INTERINSURANCE EXCHANGE OF THE AUTOMOBILE CLUB OF SOUTHERN CALIFORNIA v. OHIO CASUALTY INSURANCE COMPANY

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District Court of Appeal, Second District, Division 1, California.

INTERINSURANCE EXCHANGE OF THE AUTOMOBILE CLUB OF SOUTHERN CALIFORNIA, an interinsurance exchange, Plaintiff and Appellant, v. OHIO CASUALTY INSURANCE COMPANY, Defendant and Respondent.*

Civ. 25476.

Decided: November 20, 1961

William J. Mansell, Los Angeles, for appellant. Parker, Stanbury, McGee, Peckham & Garrett, Raymond G. Stanbury, Los Angeles, for respondent.

This is an action by one insurance company against another for declaratory relief to have their respective obligations under policies of liability insurance determined. The appeal is ‘from the judgment entered in this action in favor of the defendant on the Motion for Judgment on the Pleadings.’

A ‘Complaint for Declaratory Relief’ was filed September 8, 1960. In substance appellant's (plaintiff's) complaint discloses the following:

Effective April 1, 1957, Ohio Casualty Insurance Company, hereinafter referred to as ‘Ohio’, issued a policy of insurance number CLP 30459 to Helms Pontiac-Cadillac, Inc., et al., hereinafter referred to as ‘Helms', for the liabilities and upon the terms, Conditions and exclusions set forth in the policy. This policy covered a certain 1951 Pontiac four-door sedan, hereinafter referred to as ‘1951 Pontiac’, owned by Helms. Attached to the policy was an endorsement entitled ‘Garage Liability (Limited Additional Interest).’ This endorsement contains the following definition of an insured:

‘Definition of Insured. The unqualified word ‘insured’, except as otherwise provided herein, includes the named insured and, if the named insured is an individual, his spouse if a resident of the same household, and also includes (1) any partner, employee, director or stockholder thereof, while acting within the scope of his duties as such, and any person or organization having a financial interest in the business of the named insured covered by this policy, and (2) any partner, employee, director or stockholder of the named insured and any member of the family of the named insured, such partner, employee, director or stockholder while using any automobile covered by this policy, and any person or organization legally responsible for the use thereof by any such partner, employee, director, stockholder or family member, provided the actual use of the automobile is by the named insured or with his permission. The words, ‘any person or organization legally responsible for the use thereof by any such partner, employee, director, stockholder or family member,’ shall not be construed to mean, and the benefits of this policy shall not be extended to, any person or organization or the agent, servant or permittee of such person or organization, to which has been relinquished the use or possession of any automobile because such person or organization is a buyer or prospective buyer from the named insured or a customer or prospective customer of the named insured.' (Emphasis added.)

The above endorsement was attached to and formed a part of the Ohio-Helms policy, effective as of April 1, 1957, and was attached to and in force and effect at the time of the accident which occurred on September 14, 1957. The expiration date of the Ohio-Helms policy was April 1, 1958.

Effective January 28, 1957, and expiring January 28, 1958, the Interinsurance Exchange of the Automobile Club of Southern California (hereinafter referred to as ‘Auto-Club’) issued a policy of insurance number BB 403445, hereinafter referred to as ‘Auto-Club policy,’ to one Ross M. Evenstad as named insured for the liabilities and upon the terms, conditions and exclusions set forth in said policy.

On September 14, 1957, Evenstad delivered his 1955 Cadillac automobile to Helms for the purpose of having it repaired, and in exchange did receive from Helms a loan vehicle, namely, the 1951 Pontiac, to be driven by himself during the period of time occupied in the repair of the 1955 Cadillac. Thereafter, on the same date, Evenstad was driving the 1951 Pontiac within the course and scope of the permission given to him by Helms when he was involved in a collision with two other automobiles on Woodman Avenue, near the intersection of Vanowen Street in the County of Los Angeles. The occupants of the other two automobiles claimed personal injuries and property damages.

The complaint for declaratory relief further indicates that thereafter a controversy arose between Auto-Club and Ohio as to which policy of insurance insured Evenstad for said accident or if both policies insured Evenstad, then as to which policy was primarily liable for said loss and which policy was secondarily liable, or if said policies were jointly and proratably liable.

