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Insurance Law News - February 2017

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Personal Auto Policy's "Non-Owned" Auto Coverage Inapplicable Where Insured Had "Regular Use" of Company Vehicle

A personal auto policy's "non-owned" auto coverage did not apply where the insured had "regular use" of a company vehicle furnished by her employer. (Medina v. GEICO Indemnity Co. (2017) --- Cal.App.5th ----, 2017 WL 510878)


Leigh Ann Flores was employed by Pacific Bell Telephone Company. Flores worked out of a Pacific Bell office in Fresno, but also would travel to various other Pacific Bell offices in California. Because Flores' job required her to transport company equipment, and because she was not allowed to use her personal vehicle for such purposes, Pacific Bell assigned her the use of a GMC van owned by Pacific Bell. Flores had her own set of keys to the van, which was permanently assigned to her for her exclusive use.

When Flores worked in Fresno, she would drive her personal car to the Fresno office, pick up the van, and then drive the van during the work day. At the end of the work day, she would drop off van at the office and then drive her personal car home. Flores never took the van home overnight.

When Flores traveled out of town for work, Flores would drive her personal car to the Fresno office on Monday morning, pick up the van, and drive it to her out-of-town destination. Once she arrived at her out-of-town destination, she would check into a motel and then drive the van to the work site. On Friday, she would drive back to the Fresno office, drop off the van, and drive her personal vehicle home.

Whether Flores was working in Fresno or out of town, she used the van during the day to run personal errands such as banking or shopping. Also, when Flores was working out of town, the van was her only means of transportation, so she used it during non-work hours to go to restaurants, go shopping, etc.

In August 2009, Flores was on an out-of-town assignment. During lunch Flores consumed some wine, and then after lunch Flores, while intoxicated, drove the van to another city on a personal errand. While on this personal errand, Flores collided with a car driven by Javier Medina, resulting in serious injuries to Medina.

Following the accident, Medina sued Pacific Bell and Flores. Pacific Bell, which was self-insured for company cars such as the van, refused to defend or indemnify Flores against Medina's lawsuit. Pacific Bell conceded that at the time of the accident Flores had been operating the van with Pacific Bell's "permission," and that Pacific Bell thus had $15,000 statutory "owner liability." However, Pacific Bell sought and obtained a ruling that at the time of the accident Flores was not acting in the "course and scope" of her employment, and that Pacific Bell therefore was not "vicariously liable" for Flores' negligence.

At the time of the accident, Flores was the named insured on a personal auto policy issued by GEICO Indemnity Company. The GEICO policy provided Flores with coverage for bodily injury and property damage arising out of the use of a "non-owned auto," which the policy defined as "an automobile ... not owned by or furnished for the regular use of either you or a relative...." GEICO refused to defend or indemnify Flores against Medina's lawsuit, asserting among other things that the Pacific Bell van Flores was driving at the time of the accident was available for her "regular use" and thus was not a "non-owned auto."

Medina and Flores entered into a settlement agreement pursuant to which (1) Medina took an assignment of Flores' rights against GEICO, and (2) Medina agreed not to enforce any judgment against Flores' personal assets. Medina and Flores then stipulated that an arbitrator would decide Medina's personal injury lawsuit against Flores. The arbitrator subsequently awarded Medina over $500,000 against Flores, which award was confirmed as a judgment.

Medina as assignee and judgment creditor of Flores then sued GEICO to collect the judgment that had been rendered against Flores in the underlying lawsuit. GEICO moved for summary judgment on the ground that the van had been furnished to Flores for her "regular use," and thus the van did not qualify as a "non-owned auto" as defined in the GEICO policy. The trial court granted GEICO's motion. Medina appealed.


The Court of Appeal affirmed the summary judgment in favor of GEICO.

The appellate court reasoned that Pacific Bell had assigned the van to Flores for her exclusive use and had authorized her to use the van for both business and personal purposes. Although Flores was required to return the van to the Fresno office at the end of her work day both when she was working in the local area and when she returned from out-of-town business trips, Flores had unlimited use of the van when it was in her possession. When Flores was out of town on business, the van was her only means of transportation and Flores could use the van for both business and personal use. Thus, at the time of the accident, Flores had "regular use" of the van, which meant that the van was not a "non-owned auto" within the meaning of the GEICO policy.

The appellate court rejected Medina's argument that because Pacific Bell provided the van to Flores "primarily" for business purposes, Flores' use of the van for personal purposes at the time of the accident was not "regular use." The court emphasized that Pacific Bell had furnished the van to Flores for both business and personal use during her work days and while on out-of-town business trips, and that Flores' personal use of the van at the time of the accident was not a departure from the customary use for which the van was furnished. Thus, Flores' use of the van for a personal errand during the workday constituted "regular use" for which coverage was not available.


