Fireman's Fund Ins. Co. v. Superior Court

• Decision Date: 01 December 1977
• Citation: 142 Cal.Rptr. 249,75 Cal.App.3d 627
• Court: California Court of Appeals Court of Appeals
• Parties: FIREMAN'S FUND INSURANCE CO. and Associated Aviation Underwriters, Petitioners, v. SUPERIOR COURT of the State of California, IN AND FOR the COUNTY OF SACRAMENTO, Respondent. OMNI AVIATION MANAGERS, INC. and Middlesex Mutual Insurance Co., Petitioners, v. SUPERIOR COURT of the State of California, IN AND FOR the COUNTY OF SACRAMENTO, Respondent; Ralpha ABRAMSON and Robert Abramson, Real Parties in Interest. Civ. 14916, 14917.

Page 249

142 Cal.Rptr. 249

75 Cal.App.3d 627

FIREMAN'S FUND INSURANCE CO. and Associated Aviation Underwriters, Petitioners, v. SUPERIOR COURT of the State of California, IN AND FOR the COUNTY OF SACRAMENTO, Respondent.

OMNI AVIATION MANAGERS, INC. and Middlesex Mutual Insurance Co., Petitioners, v. SUPERIOR COURT of the State of California, IN AND FOR the COUNTY OF SACRAMENTO, Respondent;

Ralpha ABRAMSON and Robert Abramson, Real Parties in Interest.

Civ. 14916, 14917.

Court of Appeal, Third District, California.

Dec. 1, 1977.

Hearing Denied Jan. 26, 1978.

Bronson, Bronson & McKinnon and Grant P. DuBois, San Francisco, for petitioners Fireman's Fund Ins. Co., et al.

Rosen, Ross, Fields & Zax and Arnold L. Ross, Beverly Hills, for petitioners Omni Aviation Managers, Inc., et al.

Fitzwilliam, Memering, Stumbos & DeMers and Craig E. Farmer, Bolling, Pothoven, Walter & Gawthrop and T. D. Bolling, Jr., for real parties in interest.

JANES, Associate Justice.

Petitioners in these consolidated proceedings seek writs of mandamus directing respondent court to vacate its orders overruling petitioners' demurrers to the fifteenth through eighteenth causes of action of real parties' amended complaint against them, and to enter orders sustaining the demurrers.

The underlying action arose out of an aircraft accident which occurred on or about November 26, 1972, in which real parties allegedly sustained personal injuries. The airplane was piloted by defendant Hal Happel, and at the time of the accident was insured by petitioners Fireman's Fund Insurance Co. ("Fireman's") and Associated Aviation Underwriters ("Associated"). That insurance policy was issued in February 1972. For the preceding two years the aircraft had been insured by petitioners Omni Aviation Managers, Inc. ("Omni") and Middlesex Mutual Insurance Co. ("Middlesex"). ¹ The aircraft was being purchased by Happel from defendant Donald R. Bates, who was included as an additional insured under the policies issued by petitioners. The January 31, 1970 lease purchase agreement between Bates and Happel contained, inter alia, the following clauses:

"(3) Purchaser shall assume full financial responsibility for subject aircraft including seller's loan payments, insurance as required by seller . . . .

"(4) Seller may repossess subject aircraft and dispose of (it) as seller sees fit if full financial responsibility is not maintained as stated previously above.

"(5) Purchaser shall become full legal owner when all above financial obligations have been fulfilled."

The policy issued by Fireman's provided that the coverage afforded "shall not apply while the aircraft is in flight by other than the following pilots:

"Any person having a certificate from the Federal Aviation Agency designating him a private or commercial pilot, airplane category, with a single engine land rating and to have minimum of 1,000 total-logged flying hours, including at least 50 hours in the make and model aircraft insured hereunder."

Such exclusion is expressly permitted by Insurance Code section 11584, subdivisions (2) and (3). ²

Omni's policy set forth on the declarations page a standard preprinted pilot clause which precluded coverage when the plane was operated by one not meeting the following criteria:

"7. PILOT CLAUSE: Only the following pilot or pilots holding valid and effective pilot and medical certificates with ratings as required by the Federal Aviation Administration for the flight involved . . . :

"HAL HAPPEL, a Private Pilot"

The fifteenth and sixteenth causes of action of the amended complaint set forth real party Ralpha Abramson's claim against petitioners Fireman's and Omni, the seventeenth and eighteenth real party Robert Abramson's claim against the same petitioners. The four causes of action seek to impose direct liability in tort upon petitioners for the injuries suffered by real parties because of petitioners' issuance to Happel of aircraft insurance without first investigating his qualifications as a pilot. Happel, at the time of the accident, held only a student pilot's certificate.

