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Fourth Circuit Warns of Potential Gap in Coverage for Closely Held Businesses That Fall Short of Bringing Company Vehicle Completely Within Company Ownership

August 5, 2020

Recently, the 4th Circuit made a ruling that will likely result in some sleepless nights for owners of closely held businesses.  In overruling a decision by the United States District Court for the Western District of Virginia, the appellate court found that the wife of a businessman was not covered under the liability policy on a company car.  The case involved a family business co-owned by a father, Clevius Apple, and his son.  The company obtained a commercial insurance policy through Selective on the company car and listed the company, Building Industries as the named insured on the policy.  The vehicle was actually co-titled in the names of Clevius Apple and his wife, Roseanne Apple.

Roseanne Apple was driving the vehicle for personal reasons and was involved in accident with another driver, Earl Hoar.  Hoar sued Roseanne Apple for his injuries.  Selective filed a declaratory judgment action in the United States District Court for the Western District of Virginia contending there was no coverage under the policy.  The District Court held that coverage existed and cited Virginia’s omnibus clause, Va. Code § 38.2-2204(A) and the fact that Roseanne Apple was a permissive user of the vehicle as support for its decision.

On appeal, the 4th Circuit reasoned that the premise of the omnibus clause case is that a person is using the vehicle with the consent of the named insured.  In a case like this, however, permission to use a vehicle cannot be given if the named insured does not own the vehicle.  Further, as a co-owner of the vehicle, Roseanne Apple did not need permission to use the vehicle.  

Since Roseanne Apple’s only basis for coverage under the policy was via the omnibus clause, the 4th Circuit vacated the district court opinion and remanded the case.