The State Farm policy covering the Escort listed Brooks as the insured and Pugh as a resident relative. Zufall's parents obtained an insurance policy with Allstate and included him as a resident relative. DeLodovico obtained an insurance a policy from Agency. In addition, DeLodovico's policy contained a $50,000 uninsured motorist provision. On December 10, 2007, Agency filed a Complaint for Declaratory Judgment in the Circuit for Baltimore County, seeking a determination of the rights and responsibilities of the parties involved in the accident. At the bench trial, Brooks, the only witness, testified that she had previously allowed Zufall to drive the Escort to take Pugh, who he was dating, to Medieval Times in Anne Arundel County. In addition, Brooks testified that she allowed Pugh to drive to Zufall's house on December 30, 2005. According to her testimony, Brooks instructed Pugh to drive the Escort only to Zufall's house when she discovered that Zufall had a functioning vehicle. Brooks also provided to State Farm a statement saying that she did not give Zufall permission to drive the Escort on the night of the accident.

On April 28, 2009, the Circuit Court for Baltimore County ruled that neither State Farm nor Allstate was required to defend or indemnify Zufall, as he did not have permission to drive the Escort. The circuit court looked to Brook's State Farm policy and found that the policy would have only covered Zufall as a driver of the Escort if he had obtained Brooks' permission to drive the Escort. Agency timely filed an appeal to the Maryland Court of Special Appeals. The Intermediate Appellate Court decided (1) whether the trial court erred in finding that State Farm was not obligated under its policy to defend or indemnify the Zufall, who was not permitted to drive the car on the night of the accident, and (2) whether the trial court erred in finding that Allstate was not contractually obligated to defend or indemnify its insured while he operated a vehicle he did not own without permission.

The Court of Special Appeals reviewed the trial court's decision in accordance with MD. RULE 8-131(c). RULE 8-131(c) provides that after a bench trial, "the appellate court will review the case on both the law and the evidence. It will not set aside the judgment of the trial court on the evidence unless clearly erroneous, and will give due regard to the opportunity of the trial court to judge the credibility of the witnesses." On conclusions of law, the Intermediate Appellate Court does not give such deference to the trial court, and reviews the issues de novo. The interpretation of a contract is generally a question of law. The Court first addressed the issue of whether State Farm was obligated to defend and indemnify Zufall, the driver of an insured vehicle who was not permitted to drive the vehicle. The determination of this issue turned on the Court's interpretation of State Farm's "omnibus" provision. An omnibus provision extends coverage under an automobile insurance policy to individuals other than the named insured. In this case, State Farm's omnibus provision included the named insured, the spouse of the named insured, a relative of the named insured, any person using the car with the consent of the named insured or the spouse of the named insured, and any person or organization liable for the use of the car by the other enumerated insured drivers.

Agency argued that Zufall was insured under the provision covering any person or organization liable for the use of the car by the other insured drives. State Farm argued that the clear and unambiguous terms of the policy would provide coverage for Zufall if he was legally responsible for the use of the Escort by one of the insureds. For example, if Zufall employed Pugh and Pugh drove the Escort negligently in the scope of the employment, Zufall would be legally responsible for the use of the car by Pugh under the doctrine of respondeat superior. Because there was no evidence at trial that Zufall was liable for the use of the Escort by Brooks, her spouse, or Pugh, State Farm argued that the trial court correctly concluded that Zufall was not covered under the policy. The Court of Special Appeals agreed with State Farm. The Court concluded that Zufall could only be covered under that provision of the policy if his liability arose from Pugh's negligent use of the Escort. In this case, the Court noted that Zufall's own negligence caused the accident. In addition, the Court found that Agency's interpretation of the omnibus clause would eviscerate the right of the insured owner to limit their relative's use of the vehicle.

Next, the Court of Special Appeals addressed the issue of whether Allstate was obligated to defend or indemnify its insured while he was operating a vehicle he did not own. Zufall's parents were insured by a policy that included him. The policy contained a provision covering the named insured and a resident relative while operating a non-owned vehicle. Under the policy, an "insured vehicle" included a non-owned vehicle used by the named insured or a resident relative with the owner's permission. Zufall would have had to be an insured person, and the Escort had to be an insured vehicle for the Allstate policy to cover him. Agency contended that the Escort was an insured vehicle under the policy. Agency further argued that it would be against public policy to deny coverage to Zufall where Pugh, who had lawful possession of the Escort, granted Zufall permission to drive the Escort.

In response to Agency's argument, Allstate argued that the Escort was not an insured vehicle under the policy, as Zufall did not have permission to drive the vehicle at the time of the accident. Further, Allstate contended that Pugh could not have had an ownership interest in the Escort by her lawful possession because Brooks expressly forbade Pugh from operating the vehicle at the time of the accident. The Court found that Pugh no longer had lawful possession of the Escort when she exceeded Brooks' instructions regarding the use of the Escort. Under the Allstate policy, the Court found that a vehicle is insured when the non-owner driver has permission to operate the vehicle. Accordingly, the Court affirmed the decision of the Circuit Court for Baltimore County, finding that Allstate had no duty to indemnify or defend Zufall.