Darner Motor Sales, Inc. v. Universal Underwriters Ins. Co., 16551-PR

• Citation: 682 P.2d 388,140 Ariz. 383
• Decision Date: 29 March 1984
• Docket Number: No. 16551-PR,16551-PR
• Parties: DARNER MOTOR SALES, INC., d/b/a Darner Leasing Co., an Arizona corporation, Third-Party Plaintiff-Appellant, v. UNIVERSAL UNDERWRITERS INSURANCE COMPANY, John Brent Doxsee, Third-Party Defendants-Appellees.
• Court: Supreme Court of Arizona

Page 388

682 P.2d 388

140 Ariz. 383

DARNER MOTOR SALES, INC., d/b/a Darner Leasing Co., an Arizona corporation, Third-Party Plaintiff-Appellant, v. UNIVERSAL UNDERWRITERS INSURANCE COMPANY, John Brent Doxsee, Third-Party Defendants-Appellees.

No. 16551-PR.

Supreme Court of Arizona, In Banc.

March 29, 1984.

Reconsideration Denied May 22, 1984.

Udall, Shumway, Blackhurst, Allen, Lyons & Davis by John H. Lyons, Clark R. Richter, Mesa, for third-party plaintiff-appellant.

Black, Robertshaw, Frederick, Copple & Wright by Harold A. Frederick, Philip Thorpe, Phoenix, for third-party defendants-appellees.

FELDMAN, Justice.

Darner Motor Sales, Inc., dba Darner Leasing Co. (Darner Motors), petitions for review of a memorandum decision of the court of appeals (Darner Motor Sales, Inc. v. Universal Underwriters Insurance Company, No. 1 CA-CIV 5796, filed February 22, 1983). That decision affirmed a summary judgment in favor of Universal Underwriters Insurance Company (Universal) and their agent, John Brent Doxsee (Doxsee), who were the third party defendants impleaded by Darner Motors. We granted review because we believe that the issues presented call into question the clarity and consistency of a large body of Arizona law dealing with insurance coverage. We have jurisdiction pursuant to Ariz. Const. Art. 6, § 5(3) and Rule 23, Rules of Civ.App.P., 17A A.R.S.

FACTS

Darner Motors is in the automobile sales, service and leasing business. Prior to transacting business with Universal, Darner Motors' various operations were insured under several policies issued by The Travelers Company (Travelers). In October of 1973, Doxsee, an insurance agent who was a full-time employee of Universal, contacted Joel Darner to solicit insurance business. The following month, Darner purchased a Universal "U-Drive policy" through Doxsee. This policy insured Darner Motors and the lessees of its cars for automobile liability risk. Darner Motors was covered in limits of $100,000 for any one injury and $300,000 ( 100/300) for all injuries arising out of any one accident. The lessees were covered in limits of 15/30. The rest of Darner Motors' business risks continued to be insured under a "dealership package policy" issued by Travelers.

It is unclear from the record, but this situation presumably continued until April of 1975, a renewal date of the Travelers policy. In April of 1975, Universal "picked up" the entire insurance "package" for Darner Motors' various business activities. This "package" consisted of a Universal "Unicover" policy which included coverage for garagekeeper's liability, premises liability, property coverage, crime coverage, customer car coverage, and plate glass insurance. The parties describe this as an "umbrella policy," so it is possible that, in addition to covering multiple risks, it also contained excess coverage over other policies which provided primary coverage. ¹ In addition to the umbrella policy, Universal also renewed the U-Drive policy, which provided coverage to the lessees of Darners Motors. ²

Substantial controversy exists with regard to many of the factual allegations. However, according to Darner, he informed Doxsee that renewal of lessee coverage was to be in the same limits as applied to Darner Motors in the original U-Drive policy. When the new U-Drive policy arrived after renewal in April of 1975, Darner examined it and noticed that the limits of coverage for lessees were 15/30. After reading this, Darner claims that he called Doxsee. He was concerned because his rental contract contained a representation of greater coverage ( 100/300) and because he felt that it would be better for his business operation if his lessees had the higher coverage. Darner told Doxsee that the liability limits of the U-Drive policy did not conform to their prior agreement, and asked Doxsee to come to Darner Motors and discuss the matter. Doxsee did call upon Mr. Darner at the latter's office. Although Doxsee could not recall the subsequent conversation, both Darner and his former sales manager, Jack Hadley, testified about the discussion. Their deposition testimony would support a finding that Doxsee told Darner not to worry about the limits because, although the U-Drive policy provided only 15/30 coverage, the all-risk clause of the umbrella policy would provide additional coverage to limits of 100/300. ³ At some time after he received the U-Drive policy and, presumably, also after his discussions with Doxsee, Darner did receive a copy of the umbrella policy. That policy was evidently quite lengthy and forbidding. Darner admits never reading it; he explained this omission by pointing out that "it's like reading a book" and stating that, following his conversations with Doxsee, "I didn't think I needed to." Darner's office manager testified that she never really read the policy either and saw little need to do so in view of the fact that Doxsee would occasionally appear, remove pages from the loose-leaf binder and insert new pages. So far as the record shows, the printed, boiler-plate provisions contained in the loose-leaf type, "book length," all-risk policy were neither negotiated before nor discussed after the policy was delivered. The parties seem to have confined themselves to a discussion of the objectives that would be realized from the purchase of the policy rather than an attempt to negotiate the wording of the policy.

