A federal appeals court reversed a lower court Tuesday and held a Zurich Insurance Group Ltd. unit was obligated to compensate a man injured in a motor vehicle accident caused by its policyholder’s intoxicated employee because she had permission to use the vehicle.

Zurich unit Zurich American Insurance Co. issued a general insurance policy to Phoenix-based Underwood Bros Inc., conducting business as AAA Landscape, which provided coverage for auto accidents, according to the divided ruling by the 9th U.S. Circuit Court of Appeals in San Francisco in James McGee v. Zurich American Insurance Co.

The policy defined insured as anyone “using with your permission a covered ‘auto’ you own.”

In 2012, AAA Landscape assigned a company vehicle to employee Elizabeth Foutz, according to the ruling. Three years later, she was involved in a car accident with Mr. McGee.  Although Mr. McGee was found at fault for the accident, Ms. Foutz was cited for driving while intoxicated.

After Mr. McGee filed a claim against Ms. Foutz, Zurich declined coverage on the basis she had “failed to qualify as an insured under the policy, because she had exceeded any permissible use by driving while intoxicated.”

Ms. Foutz assigned her rights to Mr. McGee, who sued Zurich for breach of contract and bad faith.

The U.S. District Court in Phoenix granted summary judgment on both claims to Zurich, concluding that because AAA Landscape never gave Ms. Foutz express or implied permission to drive while intoxicated, her use of the vehicle at the time of the accident was not permissive, and she was therefore not an insured.

In overturning that ruling, the 2-1 majority opinion said, “There is no dispute that Foutz was covered by the policy if she was a permissive user at the time of the accident, both under terms of the policy and Arizona law.” The state law says that “permissive use encompasses minor deviations from the permission granted.”

The record shows Ms. Foutz’s use of the vehicle at the time of the accident was permissive, the opinion said. She was permitted to use the company vehicle for personal errands after work, and evidence shows that the vehicle’s use at the time of the accident, which was while she was driving home from a grocery store, fell within the scope of the permitted use.

“Viewing the evidence in the light most favorable to McGee, this was either within the scope of permitted use or, at minimum, a minor deviation for that permission,” the ruling said.

“Zurich argues that Foutz’s use was non-permissive because she did not have express or implied permission to operate a company vehicle while intoxicated,” the ruling said.

But she had permission to use the vehicle for the purpose for running her personal errands.  Her negligence in driving while intoxicated “does not negate the fact that her use (running an errand) was permissive,” the decision said, in reversing the lower court’s decision and remanding the case for further proceedings.

The dissenting opinion said, “The district court properly granted summary judgment in favor of Zurich on McGee’s breach of contract claim because Foutz lacked permission to use the company vehicle while intoxicated.”

“The Ninth Circuit's decision makes good sense,” Mr. McGee’s attorney, David L. Abney, of Ahwatukee Legal Office PC in Phoenix, said in a statement. “If an insurance company can nullify insurance coverage every time an insured is involved in a traffic accident in which the insured has violated a motor-vehicle safety law, there would be very little actual coverage for traffic accidents.

“After all, it is a rare traffic accident where both sides are completely blameless. One or the other of the drivers, and often both, will have violated at least one motor-vehicle safety law, whether it is speeding, or following too closely….The list of motor-vehicle safety laws that the average motorist violates on every trip is as long as your arm.

“The Ninth Circuit also got things exactly right on permissive use. There is some leeway when an employer lets an employee have a car to use for commuting to and from work and for work duties. Using a company car to make a short trip to a local grocery store is hardly an unexpected, improper, or unauthorized use.”

Zurich’s attorneys did not respond to a request for comment.