SEQUOIA INSURANCE COMPANY v. MILLER (1984)

OPINION

The facts:  The insurance coverage of a designated car had not been cancelled by the insurer, contrary to the seller's directions to cancel, and remained uncancelled until after the new owner took possession, drove the car and had an accident.   The question:  Is the insurer bound to extend the insurance protection to the new owner, contrary to the expectations of the seller and buyer?   We answer in the negative.

On January 15, 1981, Sequoia Insurance Company filed a complaint for declaratory relief, seeking a judgment absolving it from the obligation to defend or indemnify the new owner, who filed a cross-complaint for declaratory relief to the effect that Sequoia was under an obligation to defend and indemnify him.   Thereafter Sequoia filed a motion for a summary judgment which the court granted.   In its order granting a summary judgment the trial court found that Sequoia did not insure the new owner for the risk associated with his driving the car, and that Sequoia had neither a duty to defend nor to indemnify the buyer for this risk.   A wrongful death claimant appeals.

FACTUAL BACKGROUND

Jack DeYoung owned a 1967 Oldsmobile which was covered by automobile liability insurance issued by Sequoia.   On May 14, 1980, DeYoung sold the Oldsmobile to Missildine.   The registration card and certificate of ownership were signed and given to Missildine.   On May 15, 1980, DeYoung filled out and mailed a form notifying the Department of Motor Vehicles of the sale.

At the time of the sale the parties discussed automobile insurance.   DeYoung asked Missildine if he had insurance and Missildine said he did.   DeYoung told Missildine he intended to cancel his insurance.   Missildine was not under the impression DeYoung's insurance would continue to cover the Oldsmobile, he had his own insurance.

On the evening of May 14, the night of the sale, DeYoung contacted his insurance agent, Anger, and told him to cancel the Sequoia policy coverage of the Oldsmobile as he had sold it.   Anger did not immediately notify Sequoia of the cancellation as he believed DeYoung intended to replace the automobile in the near future and Anger planned to consolidate the required paperwork.

Therefore, for summary judgment purposes these pre-accident facts were settled:  (1) The intended full and unconditional transfer of ownership and possession had taken place, as between the parties;  (2) the transfer was equally effective as to third parties, the Vehicle Code requirements having been met;  (3) an insurance agent had been notified to cancel the coverage but had not notified the insurer and therefore the policy listing of covered vehicles had not yet been amended;  and (4) the new owner disclaimed any interest in the prior insurance coverage, saying his own policy would now cover the vehicle (nothing to the contrary being expressed or implied in the opposition declarations).

On July 3, 1980, Missildine, while driving the Oldsmobile, allegedly caused an automobile accident resulting in the death of Wilma Miller, mother of appellant Miller.

When DeYoung learned of the accident he notified Anger.   Anger then sent in a notification to Sequoia to delete coverage retroactive to May 14, 1980.   On August 26, 1980, Sequoia issued an endorsement retroactively deleting coverage of the Oldsmobile to May 14, 1980.

THE INSURANCE POLICY

The relevant portions of the insurance policy provide:

“Throughout this policy ‘you’ and ‘your’ refer to the ‘named insured’ shown in the Declarations and the spouse if a resident of the same household.”

“ ‘Your covered auto’ means:

“(a) Any vehicle shown in the Declarations.

“․

“(d) Any auto or trailer you do not own while used as a temporary substitute for any other vehicle described in this definition which is out of normal use because of its breakdown, repair, servicing, loss or destruction.”

“ ‘Covered person’ ․ means:

“1. You and any family member for the ownership, maintenance or use of any auto or trailer.

“2. Any person using your covered auto.”

“EXCLUSIONS

“We do not provide Liability Coverage:

“11.  For any person using a vehicle without a reasonable belief that the person is entitled to do so.”

“OTHER INSURANCE

“If there is other applicable liability insurance we will pay only our share.   Our share is the proportion that our limit of liability bears to the total of all applicable limits.   However, any insurance we provide for a vehicle you do not own shall be excess over any other collectible insurance.”

“4. TRANSFER OF YOUR INTEREST IN THIS POLICY

“Your rights and duties under this policy may not be assigned without our written consent.   However, if a named insured shown in the Declarations dies, coverage will be provided until the end of the policy period for:

“(a) The surviving spouse if resident in the same household at the time of death, as if a named insured shown in the Declarations;

“(b) The legal representative of the deceased person as if a named insured shown in the Declarations.   This applies only with respect to the representative's legal responsibility for the maintenance or use of your covered auto.”

