News - September 2008

• Following Auto Dealer’s Incomplete Transfer of Vehicle Title to Driver, Driver May Be Entitled to Coverage Under Auto Dealer’s “Garage Operations” Policy
• Underinsured Motorist Coverage Not Triggered Where Injured Party’s Bodily Injury Limit is Equal to Tortfeasor’s “Combined Single Limit” for Bodily Injury and Property Damage

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Following Auto Dealer’s Incomplete Transfer of Vehicle Title to Driver, Driver May Be Entitled to Coverage Under Auto Dealer’s "Garage Operations" Policy

The California Court of Appeal has held that following an auto dealer’s alleged incomplete transfer of a vehicle’s title to a driver, the driver may be entitled to coverage under the auto dealer’s “garage operations” policy. (Spangle v. Farmers Ins. Exchange (2008) 166 Cal.App.4th 560) 

Facts

Anthony McCarty purchased a used Chevy Blazer for his 16-year-old son, Kevin, from Triple Crown Auto Sales, Inc. Although Mr. McCarty signed the purchase contract and paid the full purchase price in cash, it was understood that the Blazer would be registered in Kevin’s name. However, in the course of the transaction, Triple Crown allegedly failed to correctly fill out the Department of Motor Vehicles (DMV) paperwork, so that title was not properly transferred to Kevin.

A week later, Kevin was driving the Blazer when he collided with and seriously injured Pamela Spangle. The accident happened 50 miles away from the Triple Crown dealership.

Spangle sued Kevin to recover for her personal injuries. Eventually Kevin was successful in obtaining defense and indemnity under his mother’s auto policy through Progressive Classic Insurance Company.

Kevin also sought coverage under Triple Crown's $1 million commercial auto and garage operations policy through Mid-Century Insurance Company. Kevin argued that since legal title had never passed from Triple Crown to Kevin, Triple Crown was an “owner” of the Blazer at the time of the accident, and Kevin was thus a “permissive user” who qualified as an “insured” under Triple Crown’s policy through Mid-Century. Mid-Century denied Kevin’s request for coverage.

Spangle obtained a judgment against Kevin for $2.32 million. Spangle then made a policy limits of demand of $1 million on Mid-Century, which Mid-Century rejected.

Spangle filed an action against Mid-Century for enforcement of the judgment and bad faith. The trial court entered summary judgment in favor of Mid-Century, and Spangle appealed.

Holding

The Court of Appeal reversed the summary judgment in favor of Mid-Century.

The appellate court began by holding that Spangle’s judgment against Kevin appeared to fall within the scope of the Mid-Century policy’s basic insuring clause. The policy’s insuring clause covered damages an “insured” must pay because of bodily injury resulting from “garage operations” involving the ownership, maintenance or use of auto. If in fact Mid-Century’s named insured Triple Crown had failed to properly transfer title to the Blazer to Kevin, then Triple Crown would have been an “owner” of the Blazer, and Kevin in turn would have been a “permissive user” of the Blazer who thus qualified as an “insured” under the Mid-Century policy. Further, since the Mid-Century policy defined “garage operations” so as to include the “ownership, maintenance or use” of any auto, Kevin’s use of the Blazer would constitute  a “garage operation.” According to the court, there was no additional requirement that Kevin’s use of the Blazer also be related to Triple Crown's business of selling or repairing motor vehicles.

The appellate court further held that Spangle’s judgment against Kevin was not excluded from coverage under the Mid-Century policy. It was true that the policy’s definition of “insured” excluded any Triple Crown “customer” who had other insurance. However, according to the court, Triple Crown’s “customer” in this case was not Kevin, but rather, Kevin’s father Mr. McCarty. In this regard, the court noted that Mr. McCarty had signed the purchase contract and had paid the entire price in cash. Thus, while Mr. McCarty may have been a Triple Crown “customer,” his son Kevin was not. It was not significant that Kevin signed the DMV paperwork, or that the Blazer was to be registered in Kevin’s name. Thus, since Kevin was not Triple Crown’s “customer,” the Mid-Century policy’s “customer” exclusion did not bar coverage as to Kevin.

The appellate court remanded the case to the trial court to resolve whether, at the time of the accident, Triple Crown was an “owner” of the Blazer such that Kevin would be deemed a “permissive user” of the vehicle and hence an “insured” under the Mid-Century policy.

Comment

One justice dissented, arguing that no one could reasonably expect a “garage operations” policy to cover an accident that occurred a week after the sales transaction and 50 miles away from the dealership. According to the dissent, there was an insufficient relationship between the accident and named insured’s garage operations.

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Underinsured Motorist Coverage Not Triggered Where Injured Party’s Bodily Injury Limit is Equal to Tortfeasor’s "Combined Single Limit" for Bodily Injury and Property Damage

The California Court of Appeal has held that underinsured motorist coverage was not triggered where the injured party’s bodily injury limit was equal to the tortfeasor’s “combined single limit” for all bodily injury and property damage. (Explorer Ins. Co. v. Gonzalez (2008) 164 Cal.App.4th 1258)

Facts

Dwaine Gonzalez was injured in an automobile collision caused by Benjamin Fernandez. At the time of the accident Fernandez was insured by a Fireman’s Fund Insurance Company auto policy with “combined single limits” in the amount of $100,000 for all bodily injury and property damage caused by any single accident. Gonzalez was insured by an Explorer Insurance Company policy that included uninsured and underinsured motorist benefits of $100,000 for all damages from bodily injury sustained by one person in one accident. Fireman’s Fund paid Gonzalez $78,415.89 for bodily injury and $21,584.11 for property damage arising from the collision, thus exhausting the limits of the $100,000 Fireman’s Fund policy.

Gonzalez then made a claim against the underinsured motorist bodily injury provision of his Explorer policy for $21,584.11 (i.e., the difference between the $78,415.89 he received from Fireman’s Fund for bodily injury and the $100,000 limit of his Explorer underinsured motorist coverage). Explorer denied Gonzalez’s claim, asserting that the $100,000 combined single limit for liability in Fernandez’ policy through Fireman’s Fund afforded bodily injury limits of liability of up to $100,000, and therefore, was not “less than” the underinsured motor vehicle bodily injury liability limits of Gonzalez’s policy through Explorer.

Explorer later filed a declaratory judgment action against Gonzalez to confirm its position. The trial court ruled in favor of Explorer and Gonzalez appealed.

Holding

The Court of Appeal affirmed the judgment in favor of Explorer. The appellate court reasoned that under Insurance Code section 11580.2(p)(2), an “underinsured motor vehicle” means “a motor vehicle that is an insured motor vehicle but insured for an amount that is less than the uninsured motorist limits carried on the motor vehicle of the injured person.” Here, the Fireman’s Fund policy carried by Fernandez provided “combined” coverage of up to $100,000 for all bodily injury and property damage caused by any single accident. The Explorer policy carried by Gonzalez provided coverage up to $100,000 for all damages from bodily injury sustained by any one person in a single accident. Because the amount of the potential coverage was equal, Fernandez’ vehicle was not “underinsured” within the meaning of Gonzalez’s policy through Explorer.

Comment

According to the appellate court, it was irrelevant that the $100,000 coverage of Fernandez’ Fireman’s Fund policy was for all bodily injury and property damage combined, whereas the $100,000 coverage of Gonzalez’s Explorer policy was for bodily injury only. That is because under the “narrow coverage” of uninsured/underinsured benefits in California, the comparison in coverage is based on the potential for recovery, not what is actually recovered in a particular case.

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