Bohrn v. State Farm Mut. Auto. Ins. Co.

• Decision Date: 20 April 1964
• Court: California Court of Appeals Court of Appeals
• Parties: Woodrow E. BOHRN and Billy A. Bohrn, Plaintiffs and Respondents, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY et al., Defendants and Appellants. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, etc., Cross-Complainant and Appellant, v. FARMERS INSURANCE EXCHANGE et al., Cross-Defendants and Respondents. Civ. 10748.

Page 77

38 Cal.Rptr. 77

226 Cal.App.2d 497

Woodrow E. BOHRN and Billy A. Bohrn, Plaintiffs and Respondents, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY et al., Defendants and Appellants.

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, etc., Cross-Complainant and Appellant, v. FARMERS INSURANCE EXCHANGE et al., Cross-Defendants and Respondents.

Civ. 10748.

District Court of Appeal, Third District, California.

April 20, 1964.

Rich, Fuidge, Dawson & Marsh, Marysville, for cross-complainant and appellant.

John J. Hannegan, Sacramento, for cross-defendants and respondents.

James G. Changaris, Yuba City, for cross-defendant and respondent Booth.

SPARKS, Justice pro tem.

Appeal is taken from a declaratory judgment entered in favor of plaintiffs and against two insurance companies. Woodrow W. Bohrn and Billy A. Bohrn, his son, as plaintiffs, instituted the action against State Farm Mutual Automobile Insurance Company (hereinafter referred to as 'State Farm'), as defendant. State Farm answered, and by way of cross-complaint brought in Farmers Insurance Exchange (hereinafter referred to as 'Farmers') and one Lorn A. Booth as cross-defendants.

On January 1, 1961, Billy, while driving his father's 1955 Dodge automobile, struck and injured Booth, a pedestrian. Billy's father, Woodrow, had a policy with State Farm which provided insurance coverage of $10,000 for bodily injury to one person, and $20,000 for one accident. Woodrow's policy contained the following exclusionary endorsement:

'In consideration of the premium at which the policy is written it is agreed that the Company shall not be liable and no liability or obligation of any kind shall attach to the Company for losses or damage sustained while any automobile insured hereunder is driven or operated by Bill A. Bohrn except when accompanied by the named insured or the named insured's spouse.'

Billy, at the time of the accident in question, was the owner of his own car, which however was not then in an operable condition. Farmers had issued its policy to Billy, as an assigned risk, with the same limits of $10,000 for one person and $20,000 for one accident.

Action was brought by Booth to recover for his injuries against both Billy and Woodrow Bohrn. The Bohrns made demand upon State Farm that it defend the action for them and acknowledge financial responsibility to the limits of its policy. This State Farm declined to do, whereupon the Bohrns brought this action for declaratory relief. In its answer and cross-complaint State Farm disclaimed liability because of its exclusionary endorsement, but alleged that if any responsibility did attach, that Farmers would be primarily liable, and State Farm only in the event of an excess.

There was no dispute that at the time the pedestrian was struck Billy was on a mission to purchase of loaf of bread for the family, and was driving the Dodge automobile with his father's express permission. Billy was unaccompanied at the time.

The trial court, on a stipulated record, held the exclusionary endorsement to State Farm's policy against public policy null and void. Judgment was entered against both State Farm and Farmers, it being provided, however, that between the two companies, the limits of State Farm's policy should be exhausted first before resort could be had to Farmers' policy. State Farm appeals.

Appellant's major premise in its argument for reversal is that the law of this state at the time it issued its restrictive endorsement, and also on the date of the accident, did not forbid an insurance company from declining the risk of a specifically named person. An insurance company, it asserts, has the right to insure and select its own risks, and to decline exposure to known dangerous risks. ¹ Undoubtedly, the last proposition can be accepted generally as a correct statement of law (San Pedro Properties, Inc. v. Sayre and Toso, Inc., 203 Cal.App.2d 750, 21 Cal.Rptr. 844; Continental Cas. Co. v. Phoenix Const. Co., 46 Cal.2d 423, 296 P.2d 801, 57 A.L.R.2d 914; McFarland v. New Zealand Ins. Co., 176 Cal.App.2d 422, 1 Cal.Rptr. 482), but nevertheless is subject to qualification. As pointed out in the case of Bonfils v. Pacific Auto. Ins. Co., 165 Cal.App.2d 152, 156 331 P.2d 766 (where the precise point was urged):

"An insurance comany has the right to limit the coverage of a policy issued by it and when it has done so, the plain language of the limitation must be respected.' [Citing case.] However, any such limitation must conform to the law; if contrary to public policy it is void.' (Emphasis added.) (See also Cassin v. Financial Indem. Co., 160 Cal.App.2d 631, 325 P.2d 228; American Auto. Ins. Co. v. Republic Indem. Co., 52 Cal.2d 507, 341 P.2d 675; Wheeling v. Financial Indem. Co., 201 Cal.App.2d 36, 19 Cal.Rptr. 879.)

As of the date of the exclusionary endorsement, and also of the said accident, section 16451 of the Vehicle Code was in full force and effect. ² In its standard form of policy issued to plaintiff Woodrow Bohrn appellant conformed to said section 16451 by providing omnibus coverage and defining 'additional insureds' as any person who would be driving the vehicle with the permission of the named insured, Woodrow Bohrn.

