After lawsuits were filed against both Tallent and Wilson, State Farm filed a declaratory judgment action against Southern Trust seeking a determination that, as to claims against Tallent, the personal auto policy issued to Tallent was secondary and immediately excess to the primary auto policy of State Farm. State Farm also claimed that the umbrella policies of Southern Trust and State Farm were then secondary and excess to the two underlying auto policies. As to claims against Wilson, State Farm alleged that the Southern Trust auto policy issued to Tallent was immediately secondary and excess and directly applicable upon the exhaustion of the limits of coverage under the primary State Farm auto policy, and that the personal liability umbrella policy issued to Wilson was then secondary and excess to the underlying auto policy of Tallent.

Southern Trust admitted that its policy was secondary and excess as to the claims against Tallent only, and that the umbrella policies of State Farm and Southern Trust were secondary to the auto coverage as to any claims against Tallent. However, Southern Trust denied any coverage for claims against Wilson.

The trial court ruled in favor of State Farm and this appeal followed.

The Court of Appeals of Tennessee noted that the Tennessee Code provided that in all cases arising out of the use of a motor vehicle, the owner's policy is primary and that any other coverages that may be available to the user of the auto are not applicable unless and until the limits of all coverages provided by the owner's policy first are exhausted. The court said that Tennessee law thus required that Wilson's State Farm auto policy is primary coverage and Tallent's auto policy comes second in the order of priority when it comes to coverage for Tallent. The court said that the State Farm umbrella policy is an excess policy under which payment "will only be made for liability above the minimum limit of one or more primary insurance policies". Thus, the State Farm umbrella policy would be excess over Tallent's Southern Trust auto policy.

The next question for the court was whether Tallent's auto policy provided coverage for Wilson. The court said that the answer to the question depends on the type of liability at issue. The key provision in Tallent's auto policy with respect to coverage for Wilson was covered in the "who is an insured" clauses: for your covered auto, any person or organization is an insured but only with respect to legal responsibility for acts or omissions of a person for whom coverage is afforded under this part. State Farm asserted that this provision makes Wilson an insured in his own right under Tallent's auto policy for his own legal responsibility, be that responsibility based on negligent entrustment or vicarious liability. The court did not agree. The appeals court said that the claims against Wilson were not based upon acts or omissions of a person covered under the policy; rather, they were based upon his own acts or omissions. The court said that the trial court erred in granting summary judgment in favor of State Farm with respect to the application of the Southern Trust policy to claims for negligent entrustment against Wilson.

The appeals court reversed the judgment of the trial court and remanded the case for further proceedings in accordance with this opinion.

Editor's Note: The Court of Appeals of Tennessee, in following the principle that insurance follows the car and in adhering to Tennessee statutes, ruled on the priority of coverage when primary and umbrella policies are involved. The priority of coverage was: the auto policy of the auto owner; the auto policy of the driver of the auto; the umbrella policy of the auto owner; the umbrella policy of the driver of the auto.

The court did, however, differentiate between the auto owner and the driver as to coverage under these policies. As to claims against the driver (Tallent), the State Farm auto policy belonging to the owner (Wilson) was primary and the driver's auto policy was excess, followed by the owner's umbrella policy. As to claims against the owner of the auto, his policy was primary but he had to look to his umbrella policy for more coverage since he was not an insured, as defined, under the terms of the driver's auto policy.