory judgment, declaring that Vakisha Clerk on her behalf. Hammond, as mother and legal guardian of Vaniqua No. 02-5577 Motorists Mutual 5 6 Motorists Mutual No. 02-5577 Ins. v. Hammond Ins. v. Hammond

• By September 3, 1998, Swope had all the documents 585 (6th Cir.2002). We also review a district court's necessary to convey the Mercury to Albin, but did not record interpretation of an insurance contract de novo. Vencor, Inc. these documents nor deliver them to Albin. v. Standard Life & Accident Ins. Co., 317 F.3d 629, 634 (6th Cir.2003) (citing BP Chemicals, Inc. v. First State Ins. Co., • On September 16, 1998, Hammond was driving the 226 F.3d 420, 424 (6th Cir.2000)). Mercury in which her daughter, Vaniqua Hammond, was a passenger, when the car was struck by a vehicle driven by III. Patricia Hastings. Vaniqua Hammond allegedly suffered “catastrophic injuries” in the accident. The central issue in this case is whether Vaniqua Hammond, Vakisha Hammond’s daughter, is entitled to • On September 17, 1998, Albin paid Swope for the receive underinsured motorist (“UIM”) benefits pursuant to Mercury. Albin’s “garage coverage” automobile insurance policy with Motorists Mutual. According to the policy, UIM coverage • On September 18, 1998, Swope recorded with the applies to “covered autos,” meaning cars that Albin “own[s].” County Clerk the August 12, 1998, documents from Merkin, (J.A. 147, 151). The policy defines an insured to include as well as a Notice to County Clerk of Vehicle Acquisition “[a]nyone … occupying a covered ‘auto’ ….” (J.A. 198.) form reflecting Albin’s acquisition of the Mercury from “Occupying” means “in, upon, getting in, on, out or off.” Swope. (J.A. 199.) There is no dispute that Vaniqua Hammond was in the Mercury at the time of the accident. Thus, if the • On October 7, 1998, the Commonwealth of Kentucky Mercury is a “covered auto” – that is, if Albin owned the issued title on the Mercury to Hammond. Mercury at the time of the Hammonds’ accident, then UIM benefits would be payable to Vaniqua Hammond as an • On December 7, 1999, Vaniqua Hammond obtained a “insured” because she would have been occupying a covered $50,000 settlement from Ms. Hasting’s insurer, which was auto at the time she was injured. Hastings’ policy limit. Albin’s garage coverage policy does not define • Vakisha Hammond had no automobile insurance, and “ownership” of an auto. Therefore, the Court must resort to therefore Vaniqua Hammond sought underinsured motorists the definition of “ownership” under Kentucky law. At the benefits from Motorists Mutual, which insures Albin. outset, it is important to note that the general law of sales Vaniqua Hammond also sought underinsured motorists does not apply when determining ownership of a motor benefits from Motorists Insurance Company, which insures vehicle for liability insurance purposes. Potts v. Draper, 864 Swope. Vaniqua Hammond settled her claim against S.W.2d 896, 898 (Ky. 1993). Instead, the Court must look to Motorists Insurance Company in May 2001. Kentucky statutory law on title ownership. Id. (noting that the Kentucky legislature had changed “the law of Kentucky II. from an equitable title state to a certificate title state”). In We review a district court's grant of summary judgment de determining the “owner” of a vehicle, Ky. Rev. Stat. Ann. novo. Herman v. Fabri-Centers of Am., Inc., 308 F.3d 580, § 186A.345 (Banks-Baldwin 2002) dictates that the Court utilize the definition of “owner” as set forth in Ky. Rev. Stat. No. 02-5577 Motorists Mutual 7 8 Motorists Mutual No. 02-5577 Ins. v. Hammond Ins. v. Hammond

Ann. § 186.010(7). Nantz v. Lexington Lincoln Mercury J.D. Byrider was not an owner because it had not been Subaru, 947 S.W.2d 36, 37 (Ky. 1997). These are the assigned title and received it by the date of Chandler’s statutory provisions that set out the procedures for accident. See Nantz, 947 S.W.2d at 37 (“[A]ccording to KRS transferring vehicle ownership and, in turn, determine when 186A.215, a transfer of title takes place when the seller an automobile sale has been completed for the purpose of completes and signs the assignment of title section of the title insurance coverage. Potts, 864 S.W.2d at 900. Section certificate and delivers it to the buyer.”); see also Kelly v. 186.010(7) defines “owner” as either (1) a person who holds McFarland, 243 F. Supp. 2d 715, 718-19 (E.D.Ky. 2001) legal title to a vehicle or (2) a person who pursuant to a bona (holding that “the title retained by the dealer must be fide sale has received physical possession of the vehicle assigned, and hence fully executed, as prerequisite to subject to any applicable security interest. Ky. Rev. Stat. effectuating the transfer of title”). Yet the court in Auto Ann. § 186.010(7). Acceptance held: A. Albin held legal title to the Mercury Both the trial court and the Court of Appeals correctly