Jose ALANIZ et al., Plaintiffs and Appellants, v. Darnell E. SIMPSON, Defendant and Respondent.
This is an appeal from a summary judgment in favor of respondent insurance agent who was sued for negligently failing to secure an insurance policy or, alternatively, for failing timely to notify the insurance applicant that he was not insured. The trial court granted summary judgment on the grounds that the agent owed no duty to appellants and that the agent was not the proximate cause of appellants' damages. This appeal presents a case of first impression as to the scope of an insurance agent's duty toward the potential third-party victims of an uninsured, negligent insurance applicant. The leading California Supreme Court case-Barrera v. State Farm Mut. Automobile Ins. Co. (1969) 71 Cal.2d 659, 79 Cal.Rptr. 106, 456 P.2d 674-holds that an insurance company owes certain duties to third parties who could remain uncompensated as a result of the insurer's unreasonable delay in deciding to rescind an insurance policy. Relying on Barrera 's broadly sweeping dicta, appellants contend that any agent who negligently fails to secure insurance for an applicant would be liable to third parties injured by the uninsured applicant. Respondent counters that Barrera should be narrowly construed to apply only to insurance companies that have issued policies and not to agents who have yet to place any coverage.
We find Barrera suggests that an insurance agent is liable to third parties to the extent that the agent's negligence increases the risk of third parties being injured by uninsured motorists. An agent increases this risk if he or she negligently leads an applicant to believe that he or she is insured, thereby increasing the number of uninsured motorists on the road by adding unwittingly uninsured drivers to the pool of drivers who are consciously driving uninsured. It therefore follows that, under Barrera, once an agent notifies an applicant that he or she is uninsured, the agent's duty toward the applicant's potential victims is discharged.
Here, the agent discharged his duty because he did notify the applicant, before the accident, that the applicant was not insured. Since breach of duty is an essential element of a negligence claim, and since there was no breach here, summary judgment was proper. Inasmuch as the absence of breach disposes of the case, we need not address the issue of proximate causation.
Darnell Simpson is an agent working exclusively for Farmers Insurance Company. On September 29, 1993, John Bowersox, owner of Western Pacific Raisin Packing, Inc. (Western Pacific) contacted Simpson to apply for liability insurance, including commercial vehicle insurance. The policy then in effect on Bowersox's trucks (which had been obtained by the trucks' previous owner) was due to expire October 14, 1993. Farmers restricts its commercial vehicle business but, when Farmers will not write a policy, Simpson still accepts applications. He then passes them along to G.J. Sullivan Company (Sullivan), a surplus lines broker which tries to place the insurance with another carrier. Bowersox signed an application on October 6, 1993. Simpson forwarded the application to Sullivan on October 12, 1993.
The facts concerning the sequence of events during the application process are disputed.
Simpson's version is that he learned from Sullivan on October 13, 1993, that the drivers listed on Bowersox's application (Bowersox and his employee, Fernandes) were unacceptable and Scottsdale Insurance Company (the previous carrier for the vehicles) would not write the commercial vehicle policy without substitute drivers. The next day, October 14, 1993 (the day when the old policy was to expire), Bowersox faxed to Simpson a driver's license and some information on Fernandes's driving record. On October 15, Simpson and Bowersox had a telephone conversation that included a discussion of Bowersox having a suspended driver's license and of Fernandes having numerous driving violations. At 8 a.m. on October 16, Simpson faxed Bowersox a six-page letter stating a California Department of Motor Vehicles printout revealed several problems with both Fernandes's and Bowersox's driving records and emphasizing that the carrier would not issue a policy covering drivers with this type of record. The letter went on to state no policy would be issued until Bowersox designated different drivers. Simpson contends the letter also clearly stated Bowersox should not move the trucks because they were uninsured.