The question of whether an insurance company could limit, by appropriate restrictive endorsement, coverage to permissive users of a named insured's vehicle has been a prolific source of litigation in this state (see Continental Cas. Co. v. Phoenix Const. Co., supra, 46 Cal.2d 423, 438, 296 P.2d 801, 57 A.L.R.2d 914; Wildman v. Government Employees' Ins. Co., 48 Cal.2d 31, 39, 307 P.2d 359; American Auto. Ins. Co. v. Republic Indem. Co., supra, 52 Cal.2d 507, 509-511, 341 P.2d 675; Exchange Cas. & Surety Co. v. Scott, 56 Cal.2d 613, 623, 15 Cal.Rptr. 897, 364 P.2d 833; Interinsurance Exchange of Automobile Club of Southern California v. Ohio Cas. Ins. Co., 58 Cal.2d 142, 23 Cal.Rptr. 592, 373 P.2d 640; Oil Base, Inc. v. Transport Indem. Co., 143 Cal.App.2d 453, 299 P.2d 952; Cassin v. Financial Indem. Co., supra, 160 Cal.App.2d 631, 325 P.2d 228; Bonfils v. Pacific Auto. Ins. Co., supra, 165 Cal.App.2d 152, 331 P.2d 766; McFarland v. New Zealand Ins. Co., supra, 176 Cal.App.2d 422, 1 Cal.Rptr. 482; Royal Exchange Assur. v. Universal Underwriters Ins. Co., 188 Cal.App.2d 662, 10 Cal.Rptr. 686; Globe Indem. Co. v. Universal Underwriters Ins. Co., 201 Cal.App.2d 9, 20 Cal.Rptr. 73), occasioned, undoubtedly, by the wide variety of endorsements presented for adjudication, and also by intervening changes in the statutes.

In the Wildman case, supra, the question was not only decisively answered, but a rule of public policy enunciated, as follows, 48 Cal.2d at page 39, 307 P.2d at p. 364: '[F]or an insurer to issue a policy of insurance which does not cover an accident which occurs when a person, other than the [named] insured, is driving with the permission and consent of the [named] insured is a violation of the public policy of this state as set forth in sections 402 and 415 ³ of the Vehicle Code.' In Wildman the Supreme Court further stated that the section of the Vehicle Code (formerly section 415) 'must be made a part of every policy of insurance issued by an insurer since the public policy of this state is to make owners of motor vehicles financially responsible to those injured by them in the operation of such vehicles. * * * [S]uch laws must be considered a part of every policy of liability insurance even though the policy itself does not specifically make such laws a part thereof.' (48 Cal.2d pp. 39-40, 307 P.2d pp. 364, 365.)

As a result of legislative changes made in the Vehicle Code in 1957, the question was presented again to the Supreme Court. In its decision in Interinsurance Exchange of Automobile Club of Southern California v. Ohio Cas. Ins. Co., supra, 58 Cal.2d 142, 23 Cal.Rptr. 592, 373 P.2d 640, the holding in Wildman was reaffirmed, and the rule of public policy therein announced, confirmed.

Notwithstanding this history of the problem, and in the face of the numerous adjudications by the Supreme Court and appellate courts, appellant nevertheless contends that the instant appeal presents a question de novo, insofar as it concerns the attempted exclusion of a named individual, rather than a class of persons, from the coverage of a policy.

In our reading of the Wildman case, we find no language of solace to appellant in this contention. To our thinking, the Supreme Court made it abundantly clear that the omnibus coverage of permissive drivers was truly total, and that considerations of public policy brooked no exceptions. 'The substantive law of this state cannot be enlarged, circumvented, defeated, or modified by any provision which the insurer may have elected to place in its contract in derogation of or in conflict therewith. The statute is founded upon principles of public policy and an anomalous situation would be created if the rights of third parties, for whose protection the law was adopted, could be hindered, delayed, or defeated by the private agreements of two of the parties to a triparty contract.' (Emphasis added.) (Language from Malmgren v. Southwestern Auto. Ins. Co., 201 Cal. 29, 33-34, 255 P. 512; quoted with approval in Wildman, supra, 48 Cal.2d pp. 39-40, 307 P.2d p. 364.)

The holding in Wildman was, of course, binding upon subsequent decisions in trial and appellate courts (Estate of Maguire, 14 Cal.App.2d 388, 390, 58 P.2d 209; Auto Equity Sales, Inc. v. Superior Court, 57 Cal.2d 450, 20 Cal.Rptr. 321, 369 P.2d 937), and was followed consistently in the following decisions by the appellate court: Cassin v. Financial Indem. Co., supra, 160 Cal.App.2d 631, 325 P.2d 228; Bonfils v. Pacific Auto. Ins. Co., supra, 165 Cal.App.2d 152, 331 P.2d 766; McFarland v. New Zealand Ins. Co., supra, 176 Cal.App.2d 422, 1 Cal.Rptr. 482; Royal Exchange Assur. v. Universal Underwriters Ins. Co., supra, 188 Cal.App.2d 662, 10 Cal.Rptr. 686; Globe...