HOME INDEMNITY COMPANY v. KING

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Court of Appeal, First District, Division 3, California.

The HOME INDEMNITY COMPANY, Plaintiff and Appellant, v. Frederick William KING et al., Defendants and Respondents.

Frederick William KING, Plaintiff and Appellant, v. TRANSPORT INDEMNITY COMPANY, Defendant and Respondent.

Civ. 45669.

Decided: May 07, 1982

Ralph A. Lombardi, Hardin, Cook, Loper, Engel & Bergez, Oakland, for plaintiff and appellant, The Home Indem. Co. Bryce C. Anderson, Martinez, Michael P. McCabe, Trembath, McCabe & Schwartz, Concord, for Frederick King. Toff, Toff, Newton & Toff, Melville A. Toff, Stephen L. Newton, Mountain View, for defendant and respondent, Transport Indem. Co.

This appeal encompasses two separate actions which were consolidated at trial, and which both involve questions as to insurance coverage for a single accident.   The Home Indemnity Company, plaintiff in the first action, appeals from a judgment in favor of defendants Frederick King and Tony Martin, declaring Martin to be an insured under an automobile liability insurance policy which Home issued.   King and Martin, plaintiffs in the second action, appeal from a judgment in favor of defendant Transport Indemnity Company declaring it not bound by a stipulated judgment in a previous action between King and Martin, and granting it a trial de novo on all issues involved in that action.

Facts

On January 31, 1972, Frederick King, who was employed as a truck driver by the Bonded Drayage Company, drove a tractor truck and trailer to the Oakland Army Terminal to deliver and pick up cargo pursuant to his employment.   Bonded Drayage owned the tractor truck;  however, the trailer was owned by Transcon Lines, another cargo carrier, and was being used pursuant to an interchange agreement.   Bonded Drayage was insured by the Home Indemnity Company (Home) and Transcon Lines was insured by Transport Indemnity Company (Transport).1

At the Oakland Army Terminal, Tony Martin, an independent forklift operator, was hired by King to load the trailer.   Martin was insured for business operations by United States Fidelity and Guaranty Company (USF&G).   As Martin was loading cargo, he dislodged some of the crates, which fell onto King and severely fractured his right leg and left ankle.

King filed suit against Martin;  Martin was defended by counsel provided by USF&G and by private counsel.   USF&G made a tender of the defense to Home, which Home rejected.   The action was settled with a stipulated judgment in favor of King in the amount of $300,000;  USF&G agreed to pay its entire policy limit of $100,000;  King agreed not to execute against Martin;  Martin assigned all his rights against any other carriers to King.

 Although King, Home and USF&G at all times knew that the trailer was owned by Transcon Lines, there was no effort made to notify Transcon or its insurance company (Transport) of the accident until after the settlement conference which resulted in the stipulated judgment.

Home then brought an action for declaratory relief, seeking a declaration that the liability policy it issued to Bonded Drayage did not cover the act of Martin which gave rise to the stipulated judgment.   King and Martin brought an action for declaratory relief against Transport, seeking a declaration that Martin was covered by the Transport policy, and that Transport was therefore obligated to satisfy the outstanding balance of the stipulated judgment.   The two actions were consolidated for trial.

In the first action, the court found Home's policy and the PUC endorsement of that policy together provided Martin with coverage in the amount of $200,000.   The court also found King entitled to a declaration that Home was liable for the $200,000 unpaid balance of the judgment rendered against Martin in favor of King.   In the second action, the court found Martin was Transport's insured.   However, because Transport was not given notice of the accident, the action between King and Martin, or the settlement of that action, Transport was not bound by the stipulated judgment, and was entitled to a trial de novo on all the issues.

Home v. King et al.

Pursuant to the comprehensive automobile liability portion of the insurance policy which Home issued to Bonded Drayage, Home agreed to “pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages ․ arising out of the ownership, maintenance or use, including loading and unloading, of any automobile ․”  In relevant part, the policy defined the insured as the named insured, and as:  “(c) any other person while using an owned automobile or a hired automobile with the permission of the named insured, ․ but with respect to bodily injury or property damage arising out of the loading or unloading thereof, such other person shall be an insured only if he is:  [¶] 1. a lessee or borrower of the automobile or [¶] 2. an employee of the named insured or of such lessee or borrower ․”

 However, endorsement No. 5 to the policy sets forth an exception to the limitation:  “It is agreed that the insurance applies with respect to commercial automobiles, subject to the following additional provisions:  (a) The loading and unloading limitation of paragraph (c) of the ‘Persons Insured’ provision does not apply to any person or organization or any agent or employee thereof engaged in the business of transporting property by automobile for the named insured or for others.”

