SOUTHWESTERN FUNDING CORPORATION, a corporation, Plaintiff and Appellant, v. MOTORS INSURANCE CORPORATION and The Aetna Casualty and Surety Company, Defendants and Respondents.*
This appeal requires an interpretation of an automobile insurance policy, including the ‘loss payable’ clause, as between the finance company and the insurance company following a loss by reason of a collision of the automobile in Mexico. The question presented is whether a territorial limitation clause (under the general heading ‘Conditions') is a limitation of policy coverage under the ‘loss payable’ clause as well as under the insured's portion of the policy.
On Apeil 23, 1959, one Valencia purchased a Chevrolet under a written conditional sales contract with a balance of $3,432.00 payable in installments as specified. Plaintiff, which is engaged in the automobile financing business, purchased the contract from the Chevrolet dealer on the day it was made.
On the day the car was purchased, the two defendant insurance companies each issued a policy covering the car in which Valencia was the insured; each policy had collision coverage and a ‘loss payable’ clause in favor of plaintiff.
On July 10, 1959, the Chevrolet was damaged in a collision which happened in Guaymas, in the State of Sonora, Mexico. On the day of the collision, both of the insurance policies were in force, and the balance owing to plaintiff upon the conditional sales contract was $3,276.00. Defendants refuse to either repair the automobile or pay plaintiff the difference between the value of the car after the collision and the amount owed by Valencia under the contract. If plaintiff is entitled to recover, it is, the parties stipulated, entitled to recover $3,076.00 for damage to the automobile. Defendants declined to pay for the damage to the car upon the ground that the insurance afforded no coverage at the place where the collision occurred, and this action for declaratory relief followed. The case was tried to the court upon what amounted to an agreed statement of facts. Judgment was rendered for defendants and plaintiff appeals.
The appeal will be first discussed on the basis of the Aetna policy which is before us. The condition which the court applied so as to deny collision coverage to plaintiff is found under the heading ‘Conditions' as follows: ‘1. Policy Period, Territory—This policy applies only to accidents, occurrences and loss during the policy period while the automobile is within the United States of America, its territories or possessions, or Canada, or is being transported between ports thereof.’
The above-mentioned provision is lifted to a limited extent by the ‘Mexican Coverage—Limited Form Endorsement’ which reads in part: ‘It is agreed that such insurance as is afforded by this policy shall cover the Insured for a period not exceeding ten (10) days at any one time while the automobile is used in the Republic of Mexico not exceeding fifty (50) miles from the boundary line of the United States except that in Baja California, Republic of Mexico, the mileage limitation shall be 150 miles from the boundary line of the United States.’
However, the collision in question here did not occur in Baja California and did occur in a place in Mexico more than fifty miles from the boundary lines of the United States so the limited form endorsement is not applicable by its terms except for any legal inferences resulting from the fact that such an endorsement by rider was made.
Plaintiff's main argument on appeal is that the ‘loss payable’ clause becomes a separate contract between the plaintiff finance company and the defendant insurer; that under the ‘loss payable’ endorsement clause it was specified that certain occurrences would only impair the insurance as far as the insured was concerned but would not affect the insurance as to the lien holder (plaintiff finance company). Generally, the occurrences specified that do not impair the interests of the lien holder under the ‘loss payable’ clause are any breach of warranty or condition of the policy, any omission or neglect or the performance of any act in violation of any terms or conditions of the policy, or any change in the title or ownership of the property.
Plaintiff argues that any violation of the territorial ‘condition’ by the insured does not affect the coverage given to it under the ‘loss payable’ clause.
Certain rules of interpretation are applicable: In American Motorists Insurance Co. v. Moses, 111 Cal.App.2d 344, at page 347, 244 P.2d 760, at page 762, it is said: ‘The words in an insurance policy are to be taken in their plain, ordinary and popular sense.’ In Treadwell v. Pacific Indemnity Co., 154 Cal.App.2d 853, at page 856, 317 P.2d 123, at page 125, the court stated: ‘We must read the contract as a whole, without deletion or interpolation * * *. The rule is that a forced construction is not to be adopted to cast upon the insurer a liability which it has not assumed [citations].’
Generally, the ‘conditions' referred to in the ‘loss payable’ clause are those which may be breached or performed by the insured.
We now come to the interpretation and application of paragraph 1 under the main heading ‘Conditions' with reference to ‘Policy Period, Territory’ which has been quoted above. In our opinion this paragraph is not the statement of a covenant that may be breached or not performed by the insured; rather it is a statement of limitation as to the insurance coverage provided for by the entire policy, including the ‘loss payable’ clause.
