Permissive User Not Intended Insured of Umbrella Policy – Only Coverage for Insured Person

Permissive User Not Intended Insured of Umbrella Policy – Only Coverage for Insured Person

On October 10, 2010, Levina Rice suffered significant injuries as a passenger in a one-vehicle automobile accident in Bates County, Missouri. Rice’s son-in-law, Howard Wiebe, drove the vehicle, which was owned by Rice’s daughter and son-in-law, Sherry and Timothy Underwood. Both Wiebe and the Underwoods were covered by auto liability policies in effect at the time of the accident. The insurers for each of those policies paid Rice their respective policy limits, a total of $350,000.

The Underwoods also had purchased a personal umbrella insurance policy issued by Allstate Indemnity Company (Allstate Indemnity). Pursuant to a settlement agreement among Allstate Indemnity, Rice, Wiebe, and the two primary auto liability insurers, Allstate Indemnity sought a declaratory judgment in the district court delineating its duties under the umbrella policy, if any, to Wiebe. Allstate Indemnity and Rice both moved for summary judgment. The district court granted Allstate Indemnity’s motion and denied Rice’s motion, [enhanced version available to subscribers], concluding Wiebe was not an “insured person” under the umbrella policy. Rice appealed.


At the time of Rice’s accident, the Underwoods were the named insureds of an auto policy (auto policy) issued by Allstate Fire and Casualty Insurance Company (Allstate Fire and Casualty), a distinct entity from Allstate Indemnity. The auto policy’s bodily injury coverage was limited to $250,000 per person. Wiebe was the named insured of a Farmers Insurance Company (Farmers) auto liability policy with coverage limited to $100,000 per person. Pursuant to these policies, Allstate Fire and Casualty paid Rice $250,000, and Farmers paid Rice $100,000.

At the time of the accident, the Underwoods also were the named insureds of a “Personal Umbrella Policy” (umbrella policy) issued by Allstate Indemnity. The umbrella policy required underlying auto bodily injury insurance coverage of $250,000 per person and limited excess liability to $1,000,000 for each occurrence. The umbrella policy “provides only excess insurance. It does not contribute with any Required Underlying Insurance or other insurance which applies to an occurrence.” Under the umbrella policy, Allstate Indemnity was required to pay only that amount of damages which exceeds the sum of: “1. the limits of liability of any Required Underlying Insurance which apply to the occurrence; plus ¶2. the limits of any other liability insurance available to an insured person which apply to the occurrence.”


Interpretation of an insurance policy is a matter of state law. The parties agree Missouri law controls this diversity case. When interpreting the terms of an insurance policy, the Supreme Court of Missouri applies the meaning that would be understood by an ordinary person of average understanding purchasing the insurance. Clear and unambiguous language in an insurance policy should be given its plain meaning. If the policy is ambiguous, it will be construed against the insurer. An ambiguity exists when there is duplicity, indistinctness, or uncertainty in the meaning of the language in the policy. Language is ambiguous if it is reasonably open to different constructions. Absent an ambiguity, an insurance policy must be enforced according to its terms.

Allstate Indemnity Umbrella Policy

In the district court, Rice argued that Wiebe, as a permissive user, was an “insured person” under the umbrella policy. Rice now declares in her reply brief that she does not argue that permissive user Howard Wiebe met the technical definition of an “insured person” under the umbrella policy issued to the Underwoods. Her focus on appeal is directed instead to Wiebe’s status as a “permissive user.”

Under the umbrella policy’s “Excess Liability Insurance Coverage XL” (XL coverage), “Allstate [Indemnity] will pay damages which an insured person becomes legally obligated to pay because of bodily injury, personal injury or property damage, subject to the terms, conditions and limits of this policy. Bodily injury, personal injury and property damage must arise from a covered occurrence.”

The disputed question is whether the accident was a “covered occurrence” meriting XL protection. Rice maintains it was, because Wiebe was a permissive user of the Underwoods’ vehicle and the accident arose out of such permissive use. This may be true. However, it is not the only requirement for XL coverage. The XL coverage obligates Allstate Indemnity to “pay damages which an insured person becomes legally obligated to pay because of bodily injury.” (Italics added by the court). The court could find no such damages in this case. Rice declared and agreed in the settlement agreement that there is no allegation or evidence of negligence or fault on the part of the Underwoods regarding any injuries or damages resulting from Rice’s accident. Rice does not offer any plausible legal theory applicable in the state of Missouri that would render the Underwoods legally responsible for Wiebe’s negligence. Unlike some states, Missouri does not generally impose vicarious liability on a vehicle owner for the negligence of another person operating the vehicle. In short, Rice has offered no factual or legal scenario under Missouri law — nor do we find one — by which the Underwoods would become legally obligated to pay damages to Rice under the facts of this case.

Allstate Indemnity’s XL coverage provisions explicitly and unambiguously protect against losses the insured person incurs — that is, protection for “damages which an insured person becomes legally obligated to pay.” Not every conceivable loss is covered. The XL coverage delineates a specified, numbered subset of three “covered occurrence[s]” in the clause entitled “Losses We Cover Under Coverage XL.” Rice would have the umbrella policy’s XL coverage insure not only the “legal obligations” of the Underwoods, but also the legal obligations of an unlimited pool of permissive-user tortfeasors.

This interpretation contradicts the very purpose of umbrella insurance, as interpreted by the Missouri courts: “While a primary insurance policy provides ‘the first layer of insurance coverage,’ an umbrella policy is used to provide ‘specific coverage above an underlying limit of primary insurance.’” The purpose for writing an umbrella policy in addition to a primary policy is to protect the insured against liability for catastrophic losses that would exceed the limits of affordable primary coverage. Allstate Indemnity is not responsible for the fact Wiebe had not purchased any excess insurance for his own protection against liability for catastrophic loss.


Because the plain language in the Underwoods’ Allstate Indemnity umbrella policy provides XL coverage only for the legal obligations of insured persons, and Wiebe is not an insured person under the umbrella policy, the judgment was affirmed, [enhanced version available to subscribers].


In common auto insurance a permissive user of a vehicle is covered by the owner’s insurance policy. As a result Wiebe was insured by the primary insurance. However, Umbrella insurance is personal, in Missouri, to the persons qualified as an “insured person” and since Wiebe did not fit that definition he was not entitled to the umbrella coverage since he was not an insured person.

    By Barry Zalma, Attorney and Consultant

Reprinted with Permission from Zalma on Insurance, (c) 2014, Barry Zalma.

Barry Zalma, Esq., CFE, is a California attorney who limits his practice to consultation regarding insurance coverage, insurance claims handling, insurance bad faith and fraud and acting as a mediator or arbitrator on insurance disputes. Mr. Zalma serves as a consultant and expert almost equally for insurers and policyholders. He founded Zalma Insurance Consultants in 2001 and serves as its only consultant. He recently published the e-books, "Zalma on Rescission in California - 2013"; "Random Thoughts on Insurance" containing posts from this blog; "Zalma on Insurance;" "Murder and Insurance Don't Mix;" “Heads I Win, Tails You Lose — 2011,” “Zalma on Diminution in Value Damages,” “Arson for Profit” and “Zalma on California Claims Regulations,” and others that are available at Zalma Books.

Mr. Zalma can be contacted at Barry Zalma or, and you can access his free "Zalma on Insurance Fraud" newsletter at Zalma’s Insurance Fraud Letter.

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