In their opposition to Omni's demurrer, real parties' discussion of proximate cause clarifies the nature of the alleged tort committed by petitioners: "The proximate cause element is found in the allegations that Bates reserved the right to repossess if the required insurance was not maintained by Happel, that (Omni) would have discovered the lack of a private pilot's license on the part of Happel or other evidence that he was an incompetent, inexperienced and unqualified pilot, that if they had made such discovery they would not have issued their policies, and if they had not issued their policies Bates would have in fact repossessed the aircraft. (P) If Bates had repossessed the aircraft Happel would not have injured the Abramsons by his negligence and willful misconduct in the operation of the aircraft."

The liability sought to be imposed upon Omni carries with it the added element that, by issuing its policy of insurance, it was responsible for the later issuance of the Fireman's policy. In other words, had Omni not first insured Happel, thus assertedly establishing insurability, Fireman's would not have issued the policy in effect at the time of the accident.

Whether petitioners are entitled to the relief sought turns upon interpretation of Barrera v. State Farm Mut. Automobile Ins. Co. (1969) 71 Cal.2d 659, 79 Cal.Rptr. 106, 456 P.2d 674. There plaintiff brought suit against defendant State Farm for payment of a judgment recovered against Anthony and Sandra Alves, who at the time of the subject automobile-pedestrian accident in which plaintiff was injured were insured by State Farm under an automobile liability insurance policy issued a year and a half earlier. Subsequent to the accident, State Farm discovered that in his application Alves had made a material misrepresentation upon which it relied in issuing the liability policy. State Farm denied validity of the policy and cross-complained, seeking a declaration that the policy was void ab initio because of Mr. Alves's misrepresentation. Plaintiff Barrera contended that State Farm was estopped to rescind the policy six months after the accident because (1) State Farm had led Mr. and Mrs. Alves to believe they were insured, and (2) it was negligent in failing to discover the misrepresentation within a reasonable time. The trial court ruled in favor of State Farm, holding that it had issued the policy in reliance upon the misrepresentation, that rescission was proper, and that State Farm had acted promptly upon discovery of the misrepresentation.

In reversing the trial court, the Supreme Court recognized the independent duty of an automobile insurer to "undertake a reasonable investigation of the insured's insurability within a reasonable period of time from the acceptance of the application and the issuance of a policy. This duty directly inures to the benefit of third persons injured by the insured." (Id., p. 663, 79 Cal.Rptr. p. 109, 456 P.2d p. 677.) The court continued: "Such an injured party, who has obtained an unsatisfied judgment against the insured, may properly proceed against the insurer; the insurer cannot then successfully defend upon the ground of its own failure reasonably to investigate the application." (Ibid.)

The Supreme Court, discussing the facts of the case, stated: "The evidence suggests that State Farm, in failing to investigate Alves's insurability . . . pursued a policy of saving minor costs on its part at the expense and sacrifice of the interests of its insured and those of the general public who were the potential victims of the insured's negligence. . . . (P) State Farm's investigative practices may fail to conform to the standard of service which the public may reasonably expect of an insurance company and, more importantly here, may violate the public policy underlying California's Financial Responsibility Law. As we explain hereinafter in more detail, the 'quasi-public' nature of the insurance business and the public policy underlying (that Law) . . . impose upon the automobile liability insurer a duty both to the insured and to the public to conduct a reasonable (and timely) investigation of insurability . . . . We may characterize this duty as one sounding either in tort or quasi-contract. The label is not important. We hold, however, that in order to avoid liability to an innocent victim of the insured the insurer cannot take advantage of a breach of its duty . . . ." (Id., at pp. 667-669, 79 Cal.Rptr. at pp. 112-113, 456 P.2d at pp. 680-681, fns. omitted.)

In the lengthy discussion which follows the above quoted material, the Court concerns itself with the public policy expressed in the Financial Responsibility Law. On the issue of privity the Court draws upon several cases which imposed liability in favor of third parties in non-automobile situations (Biakanja v. Irving (1958) 49 Cal.2d 647, 320 P.2d 16; Lucas v. Hamm (1961) 56 Cal.2d 583, 15 Cal.Rptr. 821, 364 P.2d 685, and Connor v. Great Western Sav. & Loan Assn. (1968) 69 Cal.2d 850, 73 Cal.Rptr. 369, 447 P.2d 609), finding the rules therein equally applicable to automobile liability insurers. (Id., 71 Cal.2d pp. 672-673, 674-677, 79 Cal.Rptr. 106, 456 P.2d 674.)

In Biakanja, a notary public who undertook preparation of a will but negligently failed to have it properly attested was held directly liable to an intended beneficiary. (49 Cal.2d at pp. 650-651, 320 P.2d 16.) In Lucas, similar liability to an intended beneficiary was imposed upon an attorney who negligently drafted a will. (56 Cal.2d at pp. 589-591, 15 Cal.Rptr. 821, 364 P.2d 685.) In Connor, relied upon heavily by real parties here, a lending institution was held directly liable to those members of the public who had purchased defectively constructed homes in a residential tract development, an undertaking in the planning and construction of which the...