determined that, under Nantz, J.D. Byrider was the owner Swope did not transfer title to the Mercury to Albin until of the Acura for insurance purposes because it retained September 17 or 18, 1998, a day or two after the accident. the title to the vehicle. See Nantz, 947 S.W.2d at 37 (“[A]ccording to [Ky. Stat. Ann. §] 186A.215, a transfer of title takes place when the Auto Acceptance, 89 S.W.3d at 401. Since the court seller completes and signs the assignment of title section of previously had acknowledged that J.D. Byrider did not the title certificate and delivers it to the buyer.”). physically have title at the time of the accident, the only Nevertheless, the Kentucky Supreme Court’s recent decision logical interpretation of the court’s holding is that J.D. in Auto Acceptance Corp. v. T.I.G. Ins. Co., 89 S.W.3d 398 Byrider was the constructive title-holder of the Acura on the (Ky. 2002), convinces this Court that Albin was an owner at day of the accident.1 the time of the accident under the first statutory definition of “owner.” After holding that J.D. Byrider was the titleholder of the car it had delivered to the purchaser, the court in Auto Acceptance In Auto Acceptance, an individual, Wayne Chandler, went on to hold that J.D. Byrider did not own the Acura for purchased an Acura Integra from a dealer, J.D. Byrider, Inc. liability insurance purposes because of Ky. Stat. Ann. Id. at 400. At the time of the purchase, Chandler presented J.D. Byrider with proof of insurance for another vehicle; Chandler’s insurance policy allowed him to add a vehicle to 1 his coverage within 30 days of becoming the vehicle’s owner. The concept of a dealer holding constructive title to a vehicle is incorporated into the very fabric o f the titling statutes. See Ky. Stat. Ann. Id. J.D. Byrider then gave Chandler actual possession of the § 186A.220(1) (providing that a motor vehicle dealer is not required to Acura, even though it had not yet received a certificate of title obtain a certificate of title for a car tha t it buys or accep ts in trade, as long from the previous owner of the vehicle. Id. J.D. Byrider as it notifies the county clerk of the acquisition within 15 d ays); see also received the title to the Acura eight days after Chandler was Hartford Accident & Indem. Co. v. Maddix, 842 S.W .2d 8 71, 8 72 (Ky. Ct. involved in an accident with the car. Id. Under the court’s App. 1992) (noting that “a dealer can become the owner of an auto mob ile without actually acquiring title to the automobile”) (emp hasis in original; previous holding in Nantz, supra, it appeared to follow that citing Ky. Stat. Ann. § 186A.220.). No. 02-5577 Motorists Mutual 9 10 Motorists Mutual No. 02-5577 Ins. v. Hammond Ins. v. Hammond

§ 186A.220(5), which sets forth “an exception to the general failed to obtain proof of insurance, as that term is defined by statutory scheme that makes the title holder the owner of a Kentucky regulations. See 806 Ky. Admin. Regs. 39:070 vehicle for insurance purposes.” Id. at 401; see also Ky. Stat. (2002) (listing five different methods of proving motor Ann. § 186A.220(5) (providing that dealer shall deliver vehicle insurance). Had Albin complied with § 186A.220(5) certification of title to purchaser at time of vehicle’s delivery; (as well as with the requirement in § 186A.220(1) that Albin alternatively, the dealer may deliver the vehicle to the notify the county clerk of Hammond’s purchase within 15 purchaser without title, as long as the purchaser consents to days), Albin would have not have been the Mercury’s owner have the dealer apply for a registration and title on the upon delivering it to Hammond. See Ky. Stat. Ann. purchaser’s behalf: “In so doing, the dealer shall require from § 186.010(7)(c) (providing that a dealer who delivers a car to the purchaser proof of insurance … before delivering a purchaser pursuant to a bona fide sale “and complies with possession of the vehicle”). Under this exception, J.D. the requirements of KRS 186A.220, shall not be deemed the Byrider was not the owner because it had obtained proof of owner of that vehicle solely due to an assignment to his insurance from Chandler and had promised to apply for a dealership or a certificate of title in the dealership’s name”). registration and title on Chandler’s behalf before delivering Since Albin did not comply with these requirements, it the Acura to him. Auto Acceptance, 89 S.W.3d at 401. remained a constructive title-holder of the Mercury. The facts herein are identical to the facts in Auto Treating a licensed dealer like Albin that holds itself out as Acceptance with one crucial distinction – the dealer at issue the true owner of the vehicle with power to convey clear title in the instant case (Albin) cannot take advantage of the as a constructive title-holder and charging it with the duty to exception to the title-holder-as-owner