Bowersox's version is somewhat different. He contends that, when he gave Simpson a premium check and signed the application on October 6, 1993, Simpson told him “[e]verything would be covered.” At no time between October 1st and 15th did Simpson tell Bowersox that the carrier had not approved the liability policy on the truck and in fact Bowersox had no idea there was a problem with the truck insurance until October 16. On October 16 Bowersox did not see the faxed letter Simpson sent, although his half brother told him about it over the telephone, and Bowersox did at that point realize Fernandes was not covered. Even then, however, Bowersox believed he had insurance “on the truck” as long as Fernandes was not the driver.
Thus, the record conflicts as to exactly what steps Simpson took to facilitate the process of getting Bowersox covered, what Bowersox did to help or hinder the process, and what Simpson communicated to Bowersox about the difficulty getting coverage. It is undisputed, however, that on the morning of October 16, Bowersox knew that Fernandes did not have insurance coverage for driving the truck. Accordingly, Bowersox spoke to Fernandes and told him not to drive the truck.
Fernandes ignored the prohibition, drove the truck, and collided with a car driven by Lorraine Alaniz, the wife and mother, respectively, of Jose Alaniz and Jose Tarin Alaniz II, appellants. Mrs. Alaniz was killed.
Appellants successfully sued Bowersox, Western Pacific, and Fernandes for wrongful death, receiving a judgment of $1,986,223 plus costs. Western Pacific's liability insurer, Scottsdale Insurance Company, refused to pay the judgment, contending that, at the time of the accident, no commercial vehicle insurance was in force. On April 3, 1995, having been assigned all rights of Bowersox and Western Pacific against Simpson, Sullivan, and Scottsdale, appellants filed the instant lawsuit, alleging (among other things) that Simpson's negligence caused Bowersox to be uninsured for Fernandes's accident.
On December 28, 1995, Simpson moved for summary judgment on the ground that, as a matter of law, he had acted reasonably in processing Bowersox's application, in trying to obtain insurance for him, and in keeping him informed of progress. The court refused to find that Simpson had acted reasonably as a matter of law, but invited the parties to submit supplemental briefing and present oral arguments on the issue of whether Simpson proximately caused appellants' injury. The parties submitted no briefs but did orally argue the causation issue. Following arguments, the court granted summary judgment on dual grounds that Fernandes's decision to drive the truck superseded any alleged negligence of Simpson and that Simpson did not owe a duty to the public at large to process Bowersox's application in a timely fashion.
When faced with a defense motion for summary judgment, the trial court must evaluate whether the defendant has met his or her burden of showing that plaintiff cannot establish one or more elements of the cause of action. (Code Civ. Proc., § 437c, subd. (o )(2).) If a defendant makes this initial showing, the burden then shifts to the plaintiff to show the existence of one or more triable issues of material fact. (Ibid.) In evaluating a summary judgment, this court independently reviews the supporting and opposing papers, engaging in the same three-step analysis as the trial court. (Code Civ. Proc., § 437c; LaRosa v. Superior Court (1981) 122 Cal.App.3d 741, 744-745, 176 Cal.Rptr. 224.) First, we identify the issues framed by the pleadings; next, we determine whether the defendant's evidence supporting the motion established facts negating any essential element of plaintiff's claim. (AARTS Productions, Inc. v. Crocker National Bank (1986) 179 Cal.App.3d 1061, 1064, 225 Cal.Rptr. 203.) Only if we find defendant has negated an essential element do we move to the third prong of the inquiry, which is to evaluate whether the plaintiff has countered defendant's showing by providing evidence of one or more triable issues. (Id. at p. 1065, 225 Cal.Rptr. 203.)
Appellants' complaint for negligence raised the following issues:
1. Whether Simpson owed appellants a duty;
2. If so, whether Simpson breached that duty by failing to act reasonably; and
3. Assuming duty and breach, whether Simpson was the legal cause of Bowersox having no insurance covering appellants' judgment against him. (Jackson v. Ryder Truck Rental, Inc. (1993) 16 Cal.App.4th 1830, 1837, 20 Cal.Rptr.2d 913; Greenfield v. Insurance Inc. (1971) 19 Cal.App.3d 803, 810, 97 Cal.Rptr. 164.)
