Insurance Law News - January 2012

• "Actual Cash Value" Amount Listed in Declarations Is Limit, and Does Not Create "Valued" Property Policy
• Commercial Auto Policy's "Mechanical Device" Exclusion Applies Only When Device Is Used in Movement of Property To or From Covered Auto

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"Actual Cash Value" Amount Listed in Declarations Is Limit, and Does Not Create "Valued" Property Policy

Although a property policy listed an “actual cash value” amount in the declarations, the policy could not reasonably be construed as a “valued” policy, but rather was an “open” policy. (George v. Automobile Club of Southern California (2011) WL 6144927)

Facts

Andrew George purchased an automobile insurance policy from Interinsurance Exchange of the Automobile Club. The policy provided various types of coverage, including “physical damage” coverage. For comprehensive loss, the declarations page stated that the policy provided “Limits of Liability” of $25,000 on an “Actual Cash Value” basis.

George’s vehicle was stolen and never recovered. He then made a claim to Interinsurance Exchange, which determined that the actual cash value of the car was $13,227. After applying the policy’s $250 deductible, Interinsurance Exchange paid George $12,997.

George then sued Interinsurance Exchange, asserting that the policy was a “valued” policy which, in the event of a total loss, required Interinsurance Exchange to pay the $25,000 limit without regard to the actual cash value of the car. George further alleged that, during the application process, Interinsurance Exchange required an inspection in which Interinsurance Exchange assessed “the physical and mechanical condition of the vehicle” in order to evaluate its actual cash value.

Among other things, the policy contained a loss payment clause, which provided: “In the event of total loss to an insured automobile described in the declarations for which a limit of liability is stated, we will pay the actual cash value up to the limit stated in the declarations for that automobile.” In addition, the policy contained an appraisal clause, which provided: “If after a total loss …, the amount of loss cannot reasonably be established, either you or we can request … that the amount of loss be determined by appraisal.”

The trial court ultimately dismissed George’s complaint, ruling that the policy was not a “valued” policy. In short, the trial court ruled that Interinsurance Exchange was only obligated to pay the actual cash value of the vehicle, up to a maximum $25,000.

Holding

The Court of Appeal affirmed, agreeing that the policy was not a “valued” policy. The Court noted that, pursuant to Insurance Code section 410, a property policy is either “open” or “valued.” Pursuant to Insurance Code section 411, an “open” policy is “one in which the value of the subject matter is not agreed upon, but is left to be ascertained in case of loss.” In contrast, pursuant to Insurance Code section 412, a “valued” policy is “one which expresses on its face an agreement that the thing insured shall be valued at a specified sum.”

The Court noted that George’s interpretation of the policy was inconsistent with the language of the policy’s loss payment clause, which provided for payment “up to” the limit. The Court further noted that George’s interpretation was inconsistent with the fact that the policy contained an appraisal clause, which provided a procedure for resolving disputes about value in the event of a total loss.

Comment

In this case, the Court of Appeal correctly ruled that it was not reasonably possible to construe the policy as a “valued” policy. The Court also noted that very few policies qualify as “valued” policies, and further noted that such policies actually can create a “moral hazard” for an insured to overvalue the property at the time the policy is written.

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Commercial Auto Policy's "Mechanical Device" Exclusion Applies Only When Device Is Used in Movement of Property To or From Covered Auto

A commercial auto policy’s “mechanical device” exclusion applied only where the device was used in the movement of property to or from the covered auto. (Palp, Inc., v. Williamsburg National Ins. Co. (2011) 200 Cal.App.4th 282)

Facts

Palp, Inc., dba Excel Paving (Excel Paving) undertook to demolish a parking lot. Excel Paving hired REH Trucking, Inc. (REH) to haul away excavated asphalt from the job site.

An Excel Paving employee was using an excavator to load broken asphalt into a truck at the job site. In the process, the excavator struck a separate dump truck owned by REH and operated by REH employee Christian Suarez. Suarez suffered injuries. Suarez later filed a personal injury lawsuit against Excel Paving.

At the time of the accident, Excel Paving was the named insured on a general liability policy issued by Virginia Surety Company, Inc. (Virginia Surety). The Virginia Surety general liability policy provided that Virginia Surety would indemnify Excel Paving for damages because of bodily injury caused by an accident and arising from Excel Paving’s paving operations (including Excel Paving’s use of “mobile equipment” such as the excavator).

In addition, Excel Paving was an “additional insured” on a commercial auto policy that REH had obtained from Williamsburg National Insurance Company (Williamsburg). The Williamsburg auto policy provided that Williamsburg would indemnify Excel Paving for damages because of bodily injury caused by an accident and resulting from the ownership, maintenance or use of a “covered auto” (such as REH’s dump). However, the Williamsburg policy also contained a “mechanical device” exclusion which barred coverage for bodily injury “resulting from the movement of property by a mechanical device … unless the device is attached to the covered ‘auto’.”

Virginia Surety agreed to defend Excel Paving against Suarez’s personal injury lawsuit. Williamsburg, on the other hand, declined to defend Excel Paving based on the “mechanical device” exclusion in the Williamsburg policy. Virginia Surety paid all defense costs on behalf of Excel Paving, and eventually paid $319,000 on behalf of Excel Paving in settlement of Suarez's personal injury lawsuit.

Excel Paving and Virginia Surety then jointly sued Williamsburg for declaratory and other relief. However, the trial court ruled that the Williamsburg policy’s “mechanical device” exclusion barred coverage for any liability that Excel Paving may have had to Suarez in the underlying personal injury lawsuit, and that Williamsburg thus had no duty to defend or indemnify Excel Paving in the underlying lawsuit. Excel Paving and Virginia Surety appealed.

Holding

The Court of Appeal reversed, holding that Suarez’s personal injury claim against Excel Paving did not fall within the scope of the “mechanical device” exclusion in the Williamsburg commercial auto policy.

The appellate court began by noting that exclusions are construed narrowly, and that any ambiguity in an exclusion will be resolved in favor of the insured’s reasonable expectation of coverage. Here, the “mechanical device” exclusion precluded coverage for bodily injury “resulting from the movement of property by a mechanical device … unless the device is attached to the covered ‘auto’.” According to the appellate court, this exclusionary language should be interpreted to apply only when an unattached “mechanical device” is involved in the “movement of property” to or from the “covered ‘auto’.” In this case, the unattached “mechanical device” (i.e., the excavator) had not been used in the “movement of property” (i.e., the asphalt) to or from the “covered auto” (i.e., the REH dump truck). Rather, the mechanical device had been used to load another truck, separate from the dump truck occupied by Suarez. Thus, the Williamsburg policy’s “mechanical device” exclusion did not apply, and Williamsburg was obligated to participate in defending and indemnifying Excel Paving in the underlying personal injury lawsuit brought by Suarez.

Comment

There is the first reported California case involving a “mechanical device” exclusion in a commercial auto policy. However, courts in other jurisdictions have considered the exclusion, and those courts have all discussed the exclusion in the context of the movement of property in relation to the covered vehicle. The Palp court relied on these out-of-state cases to support its holding that the exclusion should apply only when the mechanical device is used in the loading or unloading of the covered vehicle.

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