The policy concludes with the warning that “[t]his is not a complete and valid contract without an accompanying DECLARATIONS PAGE FORM PA–2 properly executed.”   Attached to the motion papers are copies of the applicable forms used during the initial and renewal periods.   In each case the named insured is Jack DeYoung, residing at a certain address where “[t]he auto will be principally garaged․”  When the Oldsmobile was added to the policy the new coverage was “[t]o afford insurance with respect to the owned automobile ․”  (Emphasis added.)   Blank spaces were provided for use if the acquisition of the new vehicle “involves an additional operator in the named insured's household.”   The information requested includes the age, sex, percent of mileage driven, licensed driving experience, marital status, operator's license number and occupation of the new driver.   The form also notes that the policy is amended in the particulars spelled out on the completed form.

DISCUSSION

Appellant claims the trial court erred in finding Missildine was not covered by DeYoung's insurance policy.   Any possible coverage of Missildine had to be as an additional insured under the coverage provision for “Any person using your covered auto.”   Our resolution of the case on appeal revolves around a contractual and legal interpretation of this provision.

 When interpreting automobile liability insurance policies the court is influenced by a number of rules of construction dictated by special considerations.   Generally stated, preference is given to the insured whose position is considered weaker than the insurer who writes the language used in the policy.   Also, a favored position is given the party injured by the use of the vehicle on public highways.   However, these preferred positions for purposes of construction have limits applicable here.

Insurance Code section 11580.1 requires every automobile liability insurance policy issued in the state to include certain provisions.   Subdivision (b)(4) mandates that when the named insured is afforded insurance against liability arising from the use of the subject matter insured, to wit, the vehicle covered by the policy, the insurance protection must be extended to persons using the vehicle with the express or implied permission of the named insured, provided the use is within the scope of the permission.  “The policy underlying section 11580.1 has long been identified as that of providing as much protection to the public on the highways of California as is possible.”   (Hartford Accident & Indemnity Co. v. Abdullah (1979) 94 Cal.App.3d 81, 88, 156 Cal.Rptr. 254.)

 The statutory mandate cannot be avoided by “adroit wording” of insurance policies.  (Metz v. Universal Underwriters Ins. Co. (1973) 10 Cal.3d 45, 52, 109 Cal.Rptr. 698, 513 P.2d 922.)   We must liberally construe the permissive user clause “to effectuate its purpose of broadening the coverage of automobile liability policies for the benefit of the public.”   (Jordan v. Consolidated Mut. Ins. Co. (1976) 59 Cal.App.3d 26, 42, 130 Cal.Rptr. 446.)   However, this liberal construction rule has its limits.   It has often been stated that “ ‘courts will not indulge in a forced construction so as to fasten a liability on the insurance company which it has not assumed.’  [Citation.]”  (Pacific Employers Ins. Co. v. Maryland Casualty Co. (1966) 65 Cal.2d 318, 323, 54 Cal.Rptr. 385, 419 P.2d 641, disapproved on another point in Herzog v. National American Ins. Co. (1970) 2 Cal.3d 192, 199, 84 Cal.Rptr. 705, 465 P.2d 841.)

“[T]he public policy of California with respect to automobile insurance policies is totally declared in the provisions of the Insurance Code immediately following section 11580.05.”  (Meritplan Ins. Co. v. Woollum (1975) 52 Cal.App.3d 167, 174, 123 Cal.Rptr. 613, emphasis added, the words “total public policy” appearing in the section the court cites.)   In reacting to a novel suggestion the court declared:  “Absent an as yet unenacted requirement that all liability for personal injury be covered by insurance, the public policy declaration in Insurance Code section 11580.05 requires rejection of the argument.”  (Id., at pp. 175–176, 123 Cal.Rptr. 613.)   In our case, unless mandated by the Insurance Code in its public policy declarations, or required because of the clear language of the insurance policy itself, it would be an extraordinary judicial venture if we were to extend coverage to a new owner who did not intend to acquire the seller's insurance protection, assuming he could do so without the insurer's consent, had his own insurance policy, and acquired legal ownership of the vehicle to the satisfaction of the state.