It was agreed by and between Auto-Club and Ohio that Auto-Club would act to represent Evenstad and Helms but that the rights between Auto-Club and Ohio would not be affected thereby and each party reserved the right and would be able to contend thereafter that their policy did not insure Evenstad for said accident, but that coverage was afforded by the policy of the other, or, that in the event that both policies covered Evenstad, that their policy was excess over the other and only secondarily liable on such claim.

Thereafter, pursuant to the above agreement, Auto-Club settled all claims and obtained releases of all claims against Ross M. Evenstad and Helms.

Paragraph XII and the prayer in the complaint provide as follows:

‘XII

‘A controversy exists between the plaintiff and defendant as to their rights, liabilities, and duties under their respective insurance policies in the following particulars:

‘(a) That Ohio * * * contends that the Garage Liability (Limited Additional Interest) endorsement attached to said policy No. CLP 30459 eliminates coverage for Ross M. Evenstad by virtue of its definition of insured, aforequoted.

‘(b) That the * * * (Auto-Club) contends that said Garage Liability (Limited Additional Interest) endorsement, which was in force on September 14, 1957 and attached to policy No. CLP 30459, whose effective date was April 1, 1957, and expiration date April 1, 1958, was at that time under the statutes and laws of the State of California, void as against public policy and a violation of the statutes of the State of California.

‘(c) That the * * * (Auto-Club) contends that Ross M. Evenstad was on September 14, 1957, entitled to insurance coverage as a person insured under the Ohio * * * policy No. CLP 30459.

‘(b) That the Ohio * * * policy No. CLP 30459 was primarily liable for providing insurance protection and defense of any claims for damages arising out of said accident occurring on September 14, 1957.

‘(e) That the * * * (Auto-Club) policy was excess over any insurance protection and coverage provided by the Ohio * * * policy and only secondarily liable to or for any claims for damages or injuries resulting from said accident on September 14, 1957.

‘Wherefore, plaintiff prays judgment as follows:

‘(a) That the Garage Liability (Limited Additional Interest) endorsement attached to the Ohio * * * policy, which was in force on September 14, 1957, was at that time void under the laws and statutes of public policy and pertaining thereto of the State of California.

‘(b) That Ross M. Evenstad was, on September 14, 1957, entitled to insurance coverage as a person insured under the Ohio * * * policy.

‘(c) That the Ohio * * * policy was primarily liable for providing insurance protection and defense of any claims or damages arising out of any accident on September 14, 1957.

‘(d) That the * * * (Auto-Club) policy was excess over the insurance protection and coverage provided by the Ohio * * * policy and only secondarily liable to or for any claims or damages resulting from said accident on September 14, 1957.

‘(e) For costs of this action; and

‘(f) For such other and further relief as the Court may been just and proper.’

On November 14, 1960, Ohio filed its ‘Answer of Defendant Ohio Casualty Insurance Company.’ Defendant's answer provides in pertinent part as follows:

‘III

‘Answering Paragraph XII thereof admits the allegations thereof but alleges in addition thereto that defendant contends that its coverage respecting said accident was limited solely to Helms * * *, whose liability, if any, was limited to that of an owner and was thus a liability secondary to that of the driver, Ross M. Evenstad, insured by plaintiff. It is defendant's contention that it extended no coverage whatsoever to the said Ross M. Evenstad, and that the insurance of that person was sufficient to, and did, provide full settlement for all claims.

‘Wherefore, defendant prays judgment as follows:

‘(1) For a declaration that the endorsement to defendant's policy was valid and effective at the time of the accident;

‘(2) That defendant had no obligation to Ross M. Evenstadt (sic) to defend him, or to provide him indemnity, respecting said accident;

‘(3) That the obligation of defendant was limited to that of insurer for the owner of said vehicle, Helms * * *, which was a secondary liability;

‘(4) That when plaintiff, as insurer of Ross M. Evenstad, settled all outstanding claims within its policy limits, in behalf of the said Ross M. Evenstad, it automatically discharged the obligation of defendant to its insured.