rule. As in Auto obtain proof of insurance before delivering an automobile to Acceptance, there were two prior owners of the vehicle at the purchaser furthers one of the central purposes of issue in this case (Swope and Albin) and an individual Kentucky’s titling statute, that of preventing uninsured drivers purchaser (Hammond). As in Auto Acceptance, the dealer from taking to the roads. See Auto Acceptance, 89 S.W.3d at herein (Albin) from whom the individual purchaser 401 (noting that Kentucky’s registration and titling scheme is (Hammond) received the vehicle had not yet received the title designed to fulfill “the important public policy of keeping from the initial owner (Swope). Accordingly, under Auto uninsured vehicles off Kentucky highways, roads, and Acceptance, it follows that Albin was the constructive title streets”). This approach also is consistent with the Kentucky owner of the Mercury at the time of the accident, unless Albin Supreme Court’s announcement that the titling statutes can invoke the exception set forth in Ky. Stat. Ann. require dealers “to obtain insurance coverage for motor § 186A.220(5). It cannot. vehicles they sell until they transfer title by executing the appropriate legal documents” and that until the seller has Like the dealer in Auto Acceptance, Albin did not assign taken the statutory steps to properly complete the sale it will title to Hammond at the time it delivered the Mercury to her, be considered the owner for purposes of liability insurance. and instead sought Hammond’s consent to deliver the title Potts, 864 S.W.2d at 900. Because Albin owned the Mercury documents to the county clerk on her behalf, thereby at the time of the Hammonds’ accident, Vaniqua Hammond triggering the requirement that Albin withhold delivery of the was a covered “insured” under the Motorists Mutual Mercury to Hammond until she provided Albin with proof of underinsured motorists policy. insurance. Id. § 186A.220(5). It is undisputed that Albin No. 02-5577 Motorists Mutual 11 12 Motorists Mutual No. 02-5577 Ins. v. Hammond Ins. v. Hammond

B. The Hammonds were permissive users of Albin’s statutes clearly makes him an owner and [the individual Mercury purchaser] a permissive user.”). Albin also was an “owner” of the Mercury at the time of the The district court below acknowledged that Albin’s and Hammonds’ accident pursuant to the second definition under Swope’s noncompliance with their respective statutory duties Ky. Rev. Stat. Ann. § 186.010(7)(a) – “a person who pursuant “would quite possibly render both owners of the vehicle for to a bona fide sale has received physical possession of the liability insurance purposes.” (J.A. 26.) Nevertheless, relying vehicle subject to any applicable security interest.” Albin was on the Kentucky Supreme Court’s decision in Progressive N. a bona fide purchaser of the Mercury from Swope. Albin also Ins. Co. v. Corder, 15 S.W.3d 381 (Ky. 2000), the court had received physical possession of the Mercury prior to denied UIM coverage based on its view that public policy delivering it to Hammond. Although Motorists Mutual precludes a recovery in excess of the mandatory minimum argues that Albin was not an owner under the second amount of coverage (a minimum which, in the court’s view, definition because it was not in physical possession of the car excludes UIM coverage) “where a party would not be the at the time of the accident, the definition does not explicitly vehicle owner under Kentucky’s titling statutes but is deemed require an owner to be in present possession, only that the an owner for liability insurance purposes.” (J.A. 27.) The owner “has received” physical possession at some point in court further opined that “where true ownership overlaps with time. The definition’s use of the present perfect tense “has ownership for liability insurance purposes, recovery is based described” makes sense in the context of how dealers do upon actual ownership without having to resort to … public business. For example, a dealer does not cease to own a car policy.” Id. The court then held that Albin was not the actual on its lot merely because it permits a customer to take the car owner because Swope had not assigned it title by the time of for a test drive. the accident. (J.A. 28.) Consequently, any insurance coverage for Hammond would be limited to mandatory In this case, Albin had a statutory duty not to relinquish the minimum coverage. The court denied Vaniqua Hammond’s Mercury, which it owned by virtue of purchasing and claim for UIM coverage because, in the court’s view, the receiving it from Swope, without first obtaining proof of coverage sought was “not compulsory liability insurance, but insurance from Hammond. By the same token, Hammond, optional UIM insurance.” Id. Since she had already recovered who had no insurance, had no legal right under the titling from