The policy also contained a standard endorsement prepared by the PUC which stated that the policy would cover any final judgment against the insured for bodily injury or property damage “resulting from the operation, maintenance, or use of motor vehicles for which a ․ permit is required ․”  (Emphasis added.)   In addition, that endorsement provided:  “Within the limits of liability hereinafter provided it is further understood and agreed that no condition, provision, stipulation, or limitation contained in the policy, or any other endorsement thereon or violation thereof, or of this endorsement, by the insured, shall relieve the Company [Home] from liability hereunder or from the payment of any such final judgment, irrespective of the financial responsibility or lack thereof or insolvency or bankruptcy of the insured.   However, all terms, conditions, and limitations in the policy to which this endorsement is attached are to remain in full force and effect as binding between the insured and the Company, and the insured agrees to reimburse the Company for any payment made by the Company on account of any accident, claim, or suit involving a breach of the terms of the policy, and for any payment that the Company would not have been obligated to make under the provisions of the policy except for the agreement contained in this endorsement.”  (Emphasis added.)

The trial court found that forklift operator Martin was Home's insured both because he was a “borrower” of the tractor truck within the meaning of the policy, and because by operating the forklift, he was “engaged in the business of transporting property by ‘automobile’ for the named insured” within the meaning of the policy.   In addition, the court found that Martin was an insured under the PUC endorsement.   The court concluded that the policy provided coverage to the extent of $100,000 and the PUC endorsement provided an additional $100,000.

First, appellant contends the court erred when it determined that because of the “no limitation” language in the PUC endorsement, Martin was an insured despite the policy's limitation on the definition of an insured with respect to loading and unloading.   We agree.

  We recognize that generally, when there is an inconsistency between the language of a PUC endorsement and that of the body of a liability policy, the endorsement controls.  (Samson v. Transamerica Ins. Co., supra, 30 Cal.3d at p. 231, 178 Cal.Rptr. 343, 636 P.2d 32.)   In Samson, although the policy expressly covered only one particular tractor truck, the PUC endorsement extended coverage to all vehicles covered by the insured's PUC permit.

Nevertheless, we must also read Home's policy and the endorsement in light of Insurance Code section 11580 et seq., which express the “total public policy” of the state with respect to the content of automobile liability insurance policies.  (Ins.Code, § 11580.05;  Farmers Ins. Exchange v. Cocking (1981) 29 Cal.3d 383, 388, 173 Cal.Rptr. 846, 628 P.2d 1.)   Prior to 1970, it was the public policy of the state as expressed in former Insurance Code section 11580.1 that every automobile insurance policy was deemed to include a provision insuring a permissive user of a vehicle to the same extent as the policy afforded coverage to the named insured.   A permissive user included one engaged in loading and unloading a truck.  (Glens Falls Ins. Co. v. Globe Indem. Co. (1969) 276 Cal.App.2d 643, 644–645, 81 Cal.Rptr. 28;  see former Ins. Code, § 11580.1, subd. (d);  Stats.1969, ch. 471, p. 1033.)   In 1970, a new version of section 11580.1 was enacted, in part permitting insurance for loading and unloading to be limited to the named insured, certain of his relatives, a lessee or bailee of the vehicle, or an employee of any such person.  (Ins.Code, § 11580.1, subd. (b)(4).)