‘(5) For a declaration that plaintiff is not entitled to have or recover anything from defendant.

‘(6) For such other relief to which the Court may find defendant entitled.

‘(7) For costs of suit herein incurred.’

On January 6, 1961, defendant Ohio filed a ‘Notice of Motion for Judgment on the Pleadings.’ The Auto-Club filed its ‘Points and Authorities Opposing Motion for Judgment on the Pleadings' on January 18, 1961.

A minute order of January 20, 1961, indicates that the trial court granted the ‘Motion for defendant for order striking complaint and for judgment in favor of defendant on pleadings.’ A ‘Judgment for Defendant Dismissing Complaint’ was entered February 14, 1961.

Appellant states the problem to be resolved in this appeal as follows, ‘What was the effect of the amendment by the Legislature of the State of California to Section 415 of the Vehicle Code, which went into effect on September 11, 1957, upon a contract issued prior to the amendment where the accident involved occurred three days after the effective date of the amendment?’ Respondent takes exception to appellant's statement of the problem and respondent asserts that, ‘The issue here is not as stated, or implied, by appellant, whether a contract made by the parties (Italics indicated) may be impaired by giving retrospective effect to legislation, but whether a provision of a contract added and existing solely by virtue of statute, and contrary to the actual agreement, survives after repeal of the statute.’ (Emphasis added.)

In Wildman v. Government Employees' Insurance Co., (Feb. 19, 1957), 48 Cal.2d 31, 307 P.2d 359 the Supreme Court indicated that Section 415 of the Vehicle Code was, by operation of law, a part of every policy of motor vehicle liability insurance issued by an insurance carrier authorized to do business in this state. The Court stated at pages 39–40, 307 P.2d at page 364, in pertinent part as follows:

‘* * * [8] It appears that section 415 must be made a part of every policy of insurance issued by an insurer since the public policy of this state is to make owners of motor vehicles financially responsible to those injured by them in the operation of such vehicles. * * * [9] We are of the opinion that for an insurer to issue a policy of insurance which does not cover an accident which occurs when a person, other than the insured, is driving with the permission and consent of the insured is a violation of the public policy of this state as set forth in sections 402 and 415 of the Vehicle Code. * * *

‘[10] Inasmuch as sections 402 and 415 of the Vehicle Code set forth the public policy of this state such laws must be considered a part of every policy of liability insurance even though the policy itself does not specifically make such laws a part thereof. * * * (Emphasis added.)

‘We conclude * * * that said sections were intended by the Legislature to be, and are, a part of every policy of motor vehicle liability insurance issued by an insurance carrier authorized to do business in this state.’

Ohio issued the policy of insurance to Helms effective April 1, 1957 (i. e. subsequent to the Wildman case and during the life of former section 415 of the Vehicle Code as then interpreted in Wildman). The Ohio-Helms policy expressly excepted coverage of Helms' customers. Although both Ohio and Helms manifested assent that Helms' customers not be covered by the policy, this express exclusion of coverage was, at that time, contrary to public policy. Therefore, contrary to the mutual assent of Ohio and Helms, section 415 of the Vehicle Code was, by operation of law, made a part of the policy.1

The statute was amended, effective September 11, 1957.2 The Supreme Court in American Automobile Insurance Co. v. Republic Indemnity Co., 52 Cal.2d 507, 341 P.2d 675, indicates that the amendment constituted a change in the meaning of section 415 rather than merely an interpretation of that section. The Court stated at pages 510–511, 341 P.2d at page 676:

‘The conclusion that Special Endorsement No. 4 is invalid is supported by Wildman v. Government Employees' Ins. Co., 48 Cal.2d 31, 37–40, 307 P.2d 359. In that case the court held that an endorsement which restricted the coverage of an automobile liability insurance policy to accidents occurring when the car was being driven by the named insured or members of his immediate family was contrary to the public policy expressed in sections 402 and 415 of the Vehicle Code and therefore invalid. It was expressly held that section 415 as it then read must be considered part of every automobile liability insurance policy. The section specifically required coverage of any person using the car with permission as well as coverage of the named insured, and in follows that Special Endorsement No. 4, which purports to exclude coverage of a customer of the owner, is invalid under the rules of the Wildman case. The fact that here, unlike the situation presented in that case, the injured persons were afforded protection by the coverage of the derivative liability of the owner and by the policy carried by the driver is immaterial because the operation of section 415 was not limited to the situation where the injured persons were not protected by other insurance.

