Baker v. Unigard Ins. Co.

• Decision Date: 05 July 1974
• Citation: 523 P.2d 1257,269 Or. 204
• Parties: Le Ann Faye BAKER, Appellant, v. UNIGARD INSURANCE COMPANY, a Washington corporation, Respondent.
• Court: Oregon Supreme Court

Page 1257

523 P.2d 1257

269 Or. 204

Le Ann Faye BAKER, Appellant, v. UNIGARD INSURANCE COMPANY, a Washington corporation, Respondent.

Supreme Court of Oregon, In Banc.

Argued and Submitted March 15, 1974.

Decided July 5, 1974.

David W. Dardano, Portland, argued the cause for appellant. With him on the briefs were William E. Hanson and Dardano, Mowry & Hanson, Portland.

Ronald G. Stephenson, Portland, argued the cause for respondent. With him on the brief were Bullivant, Wright, Leedy, Johnson, Pendergrass & Haffman, Portland.

BRYSON, Justice.

This is an action on an automobile liability policy issued by defendant to one Tom Campbell. Plaintiff Baker was injured in an accident due to the negligence of Terry Serface, an employee of Campbell, who was driving Campbell's 1954 Chevrolet. Serface claimed Campbell's insurance policy extended coverage to him while driving Campbell's vehicle. The defendant denied coverage for the operation of the Chevrolet. Plaintiff recovered judgment against Serface. Plaintiff brought this action after Serface assigned his rights under the policy to plaintiff. The trial court, sitting without a jury, found there was no coverage under the policy and entered judgment for the defendant. The plaintiff appeals.

The evidence establishes the following facts. On July 11, 1969, defendant Unigard issued an automobile liability policy to Tom Campbell, operator of Tom and Jake's service station, covering all of the vehicles owned by Campbell, which consisted of two Fords and one Pontiac. The policy was renewed on January 11, 1970, for a period of six months. Shortly after January 11, 1970, the renewal date, Campbell acquired the 1954 Chevrolet with the intention of repairing and selling it. On May 26, 1970, while driving the Chevrolet with Campbell's permission, Serface was involved in the accident with plaintiff Baker. Campbell also personally used the 1954 Chevrolet.

On the day following the accident, Campbell informed his insurance agent that he owned the Chevrolet, that it had been in the May 26 accident, and that he did not want coverage for the Chevrolet under his policy. Unigard had no previous knowledge that Campbell owned the Chevrolet. Mr. Campbell testified:

'Q. Now, when you bought that car, Mr. Campbell, did you notify Unigard that you bought the car?

'A. No.

'* * *.

'Q. So the only notice to Mr. Fleming (defendant's insurance agent) or anybody connected with Unigard as to your acquiring this car (1954 Chevrolet) was after the accident occurred?

'A. I believe that's right, yes.'

Serface notified Unigard of the Baker claim but Unigard refused to defend or pay any part of the resulting liability.

The relevant provisions of the insurance policy provided:

'PERSONS INSURED--The following are Insureds under the Automobile Liability Section:

'(a) With respect to the owned automobile,

(1) the named Insured and any resident of the same household,

(2) any other person using such automobile with the permission of the named Insured, provided his actual operation or (if he is not operating) his other actual use thereof is within the scope of such permission, and

'* * *.

'DEFINITIONS--Under the Automobile Liability Section:

'* * *.

"Insured' means a person or organization described under 'Persons Insured';

'* * *.

"owned automobile' means

'(a) a private passenger, farm or utility automobile described in this policy for which a specific premium charge indicates that coverage is afforded.

'* * *.

'(c) a private passenger, farm or utility automobile ownership of which is acquired by the named Insured during the policy period, provided

'* * *.

'(2) the Company insures all private passenger, farm and utility automobiles owned by the named Insured on the date of such acquisition and the named Insured notifies the Company During the policy period or within 30 days after the date of such acquisition, whichever is greater, of his election to make this and no other policy issued by the Company applicable to such automobile, or

'* * *.' (Emphasis supplied.)

The defendant insured all private passenger, farm, and utility automobiles owned by the named insured, Tom Campbell, on the date the policy was renewed. Defendant does not dispute this fact.

