Atlantic Nat. Ins. Co. v. Armstrong

• Decision Date: 15 August 1966
• Citation: 65 Cal.2d 100,416 P.2d 801,52 Cal.Rptr. 569
• Court: California Supreme Court
• Parties: , 416 P.2d 801 ATLANTIC NATIONAL INSURANCE COMPANY, Plaintiff, Cross-Defendant and Respondent, v. Joseph A. ARMSTRONG, as Administrator, etc., Defendant and Appellant; Darline McKeown et al., Defendants, Cross-Complainants and Appellants; The Hertz Corporation, Cross-Defendant and Respondent. L.A. 27804. . In Bank

Page 569

52 Cal.Rptr. 569

65 Cal.2d 100, 416 P.2d 801

ATLANTIC NATIONAL INSURANCE COMPANY, Plaintiff, Cross-Defendant and Respondent, v. Joseph A. ARMSTRONG, as Administrator, etc., Defendant and Appellant Darline McKeown et al., Defendants, Cross-Complainants and Appellants The Hertz Corporation, Cross-Defendant and Respondent.

L.A. 27804.

Supreme Court of California.

In Bank.

Aug. 15, 1966.

Betts & Loomis and Ingall W. Bull, Jr., Los Angeles, for defendant and appellant and for defendants, cross-complainants and appellants.

Moss, Lyon & Dunn, Gerold C. Dunn and Henry F. Walker, Los Angeles, for plaintiff, cross-defendant and respondent.

No appearance for cross-defendant and respondent.

MOSK, Justice.

Defendants and cross-complainants appeal from a declaratory judgment for plaintiff and cross-defendants in an action to determine the rights of the parties under an insurance policy. The primary issue is whether an insurer is permitted to exclude from a motor vehicle liability policy coverage for injuries sustained by occupants of the insured automobile. We have concluded that such an exclusion is contrary to the publice policy set forth in Wildman v. Government Employees' Ins. Co. (1957) 48 Cal.2d 31, 307 P.2d 359, and that plaintiff is obligated under the policy to satisfy any judgment which the heirs of decedent may recover for his fatal injuries against the driver of the insured automobile.

The relevant facts are undisputed. On August 7, 1958, Kenneth McKeown rented an automobile from the Hertz Corporation in Bakersfield. On August 17, 1958, the automobile collided with a vehicle driven by Norman Sobel. At the time of the accident McKeown was sitting on the passenger side of the front seat, and the car was driven by Robert Stanley. Both McKeown and Stanley were killed.

Following the accident Sobel filed an action for damages against the estates of Stanley and McKeown, and McKeown's heirs filed a wrongful death action against Stanley's estate. Plaintiff, Atlantic National Insurance Company, then filed the present action for a declaratory judgment to determine the scope of its obligations with regard to these suits. The trial court found that plaintiff insurer was obligated to defend the McKeown and Stanley estates in the action brought by Sobel and to pay any judgment which Sobel obtained to the extent of the policy limits. Plaintiff did not appeal from this portion of the judgment. The trial court also declared that plaintiff was not obligated either to defend the action brought for the wrongful death of McKeown or to pay any judgment rendered in that action. It is this portion of the judgment with which we are now concerned.

Preliminarily, we should note that the present action does not raise the question whether Stanley's estate is liable for the death of McKeown; that question will be determined in the action which has been brought by the heirs of McKeown and which is currently pending. Rather, our present inquiry is limited to ascertaining whether plaintiff is obligated to defend Stanley's estate and to bear any liability imposed upon the estate as a result of that action.

The rental agreement which McKeown signed when he assumed possession of the automobile provides that 'The renter * * * participates in the benefits of an automobile public liability and property damage insurance policy subject to the terms, conditions, limitations and restrictions thereof and is bound by such terms, conditions, limitations and restrictions even though all of them are not outlined in this rental agreement.' The agreement also states that the renter will comply with all terms and conditions of the insurance policy and of the rental agreement itself. Among the terms printed on the reverse side of the rental agreement is the statement that the vehicle shall not be used or operated by any person other than the renter, his family, or an employer or employee of the renter. Still another provision of the rental agreement recites that the policy of insurance does not cover the renter or driver for injuries sustained by any person while riding in the rented vehicle. In jurisdictions in which the policy is required by law to insure the renter or driver against such liability, the renter is to indemnify the insurance company for any liability which it sustains for injuries to occupants of the vehicle.

