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Insurance Law News - January 2016

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"Non-Owned" Auto Coverage Does Not Apply Where Non-Owned Vehicle Is "Furnished or Available" for Insured's "Regular Use"

An auto policy's "non-owned" auto coverage did not apply where the non-owned vehicle the insured was driving at the time of the accident was "furnished or available" for the insured's "regular use." (Nationwide Mutual Insurance Co. v. Shimon (2015) 243 Cal.App.4th 29)

Facts

Phillip Lionudakis ("Mr. Lionudakis") and his former wife, Kristen Doornenbal ("Mrs. Doornenbal"), were the parents of a teenaged daughter, Simone Lionudakis ("Simone"). Mr. Lionudakis and Mrs. Doornenbal lived ten minutes apart, and Simone split her time between them.

When Simone turned 16, Mr. Lionudakis bought a GMC pickup truck for Simone to drive. Although Mr. Lionudakis was the registered owner of the pickup truck, Simone was (with inconsequential exceptions) the only person who drove the truck. If Simone was not driving the truck, it sat parked. Although Simone had exclusive use of the truck, Mr. Lionudakis and Mrs. Doornenbal did some put some restrictions on Simone's use of the vehicle (e.g., she had to maintain her grades at school, she could not drive outside a certain geographic area without permission, etc.). In order to save money, Mr. Lionudakis excluded Simone from Mr. Lionudakis' own auto insurance policy.

In February 2008, Mr. Lionudakis and Mrs. Doornenbal placed Simone on restriction for poor grades, and temporarily prohibited her from driving the pickup truck. However, despite the fact that Simone was on restriction, Simone took the truck out and, while driving it outside of her normal geographical boundaries, caused an accident in which Aweia and Flora Shimon ("the Shimons") were injured.

The Shimons later filed a personal injury lawsuit against various parties, including Simone. The personal injury lawsuit settled, with an agreement that the court would determine whether there was insurance coverage for Simone under an auto insurance policy which her mother, Mrs. Doornenbal, had through Nationwide Mutual Insurance Company ("Nationwide"). The Nationwide policy covered Simone's use of a "non-owned" auto, unless the non-owned auto was "furnished or available" for her "regular use."

Nationwide filed a declaratory relief action seeking a determination that the non-owned pickup truck Simone was driving at the time of the accident was "furnished or available" for her "regular use," and that Simone therefore was not entitled to coverage under the non-owned auto provisions of the Nationwide policy. The trial court ruled that the GMC pickup truck was furnished or available for Simone's regular use and that the Nationwide policy therefore did not cover Simone's liability to the Shimons. The Shimons appealed.

Holding

The Court of Appeal affirmed the finding of no coverage. The appellate court reasoned that non-owned auto insurance coverage is meant to allow coverage for an insured's occasional use of a non-owned automobile, and the exclusion for regular use is meant to prevent an insured from regularly using a non-owned vehicle without paying insurance premiums for the vehicle. According to the appellate court, Simone's use of the GMC pickup truck in this case fell squarely within the purpose of the regular use exclusion. The GMC pickup was basically available for Simone's exclusive use, and yet no one insured the vehicle for her use.

The Shimons nevertheless argued that the GMC pickup truck was not furnished or available for Simone's regular use because Simone's parents had placed her on restriction such that she should not have been driving the truck at the time and place the accident occurred. The appellate court rejected that argument. According to the court, although Simone drove the truck in defiance of her parents' instructions, that did not render the "regular use" exclusion inapplicable. Rather, the court held that where a driver such as Simone is the exclusive user of the vehicle, "regular use" cannot vary with each trip the driver takes.

In short, because the GMC pickup truck was furnished or available for Simone's regular use, the Nationwide policy did not cover Simone's liability to the Shimons.

Comment

"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.

 

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Language in All-Risk Policy Did Note Override Predominant Cause Doctrine, and Insurer Bore Burden of Proving Collapse Exclusion and Negating Exception

Where an all-risk policy contained an exclusion for collapse but an exception for collapse caused "only" by certain specified risks, the insurer had the burden of proving the exclusion and negating the exception, and the trial court was obligated to give the standard "predominant cause" jury instruction. (Vardanyan v. Amco Insurance Company (2015) WL 9654037)

Facts

Artyun Vardanyan owned a rental property, and purchased insurance coverage from Amco Insurance Company. After Vardanyan's tenants moved out of the property, Vardanyan submitted a property damage claim, which Amco investigated with the assistance of an independent adjuster and an engineer.

The engineer found multiple potential leaks in the roof; gutters and downspouts that leaked and otherwise failed to channel drainage away from the house; exterior damage and decay caused by long-term leakage from a faucet or hose; interior damage and decay caused by long-term leakage from a toilet and bathtub; inadequate crawlspace ventilation; termite damage; mold; and floors that were sinking and not level in various places.