 As stated, the Insurance Code requires the policy to include a permissive user clause.   No language is found in the instant policy of that nature other than the clauses quoted earlier.   We are required to construe liberally the clauses to accomplish the statutory purpose.   However, the liberal construction need not go beyond that requirement.   Nothing in the statutes requires the seller's insurance to cover subsequent owners, or their permissive users, once the ownership transfer is recognized by the state.¹

 Here, because the pertinent Vehicle Code requirements have been met, appellant refers to the broad language of the insurance policy and urges us not to be concerned with well established “permissive user” principles.   Instead, it is argued that the policy language in this case is of a new kind which simply and directly extends coverage to all persons using the designated auto.   We disagree.   Although sweeping protection is first afforded for the use of the owned vehicle, it is subsequently limited by the unpretentious language which excludes coverage to “any person using a vehicle without a reasonable belief that the person is entitled to do so.”   Joining the coverage clause with the exclusion clause creates nothing more than a permissive user provision and effectively carries out the Insurance Code section 11580.1 mandate.

In Venne v. Standard Accident Ins. Co. (1959) 171 Cal.App.2d 242, 340 P.2d 30, a sister sold her brother a car which she had insured for some time prior to the sale.   Her insurance policy contained a clause allowing coverage for permissive users.   The day after the sale her brother was involved in an automobile accident.   A victim of the accident sued both the brother and his insurance company as well as the sister and her insurance company.   The appellate court found that:

“[A]s between Celeste and Raymond [the brother and sister], there was an actual sale of the vehicle and therefore it would be unrealistic to hold that Raymond was a permissive user of the automobile involved in the accident.   The ‘omnibus clause’ extends coverage to the nonowner operator only if he has the permission of the owner to use the vehicle.   Once the sale was made, Celeste had no permission to give or withhold;  Raymond had an absolute right to possess and operate the subject automobile.   Celeste could not prevent her vendee from using the vehicle nor could she legally reacquire possession herself without Raymond's consent.   Since Raymond had the automobile plus the ownership and registration certificates he was at liberty to sell or otherwise deal with the automobile in any manner he desired.   Under such circumstances, to argue that Raymond had the express or implied permission of Celeste to use the automobile would be to ignore the realities of the legal relationship between a vendor and vendee.”  (Id., at p. 246, 340 P.2d 30.)

The court held that as the brother “was not a permissive user of the vehicle in question, ․ there is no other basis upon which it may be held that appellant's policy covered the instant accident ․”  (Id., at p. 248, 340 P.2d 30)  The Venne analysis was made under the assumption that the seller had sufficiently complied with the Vehicle Code requirements to be absolved from personal liability to the party injured due to the buyer's negligence.   The seller in this case had similarly relieved himself of liability, delivering the necessary documents and mailing notice to the Department of Motor Vehicles prior to the accident.  (See also Canadian Indem. Co. v. Motors Ins. Corp. (1964) 224 Cal.App.2d 8, 18, 36 Cal.Rptr. 159.)

 Disregarding any policy of the law that the clause be construed as a permissive user one so as to protect the insured and his users against suit by an injured party, we find no rule of construction which favors the injured party in this case.   Numerous cases refer to preferences to be given the insured and permissive users of the insured.   However, we have been cited to no case in which a person injured as a result of the negligent driving of a new owner has been placed in a favored position for purposes of contractual interpretation as against the seller's insurance carrier.

 It is clear that the policy presupposes coverage will last only so long as the named insured owns the specified covered vehicle.   The first definition tells us that “you” and “your” mean the “named insured.”   Therefore, when these words appear within a definition they are not lost and do have the meaning given.  “Your covered auto” then means “Any vehicle [you own] shown in the Declarations.”   This is borne out by the subsequent reference in paragraph (d) to additional coverage for any auto “you do not own․”  Likewise, the definition of “covered person” is expanded to mean:  “Any person using [the insured's] covered auto.”

 The insurance policy also specifies that insurance provided for “a vehicle you do not own” is excess coverage.   However, only the named insured and family members are protected in their use of nonowned cars.   Finally, the declaration attached to the policy makes it clear that the Oldsmobile is to be covered only as an “owned automobile.”

 Because automobile liability policies are sometimes described as adhesion contracts, another interpretation method may be used, the doctrine of “reasonable expectations.”   This court employed this doctrine in Fresno Economy Import Used Cars, Inc. v. United States Fid. & Guar. Co. (1977) 76 Cal.App.3d 272, 279, 142 Cal.Rptr. 681.   We said:  “It must be kept in mind that an insurer is free to select the character of the risk it will assume, and it is liable only for a loss within the terms of the policy.”  (Id., at p. 280, 142 Cal.Rptr. 681.)   Borrowing language from a federal case, we added:  “ ‘[A] court cannot and should not do violence to the plain terms of a[n] [insurance] contract by artificially creating ambiguity where none exists.   In situations in which reasonable interpretation favors the insurer and any other would be strained and tenuous, no compulsion exists to torture or twist the language of the contract.’ ”  (Ibid.)  Our court concluded by referring to the appellant's “reasonable expectations of coverage.”  (Id., at p. 284, 142 Cal.Rptr. 681.)

