Finds “Business Use” Exception to the Policy Applies to Bar Coverage for Accident While Under Dispatch
On June 27, 2012, in an unpublished opinion, the United States Court of Appeals for the Fourth Circuit ruled in favor of an insurer that refused to defend or indemnify a trucker based on the commercial auto insurance policy’s “business use” exception, affirming a decision of the United States District Court for the District of Maryland.
In Forkwar v. Empire Fire and Marine Insurance Company, Hameed Mahdi was a contractor for J&J Logistics, Inc. (“J&J”), working under an independent contractor agreement. Madhi leased his tractor to J&J, which paid Mahdi for its exclusive use of the tractor. J&J’s ICC numbers and the name “J&J Logistics” were on Mahdi’s tractor. Pursuant to the contract, Mahdi called J&J’s office each morning to see if J&J had a job for him to do. On November 25, 2004, Mahdi called J&J and was instructed to pick up a load in Jessup, Maryland at midnight on November 26. Mahdi left his home on November 26 and began to drive to Jessup. On the way, Mahdi decided to stop to grab something to eat, but before he could exit the highway he was involved in a collision with Augustine Forkwar.
Mahdi had been issued a commercial auto insurance policy by Empire Fire & Marine Insurance Company (“Empire”). After receiving notice of the accident, Empire conducted an investigation and determined that the “business use” exception to the policy applied, relieving Empire of any obligation to defend or indemnify Mahdi for the accident. The business use exception provided as follows:
This Insurance does not apply to any of the following . . .
14. BUSINESS USE
“Bodily injury” or “property damage” while a covered “auto” is used to carry people or property in any business or while a covered “auto” is used in the business of anyone to whom the “auto” is leased or rented.
Forkwar filed the underlying suit against Mahdi and J&J in October of 2006, alleging Mahdi negligently caused injury to Forkwar and that J&J was liable under the doctrine of respondeat superior. Empire declined to defend Mahdi on the basis of the business use exception. During the trial, J&J moved for a judgment as a matter of law as to the claims against it, which Forkwar did not oppose. Later, the jury found that Mahdi was negligent in the operation of his vehicle and awarded Forkwar $180,756.67.
After securing judgment against Mahdi in state court, Forkwar filed the action against Empire. The action was removed to federal court, and the parties filed cross-motions for summary judgment. The district court denied Forkwar’s motion for summary judgment, granted Empire’s motion for summary judgment, and denied Forkwar’s counter motion for summary judgment. Forkwar appealed arguing (1) Empire was collaterally estopped by the judgment in the underlying action from arguing that the business use exception applied; and (2) the business use exception did not bar coverage.
Forkwar argued Empire was collaterally estopped from claiming the business use exception applied because the issue of J&J’s respondeat superior liability was litigated and decided in the underlying action. The court disagreed, finding Forkwar could not meet her burden because the issue in the underlying action was not identical to the one presented in the action in question:
Under Maryland law, the doctrine of respondeat superior permits “an employer to be held vicariously liable for the tortious conduct of its employee when that employee was acting within the scope of the employment relationship.” Oaks v. Connors, 660 A.2d 423, 426 (Md. 1995)….[T]here are four elements to establish respondeat superior in Maryland: (1) the existence of an employer-employee relationship; (2) the tortious act must have occurred “within the scope of the employment relationship;” (3) the employer consented, explicitly or implicitly to the use of the automobile; and (4) the employer had the right to control the employee in the operation of the automobile or the use of the automobile was vitally important in furthering the master’s business.
In contrast, the business use exception applies whenever “a covered ‘auto’ is used to carry people or property in any business or while a covered ‘auto’ is used in the business of anyone to whom the ‘auto’ is leased or rented.” Plainly, the respondeat superior doctrine and the business use exception are not identical issues. While respondeat superior requires the existence of an employer-employee relationship, the business use exception has no such element. Thus, an individual like Forkwar who was acting “in the business of” J&J but who is an independent contractor rather than employee would be subject to the Policy’s exclusion without falling under the doctrine of respondeat superior.