Amco denied Vardanyan's claim, citing exclusions for damage caused by seepage or leakage of water from a plumbing system, deterioration, mold, wet or dry rot, settling of foundations, walls or floors, earth movement, water damage, neglect, weather conditions, acts or decisions of any person, and faulty or defective design, workmanship, repair, construction, or maintenance. Vardanyan hired a public adjuster to challenge Amco, but Amco stood on its denial. Vardanyan then filed suit against Amco, alleging breach of contract and bad faith. Vardanyan specifically alleged the house collapsed and that the policy provided coverage for collapse.

The policy was an all-risk policy that excluded coverage for collapse, other than as provided in an "Other Coverage" for "collapse." The "Other Coverage" provided coverage for collapse of a building or part of a building "caused only by one or more" of various listed perils, including hidden decay, hidden insect damage, and weight of contents, equipment, or people.

During trial, the independent adjuster testified regarding the damage he observed during his investigation of the loss, and the engineer testified regarding his investigation of the loss and the causes of the damage to the house. Vardanyan and his former tenants testified regarding the condition of the house prior to the time Vardanyan reported the damage to Amco. In addition, Vardanyan's expert, a general contractor, testified regarding his opinions of the condition of the house and the cause of the damage.

Both parties presented evidence that there were multiple causes of the damage to the house. Vardanyan's theory was that the coverage for collapse due to hidden decay or hidden insect damage applied if either of those named perils was the predominant cause of the collapse of the structure. However, Amco's theory was that there was no coverage because the collapse provision stated it applied if the damage was "caused only by one or more" of the perils listed in the collapse provision.

Vardanyan requested that the trial court give a standard jury instruction providing that, when a loss is caused by a combination of covered and excluded risks, the loss is covered if the most important or predominant cause is a covered risk. However, Amco proposed a special jury instruction placing on Vardanyan the burden of proving the collapse of the house was "caused only by one or more" of the perils listed in the "collapse" provision.  Amco's special instruction specifically stated there was no coverage if any peril other than those listed had partly caused the damage.

When the trial court indicated its intention to give part of Amco's proposed special instruction, Vardanyan objected and asserted that giving such an instruction was tantamount to directing a verdict in favor of Amco, because there was no dispute the damage to the house was at least partly caused by perils in addition to those listed in the "Other Coverage" for collapse. Amco then moved for a directed verdict on both causes of action. The trial court granted the motion, concluding Amco's proposed special instruction was legally correct, based on the unambiguous language of the Other Coverage provision of the policy. The trial court entered judgment in favor of Amco, and Vardanyan appealed.

Holding

The Court of Appeal reversed. Although the policy provided coverage for collapse "caused only by one or more" of the perils listed in the "collapse" provision, the fact that a non-listed peril might have contributed in some way to causing the damage did not automatically mean the loss was not covered. The trial judge should have given the jury the standard, approved jury instruction, which states that when "a loss is caused by a combination of covered and excluded risks under the policy, the loss is covered only if the most important or predominant cause is a covered risk." In other words, the jury should have been allowed to determine whether one of the listed perils (hidden decay, hidden insect damage, and weight of contents, equipment, or people) was the predominant cause of the damage, even if some other non-listed peril might have contributed to the damage.

Amco's special jury instruction also was improper because it required Vardanyan to prove that his loss fell within the "Other Coverage" for "collapse," and did not require Amco to prove that the loss was excluded. Here, the policy contained an all-risk insuring agreement, subject to a collapse exclusion that was, in turn, subject to an exception for collapse caused by certain listed perils. Thus, the burden was on Amco to prove not just collapse, but collapse other than as provided in the "Other Coverage" for collapse.

Comment

In California, the "predominant cause" (or "efficient proximate cause") doctrine is "the preferred method for resolving first party insurance disputes involving losses caused by multiple risks or perils, at least one of which is covered by insurance and one of which is not." (Julian v. Hartford Underwriters Ins. Co. (2005) 35 Cal.4th 747, 753.) If the policy provides all-risk coverage, then coverage exists unless an excluded cause is the predominant cause of the damage. Conversely, if the policy provides specified-risk coverage, then coverage exists if a listed cause is the predominant cause of the damage (even if a non-listed cause contributes in some way to causing the damage).

In an all-risk policy that excludes coverage for collapse but then restores coverage for collapse when caused by certain specified causes, the specified causes essentially operate as exceptions to the exclusion. (Jordan v. Allstate Ins. Co. (2004) 116 Cal.App.4th 1206.) In most instances, the insured bears the burden of proving an exception to an exclusion. However, when the policy provides all-risk coverage, California courts require the insurer to negate an exception to an exclusion. (See also Strubble v. United Services Auto. Assn. (1973) 35 Cal.App.3d 498.)

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