The word ‘condition’ has several different meanings. As used in the ‘loss payable’ clause it may generally be synonymous with ‘covenant’ referring specifically to the ‘covenants' made by the insured; however, under the general heading ‘Conditions' it may also refer to a limitation or restriction of total insurance coverage. One of the meanings given to the word ‘condition’ is ‘something that limits or modifies the existence or character of something else: a restriction or qualification.’ (Webster's Third New International Dictionary (1961)).
Reading paragraph 1 under ‘Conditions' in the light of the foregoing and noting the heading of the particular paragraph reads ‘Policy Period, Territory,’ we believe that in this context the word ‘condition’ is used as a limitation or restriction of the contract, as a definition of the risk assumed with respect to time and area. The word is used in a sense (as contrasted with the meaning ‘covenant’) that does not forbid or demand any particular actions or course of conduct. For example, leaving aside the question of area, it is clear that there could be no breach or violation with respect to the policy period. A plain sensible interpretation of paragraph 1 is that it limits and defines the coverage granted by the policy.
In further support of the conclusion above indicated, we again refer to the fact that the policy issued by Aetna contained a special endorsement entitled ‘Mexican Coverage.’ The rule is well established that an endorsement on an insurance policy, sometimes called a ‘rider,’ forms part of the insurance contract; in a case of repugnancy, any such special endorsement prevails over a contrary provision in the body of the policy (Fageol Truck & Coach Co. v. Pacific Indemnity Co., 18 Cal.2d 731, 738, 117 P.2d 661).
The endorsement itself states in the portion pertinent to the present inquiry: ‘It is agreed that such insurance as is afforded by this policy shall cover the Insured * * * while the automobile is used in the Republic of Mexico not exceeding fifty (50) miles from the boundary line of the United States * * *.’
In other words, except for Baja, California, this endorsement states the following propositions:
(a) There is coverage while the automobile is being used in the Republic of Mexico within fifty miles of the boundary line of the United States.
(b) There is no coverage in the Republic of Mexico beyond that point.
It is, of course, to be noted that the special endorsement in question is in the form of an agreement rather than in the form of a condition. If there be any ambiguity present in the policy as far as the ‘loss payable’ clause is concerned because the territorial limitation is stated under the heading ‘Conditions,’ then the special endorsement covering the subject of Mexican territorial limitation and clearly stating it in the form of the insurance afforded by the policy, should control.
We have not discovered any California case which is directly in point on the principal question presented. A case outside of our state, U. S. Trust & Guaranty Co. v. West Texas State Bank, Tex.Civ.App., 272 S.W.2d 627, is a most persuasive authority. The court therein stated the facts as follows:
‘The Bank made a loan to Ratliff which was secured by a mortgage on his automobile. The insurance company issued a policy covering damages caused by accidents which occur ‘while the automobile is within the United States of America, its Territories or Possessions, Canada or Newfoundland,’ with an endorsement, made a part of the policy, which provided that ‘loss or damage, if any, under the policy shall be payable as interest may appear’ to said Bank. Ratliff's automobile was damaged in Mexico and the Bank obtained a judgment against the insurance company for its loss. The insurance company has appealed.
‘The insurance company contends that damage to the automobile suffered in Mexico is not within the coverage of the policy. Section 8 of the insuring agreement of said policy provides:
“This policy applies only to accidents which occur and to direct and accidental losses to the automobile which are sustained during the policy period, while the automobile is within the United States of America, its Territories or Possessions, Canada or Newfoundland or is being transported between ports thereof, and is owned, maintained and used for the purposes stated as applicable thereto in the declarations.”
The court then pointed out that by endorsement the policy contained a loss payment provision that ‘this insurance, as to the interest of the—mortgagee—shall not be invalidated by any act or neglect of mortgagor—nor by any change in the title or ownership of the property.’
A judgment for the bank was reversed on appeal on the ground that, under the insuring agreement, there was no coverage, either for the insured or under the loss payment provision while the car was in Mexico. The bank contended that the ‘loss payable’ clause created an independent contract between it and the insurance company, ‘unaffected by any act or neglect of the mortgagor in violation of the ‘conditions' of the policy.’ The court considered that contention as follows:
‘We recognize that the clause making the loss payable to the mortgagee regardless of any act or neglect of the mortgagor, permits the mortgagee's recovery despite any violation of a ‘condition’ by the mortgagor unknown to the mortgagee. [Citing case.] The question here is not relative to such a matter. The question is whether the accident that damaged the automobile was covered by the policy. The plain, unambiguous language of the policy compels the conclusion that while the automobile was without the territory covered by the policy there was no coverage under the policy. This was not a condition, the breaking of which by the mortgagee [sic] was, according to the contract, not to affect the rights of the innocent mortgagee. The policy simply provided there was no insurance while the car was without the territory stated.'