Simpson's points and authorities in support of his request for summary judgment addressed only issue No. 2, arguing that, as a matter of law, Simpson acted reasonably in processing the insurance application. The court declined to grant summary judgment on this ground, noting that breach is normally a question of fact for the jury. (Draper Mortuary v. Superior Court (1982) 135 Cal.App.3d 533, 538, 185 Cal.Rptr. 396.) Rather than denying the summary judgment, however, the court disposed of the case on other legal grounds, finding as a matter of law that Simpson owed appellants no duty and that, even if Simpson had been negligent, his negligence was not the proximate cause of the accident.
As we discuss below, the trial court's conclusion that Simpson owed no duty to appellants was incorrect. However, summary judgment was nevertheless proper because, although Simpson owed appellants some duty of care, he discharged the duty by notifying Bowersox he was uninsured.
In ruling that Simpson owed appellants no duty, the court stated:
“․ [M]indful of the holding in Barrera, the Court is not prepared to hold that an insurance agent owes a duty to the public at large to process an application timely. This would expand the duty of an agent out of proportion and hold such a person liable to members of the public when a client drives without insurance.” (Emphasis in original.)
Appellants contend this ruling was in error. They urge us to interpret our Supreme Court's holding in Barrera v. State Farm Mut. Automobile Ins. Co., supra, 71 Cal.2d 659, 79 Cal.Rptr. 106, 456 P.2d 674 as encompassing the proposition that insurance agents do owe the public at large a duty to process insurance applications timely. Therefore, argue appellants, if an agent acts negligently in processing an application and the uninsured applicant injures a third party, the agent should be liable for resulting damages.
Whether a legal duty exists in a given case is a question of law. (Wylie v. Gresch (1987) 191 Cal.App.3d 412, 416, 236 Cal.Rptr. 552.) Our Supreme Court has noted that imposition of a duty is primarily a policy decision. “[L]egal duties are not discoverable facts of nature, but merely conclusory expressions that, in cases of a particular type, liability should be imposed for damage done.” (Tarasoff v. Regents of the University of California (1976) 17 Cal.3d 425, 434, 131 Cal.Rptr. 14, 551 P.2d 334.) A variety of factors may affect the determination of whether a duty exists, including the foreseeability of harm to plaintiff, the degree of certainty that a plaintiff was injured, the closeness of the connection between defendant's conduct and the injury, the moral blame attached to defendant's conduct, the policy of preventing future harm, and the extent of the burden of defendant and the consequences to the community of imposing a duty in a given situation. (Rowland v. Christian (1968) 69 Cal.2d 108, 113, 70 Cal.Rptr. 97, 443 P.2d 561.) We thus must approach any invitation to extend Barrera, mindful not only of its own words but also of the overriding policies concerning duties that have been laid down by our Supreme Court.
In Barrera, State Farm issued an automobile liability policy to Mr. and Mrs. Alves. State Farm's standard business practice was to issue policies without carefully investigating the statements on insurance applications. Later, if a “significant” claim arose, the company would search the application for falsehoods that might justify rescinding the policy. (71 Cal.2d at pp. 666-667, 79 Cal.Rptr. 106, 456 P.2d 674.) For a year and a half, the Alveses paid premiums, believing and behaving as if they were insured. Then Mrs. Alves drove negligently, hitting and injuring Barrera. State Farm considered the resulting claim significant enough to trigger an investigation into the Alveses' application. Finding the application contained some falsehoods, State Farm contended the policy was void from inception, attempted to rescind it, and denied Barrera's claim. (Id. at p. 672, 79 Cal.Rptr. 106, 456 P.2d 674.)