The trial court found that the insurance policy to which the rental agreement refers was not to be found in the state at the time the car was rented, and McKeown obviously had no opportunity to examine it. Its relevant provisions are generally consistent with those contained in the rental agreement and need not be enumerated in detail here. However, it should be noted that by its terms the policy is to be deemed amended so as to comply with any applicable motor vehicle financial responsibility law.

The trial court made no finding as to whether Stanley was one of those persons specifically designated by the policy as an insured driver. However, the court correctly concluded that he could not be excluded from coverage under the policy. Vehicle Code section 415 ¹ requires motor vehicle liability policies to provide coverage for the liability not only of the named insured but of any other person using the vehicle with the express or implied permission of the insured. ² In Wildman v. Government Employees' Ins. Co. (1957) supra, 48 Cal.2d 31, 39, 307 P.2d 359, we held that the public policy of the state requires that the provisions of these statutes be read into every motor vehicle liability policy. Interinsurance Exchange v. Ohio Cas. Ins. Co. (1962) 58 Cal.2d 142, 154, 23 Cal.Rptr. 592, 373 P.2d 640, reaffirmed our decision in Wildman and held that subsequent amendments to Vehicle Code section 415 had not been intended to revoke the public policy of providing compensation for persons who are injured on the highways through no fault of their own.

Financial Indem. Co. v. Hertz Corp. (1964) 226 Cal.App.2d 689, 38 Cal.Rptr. 249, was a declaratory judgment action to determine the liability of the Hertz Corporation and the Atlantic National Insurance Company arising out of the negligence of a person who was driving with the permission of the renter of the automobile but was not within the class of persons designated by the policy as insured drivers. It was held that the Wildman and Interinsurance Exchange cases were controlling and that the restriction of coverage to certain classes of permissive users was invalid. The court also noted that the public policy considerations set forth in these cases are particularly persuasive as applied to companies 'engaged in the business of placing * * * cars in the hands of others for a profit determined solely by the number of miles driven, without regard to the identity of the actual operators * * *.' (Financial Indem. Co. v. Hertz Corp., supra, at p. 699, 38 Cal.Rptr. at p. 254.)

It would seem that mandatory insurance of permissive drivers is beneficial to them as well as to those who may be injured. Persons driving an automibile owned by another generally have no opportunity to examine the owner's insurance policy and must rely upon the normal assumption that the policy contains no unusual exclusions or conditions, and fully implements the financial responsibility laws. Such reasonable reliance on the part of permissive users of automobiles provides an additional ground for viewing with skepticism any attempt by an insurer to circumvent the provisions of Vehicle Code section 415.

Applying the foregoing herein, the provision in the insurance policy purporting to limit coverage to certain classes of permissive users is invalid and the policy must be deemed to be amended so as to comply with Vehicle Code section 415. It is not denied that as so amended the policy extends coverage to Stanley and his estate.

Plaintiff insists that even though Stanley is an insured driver under the policy, the company has no obligations with regard to the action brought by McKeown's heirs against Stanley's estate because of the exclusion from the policy of liability arising out of injuries to occupants of the insured vehicle. It is urged that motor vehicle liability insurers may at their discretion limit the class of persons whose injuries are compensable, without violating any statute in so doing.

The foregoing contention places too narrow a construction on the language of Vehicle Code section 415 and on the relevant decisions. A primary purpose of financial responsibility laws is to protect 'that ever changing and tragically large group of persons who while lawfully using the highways themselves suffer grave injury through the negligent use of the highways by others.' (Continental Cas. Co. v. Phoenix Constr. Co. (1956) 46 Cal.2d 423, 434, 296 P.2d 801, 808, 57 A.L.R.2d 914; see Interinsurance Exchange v. Ohio Cas. Ins. Co. (1962) supra, 58 Cal.2d 142, 153, 23 Cal.Rptr. 592, 373 P.2d 640; Wildman v. Government Employees' Ins. Co. (1957) supra, 48 Cal.2d 31, 39, 307 P.2d 359.) This goal is no less subverted by limiting the class of persons whose injuries are compensable than by limiting the class of drivers who are insured. Either type of exclusion forces the injured person to rely exclusively upon the financial resources of the driver or owner in seeking compensation for his injuries. Thus, all the considerations which underlie Wildman and Interinsurance Exchange apply with equal force to the case at hand.

It is true that the relevant statutes omit any detailed description of the persons whose injuries must be compensated under a motor vehicle liability policy, while specifying that permissive drivers must be covered. However, it does not follow that the Leigslature intended to leave the description of the class of persons whose injuries are compensable wholly to the discretion of private parties. As has been said with regard to an analogous issue, 'The statute is founded upon...