Approximately twenty months after the conversation between Darner and Doxsee concerning coverage under the Universal policies, Darner Motors rented a car to Dwayne Crawford. The transaction was in the ordinary course of business, except that the form used for the rental agreement was the "old type," which contained a representation of coverage in the amount of 100/300. ⁴ While driving the vehicle under this rental contract, Crawford negligently injured a pedestrian and caused severe injuries. The pedestrian sued Crawford, who looked to Universal for coverage. Universal claimed that lessee's coverage on the "U-Drive" policy was limited to 15/30. Crawford then sued Darner Motors under the rental agreement warranty that coverage was provided in limits of 100/300. Darner Motors called upon Universal to provide additional coverage under the umbrella policy. The umbrella policy did contain the higher limits, but Universal claimed that lessees were not parties "insured" as that term was defined in the all-risk policy. Universal was therefore unwilling to provide coverage in excess of the $15,000 limit of the U-Drive policy. Darner Motors then filed a third-party complaint, naming Universal and Doxsee as third party defendants.

Eventually, the pedestrian recovered $60,000 from Crawford. Universal paid $15,000 of this amount, and Darner Motors has either paid or is liable to Crawford for the remainder. Darner Motors claims that Universal and Doxsee are obligated to indemnify it against that loss. To support that contention, Darner Motors advances the following theories:

(1) Universal is estopped to deny coverage for lessees under the umbrella policy in amounts less than 100/300;

(2) The umbrella policy should be reformed so that it does contain such coverage;

(3) If no coverage is found through estoppel or reformation, then the loss incurred by Darner Motors was caused by the negligence of Universal and its agent, Doxsee, and should be borne by them;

(4) If no coverage exists by way of estoppel or reformation, then the loss incurred by Darner Motors is the result of fraud committed by Universal and its agent, Doxsee.

After considerable discovery, Universal and Doxsee moved for summary judgment, contending that there was no genuine issue of fact and that they were entitled to judgment as a matter of law. The motion was granted and judgment entered against Darner Motors. The court of appeals affirmed; pointing out that Darner Motors had not claimed that the umbrella policy was ambiguous, the court held that the insured's failure to read the policy prevented recovery on any theory, even though the contents of the policy did not comport with the representations of the insurance agent and those same representations were a part of the reason that the insured failed to read the policy.

The court of appeals stated that under Arizona law an insured who had received a copy of an unambiguous policy could not "expand the insurer's liability beyond the terms of the ... policy issued ...." We believe this statement is too broad, though we acknowledge that the law is, at best, confused on this subject. In an attempt to bring some clarity and logic to the question, we have reviewed our cases and will discuss each of the theories advanced by Darner Motors. Before doing so, however, we must consider the inherent nature of an insurance contract and of the issues presented by the fact situation before us.

CONTRACT LAW AND INSURANCE POLICIES

Since this is an appeal from summary judgment, we must view the facts in the light most favorable to the party against whom judgment was taken. Gulf Insurance Co. v. Grisham, 125 Ariz. 123, 124, 613 P.2d 283, 284 (1980). Taking the facts in that light, the question we must decide is whether the courts will enforce an unambiguous provision contrary to the negotiated agreement made by the parties because, after the insurer's representations of coverage, the insured failed to read the insurance contract which was in his possession. ⁵

Implicit in the reasoning of the court of appeals is the concept that the insurance policies purchased by Darner constitute the contract between Darner and Universal. Darner is considered to be bound by the terms contained within the documents. The court of appeals held:

Because Mr. Darner received a copy of the umbrella policy and made no contention that it was ambiguous or confusing, he cannot expand the insurer's liability beyond the terms of the umbrella policy issued by Universal.

(slip op. at 7). Basic to this holding is the...