The trial court ruled State Farm could rescind because it had issued the policy in reliance upon the Alveses' material misrepresentations. The Supreme Court reversed, holding State Farm could not rescind if it had unreasonably delayed in investigating the truth of facts on the application. The court reasoned that the primary purpose for automobile insurance was to protect innocent third-party victims of negligent motorists. (Barrera v. State Farm Mut. Automobile Ins. Co., supra, 71 Cal.2d at pp. 674-675, 79 Cal.Rptr. 106, 456 P.2d 674.) Once an insurance company issued a policy and accepted premium payments, the company lulled the insurance applicant into believing he was insured. Armed with this belief, an applicant would naturally operate his vehicle secure in the knowledge that, should he cause an accident, the insurance company would compensate the victim. The applicant would have no reason to believe that he was subjecting himself or the public to the high risks attendant upon uninsured operation of a vehicle. Yet the applicant would, in fact, be subjecting third persons to just such a risk if the insurer retained the limitless right to investigate the insurance application looking for grounds for rescission and, upon finding such a ground, refuse to pay legitimate claims against the policy. This result frustrated the policy of compensating third parties. Thus, the court held:
“․ [A]n automobile liability insurer must undertake a reasonable investigation of the insured's insurability within a reasonable period of time from the acceptance of the application and the issuance of a policy. This duty directly inures to the benefit of third persons injured by the insured.” (Barrera v. State Farm Mut. Automobile Ins. Co., supra, 71 Cal.2d at p. 663, 79 Cal.Rptr. 106, 456 P.2d 674.)
While appellants correctly assert that, in deciding Barrera, the Supreme Court evinced a strong concern that innocent third parties be compensated, they interpret the decision too broadly. They claim that, by extension, Barrera requires an agent who negligently fails to secure insurance coverage to compensate any third party injured by the uninsured motorist. Put another way, they claim an agent's duty to act reasonably in processing an insurance application (71 Cal.2d at p. 673, 79 Cal.Rptr. 106, 456 P.2d 674, and cases cited therein) inures not only to the benefit of the applicant but also to the benefit of the applicant's potential victims.
While we agree Barrera logically suggests that agents owe some duty to an insurance applicant's potential victims, we disagree that the duty is as broad as appellants suggest. A close reading of Barrera shows that the reason State Farm had a duty to investigate timely was so that the Alveses would be more promptly notified that their policy was revoked. (Barrera v. State Farm Mut. Automobile Ins. Co., supra, 71 Cal.2d at p. 678, 79 Cal.Rptr. 106, 456 P.2d 674.) The decision presumes that insurance applicants intend not to drive without insurance and that being notified of a policy rescission would “most certainly impel [applicants] to seek other means of compliance with the potential requirements of the Financial Responsibility Law.” (Ibid.)
The Barrera court specifically mentioned participation in the assigned risk plan as a compliance route. We note another way to comply with the financial responsibility law is to stay off the road as long as one's vehicle remains uninsured. But the essential point is that no applicant can responsibly choose any alternate means of complying with the requirement that he carry insurance if the insurer has led him to believe he is already complying because he is insured. Thus, as long as the applicant remains uninformed about his or her true insurance status, the insurer alone is responsible for the additional risks to third parties posed by the applicant's uninsured driving, since the applicant's ignorance renders him or her powerless to remedy the situation.
In Barrera, State Farm misled the Alveses by issuing a policy, accepting premiums, failing to investigate their application, and failing to inform them that, virtually at will, State Farm might decide to rescind their policy. Respondent would have us limit Barrera to its facts, finding that the case controls only once an insurance policy issues, that it applies only to a duty to investigate, or that it applies only to insurance carriers and not to agents or brokers.
While appellants read Barrera too broadly, respondent reads it too narrowly. Nothing in Barrera suggests that it could not apply to insurance agents or brokers 1 as well as to insurance companies, or that it could not apply during the application process as well as after a policy has been issued but is still subject to rescission. In fact, Barrera 's discussion of duty to investigate rests on cases involving insurance agents' duty to act promptly in processing applications. (Barrera v. State Farm Mut. Automobile Ins. Co., supra, 71 Cal.2d at p. 673, fn. 11, 79 Cal.Rptr. 106, 456 P.2d 674, citing Snyder v. Redding Motors (1955) 131 Cal.App.2d 416, 280 P.2d 811, Smith v. Minnesota Mut. Life Ins. Co. (1948) 86 Cal.App.2d 581, 195 P.2d 457, and Stark v. Pioneer Cas. Co. (1934) 139 Cal.App. 577, 34 P.2d 731.) We believe, therefore, that Barrera 's reasoning logically extends to all situations in which insurance companies, agents, or brokers cause the evil Barrera sought to avoid, namely, misleading the owner of a vehicle into thinking he was insured, thereby increasing the risk that the public would be injured by unwittingly uninsured drivers.
