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The Travelers Indemnity Co. v. Armstrong

Supreme Court of Kentucky

November 1, 2018

THE TRAVELERS INDEMNITY COMPANY APPELLANT
v.
CHARLES ARMSTRONG, ADMINISTRATOR OF THE ESTATE OF CRAIG ARMSTRONG APPELLEE AND MARTIN CADILLAC, INC. D/B/A/ MARTIN DOCGE JEEP CHRYSLER APPELLANT
v.
CHARLES ARMSTRONG, ADMINISTRATOR OF THE ESTATE OF CRAIG ARMSTRONG APPELLEE

          ON REVIEW FROM COURT OF APPEALS CASE NO. 2015-CA-001892-MR WARREN CIRCUIT COURT NO. 14-CI-00954

          COUNSEL FOR APPELLANT, THE TRAVELERS INDEMNITY COMPANY: Michael Shea Maloney Stephen Connor Keller Schiller Barnes Maloney PLLC

          COUNSEL FOR APPELLANT, MARTIN CADILLAC, INC., D/B/A MARTIN DODGE JEEP CHRYSLER: Guy Edward Hughes Robert Sean Quigley Casey Bailey & Maines, PLLC

          COUNSEL FOR APPELLEE: Matthew James Baker

          COUNSEL FOR AMICUS CURIAE, ABC BOWLING GREEN, LLC AND NATIONAL AUTO AUCTION ASSOCIATION, INC.: Darell R. Pierce Julie F. Shadoan Pierce & Shadoan Michael G. Abelow Lauren Z. Curry Sherrard Roe Voigt & Harbison, PLC

          COUNSEL FOR AMICUS CURIAE, KENTUCKY AUTOMOBILE DEALERS ASSOCIATION: Clayton B. Patrick Patrick Law Firm

          OPINION

          KELLER, JUSTICE.

         Charles Armstrong sued Martin Cadillac, Inc., D/B/A/ Martin Dodge Jeep Chrysler (Martin); The Travelers Indemnity Company (Travelers), Martin's insurer; the Estate of Jonathan Elmore; State Farm Mutual Automobile Insurance Company (State Farm); and News Publishing, LLC, in Warren Circuit Court for the wrongful death of his son, Craig Armstrong. Charles served as administrator of Craig's estate.[1] ABC Bowling Green, LLC (ABC) was also later added as a party.[2] Elmore was driving the vehicle in which Craig was a passenger; both Elmore and Craig were killed in the accident. It is undisputed that Elmore caused the wreck. A number of parties were sued, including each of the parties' respective insurance companies, all in connection with who owned, operated, or was financially responsible for the vehicle Elmore was driving. The Warren Circuit Court granted summary judgment to Travelers and Martin, finding that Elmore was the owner of the vehicle and thus, Martin, and by extension, Travelers, were not financially liable for the loss. After the Court of Appeals reversed, we granted discretionary review to examine Kentucky Revised Statute (KRS) 186A.220 and determine the implications of the statutory language to the sale of the vehicle in question.

         I. BACKGROUND

         On November 30, 2013, Martin, a licensed motor vehicle dealer, accepted a 1996 Chevrolet Cavalier (the vehicle) in trade. On December 6, 2013, Martin gave the vehicle to ABC to be sold at an auction. That same day, Terrez DeWalt (DeWalt), representative for DeWalt Auto Sales (DeWalt Auto), a licensed motor vehicle dealer, placed the highest bid for the vehicle. DeWalt took possession of the vehicle on the same day. The title had not been provided to ABC, nor was it provided to DeWalt or DeWalt Auto. On December 26, 2013, Martin completed the statutorily required Notice to Clerk of Acquisition, requesting the county clerk to record title assignment. Martin concedes that this paperwork was not timely filed; dealers must notify the county clerk of the assignment of vehicles to the dealership within fifteen days of acquiring the vehicle. KRS 186A.220(1). This assignment by Martin was not recorded and noted in the online system with the county clerk until January 2, 2014.

         On January 19, 2014, Elmore purchased the vehicle from DeWalt Auto. He paid in cash. On January 20, 2014, he returned and showed DeWalt Auto proof of insurance, [3] pursuant to KRS 186A.220(5), and took physical possession of the vehicle. On January 24, 2014, Martin delivered paperwork transferring title to ABC and ABC delivered a check to Martin for the sale of the vehicle. ABC did not note receipt of the paperwork in its system until March 18, 2014 but representatives admitted during discovery that this seems to be in error and the paperwork was received in January.