 Presumably the Legislature meant what it said when it declared section 11580 et seq. to be the total public policy of the state with respect to the content of liability insurance.  (See Farmers Ins. Exchange, supra, 29 Cal.3d at p. 388, 173 Cal.Rptr. 846, 628 P.2d 1.)   An insurance company is entitled to write a policy which limits its coverage to certain persons unless the law expressly provides otherwise, and the limitations in the policy must be respected.  (Argonaut Ins. Co. v. Transport Indem. Co. (1972) 6 Cal.3d 496, 508, 99 Cal.Rptr. 617, 492 P.2d 673.)   The law permits rather than forbids the limitation at issue here.  (Ins.Code, § 11580.1, subd. (b)(4).)   When it authorized this limitation, the Legislature made no exception for carriers licensed by the PUC, and ordinarily this court will not read into a statute an exception not incorporated therein by the Legislature.   (Pacific Motor Transport Co. v. State Bd. of Equalization (1972) 28 Cal.App.3d 230, 235, 104 Cal.Rptr. 558.)   We conclude that the PUC endorsement does not nullify the policy provision at issue here;  it would be inconsistent with the state's public policy, as proclaimed by the Legislature, to conclude otherwise.   If Martin is Home's insured, it must be because he qualifies as such by the terms of the policy itself.

 The court also found that Martin was an insured according to the terms of the policy itself because he was a “borrower” of the tractor truck.   We cannot agree.   In a similar context, a borrower has been defined as someone who has, with permission of the owner, temporary possession and use of the property for his own purposes;  possession connotes the right to exercise dominion and control.  (Liberty Mut. Ins. Co. v. Am. Emp. Ins. Co. (Tex.1977) 556 S.W.2d 242, 244–245.)   Here there was no evidence that Martin either moved the tractor truck, or had permission to move it as part of the unloading operation.   There was no evidence that he ever instructed King to move the vehicle;  nor was there any evidence as to who had the vehicle's keys at the time of the incident.   There was no evidence as to the authority of forklift operators generally with respect to vehicles being loaded and unloaded.   As it was in Liberty Mut. Ins. Co., the evidence in this case is insufficient to support a conclusion that Martin had sufficient possession of the truck to be a “borrower” within the meaning of the policy.2

Even if Martin was not a borrower of the tractor truck, he was insured pursuant to endorsement No. 5 if he was “․ engaged in the business of transporting property by ‘automobile’ for the ‘named insured’ or for others․”  Home contends the evidence was insufficient to support the trial court's finding that the forklift driven by Martin was an “automobile” within the meaning of that endorsement.

 In a declaratory relief action, the insured must prove coverage under the policy, even when it is the insurer who has instituted the action.   (State Farm Mut. Auto. Ins. Co. v. Spann (1973) 31 Cal.App.3d 97, 100, 106 Cal.Rptr. 923.)   According to Home's policy, an “automobile” is a land motor vehicle, trailer, or semi-trailer designed for travel on public roads, but “mobile equipment” is not an “automobile.”   Among other definitions, “mobile equipment” is a land vehicle not subject to motor vehicle registration, or a vehicle designed for use primarily off public roads.

 A forklift is designed for use principally off public roads.  (California Packing Corp. v. Transport Indem. Co. (1969) 275 Cal.App.2d 363, 367, 80 Cal.Rptr. 150.)   No evidence was introduced that this particular forklift was a design exception.   Nor was there any evidence that the forklift was registered with the Department of Motor Vehicles.   Was it subject to such registration?  “Any forklift truck which is designed primarily for loading and unloading and for stacking materials and is operated upon a highway only for the purpose of transporting products or material across a highway in the loading, unloading, or stacking process, and is in no event operated along a highway for a greater distance than one-quarter mile is exempt from registration.”  (Veh.Code, § 4013.)   A highway is a “way or place of whatever nature, publicly maintained and open to the use of the public for purposes of vehicular travel.   Highway includes street.”  (Veh.Code, § 360.)   We need not decide whether the roads in the Oakland Army Terminal are “highways” within the meaning of the Vehicle Code.  (Compare Yosemite Park & Curry Co. v. Dept. of Motor Vehicles (1960) 177 Cal.App.2d 448, 455, 2 Cal.Rptr. 431, with United States v. Barner (D.C.1961) 195 F.Supp. 103, 106.)   Even if they are, there is no evidence in the record as to the distances this forklift traveled on those roads, and therefore no evidence that the forklift was subject to registration.  (Cf. Argonaut Ins. Co., supra, 6 Cal.3d at p. 509, 99 Cal.Rptr. 617, 492 P.2d 673 [forklift registered with DMV and operated on public highways within radius of five miles was an “automobile” as defined by liability policy].)   Accordingly, the finding that Martin was transporting property by “automobile” was without support in the record and cannot be sustained.