the tortfeasor’s insurance carrier for her tort damages, statutes to take possession of the Mercury from Albin. she was not entitled to UIM benefits. Id. Therefore, Albin permitted Hammond to leave the lot with its car, even assuming that Hammond had an ownership interest The district court’s reasoning was flawed in several in the car by virtue of the law of sales. Treating Hammond as respects. First, the Auto Acceptance decision clarified that a permissive user of Albin’s car under these circumstances Albin was an “owner” of the Mercury as that term is defined serves “the important public policy of keeping uninsured under the titling statutes. Albin also was an owner by virtue vehicles off Kentucky highways, roads, and streets.” Auto of having received possession of the Mercury pursuant to a Acceptance, 89 S.W.3d at 401. See also Rogers v. Wheeler, bona fide sale and then permitting Hammond to use the car. 864 S.W.2d 892, 894 (Ky. 1993) (“The failure of [the dealer] Accordingly, the district court’s public policy concerns must to comply with the licensing, registration and insurance be subordinated to the clear mandate of the statutory language. No. 02-5577 Motorists Mutual 13 14 Motorists Mutual No. 02-5577 Ins. v. Hammond Ins. v. Hammond

Second, the Court disagrees with the district court’s Hammond under its garage coverage policy. Since Vaniqua perception of Kentucky public policy. Although Hammond was occupying the vehicle that Albin owned at the acknowledging that a dealer can become the owner of an time of the accident, she was an insured who was automobile without actually acquiring title, the district court contractually entitled to UIM benefits under the plain terms found that Swope’s noncompliance with the titling statute of the policy. rendered it the owner of the Mercury, and, therefore, Albin’s transfer of the car to Hammond was “irrelevant.” (J.A. 28.) IV. This Court strongly disagrees. Regardless of Swope’s statutory duties, Albin had an independent duty to Hammond To summarize, had Swope delivered clear title to Albin at and the public in connection with the transaction, namely, the the time Albin took possession of the Mercury and/or notified duty to obtain proof of insurance from Hammond before the county clerk of the transfer to Albin within 15 days, there delivering the car to her. By failing to do so, Albin permitted is no question that ownership would have passed to Albin. an uninsured driver to take to the road. Accordingly, public Instead, the actual title remained with Swope. Albin policy requires that Albin bear the social costs for its non- knowingly perpetuated Swope’s statutory violations by failing compliance, in the form of insuring the risk that it unlawfully to pass clear title to Hammond at the time of delivery and imposed on Kentucky drivers and passengers. Motorists committed an independent violation by failing to obtain proof Mutual counters that this case really involves Albin’s alleged of insurance before delivery. Under these circumstances, duty to protect uninsured drivers like Hammond from their Albin was a constructive titleholder, and therefore an owner own failure to comply with the law prohibiting driving of the Mercury at the time of the Hammonds’ accident. without insurance. The injured party in this case, however, Alternatively, Albin was an owner of the car under the second was not the uninsured driver, but the driver’s daughter, who statutory definition because it had purchased the car from just as easily could have had no familial relationship with the Swope, took possession of it and then permitted Hammond to driver. use the car even though she was legally prohibited from doing so. Because Albin owned the car at the time of the accident, Third, the district court incorrectly described UIM coverage Albin’s insurance policy entitled Vaniqua Hammond to UIM as optional insurance, thereby precluding Vaniqua insurance benefits. Hammond’s recovery beyond recovery for tort liability. In fact, since Albin elected UIM coverage and paid its For these reasons, the district court’s grant of summary premiums, UIM coverage for Vaniqua Hammond (an judgment in favor of Motorists Mutual and its denial of “insured,” as defined by the policy) was mandatory. See reconsideration are hereby REVERSED and the related Coots v. Allstate Ins. Co., 853 S.W.2d 895, 898 (Ky. 1993) declaratory judgment is VACATED. This case shall be (noting that underinsured motorist coverage is a mandatory REMANDED for proceedings consistent with this opinion. contractual obligation to the insured, just like compulsory tort liability insurance under Ky. Stat. Ann. § 304.39-110, because “the automobile insurer is required by statute to provide such coverage”) (emphasis in original). Thus, the only relevant question is whether Albin owned the Mercury for purposes of triggering insurance coverage to Vaniqua