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Atlantic Mutual Insurance Company v. Palisades Safety and Insurance Association

364 N.J. Super. 599, 837 A.2d 1096 (App. Div. 2003)

EMPLOYER-EMPLOYEE; INSURANCE—A company’s manager who, with the company’s knowledge, regularly directs company employees to run personal errands, using their own cars, is entitled to coverage under the company’s automobile coverage for an employee’s injury when the policy covers anyone who, with the company’s permission, borrows another’s vehicle.

An employee (driving his wife’s car) and his co-worker struck another car while on their way back to work after picking up a prescription for their manager from his house. Both were on company time. The driver of the struck car sued the employee, his wife, the business, and the manager for negligence. The company and the manager sent the complaint to the company’s liability insurance carrier. It defended the action on behalf of the company, but denied coverage for the manager. The manager submitted the complaint to his own homeowner’s and auto insurance carriers, each of whom denied coverage.

The injured motorist settled with the employee and the company for $790,000, of which the employee’s insurer paid $100,000, and the company’s insurer paid $690,000. The manager agreed to accept a $690,000 judgment in order to satisfy the company’s indemnity claim against him. Also, the company and the manager entered into a consent judgment, and in return for an agreement not to execute on the judgment, the manager assigned to the company and its insurance carrier all of his rights against his own homeowner’s and auto insurance carriers. The company’s carrier then filed the lawsuits at hand against those carriers.

The Court found that the company’s insurance carrier should have provided coverage to the manager because the policy covered “[a]nyone. . . using with your permission a covered auto you own, hire, or borrow” (emphasis added). Since the manager had sent the employees to his house, it was assumed as a matter of law that he “borrowed” the car. Thus, the question became whether the company had effectively borrowed the employee’s car. To answer that question, the Court adopted a test from a case that defined a borrower as one who “assumes a certain amount of control . . . over the object being borrowed.” It also applied the “use and possession” test, which recognizes a “borrower” as one having possession over the vehicle, and “possession” as being established by having dominion or control.

The record showed that the company’s use of the employees to run errands was a “daily occurrence.” In fact, the employee believed these errands were a part of his job – he was paid to run these, always remaining “on the clock” during such excursions. Thus, the company had substantial control over the employee’s vehicle and permitted the manager to “use” it by providing him with authority to send company employees on errands. As a result, the company’s insurance should have provided liability coverage to the manager.

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