King v. Transport Indemnity Co.

Transport was the insurer of Transcon Lines, which owned the trailer.   The trial court found that Martin was an insured under that policy,3 and that the stipulated judgment between King and Martin was validly entered and reasonable.   However, the court then concluded that the stipulated judgment was not binding on Transport, on the ground that Transport had been denied its day in court due to the extrinsic mistake of the parties, who had failed to notify Transport of the accident or the litigation between King and Martin.   The court concluded that Transport was entitled to a trial de novo on all issues in the action between King and Martin.

 King urges that the trial court erred in granting Transport a new trial, because the company was obligated by the express terms of the PUC endorsement attached to its policy to satisfy the judgment notwithstanding any lack of notice.   We must agree.

Pursuant to the PUC endorsement, Transport agreed to pay “within the limits of liability hereinafter provided, any final judgment rendered against the insured for bodily injury to or death of any person ․ resulting from the operation, maintenance, or use of motor vehicles for which a ․ permit ․ has been issued to the insured by the [PUC] ․”  The endorsement also provides that “․ no condition, provision, stipulation, or limitation contained in the policy ․ shall relieve [Transport] from liability hereunder or from the payment of any such final judgment, irrespective of the financial responsibility or lack thereof or solvency or bankruptcy of the insured.” 4

 The question here is whether the stipulated judgment is conclusive as against Transport, or whether it should have the right to re-litigate Martin's negligence and King's damages.   The general rule is that an insurer is not bound by a judgment unless it had notice of the pendency of the action.  (Samson v. Transamerica Ins. Co., supra, 30 Cal.3d at p. 238, 178 Cal.Rptr. 343, 636 P.2d 32.)   However, in this state, absent fraud or collusion, a judgment which has been obtained by the injured person against the insured may be binding upon the insurer even though it had no opportunity to defend the action and was not notified of the accident, if specific policy provisions allow the injured person to recover against the insurer upon the judgment against the insured, regardless of whether the insured has complied with policy conditions.  (Kruger v. California Highway Indem. Exch. (1927) 201 Cal. 672, 678–680, 258 P. 602;  20A Appleman, Insurance Law and Practice (1980) § 11521, pp. 87–105;  12A Couch on Insurance 2d (rev. ed. 1981) § 45:943, p. 605;  39 Cal.Jur.3d, Insurance Contracts, § 431, p. 733.)

In Kruger, a city ordinance required the owner of a jitney bus to maintain liability insurance.   As required by the ordinance, the owner's policy provided that it guaranteed payment of any final judgment rendered against the owner (within certain dollar limits), irrespective of the financial responsibility or any act or omission of the owner.   The policy also required the insured to notify the insurer of the commencement of any action.

After an injury accident involving the bus, the injured recovered a default judgment against the insured, who had not notified the insurer.   The injured then brought an action against the insurer, seeking to collect the amount of the judgment.   The Supreme Court concluded that despite the lack of notice, the insurer was obligated by the express terms of the policy to satisfy the final judgment, and that absent any claim of fraud or collusion the judgment was conclusive and binding on the insurer.  (Kruger, supra, 201 Cal. at p. 680, 258 P. 602.)   The court stated:  “It would be difficult to frame language more simple or direct than this language.   It can have but one meaning, and that is that appellant guaranteed the payment to the party securing the same of any judgment rendered against Delaney and covering any loss or claim under said policy.   The undertaking is to pay the judgment to the party injured and not the damages sustained nor the loss incurred as a result of the injury․  Appellant's liability was to pay the judgment, and in a contract of that character the promisor is bound by the judgment whether he have notice of the action or not, even though he is not a party thereto․”  (Id., at pp. 677–678, 258 P. 602.)