In so finding, the court specifically addressed the Court of Special Appeals of Maryland’s language in Empire Fire & Marine Ins. Co. v. Liberty Mutual Ins. Co., 699 A.2d 482 (Md. Ct. Sp. App. 1997), wherein the Court of Special Appeals stated in construing Empire’s business use exception that it would “follow the course of other courts that have sought guidance from the analogous common law doctrine of respondeat superior.” Acknowledging there were some similarities in the requirements for the business use exception and the elements of respondeat superior, the court rejected the notion that the elements were identical:
It is true that the requirement in the business use exception that bodily injury occur while an auto “is used in the business of anyone” is quite similar to the second element for respondeat superior, that the accident occur “within the scope of the employment.” However, that is not to say that all of the elements are identical. Respondeat superior requires that there be an employer-employee relationship, and Maryland — like other states — recognizes a distinction between an employee and an independent contractor. See, e.g., Greer Lines Co. v. Roberts, 139 A.2d 235 (Md. 1958) (“Whether the relation of the parties is that of master and servant, or employer and independent contractor, depends upon the facts . . . .”). In contrast, no language in the business use exception suggests there must be an employer-employee relationship; it requires only that the accident occur while the auto is used in someone’s business. Thus at best Appellant has proven that one of the four elements of respondeat superior are met, but cannot establish the remaining three.
Accordingly, the court rejected Forkwar’s collateral estoppel claim.
Business Use Exception
Forkwar also argued the business use exception did not apply to the underlying action, arguing that Empire Fire & Marine Ins. Co. v. Liberty Mutual Ins. Co., 699 A.2d 482 (Md. Ct. Sp. App. 1997), was dispositive. The court disagreed, noting the timing of the accident in Liberty Mutual was different than the one involving Forkwar and Mahdi:
In … Liberty Mutual … the plaintiff, James Perry, was the owner and operator of a tractor that was contracted out to a shipping company, O.S.T.; the tractor’s I.C.C. license was in O.S.T.’s name. O.S.T. also had a similar method of assigning work: Perry contacted O.S.T. daily to obtain his next assignment. The timing of the accident, however, is different: Perry had completed his dispatch on January 16, dropped his tractor off at a service station that day, and returned four days later to pick it up. On his way home from the service station, he was involved in an accident. The Maryland court found that the business use exception did not apply, noting that Perry was driving to his home, not receiving any compensation from O.S.T., not operating under a bill of lading, not under dispatch, and not hauling a load at the time of the accident.
… While most of the facts parallel the instant case, in Liberty Mutual the accident occurred several days after the completion of Perry’s last dispatch, while he was driving home. Here, in contrast, Mahdi was under dispatch — a fact expressly noted in Liberty Mutual.
(Internal citations omitted).
Lamenting the lack of additional case law on the applicability of the business use exception, the court sought guidance from outside the Fourth Circuit. Accordingly, the court followed the reasoning of the Seventh and Fifth Circuits, see Mahaffey v. Gen. Sec. Ins. Co., 543 F.3d 738 (5th Cir. 2008); Empire Fire & Marine Ins. Co. v. Brantley Trucking, Inc., 220 F.3d 679 (5th Cir. 2000); Hartford Ins. Co. v. Occidental Fire & Cas. Co., 908 F.2d 235 (7th Cir. 1990), and analyzed whether Mahdi’s conduct at the time of the accident “furthered the commercial interest” of J&J:
In applying the furthering-the-interests test to this case, we find that Mahdi’s conduct fell under the business use exception. The accident occurred while Mahdi was on his way to pick up a load for J&J; his driving to Jessup was a necessary step in completing his work. As the district court noted, Mahdi was not “pursuing leisurely engagement nor engaged in some frolic [or] detour.” Rather, he had received instructions from J&J to go to Jessup to pick up a load and was in the process of completing that task. Although Mahdi had decided just before the accident to stop for a meal before making his way to the warehouse, he was operating his vehicle at the time of the accident solely for the purpose of furthering J&J’s commercial interests.
The court therefore found that the business use exception applied to bar coverage, thereby affirming the decision of the district court.