News - September 2007

• Auto Insurer Has No Duty to Defend Shuttle Company in Suit Arising from Employee’s Sexual Assault of Passenger
• Auto Exclusions in CGL Policy Covering Special Event Do Not Eliminate Insurer’s Duty to Defend
• Where Two UM Policies Have Different Limits, Pro-Rata Provision in One Policy Controls Over Excess Provision in Other Policy
• Bad Faith: Insured Can Recover Attorney Fees Incurred Because of Insurer’s Unsuccessful Appeal

< Return to News page

Top of Page

Auto Insurer Has No Duty to Defend Shuttle Company in Suit Arising from Employee’s Sexual Assault of Passenger

The California Court of Appeal has held that a business auto insurer had no duty to defend its insured, a shuttle company, against a personal injury lawsuit arising from an employee’s sexual assault of a passenger. (R.A. Stuchbery & Others, Etc. v. Redland Insurance Company (2007) WL 2420266)

Facts  

M&M Luxury Shuttle, Inc. (M&M) was a shuttle service operator. One of M&M’s drivers picked up a 16-year-old runaway girl who wanted a ride to a teen shelter. M&M’s driver agreed to drive the girl to the shelter, but instead of taking her there, took her to his apartment. M&M’s driver then convinced the girl to go inside his apartment, where he raped her. 

The victim later filed a lawsuit against M&M and the M&M driver who perpetrated the attack, alleging claims for common carrier liability, negligent hiring, sexual battery, etc. M&M tendered the lawsuit to its commercial general liability insurer, R.A. Stuchbery & Others Syndicate 1096 as Underwriters at Lloyd’s (Stuchbery), which agreed to defend M&M under reservation of rights. M&M also tendered defense of the lawsuit to its business auto insurer, Redland Insurance Company (Redland), but Redland denied coverage.

Stuchbery paid approximately $525,000 in defending and indemnifying M&M in the victim’s lawsuit. Following resolution of that lawsuit, Stuchbery filed a coverage action against Redland, alleging that Redland was either solely or partially responsible for the costs of defending and indemnifying M&M. The trial court ruled that the claims against M&M in the underlying lawsuit were not potentially covered under the Redland auto policy, and that Redland thus had no duty to pay any portion of the costs of defending and indemnifying M&M. Stuchbery appealed.

Holding  

The Court of Appeal affirmed. The Redland auto policy only covered damages M&M owed because of bodily injury “resulting from the … use” of an M&M shuttle. Here, M&M’s driver had used the shuttle to transport the victim to the apartment where the rape took place. However, under California’s “predominating cause/substantial factor” test, the mere use of a vehicle as transportation to the scene of the injury does not establish a sufficient causal connection between the “use” of the vehicle and the injury. Thus, the victim’s claims against M&M in the underlying lawsuit did not trigger any potential for coverage under the Redland auto policy.

Further, M&M’s status as a common carrier did not warrant a different result. The court agreed that but for the fact that M&M was a common carrier, M&M would not have had any relationship at all with the victim and, hence, M&M’s driver would not have been in a position to injure the victim. However, the court noted that M&M’s driver had not attacked the victim inside the shuttle, but rather, had attacked her in his apartment after she had voluntarily exited the shuttle. The court concluded that under such circumstances, the causal connection between the use of the M&M shuttle and the rape inside the apartment was simply “too attenuated” to trigger Redland’s duty to defend or indemnify. 

Comment 

Top of Page

Auto Exclusions in CGL Policy Covering Special Event Do Not Eliminate Insurer’s Duty to Defend

The California Court of Appeal has held that an insurer that issued a CGL policy had a duty to defend its insured, a city, against a suit arising out of an auto accident allegedly caused by a dangerous condition resulting from a city-sponsored special event, notwithstanding various auto exclusions in the policy. (Essex Insurance Company v. City of Bakersfield (2007) 65 Cal.Rptr.3d 1)

Facts

Essex issued a general liability policy to the City of Bakersfield to cover a special event sponsored by the City. The policy contained an “Auto Exclusion” which provided “This insurance does not apply to ‘bodily injury’ … arising out of, caused by or contributed to by the ownership, non-ownership, maintenance, use or entrustment to others of any ‘auto’.” The policy also contained a separate exclusion which provided that “The coverage under this policy does not apply to ‘bodily injury’ … arising out of: … automobiles ….”

The City held its special event on private property adjacent to a state highway. The operator of a van driving on the highway applied his brakes near a road that served as an exit from the event. The driver of a tractor-trailer that was following behind the van applied his brakes, causing the tractor-trailer to shift into the opposite lane of traffic and collide with an oncoming vehicle. Navarro was injured in the accident.