 We recognize that a court may relieve a third party from a judgment which adversely affects him if that party has been deprived by extrinsic mistake of an opportunity to obtain a fair hearing.  (See, e.g., Villarruel v. Arreola (1977) 66 Cal.App.3d 309, 318, 136 Cal.Rptr. 19.)   Here, however, absent fraud or collusion, the stipulated judgment was conclusive as against Transport because it had expressly agreed to pay any final judgment against its insured despite lack of notice of the litigation.  (Kruger, supra, 201 Cal. at p. 680, 258 P. 602.)   Transport did not allege fraud or collusion in this case;  on the contrary, the trial court expressly found the stipulated judgment to be validly entered and reasonable.   Accordingly, the trial court erred when it concluded that Transport was not bound by that judgment and granted a new trial.5  The court was not free to ignore the Supreme Court's express holding in Kruger ;  nor are we.  (Auto Equity Sales, Inc. v. Superior Court (1962) 57 Cal.2d 450, 455, 20 Cal.Rptr. 321, 369 P.2d 937.)

 Samson v. Transamerica Ins. Co., supra, 30 Cal.3d 220, 178 Cal.Rptr. 343, 636 P.2d 32, which involves a liability policy with a PUC endorsement virtually identical to that in this case, does not mandate a different result.   In Samson, among other arguments, the insurance company urged that it could not be bound by a judgment reached in an action between the insured and the injured, because it had no notice of the trial date.   The court held that the insured was relieved of its obligation to notify the company of the progress of the action against him, because the company had already indicated it would deny coverage.  (Id., at p. 238, 178 Cal.Rptr. 343, 636 P.2d 32.)   Consequently, the court was never presented with the question at issue in this case.

Judgment in Home Indemnity Company v. King is reversed, with directions to enter judgment in accordance with the views herein expressed.6  Judgment in King v. Transport Indemnity Company is also reversed, with directions to enter judgment in favor of plaintiffs King and Martin.

FOOTNOTES

1.   Both Bonded Drayage and Transcon Lines were common carriers licensed by the California Public Utilities Commission (PUC) and the Federal Interstate Commerce Commission (ICC) at the time of the accident.   Accordingly, the automobile insurance policies issued by both Home and Transport contain standard form endorsements required by PUC and ICC.   (See Samson v. Transamerica Ins. Co. (1981) 30 Cal.3d 220, 224, 178 Cal.Rptr. 343, 636 P.2d 32.)

2.   King points out that while the policy provision insures “lessees and borrowers ” who are loading or unloading, the Insurance Code permits coverage to be limited to “lessees and bailees.”   However, we need not ponder the effect or significance of that difference, as there is no evidence to support the conclusion that forklift operator Martin was either a borrower or a bailee of the tractor truck.  (See Civ.Code, § 1813;  3 Witkin, Summary of Cal.Law (8th ed. 1973) Personal Property, § 109 et seq., p. 1701 et seq.)

3.   Unlike the Home policy, the Transport policy contained no limitation on the definition of an insured with respect to loading and unloading.

4.   The endorsement also provides that all terms, conditions, and limitations in the policy are to remain in effect between the insured and the insurer, and that the insured agrees to reimburse the company for any payment it makes on account of any accident, claim, or suit involving a breach of the terms of the policy, and for any payment that the company would not have been obligated to make under the provisions of the policy except for the agreement contained in the endorsement.   Accordingly, Transport can seek reimbursement from Martin for any payment it makes to King.

5.   King's contention that a stipulated judgment is not a judgment on the merits for res judicata and collateral estoppel purposes is contrary to law.  (Greatorex v. Board of Administration (1979) 91 Cal.App.3d 54, 58, 154 Cal.Rptr. 37.)

6.   In light of this determination, the question of whether the PUC endorsement increases the Home policy to $200,000 is moot.   However, for the guidance of the trial court in addressing the impact of the same PUC endorsement in King v. Transport, we note that Public Utilities Code sections 3631–3632 and General Order 100–F required $100,000 minimum liability insurance for bodily injury to one party be carried for protection of the public.   The endorsement acts to amend a policy written for a lesser amount to conform to the amount required.   A policy written for the same amount or more would not be increased.   There is no language which would suggest the minimum amount required by the PUC endorsement was in addition to the amount on the face of the liability policy.  (See Argonaut Ins. Co. v. Transport Indem. Co., supra, 6 Cal.3d at pp. 503–504, 99 Cal.Rptr. 617, 492 P.2d 673.)

 SCOTT, Associate Justice.

WHITE, P. J., and FEINBERG, J., concur.

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