Farmers Ins. Co. of Arizona v. Young

Citation195 Ariz. 22,985 P.2d 507
Decision Date07 July 1998
Docket NumberNo. 2 CA-CV 97-0213.,2 CA-CV 97-0213.
PartiesFARMERS INSURANCE COMPANY OF ARIZONA, an Arizona corporation, Plaintiff/Appellee, v. Marcus M. YOUNG, a single person, Defendant/Appellant. Marcus M. Young, a single person, Counterclaimant/Appellant, v. Farmers Insurance Company of Arizona, an Arizona corporation; Farmers Insurance Group Corporation, a California corporation, Counterdefendants/Appellees.
CourtCourt of Appeals of Arizona

Law Office of Drue A. Morgan-Birch By Drue A. Morgan-Birch, Tucson, for Defendant/Counterclaimant/Appellant.

Slutes, Sakrison, Grant, Hill & Rubin, P.C. By Philip H. Grant, Tucson, for Plaintiff/Counterdefendants/Appellees.

OPINION

HOWARD, Judge.

¶ 1 Appellant Marcus Young appeals from the judgment entered in favor of appellee Farmers Insurance Company determining, on Farmers' declaratory judgment action, that Young had no right to recover under Farmers' policy and, on Young's third-party bad faith counterclaim, that Farmers had not acted in bad faith. We affirm.

Background

¶ 2 On May 21, 1994, Zachariah Purdy, a seventeen-year-old driving a 1971 Buick which was titled in his father's name, attempted to pass a truck in a no-passing zone and collided with a vehicle driven by Young, who was injured in the accident. Purdy's Buick was insured by Farmers ("Purdy's policy"). In addition, at the time of the accident, Purdy was residing with his grandparents, Carl and Evelyn Obert, and was an "insured person" under their Farmers motor vehicle insurance policy ("the Oberts' policy").

¶ 3 Young made claims under the liability provisions of both policies and then sued Purdy and his parents. Young was paid the $50,000 limits under Purdy's policy but was denied coverage under the Oberts' policy, because, according to Farmers, in addition to other defenses, the policy excluded coverage for an insured driving a vehicle that was not explicitly identified in the policy and that was "owned by or furnished or available for regular use" of the insured. Young resolved the underlying personal injury action by obtaining a stipulated judgment against Purdy and his parents and accepting an assignment of their bad faith claim against Farmers in exchange for a covenant not to enforce the judgment against them personally.

¶ 4 Farmers brought this declaratory judgment action, claiming there was no coverage under the Oberts' policy. Young filed a counterclaim alleging third-paty bad faith in Farmers' refusal to provide coverage to Purdy under that policy. After a bench trial, the court concluded that the accident was not covered under the Oberts' policy, that the exclusion was valid, and that, even if there had been coverage, Farmers had not acted in bad faith.

Coverage

¶ 5 The Oberts' policy explicitly covers the Oberts' two vehicles and states that "[Farmers] will pay damages for which any insured person is legally liable because of bodily injury to any person and/or property damage arising out of the ownership, maintenance or use of a private passenger car, a utility car, or a utility trailer." An exclusion in the policy, however, states that "[t]his coverage does not apply to: ... Bodily injury or property damage arising out of the ownership, maintenance or use of any vehicle other than your insured car, which is owned by or furnished or available for regular use by you or a family member." The policy defines an "insured car" as "[t]he vehicle described in the Declarations of this policy...." This "other vehicle" exclusion applies to Purdy's Buick, which was not described in the declarations of the Oberts' policy and which Young concedes was either owned by Purdy or available for his regular use. Young claims, however,that this exclusion is void because coverage is mandated by Arizona's Vehicle Insurance and Financial Responsibility Act (the Financial Responsibility Act), A.R.S. §§ 28-4001 through 28-4153,1 and because it violates public policy. We review these issues of statutory interpretation and application de novo. Schwarz v. City of Glendale, 190 Ariz. 508, 950 P.2d 167 (App.1997).

A.R.S. § 28-4009(B)

¶ 6 We first address Young's contention that coverage was required by § 28-4009(B), which provides that "[a]n operator's motor vehicle liability policy shall insure the person named as insured in the policy against loss from the liability imposed on the person by law for damages arising out of the use by the person of a motor vehicle not owned by the person...." (Emphasis added.) Farmers counters that the Oberts' policy is an "owner's" policy pursuant to § 28-4009(A) rather than an "operator's" policy subject to subsection (B). Young claimed at oral argument without explanation that it was unclear whether the policy was an owner's or operator's policy, but that it should therefore be construed as an operator's policy.

