AMERICAN AUTOMOBILE INSURANCE COMPANY, a corporation, Plaintiff and Respondent, v. REPUBLIC INDEMNITY COMPANY OF AMERICA, a corporation, Defendant and Appellant. *
A stipulated judgment in the sum of $5,000 was entered against John M. Steinberg and Max Barish, Inc., an automobile dealer and garage, hereinafter referred to as Barish, in a personal injury action arising out of an automobile accident on March 27, 1956, in which several persons were injured. It involved a car owned by Barish and driven with its permission by Steinberg. Steinberg was insured by American Automobile Insurance Company, plaintiff herein, and Barish by a policy issued by defendant Republic Indemnity Company of America. Plaintiff filed this action for declaratory relief to have their respective obligations under the two policies of liability insurance determined. The lower court held that Republic's policy provided primary insurance to the full extent of the stipulated judgment and the policy issued by American provided only excess coverage; and ordered Republic to satisfy the entire obligation. It is from this judgment defendant appeals.
Both policies, in standard form, were issued prior to March 27, 1956. American not only covered Steinberg's own car, but also his use of a non-owned vehicle as a ‘temporary substitute’ automobile. Republic's policy, however, contained Special Endorsement No. 4, which provided: ‘with respect to any automobile used with the permission of the named insured by a customer of the named insured, such insurance as is afforded by the policy applies only to the named insured.’
Republic contends that this endorsement excluded coverage of the automobile owned by Barish and driven by Steinberg who, as its customer, was permitted to use the same while Barish repaired Steinberg's car, thereby relieving it from liability under the policy; and in any event its policy provides only excess or, at most, pro rata coverage with the American policy. American submits that the endorsement is invalid as against public policy; that by operation of law, all permissive drivers were included in Republic's policy as insureds; that Republic's insurance on the Barish car constituted primary coverage and appellant is liable to the full extent of the judgment.
The issue is twofold—whether Republic's policy covered the Barish car, used with its permission by Steinberg and, if so, to what extent.
Since the accident occurred in 1956, the policies must be viewed in the light of established rules and statutes then in force and effect. Section 415, Vehicle Code, a part of the Financial Responsibility Law, then required that every policy of motor vehicle liability insurance issued pursuant to the law ‘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.’ As to liability, section 402 provided that ‘(e)very owner of a motor vehicle is liable and responsible for the death of or injury to person or property resulting from negligence’ in its operation ‘by any person using or operating the same with the permission, express or implied, of such owner * * *’.
In 1957, before the amendment of section 415, the Supreme Court decided the case of Wildman v. Government Employees' Ins. Co., 48 Cal.2d 31, 307 P.2d 359, controlling here. Confronted with the contention that the policy excluded coverage when a vehicle owned by the insured was driven by someone else, but with his permission, the court, after discussing public policy as reflected in sections 402 and 415, concluded ‘* * * 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. * * * 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.’ 48 Cal.2d 39, 307 P.2d 364.
Republic seeks to avoid the effect of this decision by claiming that it dealt only with an interpretation of the particular insurance policy there under consideration and does not apply to all policies. It is clear from a reading of the opinion that the court extended its ruling to every policy of motor vehicle liability insurance. A similar contention was rejected by the court in Bonfils v. Pacific Auto. Ins. Co., 165 Cal.App.2d 152, 331 P.2d 766, at page 769: ‘The cited language from the opinion in the Wildman case is directed to ‘every policy of insurance issued by an insurer’; this declaration was reiterated therein where the court said: ‘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’; and again where it is stated: ‘* * * 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.’ * * *. Every motor vehicle liability policy of insurance issued in this state, by virtue of law, covers both the owner of the subject automobile and every person using the same with the owner's consent; any omission of an express provision in such a policy resulting in a failure to effect this dual coverage is supplied by implication of law; by the same standard, any provision therein which expressly excludes such coverage, being contrary to public policy, is rendered ineffectual by law.'
