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A federal district court in Pennsylvania has ruled that an auto insurer did not have to defend a woman who allegedly drove an insured car without permission and injured a third party, notwithstanding that the complaint against the woman alleged that she had implied permission to drive the car.

The Case

As the district court explained, while Tatiana Chapman and Henry Bond were attending a family reunion at Lemon Hill Park in Philadelphia, Chapman asked Bond for his car keys so she could retrieve her daughter's diaper bag from his car. Bond gave Chapman the keys and she walked to the car. After noticing parking spots closer to the reunion, Chapman decided to move the car closer.

While moving the car, Chapman allegedly collided with Louis K. Myers' van, injuring Myers.

Geico Casualty Co., which insured Bond's car under a policy issued to Bond's girlfriend, was notified of the accident. A Geico claim representative investigated and determined that Chapman did not have permission to drive the car at the time of the accident and the claim representative recommended to his supervisor that Geico deny coverage for Chapman.

The claim representative subsequently wrote to Chapman, stating that Geico was denying coverage because she had used the car without “the permission of the owner.”

Myers sued Chapman and Bond, claiming that Chapman had been negligent in causing the car collision and that Bond had negligently entrusted Chapman with the car. Myers alleged that Chapman had actual and implied consent from Bond to drive the car at the time of the accident.

Geico agreed to defend Bond but refused to defend Chapman on the ground that she did not have permission to drive the car.

Geico later decided to tender the policy limits of $15,000 to Myers in exchange for a release of his claims against Bond.

Chapman gave Myers a consent judgment for $1,500,000 and assigned to Myers any rights she had against Geico for its refusal to indemnify and defend her.

He sued Geico, alleging that the insurer had breached the implied covenant of good faith and fair dealing in the policy and had violated the Pennsylvania insurance bad faith law.

Geico contended that it had no duty to indemnify or defend Chapman because the undisputed facts showed that she was not an insured under the policy.

Geico moved for summary judgment.

The Geico Policy

The Geico policy required the insurer to “pay damages which an insured becomes legally obligated to pay” because of bodily injury or property damage. The policy stated that the following were insureds with respect to “an owned auto”: “1. you and your relatives; 2. any other person using the auto with your permission. The actual use must be within the scope of that permission.”

The District Court's Decision

The district court granted Geico's motion.

In its decision, the district court pointed out that Bond, who was named an “additional driver” on the declarations page, could be deemed a “policyholder” for his “owned auto,” which was listed as a covered vehicle.

Therefore, the district court continued, to fit within the definition of “insured” with respect to Bond's vehicle, Chapman needed be a relative of Bond or of his girlfriend or Chapman had to have had the permission of one of them to drive the car on the date of the accident.

The district court pointed out that there was no dispute that Chapman was not Bond's girlfriend's relative and that she did not have Bond's girlfriend's permission to use the car on the date of the accident. Moreover, the district court added, there was no dispute that Chapman was not Bond's relative and that Chapman did not have Bond's express permission to use the car on the date of the accident.

The district court then examined whether Chapman had Bond's implied permission to use the car, and decided that she had not had implied permission.

The district court pointed out that Chapman admitted that she had never asked Bond “for permission to use the car” but that she “did not think that [she] was not allowed to move the car closer to Lemon Hill Park” and she “did not think that [she] was doing anything wrong in moving the car closer to Lemon Hill Park.” The district court rejected Myers' argument that Chapman's “subjective beliefs” showed she had Bond's implied permission to drive the car, reasoning that the “critical question” was whether Bond had said or done something that warranted Chapman—an unlicensed driver—to have those beliefs.

In the district court's opinion, a reasonable juror “could not conclude” that Bond had said or done something to warrant Chapman to believe she had Bond's implied permission to drive the car.

Importantly, the district court observed that the Pennsylvania Supreme Court had not addressed whether an insurer was required to defend someone it had determined was not an insured even after a third party such as Myers had alleged in a lawsuit that the person was an insured. The district court predicted that the Pennsylvania Supreme Court would hold that an insurer was not required to defend someone it had determined was not an insured under the policy even if a subsequent third-party complaint suggested the person was an insured. Accordingly, the district court concluded, Geico could not be held liable for refusing to defend Ms. Chapman.

The case is Myers v. Geico Casualty. Attorneys involved include, for Myers: Howard A. Taylor in Philadelphia; and James C. Haggerty and Jeffrey Stanton of Haggerty Goldberg Schleifer & Kupersmith in Philadelphia.

Geico was represented by Joseph A. Hudock Jr. of Summers, McDonnell, Hudock, Guthrie & Skeel in Pittsburgh,

FC&S Legal Comment

Courts in other jurisdictions that have held, like Pennsylvania, that the duty to defend was dependent on the allegations in the complaint also have ruled that an insurer need not provide a defense in circumstances similar to Myers. See, e.g., Pro Con v. Interstate Fire & Casualty, 794 F. Supp. 2d 242, 250 (D. Me. 2011) (defendant must establish that it qualifies as an insured before duty of defend can be imposed based on allegations in complaint); Hartford Fire Insurance v. Leahy, 774 F. Supp. 2d 1104, 1114 (W.D. Wash. 2011) (court could consider information outside of the complaint to determine if party was an insured entitled to defense under the policy); General Insurance Co. of America v. Clark Mall, 631 F. Supp. 2d 968, 974 (N.D. Ill. 2009) (although duty to defend is determined by allegations in third-party complaint, a mistaken designation of defendant in that complaint cannot require an insured to defend “a corporation with which it had no policy of insurance”).

Steven A. Meyerowitz is the director of FC&S Legal, the editor-in-chief of the Insurance Coverage Law Report, and the founder and president of Meyerowitz Communications Inc. As FC&S legal director, Meyerowitz, a member of the team that conceptualized FC&S Legal, provides daily analysis and commentary on the most significant insurance coverage law decisions from courts across the country and news regarding legislative and regulatory developments. A graduate of Harvard Law School, Meyerowitz was an attorney at a prominent Wall Street law firm before founding Meyerowitz Communications Inc., a law firm marketing communications consulting company.