In Wint v. Fidelity & Casualty Co. (1973) 9 Cal.3d 257, 264–265, 107 Cal.Rptr. 175, 507 P.2d 1383, the court concluded that it would look only to the reasonable expectations of the named insured and “not the reasonable expectations of someone claiming to be an additional insured thereunder.”   The court noted the person claiming as an additional insured had never seen the policy and probably did not know of its existence, and therefore had no reasonable expectation of coverage.

 In our case buyer Missildine expressly disclaimed any interest in the DeYoung insurance.   If he had a reasonable expectation of coverage, it was by virtue of his own policy.   Parties injured by Missildine's negligent driving would hope that Missildine had insurance.   It was not foreseeable that a prior owner of the Oldsmobile would unintentionally pass the insurance coverage to the buyer, nor was it anything but happenstance that the prior coverage had not yet been formally deleted on a declaration form.

 It was proper to resolve this issue by granting a motion for summary judgment.   Reasonable expectation of coverage is an issue of law, not one of fact.  (Wolf Machinery Company v. Insurance Company of North America (1982) 133 Cal.App.3d 324, 329, 183 Cal.Rptr. 695.)   The declarations did not present an issue of fact concerning the actual intent of the parties.   If the policy language was ambiguous and the intended meaning of the parties had been offered the court, it would have been considered.  (Zito v. Firemen's Ins. Co. (1973) 36 Cal.App.3d 277, 284, 111 Cal.Rptr. 392.)   Also, the conduct of the parties subsequent to the execution of the contract might have had some bearing on the intent.  (Id., at pp. 284–285, 111 Cal.Rptr. 392.)   Even if a court could consider the conduct of Missildine, a nonparty to the insurance contract, his disclaimer of interest in the Sequoia policy when he bought the car would only confirm that he was not to be protected by Sequoia.

Therefore, Missildine was not covered by DeYoung's insurance.   As the new owner he was not a permissive user protected by the Sequoia policy.   No other coverage terms survived DeYoung's compliance with the Vehicle Code transfer requirements.

The judgment is affirmed.

I concur in the affirmance of the judgment with the following comments:  this case presents a difficult question of insurance contract interpretation because for some unknown reason the insurer has failed to state explicitly in its policy that, with certain exceptions, the named insured's continued ownership of a described vehicle is a condition precedent to liability coverage for any person other than the named insured or a family member of the named insured who might drive the vehicle while the policy is in force.¹  Yet, as I understand it, this is exactly what we are holding.

We infer such a condition of ownership from the following provisions of the policy.   Under part A “Liability Coverage,” Sequoia will pay damages for bodily injury or property damage for which any covered person becomes legally responsible because of an automobile accident.  “Covered person” means:  “2.   Any person using [the named insured's] covered auto.”  Thus, we must look to the definition of DeYoung's “covered auto” to determine if Missildine was a “covered person” under the policy when he was driving the Oldsmobile.

Under “DEFINITIONS,” the policy provides:

“ ‘Your covered auto’ means:

“(a) Any vehicle shown in the Declarations.

“(b) Any of the following types of vehicles of which you acquire ownership during the policy period, provided that you ask us to insure it within thirty days after you become the owner:

“(1) a private passenger auto.

“․

“(d) Any auto ․ you do not own while used as a temporary substitute for any other vehicle described in this definition which is out of normal use because of its breakdown, repair, servicing, loss or destruction.”  (Emphasis added.)

In addition to the above definition of “covered auto,” the “DEFINITIONS” page states:  “For purposes of this policy any private passenger type auto leased under a written agreement to any person for a continuous period of at least six months shall be deemed to be owned by that person.”  (Emphasis added.)

From the above quoted provisions of the policy, we draw the inference that only autos which are owned, leased for at least six months, or used as a temporary substitute for an owned vehicle, are “covered autos” within the policy terms for anyone driving the autos other than the named insured or a family member of the named insured.   Thus, the phrase “(a) Any vehicle shown in the Declarations,” means “Any vehicle shown in the Declarations which is yours (owned by you).”

