A recent appellate case, NJM Ins. Co. v. Fermin, involved a coverage dispute between automobile insurance carriers. Danny Nunez, an unlicensed driver, operating Diodelcy Fermin’s vehicle, with Fermin’s permsision, collided with another vehicle that was insured by plaintiff NJM Insurance Co.

Following the accident, Nunez was convicted of assault by automobile and causing injury while driving with a suspended license, and driving while intoxicated. NJM paid both the victim’s PIP benefits and property damage and subsequently filed a subrogation action against Fermin seeking to recover the property damage payments.

Fermin’s insurance carrier, CURE, moved for summary judgment arguing that it was not obligated to provide liability coverage because Nunez did not have a valid driver’s license on the date of the accident and therefore he could not form a reasonable belief that he was entitled to operate Fermin’s vehicle. CURE relied on an exclusion in its policy that read: “We do not provide Liability Coverage for any ‘insured’…using a vehicle without a reasonable belief that that ‘insured’ is entitled to do so.”

The trial court ruled that there was coverage under the CURE policy, which lead to an appeal. On appeal, CURE renewed its arguments contending that the policy excludes liability coverage when the vehicle’s driver does not have a reasonable belief that he is entitled to operate the vehicle.

The appellate court affirmed the trial court’s finding, citing to a more controlling line of cases that had adopted the “initial permission” rule in determining that coverage will apply in favor of an innocent third-party where initial permission existed to drive the vehicle.  Under the “initial permission” rule, if a person is given permission to use a vehicle in the first instance, any subsequent use while it remains in his possession, though not within the contemplation of the parties, is a permissive use within the terms of a standard omnibus clause in an automobile insurance policy.

The appellate court concluded that because Nunez had express permission to drive Fermin’s vehicle, the “initial permission” applied and the “reasonable belief” exclusion cannot be interpreted as eliminating coverage where there was permission of the owner to use the vehicle.  To look at it another way, Nunez did not have permission from the state of New Jersey, but he did have permission from Fermin — and that was enough.  Thanks to Steve Kim for his contribution to this post.  Please email Brian Gibbons with any questions.