Navarro sued the driver of the tractor-trailer and the driver’s employer. Navarro also sued the City, alleging that the City’s location of the special event and lack of traffic control created a dangerous condition that contributed to causing the accident. Essex refused to defend the City against Navarro’s lawsuit, and then filed a lawsuit seeking a declaration that Essex had no duty to defend or indemnify the City. Essex argued that the auto exclusions in its policy eliminated coverage for any suit alleging bodily injury involving automobiles.  

The trial court agreed with Essex that the auto exclusions applied and ruled that Essex had no duty to defend or indemnify the City. 

Holding          

The Court of Appeal reversed and held that Essex had a duty to defend the City. The Court held that Navarro’s lawsuit fell within the scope of coverage under the Essex policy based on allegations that the City created a dangerous condition on public property that caused bodily injury to Navarro. The Court then held that the auto exclusions were not plain enough or clear enough to defeat the City’s reasonable expectations of a defense against Navarro’s lawsuit.

Comment

According to the Court, the case law addressing auto exclusions involve situations where the automobile involved was owned, maintained, or used by an insured or an insured’s agent or employee. Here, the Court partly relied on the fact that the City did not own, operate, maintain, use, entrust to others any of the automobiles involved in the accident. In addition, the Court relied on the fact that the accident did not occur on the premises of the special event the City had sponsored, and on the fact there was no evidence that the drivers or automobiles involved were entering or leaving the insured premises. 

Top of Page

Where Two UM Policies Have Different Limits, Pro-Rata Provision in One Policy Controls Over Excess Provision in Other Policy

The California Court of Appeal has held that, where two uninsured motorist policies have different limits, a pro-rata provision in one policy will control over an excess provision in the other policy. (Allstate Insurance Company v. Mercury Insurance Company (2007) WL 2482507)

Facts

Meyan Mendoza was a passenger in an automobile driven by Ivanrey Capistrano. An uninsured motorist struck the vehicle and Mendoza was injured in the accident. 

Mendoza made a UM claim under Capistrano’s auto policy through Mercury Insurance Company. The Mercury policy provided UM coverage of $30,000 and included a “pro-rata” coverage provision.

Mendoza also made a UM claim under her own auto policy through Allstate Insurance Company. The Allstate policy provided UM coverage of $250,000 and included an “excess” coverage provision.  

Allstate filed a declaratory relief action seeking a judicial determination that its policy was excess to the Mercury policy. The trial court ruled in favor of Mercury, holding that the two policies had to contribute to Mendoza’s claim on a pro-rata basis. Allstate appealed.

Holding

The Court of Appeal affirmed. It reasoned that Insurance Code section 11580.2(d) permits an uninsured motorist policy to require pro-ration if an insured has UM insurance available under more than one policy. While a policy is not required to include a pro-rata provision, if the policy does so, it must be given effect. Here, since Mercury’s policy contained a pro-rata provision, it prevailed over Allstate’s excess provision.

Comment

This case illustrates that courts will give effect to an uninsured motorist policy which follows the statutory pro-rata provision, even where another applicable uninsured motorist policy includes an excess provision.

Top of Page

Bad Faith: Insured Can Recover Attorney Fees Incurred Because of Insurer’s Unsuccessful Appeal

In Brandt v. Superior Court (1985) 37 Cal.3d 813, the California Supreme Court held that when an insured establishes an insurer acted in bad faith, the insured may recover attorney fees incurred to recover the contractual benefits the insurer wrongfully withheld. These fees typically are known as “Brandt fees.” Significantly, Brandt fees may only be awarded for attorney fees incurred to recover contractual benefits the insurer has wrongfully withheld, and may not be awarded for attorney fees incurred to recover extra-contractual damages (such as consequential economic loss, emotional distress and punitive damages).

In a very recent case, Baron v. Fire Ins. Exchange (2007) WL 2476249, Baron obtained a judgment against Fire Insurance Exchange following a jury trial. The award included $93,000 for breach of contract, $3,000 for fraud, $1,500,000 for punitive damages and $480,000 for Brandt fees. Fire Insurance Exchange appealed, but the Court of Appeal affirmed the entire judgment. The Court of Appeal also held that, pursuant to Brandt, Baron was entitled to recover certain attorney fees he incurred in defending against Fire Insurance Exchange’s unsuccessful appeal.

The Court of Appeal held that attorney fees an insured incurs to defend a judgment against the insurer’s appeal are a “logical extension” of the Brandt fees incurred in pursuing the recovery in the trial court. More specifically, the Court held as follows: “The collection of the benefits due is not complete when the insurer resists the judgment by challenging the judgment on appeal. Thus, to the extent that appellate attorney fees reflect the continuation of services performed to obtain the rejected payment of policy benefits, they should be recoverable under the rationale of Brandt.”

Top of Page