The principal opinion refers to the forms attached to the policy for the initial and renewal periods as evidencing the intent to provide coverage only for “owned automobile[s].”  I question the use of these attached forms to supply any meaning to the policy terms.   While they presumably may supply some evidence of the insurer's intent in adding the Oldsmobile to the policy, they afford no basis for indicating the insured's intent.   Coverage should be determined by the policy language pertaining to coverage and not by forms later attached to the policy.

Language in an insurance policy should be construed according to its plain meaning, if possible, regardless of whether it benefits the insurer or the insured.  (39 Cal.Jur.3d, Insurance Contracts, § 38, pp. 240–241.)   As in the case of contracts generally, the cardinal principle is that the intention of the parties should control.  (Id., at § 39, p. 242.)   The policy should be interpreted in the light of the reasonable and normal expectations of the parties as to the extent of coverage.  (Ibid.)  Neither DeYoung nor Sequoia had any interest in providing liability coverage to a third party who drives the Oldsmobile after DeYoung divested himself of all property interest in the car.

If DeYoung had retained a security interest in the Oldsmobile after the sale, then it would appear Missildine would be a “covered person” under the policy because he would have been driving one of DeYoung's “covered auto[s]” under the policy.   This would be so even though the transfer of the auto was effective as to third parties under the Vehicle Code.  (See Osborne v. Security Ins. Co. (1957) 155 Cal.App.2d 201, 205, 318 P.2d 94.)

Since we are interpreting the policy language, the declarations of DeYoung and Missildine concerning insurance coverage at the time of the sale of the Oldsmobile are irrelevant.   Regardless of whether Missildine wanted DeYoung's policy to cover him, if DeYoung had retained an ownership interest in the car, Missildine would have been a covered person under the policy terms, and in the present case, even if Missildine had wanted coverage under DeYoung's policy, he would not be entitled to it under the policy terms.

Since Missildine was not a permissive user of the Oldsmobile when he was driving it (Venne v. Standard Accident Ins. Co. (1959) 171 Cal.App.2d 242, 246, 340 P.2d 30), the public policy evidenced by Insurance Code section 11580.1 is also irrelevant.   So too is exclusion No. 11, “[f]or any person using a vehicle without a reasonable belief that the person is entitled to do so.”   Not being a covered person under the policy, there is no need to look to the exclusion to deny coverage to Missildine.

Nor does the possibility that DeYoung retained an insurable interest in the subject matter of the policy after he sold the automobile to Missildine based on a potential legal liability for negligent maintenance, repair or omission to maintain or repair (see Hasson v. Ford Motor Co. (1977) 19 Cal.3d 530, 546–547, 138 Cal.Rptr. 705, 564 P.2d 857;  Maloney v. Rath (1968) 69 Cal.2d 442, 444–446, 71 Cal.Rptr. 897, 445 P.2d 513;  2 Cal.Tort Guide (Cont.Ed.Bar 1979) § 4.63, p. 72) compel a finding of coverage for Missildine.   Even if DeYoung had been named as a defendant in the lawsuit on such a theory, it would be grounded on DeYoung's negligence when he owned the automobile.   This does not help Missildine.

One might ask:  why do we dig so deep below the literal language of the policy to determine whether coverage is provided in this case (“covered auto” is “Any vehicle shown in the Declarations”)?   Why not simply put the burden of coverage on Sequoia for drafting an ambiguous policy?   The answer is that no matter how difficult the task may be, we are required to ascertain the intent of the parties to the policy from the language used in the policy.   We are required to do this because there is no public policy which compels a finding of coverage beyond that intended by the parties.   Neither DeYoung nor Sequoia had any intent to provide liability coverage for someone else's car.

FOOTNOTES

1.   When the ownership of a vehicle has been effectively transferred between the seller and buyer, California courts have consistently held that an injured person may disregard the transfer if prior to the accident the parties to the sale have not complied with the pertinent provisions of the vehicle code.   The seller remains the owner pending compliance, and the buyer and his permittees have the legal status of permissive users of the seller.  (Universal Underwriters Ins. Co. v. Gewirtz (1971) 5 Cal.3d 246, 247, 95 Cal.Rptr. 617, 486 P.2d 145;  Uber v. Ohio Casualty Ins. Co. (1967) 247 Cal.App.2d 611, 615, 55 Cal.Rptr. 720, collecting cases.)

1.   The named insured and family members are covered for the ownership, maintenance and use of any auto they might drive (see part A, Liability Coverage “covered person,” subdivision 4 of the policy).   Therefore, if a described auto is not owned by the named insured, it nevertheless would be within the liability coverage if driven by the insured or a member of his family.

WOOLPERT, Associate Justice.

HAMLIN, J., concurs.