         On April 5, 2014, Elmore was driving the vehicle, delivering newspapers for News Publishing, LLC. Craig was riding in the vehicle as a passenger. Elmore pulled into the path of another vehicle at an intersection and the vehicle was hit by the oncoming driver. Both Elmore and Craig were fatally injured. Charles brought this suit in his capacity as administrator of Craig's estate.

         The main issue before the circuit court was who was the statutory "owner" of the vehicle at the time of the collision, and thus, which insurance company was primarily responsible for liability coverage. According to KRS 186.010(7)(a), the "owner" of a vehicle is "a person who holds the legal title of a vehicle or a person who pursuant to a bona fide sale has received physical possession of the vehicle subject to any applicable security interest." At the time of the wreck, the title was still in Martin's name as it had been assigned to the dealership at trade-in. However, it is also undisputed that Martin no longer had physical possession of the vehicle. KRS 186.010(7)(c) dictates that "[a] licensed motor vehicle dealer who transfers physical possession of a motor vehicle to a purchaser pursuant to a bona fide sale, and complies with the requirements of KRS 186A.220, shall not be deemed the owner of that motor vehicle solely due to an assignment to his dealership or a certificate of title in the dealership's name." Therefore, the ensuing question is: did Martin comply with KRS 186A.220 in order to redeem the right in KRS 186.010(7)(c) and end its identity as "owner" of the vehicle?

         At the crux of both parties' argument as to liability is KRS 186A.220(5), [4] which states:

When [the dealer] assigns the vehicle to a purchaser for use, he shall deliver the properly assigned certificate of title, and other documents if appropriate, to such purchaser, who shall make application for registration and a certificate of title thereon. The dealer may, with the consent of the purchaser, deliver the assigned certificate of title, and other appropriate documents of a new or used vehicle, directly to the county clerk, and on behalf of the purchaser, make application for registration and a certificate of title. In so doing, the dealer shall require from the purchaser proof of insurance as mandated by KRS 304.39-080 before delivering possession of the vehicle. ...

(emphasis added). It is undisputed that Martin did not require proof of insurance from either ABC or DeWalt upon the purchase of the vehicle. Armstrong argues that Martin failed to strictly comply with this statutory provision; therefore, it is unable to claim the exception of KRS 186.010(7)(c) and Martin is still the legal "owner" of the vehicle for insurance liability. Martin and Travelers, however, argue that either (1) the "purchaser for use" language in the requirement means that it only applies in dealer-to-consumer sales, rather than dealer-to-dealer transactions or (2) if Martin was required to verify insurance, DeWalt's later compliance with the requirement in the sale to Elmore overrides any liability Martin may have had.

         The circuit court interpreted the statute the same as Martin and Travelers. In its order, the court interpreted "purchaser for use" as "a purchaser who intends to use the vehicle." The court went further to limit the application to "purchasers who intend to use the car by driving it." DeWalt was not a purchaser for use under this definition and Martin was not required to verify the buyer's insurance. As such, under KRS 186.010(7)(c), Martin could not be held the "owner" on the sole basis of title being in its name. Elmore procured the vehicle in a bona fide transaction and there, the seller, DeWalt Auto, did comply with the requirements of KRS 186A.220(5). As such, Elmore was the statutory "owner" of the vehicle, even though title was still in Martin's name. The circuit court also dismissed all claims of bad faith against Travelers after this ruling.

         The Court of Appeals interpreted the statute differently. It determined that "[t]he statutory duty to obtain proof of insurance before delivering possession of the vehicle to the purchaser applies even when a dealer sells the vehicle to another dealer," relying upon another Court of Appeals decision, Calhoun v. Provence, 395 S.W.3d 476 (Ky. App. 2012). The Court determined that Martin showed a "wholescale disregard for the statutory requirements" and such disregard "flies in the face of longstanding Kentucky jurisprudence requiring strict statutory compliance." It found that Martin was required to verify proof of insurance before the buyer took possession of the vehicle. The Court of Appeals did not define or explain the meaning of "purchaser for use," stating only that dealers also "use vehicles on their lot for a variety of purposes, including sales for profit." It also held that the delay in transferring title by both Martin and DeWalt Auto was pivotal to ownership and unclear from the record. It reversed the grant of summary judgment and remanded for the trial court to conduct further proceedings on whether Martin promptly complied with its statutory requirements. Based on this finding, it also reversed the dismissal of the bad faith claims.

