UNIVERSAL UNDERWRITERS INSURANCE COMPANY v. GEWIRTZ (1970)

OPINION

Universal Underwriters Insurance Company appeals a declaratory judgment determining the coverage limits of its comprehensive automobile liability insurance policy.

On January 1, 1965 Universal issued its policy to Pascal Dilday, Inc., an automobile sales and service corporation, the named insured under the policy. Within the term of the policy, Pascal Dilday sold a used car to Anthony Edward Strong by a conditional sales contract. About 2:50 a. m. the day following transfer of the car's possession to him, Strong collided with another automobile, killing himself and injuring the four occupants of the other car. Pascal Dilday did not comply with Vehicle Code, section 5901 by notifying the Department of Motor Vehicles of the car's transfer and remained the owner of the car within the meaning of the state financial responsibility laws. The parties stipulated Strong was a permissive user of the car. It does not appear there existed other valid and collectible insurance applicable to Strong's accident.

The question is whether the Universal policy limits of $250,000 each person and $500,000 each accident apply to the claims of those injured in the collision or whether the policy validly limits coverage to $10,000 each person and $20,000 each accident. The trial court ruled the higher limits apply.

We look to the policy. It governs if consistent with applicable statutes and public policy. There are no factual disputes.

The face sheet of the policy provides limits of liability for bodily injury liability—automobile in the amount of $250,000 each person and $500,000 each accident. The insuring agreements in the policy are made subject to the limits of liability, exclusions, conditions and other terms of the policy.

Insuring Agreement I obligates Universal

‘[T]o pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of bodily injury * * * sustained by any person, caused by accident and arising out of the ownership, maintenance or use of any automobile.’

‘Insured’ is defined in Insuring Agreement III as the named insured and also ‘any person while using an owned automobile * * * provided the actual use of the automobile is by the named insured or with his permission.’ An ‘owned automobile’ is defined in the policy as ‘an automobile owned by the named insured.’ The conditional seller of an automobile who does not comply with the notice of transfer provisions of Vehicle Code, section 5901 remains the auto's owner for purposes of financial responsibility and under its liability policy (Truck Ins. Exchange v. Torres, 193 Cal.App.2d 483, 487–488, 14 Cal.Rptr. 408; Meritplan Ins. Co. v. Universal Underwriters Ins. Co., 247 Cal.App.2d 451, 454, 55 Cal.Rptr. 561).

Based upon these policy provisions Strong would be an ‘insured’ and Universal would be liable for the full $250,000–$500,000 policy limits. However, the entire policy, including its endorsements, must be considered.

Universal's policy contains a garage endorsement specifically covering ‘The ownership, maintenance or use of any automobile owned by the named insured in connection with garage operations * * *’ Included in the definition of ‘garage’ is ‘an automobile sales agency.’ Strong purchased the car from the named insured, an automobile sales agency. The ownership of that car thus fell within the garage endorsement as ‘an automobile owned by the named insured in connection with garage [sales agency] operations.’ We find no reasonable inference Pascal Dilday owned the car other than in connection with the operation of its sales agency.

The garage endorsement redefines who is an insured under the policy by providing ‘Insuring Agreement III of the policy does not apply.’ Insuring Agreement III had defined any person as an insured, using an automobile owned by the named insured with the named insured's permission. Under the garage endorsement an insured with respect to the automobile hazard coverage is (in addition to the named insured and others such as its partners, paid employees, members of the household, etc.) ‘any other person using * * * such automobile provided the actual use is with the permission of the named insured, express or implied * * *.’ Coverage for this class of insureds is then limited (where there is no other valid and collectible insurance) to ‘the minimum requirements of the Financial Responsibility Law.’

If the applicable provisions of the policy ended here, Strong would be an insured by policy definition but with coverage limited to $10,000 each person and $20,000 each accident (the minimum required by the Financial Responsibility Law on the date of his accident).

The garage endorsement, however, excludes Strong from its definition of an insured by further providing ‘None of the following is an insured: * * * any person * * * other than the named insured with respect to any automobile * * * possession of which has been transferred to another by the named insured pursuant to an agreement of sale.’

If the applicable policy provisions ended here, Strong would be excluded from coverage under the policy, contrary to the public policy of California as codified in the financial responsibility laws and Insurance Code, section 11580.1. Under Insurance Code, section 11580.1(d) a provision insuring Strong to the same extent as the named insured would be required to be read into the policy. Strong would thus be covered for $250,000 each person and $500,000 each accident.