"Non-owned" auto coverage is intended to provide coverage for an insured's occasional use of a non-owned vehicle without requiring the payment of additional premiums. By the same token, the exclusion of coverage for regular use of non-owned vehicles is intended to prevent abuse by precluding the insured and family members from regularly driving two or more vehicles while only insuring one vehicle. Coverage is not intended to include the regular use of non-owned cars because the insurer would necessarily bear an increased risk without receiving any premium for the increased risk.

Note the seeming conundrum in the above case: the employee was not entitled to indemnity from her employer (because she was not in the course and scope of her employment), and at the same time she was not entitled to insurance coverage from her insurer (because the vehicle had been furnished for her regular use). The appellate court suggested that the employee could have avoided this problem by purchasing an "extended non-owned automobile" endorsement which would have covered her while she was driving a company-owned car on her personal time.

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Replacement Cost Regulation Enacted by Department of Insurance Held Valid by Supreme Court

The California Supreme Court has upheld the validity of a detailed replacement cost regulation enacted by the California Department of Insurance. (Association of California Insurance Companies v. Jones (2017) 2 Cal.5th 376)


The Unfair Insurance Practices Act (UIPA) is set forth in Insurance Code section 790, et seq. The broad objective of the UIPA is to provide means to define and prohibit unfair methods of competition or unfair or deceptive acts or practices. The UIPA, in turn, authorizes the California Department of Insurance (CDI) to enact and enforce regulations designed to implement the UIPA.

Following a series of wildfires, some property owners found their insurance limits were insufficient to cover the cost of rebuilding. In response, the CDI promulgated a detailed regulation pertaining to the manner in which a property insurer may estimate a dwelling's replacement cost. This regulation is identified as California Code of Regulations, title 10, section 2695.183.

The replacement cost regulation does not require an insurer to set or recommend a policy limit or to provide an estimate of the cost to rebuild or replace a dwelling. However, if the insurer chooses to provide an applicant or insured with an opinion on a dwelling's replacement cost, the regulation specifies how that estimate is to be calculated and communicated.

Among other things, the regulation requires a replacement cost estimate to account for "the expenses that would reasonably be incurred to rebuild the insured structure(s) in its entirety," which must include "at least" the cost of labor, building materials, and supplies; overhead and profit; the cost of demolition and debris removal; and the cost of permits and architect's plans. The estimate must also consider "components and features of the insured structure," including eleven specific items relevant to a typical rebuild, such as the type of foundation and framing, the roofing and siding materials, the square footage and number of stories, and the structure's geographic location.

The regulation also requires that the estimate be based on the cost to rebuild or replace the structure taking into account the cost to reconstruct the single dwelling being evaluated – and not the lower cost to simultaneously build multiple or tract dwellings. In addition, at least annually, the insurer must take "reasonable steps" to verify that estimate methods are updated to reflect changes in the costs of rebuilding, including changes in the costs of labor, building materials, and supplies (all based on the dwelling's geographic location).

Two insurance trade organizations, the Association of California Insurance Companies and the Personal Insurance Federation of California, filed a suit challenging the CDI's authority to implement and enforce the replacement cost regulation. In essence, these organizations argued that the CDI had exceeded the grant of authority set forth in the UIPA.


The trial court ruled in favor of the trade organizations, and the Court of Appeal affirmed. However, the California Supreme Court reversed, finding that the UIPA did give the CDI authority to implement and enforce the replacement cost regulation.


As a general rule, an insurer does not have a duty to determine what coverage limit an insured needs. However, if an insurer undertakes to determine (or even estimate) the replacement cost of one's property and to suggest a coverage limit, an insured might later argue the insurer assumed a legal duty to establish an appropriate limit.

The replacement cost regulation at issue in this case is intended to govern an insurer's obligations when an insurer suggests an insurance limit to an applicant or insured. Even when an insurer suggests a limit, the insurer typically will seek to protect itself by informing the insured, in writing, that the insured has the ultimate responsibility to purchase an appropriate limit.

A property owner can minimize the risk of underinsurance by purchasing a policy that provides "extended" replacement cost coverage (e.g., coverage up to 125% or 150% of the amount listed on the declarations). An owner can virtually eliminate the risk of underinsurance by purchasing a policy that provides "guaranteed" replacement cost coverage (i.e., coverage for the amount the insured reasonably and necessarily spends to repair, rebuild or replace), but only a relatively small number of insurers still sell "guaranteed" replacement coverage in California.


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