         II. STANDARD OF REVIEW

         The primary issue now before the Court is interpretation of KRS 186A.220. The construction and application of statutes is a matter of law, which we review de novo, Bob Hook Chevrolet Isuzu, Inc. v. Com. Transp. Cabinet, 983 S.W.2d 488, 490 (Ky. 1998), without any deference to the interpretation afforded by the circuit court. Cinelli v. Ward, 997 S.W.2d 474, 476 (Ky. App. 1998) (citing Louisville Edible Oil Products, Inc. v. Revenue Cabinet Commonwealth of Kentucky, 957 S.W.2d 272 (Ky. App. 1997)); see also Jefferson County Bd. Of Educ. V. Fell, 391 S.W.3d 713, 718 (Ky. 2012) (citing Cumberland Valley Contractors, Inc. v. Bell County Coal Corp., 238 S.W.3d 644, 647 (Ky. 2007)).

         III. ANALYSIS

         A. KENTUCKY IS A CERTIFICATE OF TITLE STATE, BUT THERE IS AN EXCEPTION.

         Pursuant to KRS Chapter 186A, and with the chapter's effectuation, "Kentucky is a certificate of title state for the purposes of determining ownership of a motor vehicle and requiring liability insurance coverage." Potts v. Draper, 864 S.W.2d 896, 898 (Ky. 1993). Unless certain statutory provisions are met, "[t]he owner of a motor vehicle is the title holder[.]" Id. "The adoption of K.R.S. Chapter 186A ... had the effect of changing the law of Kentucky from an equitable title state to a certificate of title state for the purposes of determining ownership of a motor vehicle for liability insurance requirements." Id. Thus, the title owner would normally be considered the statutory owner of the vehicle and that owner's insurance company would be liable in certain circumstances. However, in 1994, the legislature added the language at issue in this case in KRS 186A.220(5), "creat[ing] an exception to the general statutory scheme that makes the title holder the owner of a vehicle for insurance purposes." Auto Acceptance Corp. v. T.I.G. Ins. Co., 89 S.W.3d 398, 401 (Ky. 2002).

         As previously quoted, KRS 186.010(7)(c) states that "[a] licensed motor vehicle dealer who transfers physical possession of a motor vehicle to a purchaser pursuant to a bona fide sale, and complies with the requirements of KRS 186A.220, shall not be deemed the owner of that motor vehicle solely due to an assignment to his dealership or a certificate of title in the dealership's name." This creates a clear exception to the certificate of title holder being the legal owner of a vehicle. Notably, the exception only applies to "licensed motor vehicle dealer[s]". The legislature clearly contemplated points where a dealer may still be a title holder but, in order to effectuate the efficient flow of commerce to buyers, intended that the actual buyer should be considered the "owner" even before the certificate of title has been recorded in that buyer's name. However, to properly conserve the policy intent of KRS Chapter 186A, as well as the Motor Vehicle Reparations Act (MVRA), the General Assembly required the dealer to comply with certain requirements to avail itself of this exception and cut off its potential liability.

         Those requirements are codified in KRS 186A.220. There are seven separate subsections to KRS 186A.220.

         KRS 186A.220(1):

Except as otherwise provided in this chapter, when any motor vehicle dealer licensed in this state buys or accepts such a vehicle in trade, which has been previously registered or titled for use in this or another state, and which he holds for resale, he shall not be required to obtain a certificate of title for it, but shall, within fifteen (15) days after acquiring such vehicle, notify the county clerk of the assignment of the motor vehicle to his dealership and pay the required transferor fee.

         Notably here, the legislature made this section applicable to vehicles that a dealership accepts in trade or buys for the express purpose of resale. In those circumstances, the dealer is not statutorily required to obtain a certificate of title but is obligated to notify the county clerk of the vehicle's acquisition.

         KRS 186A.220(2):

Upon purchasing such a vehicle or accepting it in trade, the dealer shall obtain from his transferor, properly executed, all documents required by KRS 186A.215, to include the odometer disclosure statement thereon, together with a properly assigned certificate of title.

         This section provides in obtaining "such vehicle[s, ]" in other words, vehicles bought or accepted in trade for resale that have been previously registered or titled, the dealer must obtain all the documents under KRS 186A.215. These documents include the certificate of title from the transferor, which can then be assigned to the dealership. KRS 186A.215 also outlines the requirements that both transferor and transferee must undertake to promptly and properly transfer title ownership in a vehicle between the parties. Here, the General Assembly chose to outline a different procedure when this kind of vehicle is ...


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