Fidelity and Guaranty Ins. Co. v. German Motors Corp., A111214 (Cal. App. 10/11/2007)

• Decision Date: 11 October 2007
• Docket Number: A111214
• Court: California Court of Appeals
• Parties: FIDELITY AND GUARANTY INSURANCE COMPANY, Plaintiff, Cross-Defendant and Respondent, v. GERMAN MOTORS CORPORATION dba BMW OF SAN FRANCISCO, a California corporation, et al., Defendants, Cross-Complainants and Appellants.

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FIDELITY AND GUARANTY INSURANCE COMPANY, Plaintiff, Cross-Defendant and Respondent, v. GERMAN MOTORS CORPORATION dba BMW OF SAN FRANCISCO, a California corporation, et al., Defendants, Cross-Complainants and Appellants.

A111214

Court of Appeals of California, First Appellate District, Division Five

October 11, 2007

NOT TO BE PUBLISHED

Appeal from the San Francisco County, Super. Ct. No. 404701.

GEMELLO, J.

This appeal arises from a dispute between an insurer and its insured, a car dealership and garage. The issue is whether the insurer had a duty to defend and indemnify the insured for its liability arising from a car accident caused by an employee driving a rental car he rented from a related car rental business. The trial court granted summary judgment in favor of the insurer. We affirm on the basis that there is no coverage under the policy.

BACKGROUND

German Motors Corporation, doing business as BMW of San Francisco, runs a BMW car dealership and repair shop at 1675 Howard Street in San Francisco. In about 1998, German Motors established a wholly owned subsidiary corporation, Cycles of SF, Inc. (Cycles), to begin a business renting motorcycles to the general public. In about 1999, the business expanded to car rentals and operated out of 1675 Howard Street as Fog City Car Rentals, a dba of Cycles. The rental cars were a fleet of Toyota Camrys that Cycles leased from Ellis Brooks Leasing, Inc. German Motors guaranteed that lease. German Motors provided the employees to run Fog City Car Rentals. German Motors in fact staffed, managed and administered the Fog City Car Rentals pursuant to a service agreement with Cycles. Moreover, at that time, the general manager of BMW of San Francisco, Michael Greening, was also general manager of Fog City Car Rentals.

German Motors dba BMW of San Francisco rented or loaned vehicles to its customers while the customers' personal cars were being serviced or repaired at its garage. German Motors employees were permitted to rent Fog City Toyotas, if they were still available at the end of the business day, at a discounted daily rate and subject to a lower age restriction.

In November 2000, Henry Herrera was an employee of German Motors dba BMW of San Francisco, working as an apprentice in the body shop. On November 17, Herrera obtained a rental car from Fog City Car Rentals for his personal use. The car was one of the Toyotas that Cycles leased from Ellis Brooks. The rental agreement identified the rental company as Fog City Car Rentals, a division of Cycles of SF, Inc. The agreement identified the renter as Gloria Herrera, Henry's mother, but was signed by Henry Herrera.

On November 19, 2000, the car Herrera rented was involved in a collision. Henry Herrera, who was driving the car, was killed. Ernesto Jauregui, a passenger in Herrera's car, suffered major head trauma. At the time of the accident, Herrera was speeding; he was not wearing a seatbelt; he had a large, almost empty bottle of beer between his legs; his blood alcohol level was 0.19 percent; and he had cocaine in his system.

Jauregui and Henry Herrera's parents, Gloria Herrera and Luis Herrera, filed separate lawsuits (the underlying actions) naming German Motors dba BMW of San Francisco and Cycles dba Fog City Car Rentals as defendants. As relevant to this appeal, plaintiffs alleged that German Motors negligently entrusted the vehicle to Herrera based on the facts that he was under the age of 25, he did not have a valid driver's license, he did not provide accurate information on the rental agreement, Gloria Herrera had advised German Motors not to provide cars to Herrera or allow him to use her name while renting cars, and German Motors should have known that Herrera had an uncontrollable tendency to drive cars while under the influence of alcohol or other controlled substances. The Jauregui and Gloria Herrera complaints alleged that German Motors and Cycles operated as a joint venture.

Insurance Coverage

German Motors obtained three separate policies providing insurance coverage for its car rental, motorcycle rental, and dealership operations. Northland Insurance Company issued Automobile Rental Program Business/Commercial Auto Policies to "German Motors Corporation dba Fog City Car Rentals." Northland's Commercial Auto Coverage included liability coverage for accidents resulting from the ownership, maintenance or use of specifically identified automobiles used in connection with the rental car business. A Northland policy was in effect in November 2000.