‘Republic urges us to reconsider the Wildman case in view of an amendment of Section 415 enacted in 1957 after the date of that decision. The new legislation, according to Republic, was intended to clarity the meaning of the section by showing that the requirements there set forth were not a necessary part of every automobile liability policy. The 1957 enactment does not affect the present case or the correctness of our holding in the Wildman case. The amendment is not retroactive and therefore has no direct application to the accident involved here, which took place prior to 1957. It makes a material change in the phraseology of the section, and such a change is ordinarily viewed as showing an intention on the part of the Legislature to change the meaning of the provision rather than interpret it. Whitley v. Superior Court, 18 Cal.2d 75, 79, 113 P.2d 449; Estate of Todd, 17 Cal.2d 270, 274–275, 109 P.2d 913.’ (Emphasis added.)

On September 14, 1957, three days after the effective date of the amendment of section 415 Evenstad, a customer of Helnis and driving with the permission of Helms (i. e. a person within the class of persons expressly excluded from coverage under the terms of the Ohio-Helms policy), was involved in an automobile accident.

The factual similarity between the case at bar and American Automobile Insurance Co. v. Republic Indemnity Co., supra, 52 Cal.2d 507, 341 P.2d 675, is manifest. The pivotal dissimilarity being that in the American case, the automobile accident occurred prior to the effective date of the amendment, while in the case at bar, the automobile accident occurred subsequent to the effective date.

The effect of the 1957 amendment of section 415 was to terminate as of September 11, 1957, the prior declaration of public policy and to end the requirement that permissive users be covered. This is the clear implication of the decision in American Automobile Insurance Co. v. Republic Indemnity Co., supra, 52 Cal.2d 507, 341 P.2d 675 and is obvious from an analysis of the amended statute. Appellant in its brief does not dispute the effect of the amendment. It is stated therein, ‘The legislature provided, in effect, by its amendment to Section 415, Vehicle Code, that restrictions and exclusions pertaining to a permissive operator were valid if the policy was uncertified.’

In light of the above, the question before this Court may be stated as follows—‘Where a provision of a liability insurance policy expressly excludes coverage of a particular class (i. e. customers of the assured); and where such express exclusion of coverage is contrary to public policy at the time the insurance policy is executed: and where such public policy is, solely by operation of law (and contrary to the actual agreement), made a part of the insurance policy, does a subsequent amendment of the law with reference to such subject matter render the express exclusionary provision effective insofar as an accident which occurred subsequent to the effective date of the amendment?

It is appellant's contention that there has been an unconstitutional impairment of contract because a retrospective effect has been given to the repeal or amendment of section 415. This argument proceeds upon the premise that since a contract is to be interpreted according to the law existing at the time of execution, the insurance policy actually did extend coverage to Evenstad as a permissive user. The fallacy of appellant's argument, however, is that constitutional impairment clauses3 do not apply to provisions which are implied, or added, solely by operation of law. An obligation added to a contract solely by operation of law does not survive the law which added it. It is stated in 16A C.J.S. Constitutional Law, Section 344, page 14 as follows:

