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State Farm Mutual Automobile Ins. Co. v. Xaphes

decided: October 24, 1967.

STATE FARM MUTUAL AUTOMOBILE INS. CO., APPELLANT
v.
XAPHES ET AL., APPELLEES



Appeal from an order of the United States District Court for the District of Vermont, Ernest W. Gibson, J., directing that appellant defend appellee Wesson in a suit for wrongful death and pecuniary loss brought against her by appellee Xaphes.

Lumbard, Chief Judge, Smith and Kaufman, Circuit Judges. Smith, Circuit Judge.

Author: Lumbard

LUMBARD, Chief Judge:

This case presents the question whether under the terms of its automobile liability insurance policy issued to Joyce Brown, State Farm Mutual Automobile Insurance Co. must defend the appellee, Jocelyn H. Comtois Wesson, in a suit brought against her by appellee Xaphes, the administrator of the estate of Clara Brown. After a hearing of State Farm's petition for declaratory judgment the Vermont District Court ordered State Farm to defend Wesson, and the insurer appeals from that decree. We reverse.

State Farm issued an automobile insurance policy to Joyce Brown. While that policy was in effect, on July 26, 1965, Joyce, her mother Clara Brown and a friend, Jocelyn H. Comtois Wesson, were driving from New Jersey to Vermont. An accident occurred at Glens Falls, New York, while Wesson was driving the car with the permission of Joyce Brown, and Clara Brown was killed. Appellee Xaphes, the administrator of Clara Brown's estate, brought suit against Wesson in the District Court for Vermont for wrongful death and pecuniary loss to next of kin. State Farm, an Illinois corporation, then brought this diversity action seeking declaratory judgment to determine whether it was obligated under the policy to defend Wesson.

The policy provided under Insuring Agreement I, Coverage A, that State Farm would:

pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of (A) bodily injury sustained by other persons . . .; and to defend any suit . . .

For purposes of Coverage A, the policy defined "the insured" as including:

(1) the named insured . . . (4) any other person while using the owned automobile, provided the operation and the actual use of such automobile are with the permission of the named insured . . .

There is no dispute that Jocelyn Wesson was driving with the permission of the named insured, Joyce Brown, and that consequently she was covered by the policy as an additional insured. But the policy also included a clause commonly referred to as a "household exclusion":

This insurance does not apply under: (i) Coverage A, to bodily injury to the insured or any member of the family of the insured residing in the same household as the insured;

Clara Brown, the appellee Xaphes' intestate, concededly resided in the household of Joyce Brown, the named insured. The question presented to the district court was whether Xaphes' claim as administrator of Clara Brown's estate must be defended under the policy notwithstanding the household exclusion.

While it is agreed that construction of the contract of insurance is governed by Vermont law, there are no Vermont decisions in point. We are, therefore, obliged to construe the policy as we deem the courts of Vermont would if they were presented with this question. Vermont does accept the general rule that ambiguities in insurance contracts are to be construed against the insurer. American Fidelity Co. v. Elkins, 125 Vt. 313, 215 A.2d 516 (1965).

However, the policy before us is not ambiguous; its provisions as quoted above were carefully drawn as a result of court decisions*fn1 and clearly indicate that it was not intended to require State Farm to defend Wesson in the situation here presented. The insurer agreed to defend the insured and the additional insured only against claims arising out of injuries sustained by other parties. The company did ...


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