Republic further argues in support of the validity of Special Endorsement No. 4 that restrictive endorsements excluding coverage have always been recognized, citing numerous authority therefor. It cannot be denied that the right of an insurer to limit its coverage has been repeatedly upheld. Continental Cas. Co. v. Phoenix Constr. Co., 46 Cal.2d 423, at page 432, 296 P.2d 801, at page 806, 57 A.L.R.2d 914, sets forth the general rule: ‘An insurance company has the right to limit the coverage of a policy issued by it and when it has done so, the plain language of the limitation must be respected.’
Recognizing this rule the court in the Wildman case, however, excepted therefrom the restrictive endorsement that contravenes the law or public policy, disapproved any endorsement excluding coverage of a permissive user of an insured's automobile; and rejected, as without merit, the contention that the company had the right in this kind of circumstance to limit its coverage. The court in Bonfils v. Pacific Automobile Ins. Co., 165 Cal.App.2d 152, 331 P.2d 766, 768, was faced with the same argument. Conceding that an insurer has the right to limit its coverage, the court therein stated: ‘However, any such limitation must conform to the law; if contrary to public policy it is void.’ It is clear that all restrictive endorsements are subject to the law and public policy and if any coverage restriction contravenes the same, it shall be null and void. In issuing its policy, Republic not only impliedly agreed to conform to the law, but expressly provided that ‘(s)uch insurance as is afforded by this policy for bodily injury liability or property damage liability shall comply with the provisions of the motor vehicle financial responsibility law * * * which shall be applicable with respect to any such liability arising out of the ownership, maintenance or use during the policy period of any automobile insured hereunder * * *’ (Condition 8).
Republic finally contends that its policy was neither a ‘motor vehicle liability policy’ under the Wildman decision or the Financial Responsibility Law, nor so intended by either the insured or insurer. It claims that Special Endorsement No. 4 relates only to the garage operation of Max Barish, Inc., and as to vehicles owned and used by Barish it was solely a general liability policy intended to cover only the operation of an automobile agency and garage in which the ownership of certain vehicles was covered under specifically designated circumstances, and then only incidental to the general liability. Republic denies that the rule in the Wildman case applies to that portion of the policy pertaining to the use of automobiles in connection with the operation of the garage.
Republic's policy is entitled ‘Comprehensive Liability Policy (General-Automobile) Pacific Coast,’ was issued to Max Barish, Inc., and provides for compliance with the motor vehicle financial responsibility act (Condition 8). Although it provides other coverage, it is obvious that the policy also covers personal injury and property damage ‘arising out of the ownership, maintenance, or use of any automobile.’ (Emphasis added.) Insuring Agreement 1(A), (C). Reference to motor vehicle liability runs throughout the terms, conditions and provisions of this policy to such an extent that it would be burdensome to here relate them, and although Republic has attempted to limit its coverage by numerous attached endorsements, it is apparent that it constitutes a motor vehicle liability policy. Republic attempts to make a distinction between the permissive use of a vehicle lent to a friend or member of the insured's family, and the permissive use of a vehicle lent by the garage operation of the insured to a customer thereof, in its claim that the latter was not contemplated under its policy and no premium was paid therefor. Whether the permissive use of the Barish owned automobile is to a family member, a friend, or by way of a loan to a garage customer, is of little import insofar as concerns the protection the public has a right to expect. The Wildman decision did not limit the permissive user to any particular person or class of persons, but applied the rule of protection to all persons driving the insured's car with permission. Said the court at page 37 of 48 Cal.2d, at page 363 of 307 P.2d: ‘* * * the policy must be construed as extending coverage to persons suffering bodily injury or property damage caused by the vehicle in question when it was being driven by the named insured, or members of their immediate family, and also by someone else driving the vehicle with the consent and permission of the named insured.’ (Emphasis added.) 48 Cal.2d 31, 307 P.2d 359. Republic contends, however, that its policy does not deprive the public of protection because Steinberg was covered by American's policy and the persons injured were already protected. This argument is met by public policy considerations, the provisions of the automobile Financial Responsibility Law and the basic protection guaranteed thereunder for the benefit of drivers and owners of motor vehicles as well as the public who might suffer injury. Bonfils v. Pacific Auto. Ins. Co., 165 Cal.App.2d 152, 331 P.2d 766; Wildman v. Government Employees' Ins. Co., 48 Cal.2d 31, 307 P.2d 359, supra. The position advanced by Republic, that the rule for the benefit of the public developed in the Wildman case, arose out of a dispute between one injured and the insured and does not apply to a controversy between two insurers, finds no support in the law in this state. Continental Cas. Co. v. Phoenix Constr. Co., 46 Cal.2d 423, 296 P.2d 801, and Oil Base, Inc. v. Transport Indem. Co., 143 Cal.App.2d 453, 299 P.2d 952. Forecasting the rule in the Wildman case, the court in Continental Cas. Co. v. Phoenix Constr. Co., 46 Cal.2d 423, 296 P.2d 801, involving a dispute between two insurance companies, discussed at length the financial responsibility statute, and the protection the public has the right to expect.