While we recognize that the limitation of policy coverage as to area was more clearly indicated in the Texas case cited and quoted from above, we believe and hold that the area limitations in the policies involved here and in that case mean the same thing. From usage and context it is clear that paragraph 1 under the heading ‘Conditions' and specifying the policy territory is a limitation and definition of policy coverage.
We do not think that the case of Fruehauf Trailer Co. v. Stuyvesant Ins. Co., D.C., 141 F.Supp. 65, relied upon by plaintiff, is in point. That also was an action by a lien holder upon a policy of automobile collision insurance which had a loss payable endorsement; the assignee of the insured had given a second mortgage on the automobile without notifying the insurer. The ‘loss payable’ clause provided that the insurance, as to the interest of the lien holder, should not be invalidated ‘by any action or neglect of the assured.’ The court held in favor of plaintiff as lien holder.
In the Fruehauf case, supra, 141 F.Supp. 65, the exclusionary provision had to do with lien interests ‘not specifically declared.’ The provision was in the nature of a covenant by the insured (or his assignee) to do an affirmative act. Failure to declare is thus a case of neglect on the part of the insured, and within the provision that omission or neglect of the insured is not to invalidate the coverage of the lien holder. In the instant case, the provision in question is a limitation on the coverage extended by the entire policy, including the ‘loss payable’ clause. Under the Aetna policy, the judgment for said defendant must be affirmed.
As to the policy issued by defendant Motors Insurance Corporation, the answer of such defendant admitted that on April 23, 1959, it issued to Valencia its policy covering the Chevrolet automobile purchased by him, and that the said policy had a ‘loss payable’ clause in favor of plaintiff. The answer admits that on July 10, 1959, said insurance policy ‘was in full force and effect,’ and further admits that on said date, said Chevrolet automobile was involved in an accident in Guaymas, Sonora, Mexico. The answer of that defendant, by way of a ‘Third, Separate and Affirmative Defense’ alleges: ‘That pursuant to the terms and provisions of the policy of insurance issued by defendant, Motors Insurance Corporation, covering the said 1959 Chevrolet automobile, it is provided that the said automobile is covered by said insurance only if a loss of the type insured against occurred while the said automobile is within the United States of America, its territories or possessions, or Canada, or was being transported between ports thereof.’
The court found, so far as defendant Motors Insurance Corporation is concerned, that ‘the policy, pursuant to its terms and provisions provided that the said automobile was covered only if a loss of the type insured against occurred while the said automobile was within the United States, its territories or possessions or Canada, or was being transported between ports thereof,’ and drew the following conclusions of laws:
‘That the automobile at the time of the accident was out of the territory covered by the policy of insurance issued by both defendants, and that the policy provided no coverage while the car was out of the territory stated.’
The policy of defendant Motors Insurance Corporation was not pleaded in full (as was the Aetna policy) nor was it put in evidence. The parties presented the case to the trial court upon a series of stipulations. Plaintiff's counsel stated in court: ‘It is also stipulated that the accident in question occurred in Mexico beyond the territorial limits provided in either policy.’ Plaintiff, while suing upon the policy, did not make any objection that the policy of defendant Motors Insurance Corporation was not before the court, nor did plaintiff request that it be put into evidence. Both parties indicated they were willing to submit the matter upon the pleadings, the pretrial order and the stipulations mentioned. The finding of the court with reference to the Motors policy is supported by the stipulation above mentioned; plaintiff's counsel did not make any objection to this finding or offer any counter finding. On this state of the record plaintiff is not in a position to contend that defendant Motors Insurance did not meet its burden of proof in establishing that the accident was without the coverage of the policy. The stipulation of counsel above mentioned that the accident in question occurred in Mexico beyond the territorial limits of the policy fully met any burden of proof upon such defendant to show the facts negativing coverage. (See Witherow v. United American Ins. Co., 101 Cal.App. 334, 336, 281 P. 668.)
We believe that upon the basis of the pleadings, the pre-trial order, the stipulation made by the parties, and the findings of the court, the action as against defendant Motors Insurance comes within the rule of the case above mentioned which denies liability, U. S. Trust & Guaranty Co. v. West Texas State Bank (Texas), supra, 272 S.W.2d 627.
The judgment appealed from is affirmed.
BURKE, P. J., and JEFFERSON, J., concur.