‘Obligations imposed by the law without the assent of the party bound are not contracts in the constitutional sense within the protection of the impairment clause, * * *.’ (See concurring opinion, Mercury Herald Co. v. Moore, 22 Cal.2d 269, 282, 138 P.2d 673, 679, 147 A.L.R. 1111, where it said: ‘It appears to be a rule of universal acceptation that the clause of the federal Constitution and those of the several state Constitutions prohibiting the impairment of obligations of contracts runs only to conventional contracts created by the mutual consent of the parties and not to quasi-contractual obligations imposed by the law and without procuring the consent of the party to be charged. State of Louisiana [ex rel. Folsom] v. Mayor [etc.] of [the City of] New Orleans, 109 U.S. 285, 3 S.Ct. 211, 27 L.Ed. 936; Freeland v. Williams, 131 U.S. 405, 9 S.Ct. 763, 33 L.Ed 193; Garrison v. City of New York, [88 U.S. 196] 21 Wall. 196, at 203, 22 L.Ed. 612; Crane v. Hahlo, 258 U.S. 142, 146, 42 S.Ct. 214, 66 L.Ed. 514, 517; Read v. Mississippi County, 69 Ark. 365, 63 S.W. 807, 86 Am.St.Rep. 202, affirmed 188 U.S. 739, 23 S.Ct. 849, 47 L.Ed. 677; State v. New Orleans, 38 La.Ann. 119, 58 Am.Rep. 168; Love v. Cavett, 26 Okl. 179, 109 P. 553; Nottage v. City of Portland, 35 Ore. 539, 58 P. 883, 76 Am.St.Rep. 513; Anders v. Nicholson, 111 Fla. 849, 150 So. 639; State v. Smith, 58 S.D. 22, 234 N.W. 764.’

We are not here concerned with legal implications which are consistent with agreements made and which may be deemed to supplement them, such as law relating to remedies for breach of contract existing when contracts are made. Appellant cites cases of this kind. (Hales v. Snowden, 19 Cal.App.2d 366, 65 P.2d 847; Ware v. Heller, 63 Cal.App.2d 817, 825, 148 P.2d 410.) Nor is this a case in which existing law has been made a part of a contract by agreement of the parties. On the contrary, Ohio and Helms expressly manifested assent that Helms' customers were to be excluded from coverage. Helms' customers were included as insureds solely by operation of law and the obligation to insure them was implied by law only.

As of September 11 (i. e. the effective date of the amendment) the obligation implied by law disappeared from the insurance policy. Had the accident occurred prior to the amendment of section 415, then the amendment would have no direct application to the accident. As stated in American Automobile Insurance Co. v. Republic Indemnity Co., supra, 52 Cal.2d 507, 511, 341 P.2d 675, 677, ‘* * * The amendment is not retroactive and therefore has no direct application to the accident involved here, which took place prior to 1957.’ (Emphasis added.) Insofar as any accidents which occurred subsequent to September 11, the rights and obligations under the Ohio-Helms policy concerning coverage of Helms' customers were to be determined according to the manifested assent of Ohio and Helms.

The trial court interpreted the policy exactly as the parties thereto made it. The propriety of adjudicating the respective contentions of the parties upon the pleadings in an action for declaratory relief by means of a judgment on the pleadings is recognized and established in this state. (Wilson v. Board of Retirement of Los Angeles County etc., 156 Cal.App.2d 195, 201, 319 P.2d 426.)

The judgment is affirmed.

FOOTNOTES

1.  Section 415 of the Vehicle Code, as it existed at the time Ohio issued the policy of insurance to Helms, provided in part: ‘Requisites of Motor Vehicle Liability Policy. (a) A ‘Motor vehicle liability policy,’ as used in this code means a policy of liability insurance issued by an insurance carrier authorized to transact such business in this State to or for the benefit of the person named therein as assured, which policy shall meet the following requirements: * * * (2) Such policy shall insure the person named therein and any other person using or responsible for the use of said motor vehicle or motor vehicles with the express or implied permission of said assured. * * *'

2.  As amended by Stats.1957, ch. 1654, p. 3034, section 415 [now Vehicle Code 1959, § 16450] provides in part: ‘Requisites of Motor Vehicle Liability Policy. (a) A ‘motor vehicle liability policy,’ as used or this chapter means an owner's policy or an operator's policy, or both, of liability insurance, certified as provided in Section 414 as proof of ability to respond in damages, issued by an insurance carrier authorized to transact such business in this State to or for the benefit of the person named therein as assured.'

3.  Article 1, Section 10 of the federal Constitution provides in pertinent part that, ‘No State shall * * * pass any * * * law impairing the Obligation of Contracts * * *.’Article 1, Section 16 of the California Constitution provides in pertinent part that, ‘No * * * law impairing the obligation of contracts shall ever be passed.’

FOURT, Justice.

WOOD, P. J., and LILLIE, J., concur.