Republic's suggestion that it is unfair to extend the coverage because the premium charged Barish did not include any driver other than the insured, we deem to be without merit particularly where the endorsement restricting liability is contrary to the law with which the insurer is bound to comply.
Even though the accident occurred March 27, 1956, before the 1957 amendment to section 415, Republic argues that neither section 415 then in effect, nor the Wildman decision is controlling. It reasons that, although the Supreme Court there held that sections 402 and 415 were ‘intended by the Legislature to be, and are, a part of every policy of motor vehicle liability insurance,’ when section 415 was amended in 1957 the legislature expressed its disapproval of the court's holding by amending the definition of ‘motor vehicle liability policy’ to include only policies ‘certified as provided in section 414’; and that contrary to the Supreme Court's ruling in the Wildman decision, the legislature actually never intended section 415 be read into any policy of liability insurance except those ‘certified.’ It is conceded that Republic's policy was not certified. The Supreme Court was explicit in its pronouncement that sections 402 and 415 be read into ‘every policy’ of motor vehicle liability insurance (Wildman v. Government Employees' Ins. Co., 48 Cal.2d 31, 307 P.2d 359; Bonfils v. Pacific Automobile Ins. Co., 165 Cal.App.2d 152, 331 P.2d 766). We cannot construe therein any limitation to certified or any other particular type of motor vehicle liability policy. Since the 1957 amendment is not retroactive, and the policies in question must be construed under the law as it existed on March 27, 1956, we are not constrained to discuss further the tenuous position advanced.
Having concluded Special Endorsement No. 4 to be null and void as contrary to public policy and to the law in force in 1956, and Republic's policy, by operation of law, to extend coverage to the car owned by Barish in the permissive use by Steinberg, we are now concerned with Republic's dual claim that its coverage is excess only, and if not, at most, the loss should be borne by the two carriers on a pro rata basis. It is based primarily on American Auto. Ins. Co. v. Seaboard Surety Co., 155 Cal.App.2d 192, 318 P.2d 84; Peerless Casualty Co. v. Continental Cas. Co., 144 Cal.App.2d 617, 301 P.2d 602, and equitable considerations arising out of the fact that it received no premium from Barish for covering Steinberg's operation of one of its cars, and American did receive consideration for covering Steinberg's use of the car as a ‘temporary substitute’ vehicle.
Both policies contained the same ‘excess' provision. American's policy issued to Steinberg provided that ‘insurance under this policy shall be excess insurance over any other valid and collectible insurance, with respect to (1) temporary substitute automobiles under Insuring Agreement IV * * *.’ Insuring Agreement IV defined a ‘temporary substitute automobile’ as one ‘not owned by the named insured * * * while temporarily used as a substitute for the described automobile when withdrawn from normal use because of its breakdown, repair, servicing, * * *.’ Republic's policy on Barish provided that the ‘insurance under this policy with respect to loss arising out of the maintenance or use of * * * any non-owned automobile shall be excess insurance over any other valid and collectible insurance available to the insured * * *.’