¶ 7 Owner's policies and operator's policies are separate and distinct. Heard v. Farmers Ins. Exchange Co., 17 Ariz.App. 193, 496 P.2d 619 (1972). See also § 28-4001(4) ("[m]otor vehicle liability policy" defined as "an owner's or an operator's policy"); Gilpin v. Northwestern Sec. Ins. Co., 447 F.2d 1347, 1349 (9th Cir.1971) ("Arizona statutes differentiate between an owner's and an operator's policy."). An owner's policy insures the owner of a specified vehicle against liability arising out of its use, while an operator's policy insures the person in the act of operating any nonowned motor vehicle. A.R.S. § 28-4009(B); see also Reserve Ins. Co. v. Staats, 9 Ariz.App. 410, 453 P.2d 239 (1969)

. Compare § 28-4009(A)(1) (requiring an owner's policy to "designate by explicit description or by appropriate reference all motor vehicles" covered) with § 28-4009(B) (requiring coverage for "the person named as insured"). Oberts' policy specifically covers their two vehicles and is therefore an owner's policy. That the policy includes coverage for nonowned vehicles that are not "furnished or available for regular use" does not convert it into an operator's policy. Civil Service Employees Ins. Co. v. Roberts, 10 Ariz.App.512, 460 P.2d 48 (1969); see also Gilpin. Subsection (B)does not, therefore, apply.

A.R.S. § 28-4009(C)(4)

¶ 8 Young also claims coverage was required because the "other vehicle" exclusion is not one of the liability coverage exclusions permitted by § 28-4009(C)(4).2 Whether the "other vehicle" exclusion is permissible under subsection (C)(4) is irrelevant, however, if coverage under the Oberts' policy was not required by subsections (A) or (B) in the first instance.3 Once an insurer complies with the minimum requirements of the Financial Responsibility Act, as the Oberts' policy did, it may contract to provide, and correspondingly limit, additional coverage. See § 28-4009(D) (policy that grants required coverage may also grant coverage in excess of or in addition to required coverage; the excess or additional coverage is not subject to Financial Responsibility Act); Arceneaux v. State Farm Mut. Auto. Ins. Co., 113 Ariz. 216, 217, 550 P.2d 87, 88 (1976) ("In matters not mandated by law (or the public policy of the state) the parties should be permitted to make their own contractual arrangements."); Luehrs v. Utah Home Fire Ins. Co., 450 F.2d 452 (9th Cir.1971).

¶ 9 Having concluded that subsection (B) does not apply to the Oberts' policy, we now consider whether subsection (A) requires coverage of Purdy's vehicle under the Oberts' policy and thereby limits the allowable policy exclusions to those permitted under subsection (C)(4). Subsection (A) provides:

An owner's motor vehicle liability policy shall comply with the following:

1. The policy shall designate by explicit description or by appropriate reference all motor vehicles for which coverage is granted....

2. The policy shall insure the person named in the policy as the insured and any other person, as insured, using the motor vehicle or motor vehicles with the express or implied permission of the named insured against loss from the liability imposed by law for damages arising out of the ownership, maintenance or use of the motor vehicle or motor vehicles....

(Emphasis added.) Purdy's vehicle was not specifically described or referred to in the Oberts' policy. Analyzing a similar Arizona owner's insurance policy that provided additional coverage while the named insured was driving vehicles other than those specified in the policy, the Ninth Circuit Court of Appeals in Luehrs concluded that:

Had [the insured's] policy been an "operator's policy of liability insurance," "drive other cars" coverage would have been required under A.R.S. § 28-[4009(B) ]. But, as stated above, [the insurance company] had issued [the insured] an "owner's policy." A "drive other cars" clause is not required by Arizona statute in an owner's policy.
It follows that [the insured's] "drive other cars" coverage was voluntary. When coverage is voluntary, it may be limited or excluded in Arizona.

450 F.2d at 455-56 (citations and footnotes omitted).

¶ 10 To the extent the Oberts' policy exceeded the requirements of subsection (A) and covered "insured persons" driving vehicles that were not explicitly described in the policy, that coverage was excess or additional coverage that Farmers could limit.4 Coverage of Purdy's vehicle under the Oberts' policy, therefore, was not required by subsection (A). Because neither subsection (A) nor (B) requires coverage of Purdy's vehicle under the Oberts' policy, the fact that subsection (C)(4) does not include an "other vehicle" exclusion does not mandate coverage.

A.R.S. § 28-4009(C)(5)(a)

¶ 11 Young next claims that § 28-4009(C)(5)(a), which states that "[t]he liability of the insurance carrier with respect to the insurance required by this chapter becomes absolute when injury or damage covered by the motor vehicle liability policy occurs" (emphasis added), prevents Farmers from denying him coverage. That subsection does not apply when, as here, coverage under the...

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