In discussing the duty of insurance agents toward an applicant, courts in several jurisdictions state the rule that agents must either use reasonable care, skill and diligence in securing insurance or must promptly notify the applicant that he is uninsured. (See, e.g., Arceneaux v. Bellow (La.App.1981) 395 So.2d 414, 418; Oney v. Barnes (1967) 5 Ariz.App. 460, 462, 428 P.2d 124, 126; Powell v. Narried (Tex.Civ.App.1971) 463 S.W.2d 43, 45; Sanchez v. Martinez (1982) 99 N.M. 66, 69, 653 P.2d 897, 900; Jack Criswell Lincoln Mercury, Inc. v. Tsichlis (Tex.Civ.App.1977) 549 S.W.2d 255, 258-259; Jackson v. Borkowski (Me.1993) 627 A.2d 1010, 1014; Burns v. Consolidated American Ins. Co. (Fla.App.1978) 359 So.2d 1203, 1206.) An agent who neither obtains the requested insurance nor notifies the applicant that he is uninsured may be liable to the applicant for any reasonably foreseeable losses the applicant would not have incurred had he or she been insured.
While the agent's duty toward an applicant may be rather broad, it is not identical to the duty toward third parties, because the risks are different. As Justice Cardozo stated in a landmark case concerning duty, “[t]he risk reasonably to be perceived defines the duty to be obeyed .” (Palsgraf v. Long Island R. Co. (1928) 248 N.Y. 339, 344, 162 N.E. 99, 100.) Barrera 's discussion of duty owed to third parties addresses not the broad risk of an applicant being uninsured but, more specifically, the risk that an uninsured applicant will drive because he believes he is insured and will add himself to the number of uninsured drivers on the road. Once the applicant has been notified that he has no insurance, the specific risk created by the insurer's silence (or misrepresentations concerning coverage) no longer exists. Telling the applicant he is not covered will satisfy an agent's duty toward third parties by eliminating the risk that the applicant will drive because he thinks he has coverage.
On the other hand, Barrera does not suggest that those in the business of providing automobile insurance have unlimited duties to protect the public from the considerable risk posed by irresponsible drivers who choose to drive uninsured. Such a duty would create an undue burden on insurers and would be impossible to discharge. Simply telling an applicant he has no insurance cannot eliminate the risk that he will nevertheless drive uninsured and endanger third persons. The risk that a driver will consciously drive without insurance is not a risk created by the insurance company or agent, but, rather, is a risk created entirely by the driver himself.
To summarize, we hold that an insurance agent, broker or company has a duty not to mislead an applicant into believing erroneously that he is insured and that, per Barrera, this duty inures to the benefit of innocent third parties.
Applying this rule to the case before us, Simpson had a duty not to mislead Bowersox into believing he had insurance. Since the facts unequivocally show that Simpson notified Bowersox he had no insurance several hours before Bowersox's truck hit the road, Simpson discharged any duty he may have had toward appellants. Breach of duty is an essential element of a negligence claim and, here, no breach occurred. There being no triable issue of material fact concerning breach, summary judgment was proper.
Judgment affirmed. Costs to respondent.
1. Nowlon v. Koram Ins. Center, Inc. (1991) 1 Cal.App.4th 1437, 2 Cal.Rptr.2d 683 relied on Barrera in holding that an insurance broker owes a duty not only to the applicant but to the class of potential victims of the insured. (Id. at p. 1447, 2 Cal.Rptr.2d 683.)
THAXTER, Associate Justice.
ARDAIZ, P.J., and VARTABEDIAN, J., concur.