The exclusion of Strong from the policy definition of an insured did not, however, exclude Strong from coverage under the policy. This is so because the policy also contains an endorsement extending coverage to those who are not insured within the policy definitions, but who are required to be insured under the financial responsibility laws. That endorsement provides:

‘When * * * a person * * * not insured under the provisions of this policy and attached forms becomes an Insured in conformity with The Financial Responsibility Laws or other laws of the State in which the accident occurs, such insurance as is afforded by this policy for bodily injury liability * * * shall comply with the provisions of such law * * * to the extent of the coverage limits of liability required by such law. * * *’

The endorsement further provides in no event will coverage under it for bodily injury exceed $10,000 each person and $20,000 each accident.

Insurance Code, section 11580.1(f) allows a named insured which is engaged in selling automobiles to limit its coverage of persons other than the named insured, its agents or employees, to that required by the financial responsibility laws where there is no other valid and collectible insurance.

The trial court found Strong was an insured falling within the definition of Insuring Agreement III and thus entitled to the upper limits of coverage. It reasoned the garage endorsement which made Insuring Agreement III inapplicable did not itself apply because the endorsement excluded Strong as an insured. It also found the garage endorsement did not apply to Strong's activities because Strong was not engaged in the business activity of the named insured but was a permissive user, and it found the limits of coverage in the garage endorsement violated Insurance Code, section 11580.1(d) and the public policy of the State relating to financial responsibility.

The garage endorsement applies here because the car involved fell within the class of automobiles covered under the endorsement as an automobile owned, maintained or used for purpose of garage [sales agency] operations. Since the classification relates to the car's ownership and purpose of ownership, the purpose of Strong's use of the car does not affect applicability of the endorsement.

The endorsement is not void or invalid as against public policy based upon limited coverage since the named insured was engaged in selling automobiles. Insurance Code, section 11580.1(f) permits such a limitation of coverage in policies issued to car sellers.

Does the exclusion of Strong from the definition of insured under the garage endorsement make the endorsement inapplicable to the risk involved here? We think not. The endorsement applies because the car driven by Strong was within the class of automobiles covered by the endorsement. Since the endorsement pertains to risks involving this class of cars, the definition of insured in the endorsement applies. Under that definition Strong is a person not insured under the provisions of the policy. This does not have the effect of returning Strong to the definition of insured under Insuring Agreement III. The definition in the garage endorsement is specific in declaring Insuring Agreement III does not apply to cars owned for the purpose of sales agency operations.

If the legal effect of excluding Strong, a permissive user, from the policy definition of an insured was to exclude him from coverage, there would be no question the policy would violate the public policy of California and the provisions of Insurance Code, section 11580.1. The public policy, however, is not to require permissive users to be identified as insureds, it is to provide coverage under the policy for the liability of permissive users of the cars which are insured. Since the policy involved in this litigation does provide coverage to persons required to be covered by the financial responsibility laws of this State even though such persons are not defined as insureds under other provisions of the Insuring Agreement, the policy as a whole meets the public policy standards of California. Because Strong is a person to whom Section 11580.1(f) allows a car seller to afford limited coverage, the limitation of liability under the financial responsibility endorsement likewise meets the test of California public policy.

Respondents' reliance on such cases as Interinsurance Exchange v. Ohio Cas. Ins. Co., 58 Cal.2d 142, 23 Cal.Rptr. 592, 373 P.2d 640; Clark v. Universal Underwriters Ins. Co., 233 Cal.App.2d 746, 43 Cal.Rptr. 822, and Pacific Indem. Co. v. Universal Etc. Ins. Co., 232 Cal.App.2d 541, 43 Cal.Rptr. 26 is misplaced; they involve policies which attempted to exclude classes of permissive users from coverage. Such is not the case here. The endorsement excluding Strong from the definition of insured did not operate to exclude him from coverage when the policy is read as a whole. The public policy of this State is served whether coverage is extended to Strong as an ‘insured’ or as a ‘person * * * not insured under the provisions of this policy.’ Under this latter provision Strong was insured but by a classification limiting coverage. The limitation is authorized by Insurance Code, section 11580.1(f). The cases relied upon by respondents involve policies issued before amendment of Section 11580.1 in 1963 to include subsection (f) as it now reads.

Judgment reversed and cause remanded for further proceedings consistent with this decision.

GERALD BROWN, Presiding Justice.

COUGHLIN and WHELAN, JJ., concur.