Fidelity and Guaranty Insurance Company issued a Commercial Insurance Policy to "German Motors Corporation dba BMW of San Francisco" that was in effect in November 2000. This policy included "Garage Coverage," which included liability coverage for garage operations. Under the heading "Garage Operations — Covered Autos," the policy provided: "We will pay all sums an `insured' legally must pay as damages because of `bodily injury' or `property damage' to which this insurance applies, caused by an `accident' and resulting from `garage operations' involving the ownership, maintenance or use of covered `autos.' "A "covered auto" was defined as "any auto." "Garage operations" were defined as "the ownership, maintenance or use of locations for garage business and that portion of the roads or other accesses that adjoin these locations. `Garage operations' includes the ownership, maintenance or use of . . . covered `autos.' `Garage operations' also include all operations necessary or incidental to a garage business."

An express exclusion to the liability coverage for garage operations (Exclusion 7) applied to "Leased Autos": "This insurance does not apply to . . . [a]ny covered `auto' while leased or rented to others. But this exclusion does not apply to a covered `auto' you rent to one of your customers while their `auto' is left with you for service or repair." When German Motors' insurance broker applied for the Fidelity policy, he stated that German Motors rented cars to the public, but insurance coverage for that operation was placed elsewhere. The underwriter for the Fidelity policy called the broker to confirm this information before Fidelity issued the policy.

Declaratory Relief

German Motors, through its insurance broker, tendered defense of the underlying actions to Fidelity. In November 2001, Fidelity responded that it had no duty to defend German Motors in the actions.

In February 2002, while the underlying actions were still pending, Fidelity filed this declaratory relief action against German Motors dba BMW of San Francisco and Cycles dba Fog City Car Rentals. Fidelity sought a declaration that it had no duty to defend or indemnify German Motors or Cycles and that, if it had a duty to defend or indemnify, its policy was excess to Northland's policies. German Motors and Cycles filed a cross-complaint against Fidelity and Northland. As to Fidelity, they asserted claims for breach of contract and insurance bad faith and sought a declaration that Fidelity had a duty to defend and indemnify them in the underlying actions.¹ On November 1, 2002, the trial court stayed the coverage action pending resolution of the underlying actions.

In July 2003, the underlying actions settled. Northland paid the remainder of its $1 million policy limit and Fidelity paid its $5 million policy limit to fund the settlement. The Herreras received $250,000 and Jauregui received almost $6 million. The trial court lifted the stay in February 2004.

In November 2004, Fidelity and German Motors and Cycles filed cross motions for summary judgment. The trial court granted summary judgment in favor of Fidelity on three bases. The court ruled that the underlying dispute did not fall within the scope of coverage for garage operations. "The [Fidelity] policy only provided garage operations liability coverage for vehicles when used as part of the BMW dealership operation. There is no evidence proffered by German Motors Corporation dba BMW of San Francisco showing that the vehicle in the accident was ever used for the BMW dealership operation. Instead, the vehicle in question was leased by Ellis Brooks to Cycles of SF, Inc. dba Fog City Car Rentals and not to German Motors Corporation dba BMW of San Francisco." The court also ruled that Exclusion 7 applied to German Motors' claim. The Court concluded that the exclusion was not ambiguous and that "[t]here is no evidence disputing the fact that the vehicle was not rented to a service customer. The exclusion eliminates the potential for coverage under the policy." The court ruled, "all extrinsic evidence presented to this Court including, but not necessarily limited to, the communications between representatives of German Motors Corporation dba BMW of San Francisco and representatives of Plaintiff F&G, demonstrates that the parties did not intend for the F&G policy to provide coverage for the rental vehicle in the accident that underlies the insurance coverage dispute. [¶] . . . [¶] [B]ecause there is no potential for a claim for breach of the implied covenant of good faith and fair dealing in the absence of any coverage, and because there is no coverage herein, there can be no claim in the context of this case for breach of the implied covenant of good faith and fair dealing as a matter of law." The trial court denied the summary adjudication motion filed by German Motors and Cycles for the same reasons it granted Fidelity's motion.

DISCUSSION

Summary judgment is appropriate "if all the papers submitted show that there is no triable issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." (Code Civ. Proc., § 437c, subd. (c).) The party moving for summary judgment bears the burden of showing there is no triable issue of material fact. (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 850.) In ruling on the motion, the court must draw all reasonable inferences from...