Obviously, the rights and duties of insurers under their policies in a situation of this kind do not arise out of contract with each other, since there is no contractual agreement between them. Continental Cas. Co. v. Phoenix Constr. Co., 46 Cal.2d 423, 296 P.2d 801; American Auto. Ins. Co. v. Seaboard Surety Co., 155 Cal.App.2d 192, 318 P.2d 84. Their obligations are the result of the express provisions of their respective policies. Insurers, in formulating the provisions of their policies have made every effort to avoid inequities growing out of conflicts where double coverage exists. Realizing insurance companies to be contentious by nature, reasonable constructions of these provisions relating to other insurance covering the same risk have been indulged by our courts with a view to aiding the industry itself in designating and determining liability under various types of coverage and avoid unnecessary litigation. It is clear from the terms of American's policy that the car owned by Barish and driven with its permission by Steinberg as a ‘temporary substitute automobile’ fell squarely within its ‘excess' provision. The car became a ‘not-owned’ vehicle as to Steinberg and accordingly, American's coverage thereon became excess over and above any ‘other valid and collectible insurance.’ Having already concluded that by operation of law Republic's policy included the automobile owned by Barish and used by Steinberg, its coverage thereof could not be included within the ‘excess' provision of Republic's policy because it covers Barish only in the permissive use of an automobile ‘non-owned’ by it. The ‘excess' provision in Republic's policy obviously does not cover a vehicle owned by Barish and permissively used by another. Therefore, it is apparent that Republic's coverage of the Barish automobile driven by Steinberg constitutes primary insurance.
We are not here confronted with the problem arising out of a conflict between primary insurers as to whose coverage comes first when each, in order to escape liability under the primary coverage it originally issued, seeks to take advantage of an escape clause dependent upon the existence of another policy. By the very terms of American's policy, its coverage on the non-owned automobile used by Steinberg was originally issued as excess insurance, with the proviso that its coverage becomes primary in the event there is no other insurance covering the vehicle. Since by its terms the excess provision in Republic's policy is limited to ‘non-owned’ vehicles used by Barish, the provision is not here effective. Therefore, if Republic is to avoid liability on its primary coverage, it must resort to the fortuitous existence of another policy, which it cannot do because American's coverage originally issued as excess does not go into effect and become ‘other valid and collectible insurance’ until Republic's primary insurance is exhausted.
That Republic's coverage of the car is primary, and American's coverage of its use is excess, is borne out by authority in this state, as well as in other jurisdictions, that as between insurers, in the common situation in which the insured is driving a vehicle he does not own, it is the coverage on the car that is primary and the coverage on the driver that is excess. The leading case in California, Pleasant Valley Lima Bean Growers and Warehouse Ass'n, v. Cal-Farm Ins. Co., 142 Cal.App.2d 126, 298 P.2d 109, represents a declaratory relief action brought by an insured to determine obligations between two insurers. One Nungary, injured while unloading a truck in a warehouse, sued the warehouse operator, Pleasant Valley Lima Bean Growers & Warehouse Association, and its employee, Croker, for damages. Cal-Farm had insured Brucker, the truck owner. United States Fidelity & Guaranty Company issued a policy to Pleasant Valley. The court held that Pleasant Valley and Croker were also covered under the Cal-Farm policy as additional insureds; that Cal-Farm had a primary obligation to defend and pay any judgment in the Nungaray damage action and that United's policy on Pleasant Valley provided only excess coverage in view of the clause making it such with respect to the use of a non-owned automobile. Said the court at page 136, of 142 Cal.App.2d, at page 115 of 298 P.2d: ‘Turning to the policies of insurance themselves, we find that both contain ‘other insurance’ clauses. United's ‘other insurance’ clause provides that its liability shall be proportionate to other valid and collectible insurance, save that in the case of loss arising out of the use of a non-owned automobile, its insurance shall be excess insurance only. As the truck involved in the accident was not owned by Pleasant Valley, United's insured, United's policy is excess insurance as to Pleasant Valley, and Cal-Farm's duty to defend Pleasant Valley and pay judgment in the Nungaray action is primary to the obligation of United. * * * Also, since United's coverage of Pleasant Valley is excess with respect to non-owned vehicles, there is no basis for apportionment with Cal-Farm's coverage of Pleasant Valley.'