The plaintiff contends that '(t)he trial court erred in concluding that the 1954 Chevrolet owned by Campbell and operated by Serface was not an 'insured automobile' within defendant, Unigard's, policy.' Plaintiff argues that 'the language of defendant's policy constitutes an 'automatic insurance for newly acquired automobiles clause' as that terminology is used in the judicial interpretation of automobile liability insurance policies. There is no apparent legal distinction (sic) between policies which contain a specific heading 'Automatic Coverage,' etc., and those that do not.'

The defendant contends that '(t)he policy in question does not use the term 'automatic insurance' and, to the contrary, on its face requires action by the named insured to obtain coverage. The action specified in the pertinent policy provision is notice, * * *' and that '* * * this is a case where the insured, Campbell, had three cars and acquired a junker to fix up and resell at a profit. Therefore, without policy language specifying 'automatic insurance', there is no justification for the law in effect creating insurance coverage where none was intended.' Both parties assert that the question presented by this appeal is one of first impression for this court.

The first question posed is whether the 1954 Chevrolet was an 'owned automobile' under the policy provision (c)(2) above quoted. If it was, the policy afforded liability coverage to Serface 'to the same degree and with the same effect as though such a person's name had been specifically stated in the policy as an insured, or as though the insured had been operating the car at the time of the accident. That is, upon the happening of an accident the protection of the insurance vests in one using the car with the permission of the insured as completely as if he had been a named insured.' 12 G. Couch, Cyclopedia of Insurance Law § 45:293 at 306--307 (2d ed.1964).

The 'owned automobile' provision in the policy here involved is a liberalized version of a common automobile liability policy provision which extends automatic coverage to vehicles acquired by the insured during the policy term. From a review of cases in other jurisdictions involving similar clauses, it is apparent that such policy provisions frequently require the insured to notify the company within a short period, typically 10 or 30 days, in order to continue the coverage of the newly acquired vehicle. See cases cited in Annot., 34 A.L.R.2d 936 (1954). However, the general rule now universally followed is that the coverage for the newly acquired vehicle is automatic from the date of acquisition and is not dependent on notice to the company. ¹ Defendant attempts to distinguish the policy at issue in the present case because this policy requires the named insured to notify the company not merely of his acquisition of the vehicle but of his election to have this policy coverage apply to the newly acquired vehicle. Several cases have construed policy provisions virtually identical to that found in the policy in this case, and the courts which have addressed the question have not deviated from the general rule that the policy coverage is automatic during the notice period allowed by the policy. ²

A similar purported distinction was expressly rejected as illusory in Hall v. State Farm Mutual Automobile Ins. Co., 268 F.Supp. 995, 997--998 (D.So.Car.1966):

'State Farm contends that the abovecited cases are distinguishable from this matter because its policy required the insured to Apply for additional insurance coverage within the 30-day period whereas the policies in the cited cases required the insured to Notify the companies. The purported distinction has no merit. Whether it is required to Notify or to Apply within the period is totally immaterial. In either event, it is an affirmative duty which the insured must carry out to obtain additional coverage after the period has expired. But during the period he, by virtue of the policy, automatically has additional coverage. Failure to notify or apply, together with failure to pay additional premium is a condition only of having coverage after the period has expired, not before. Even if it be contended that the term 'applies to the company for insurance on such newly acquired automobile,' which this policy contains, is an ambiguity when viewed in terms of the 'notice' requirements of other policies, it is well settled in this state that any ambiguity is construed in favor of coverage and against the insurance company because it prepared the policy. * * *' (Original emphasis.)

We agree with the court in Hall that if coverage is automatic under this provision, coverage may not subsequently be defeated by the named insured's failure to affirmatively request the coverage.

Neither do we find persuasive defendant's argument that the coverage of this policy is not automatic because the policy provision was not captioned 'Automatic Insurance.' It is the substance of the policy clause rather than its caption or lack thereof which controls. Courts construe such clauses to extend insurance automatically because under any other interpretation the clause would be superfluous. See Birch v. Harbor Insurance Co., 126 Cal.App.2d 714, 272 P.2d 784 (1954). In St. Paul Mercury Ins. Co. v. Pennsylvania Lumbermen's M.I.C., 378 F.2d 312, 315 (4th Cir. 1967), the policy contained almost identical language. The court held:

'* * * Since no election had occurred at the time of the accident, it is axiomatic that the automatic coverage of the Chevrolet continued. To decide otherwise would denude the policy's clause of meaning. (Citing cases.)'

In the following cases the...