The court in the Pleasant Valley case recognized the distinction between the conflict created by two companies providing primary coverage in which each seeks to withdraw because of other insurance, and the conflict arising out of two policies, one contemplating primary coverage on the car and the other excess on the driver, by rejecting Air Transport Mfg. Co. v. Employers' Liability Assurance Corp., 91 Cal.App.2d 129, 204 P.2d 647, as ‘readily distinguishable’ on its facts. The Air Transport case cited by Republic, but not applicable to the case at bar for those reasons, involved a policy that did not contain an excess clause which was rendered operative when its assured became involved in a loss arising out of a non-owned automobile, but did contain an escape clause by which the vehicle owner's insurer sought to entirely avoid liability when other insurance was in force. This case was also rejected by the court on the same theory, in a case similar to the instant one in a 1952 California decision, in Norris v. Pacific Indem. Co., Cal., 237 P.2d 666. Although this decision is not now the law because it was superseded by one of the Supreme Court on other grounds (Norris v. Pacific Indem. Co., 39 Cal.2d 420, 247 P.2d 1), it serves to point up the distinction the court there also recognized.
The rule in the Pleasant Valley case exists with equal force as settled law in other jurisdictions. Noteworthy is the Fifth Circuit decision in General Insurance Co. v. Western Fire & Casualty Co., 5 Cir., 241 F.2d 289. Western insured the car owner, General insured the driver, Mrs. Cutshall. The court held that Western's coverage on the car was primary, liable to the full extent of the limitation of its policy, and General's coverage on the driver was excess. Said the court at page 295: ‘With Western's policy effective, it is conceded that it was available to Lola Jones Cutshall as an additional assured. This automatically brought into play the provision in General's policy * * * which prescribed that the drive-other-car extension agreement * * * ‘shall be excess insurance over any other valid and collectible insurance available to the insured, either as an insured under a policy applicable with respect to said automobile or otherwise.’ The effect of this is that Mrs. Cutshall did not have insurance with respect to other vehicles driven by her until she had reasonably exhausted coverage available to her elsewhere * * * It is only when Western's policy has been exhausted that General becomes liable for the excess, and until that point is reached, Mrs. Cutshall, as named or additional assured, has no claim which she can assert.'
Idential facts and policies were involved in Hardware Cas. Co. v. Massachusetts Bonding & Ins. Co., Sup., 129 N.Y.S.2d 304, in which a customer of a garage used a car owned by it while his own was being repaired. The court held that the garage's policy insuring the car was primary coverage and that issued to the driver using a non-owned vehicle was excess only. Other cases upholding the excess provision as to non-owned vehicles include Farm Bureau Mut. Auto. Ins. Co. v. Preferred Acc. Ins. Co., D.C., 78 F.Supp. 561; Benroth v. Continental Casualty Company, D.C., 132 F.Supp. 270; American Surety Co. of New York v. American Indemnity Co., 8 N.J.Super. 343, 72 A.2d 798; American Motorist Ins. Co. v. Weir, 132 Conn. 557, 46 A.2d 7; Manufacturers Cas. Ins. Co. v. Great American Ind. Co., D.C., 91 F.Supp. 18; Aetna Casualty & Surety Co. v. De Maison, D.C., 114 F.Supp. 106; United Services Automobile Association v. Russom, 5 Cir., 241 F.2d 296; Travelers Indemnity Co. v. State Automobile Ins. Co., 67 Ohio App. 457, 37 N.E.2d 198; Allstate Insurance Co. v. Urban, 15 Ill.App.2d 386, 146 N.E.2d 387.
Our attention has been directed to Oregon Auto. Ins. Co. v. United States Fidelity & Guar. Co., 9 Cir., 195 F.2d 958, which appears to be contrary to the established line of Federal decisions. However, a careful reading thereof will disclose that nowhere in that opinion was any distinction made between a situation in which primary insurance is originally issued and then an attempt is made to withdraw the same to render it excess because other coverage exists, and the situation in which excess coverage is issued in the first instance, which becomes primary only if no other insurance exists. Perhaps with this distinction in mind, the California court in Peerless Cas. Co. v. Continental Cas. Co., 144 Cal.App.2d 617, at page 623, 301 P.2d 602, at page 607, recognized that as among the authorities the Oregon decision ‘stands alone.’ The Peerless case, relied upon by Republic for the proposition that it is doubtful an excess provision can be effective unless the primary coverage is designated, actually was concerned only with precedence between two primary insurers. There was an escape clause in one policy and a pro rata clause in another. The court held that the escape clause was ineffective and prorated the policies.
Having found under American's ‘excess' provision that it is liable only for that amount ‘over any other valid and collectible insurance’ with respect to a ‘temporary substitute automobile,’ it follows under the authorities cited that until Republic's coverage on the Barish car is exhausted, American's insurance does not go into effect. Since the ‘excess' provision in Republic's policy is here inapplicable, and since its coverage of the Barish car is primary and no other insurance against the loss exists until Republic's coverage is exhausted, the pro rata clause in the Republic policy is of no effect.
Both policies contain identical pro rata clauses in connection with ‘other insurance’: ‘If the insured has other insurance against a loss covered by this policy the company shall not be liable under this policy for a greater proportion of such loss than the applicable limit of liability stated in the declarations bears to the total applicable limit of liability of all valid and collectible insurance * * *.’
On alleged equitable considerations and the authority of American Auto. Ins. Co. v. Seaboard Surety Co., 155 Cal.App.2d 192, 318 P.2d 84, Republic claims a proration of the loss with American. The Seaboard Surety Company case does not involve motor vehicle liability insurance or a non-owned car on which excess coverage was originally issued. It is clearly distinguishable on its facts as involving a conflict between two primary policies. Of particular interest therein is the court's reliance upon Air Transport Mfg. Co. v. Employers' Liability Assurance Corp., 91 Cal.App.2d 129, 204 P.2d 647, and Peerless Casualty Co. v. Continental Cas. Co., 144 Cal.App.2d 617, 301 P.2d 602, cases involving primary policies. Furthermore, it involved subrogation rights and not a rule governing the rights between insurers who are not trying to subrogate but to determine their respective liabilities.
Our courts have clearly recognized the confusion proration under the kind of policies involved in the case at bar would bring to the insurance industry. In Norris v. Pacific Indemnity Co., Cal., 237 P.2d 666, although no longer controlling, the court acknowledged that a pro rata contribution should be ordered only in the event there are two or more primary carriers. The court in Pleasant Valley Lima Bean Growers and Warehouse Ass'n v. Cal-Farm Ins. Co., 142 Cal.App.2d 126, 298 P.2d 109, supra, pointed up the situation between two insurers in which one issued primary coverage on the automobile, and the other excess on the driver and said, 142 Cal.App.2d at page 136, 298 P.2d at page 115. ‘Also, since United's coverage of Pleasant Valley is excess with respect to non-owned vehicles, there is no basis for apportionment with Cal-Farm's coverage of Pleasant Valley.’
Since Max Barish, Inc., was the owner of the accident car, which under American's policy constituted a ‘temporary substitute’ vehicle as to Steinberg, and originally subject to excess coverage; and under Republic's policy the car was originally covered by ‘valid and collectible’ primary insurance, American, by virtue of its ‘excess' provision became responsible only for that amount over and above Republic's coverage which herein amounts to nothing since the judgment was limited to $5,000.
For the foregoing reasons the judgment is affirmed.
WHITE, P. J., and FOURT, J., concur.