Fresno Economy Import Used Cars, Inc. v. U.S. Fid. & Guar. Co.

• Decision Date: 28 December 1977
• Docket Number: No. 5,5
• Citation: 76 Cal.App.3d 272,142 Cal.Rptr. 681
• Court: California Court of Appeals Court of Appeals
• Parties: FRESNO ECONOMY IMPORT USED CARS, INC., etc., et al., Cross-Complainants and Appellants, v. UNITED STATES FIDELITY & GUARANTY COMPANY, INC., et al., Cross-Defendants and Respondents. Civ. 3024.

Page 681

142 Cal.Rptr. 681

76 Cal.App.3d 272

FRESNO ECONOMY IMPORT USED CARS, INC., etc., et al., Cross-Complainants and Appellants, v. UNITED STATES FIDELITY & GUARANTY COMPANY, INC., et al., Cross-Defendants and Respondents.

No. 5 Civ. 3024.

Court of Appeal, Fifth District, California.

Dec. 28, 1977.

Hearing Denied Feb. 22, 1978.

Dominic P. Mushines, Richard Bellardinelli, Fresno, for cross-complainants and appellants

McCormick, Barstow, Sheppard, Coyle & Wayte, Stephen J. Kane, Fresno, for cross-defendants and respondents.

OPINION

FRANSON, Associate Justice.

INTRODUCTION

This is an appeal from a judgment in a consolidated trial on two cross-complaints for declaratory relief arising out of the refusal of cross-defendant (USF&G) to defend two third party lawsuits brought against the cross-complainant and appellant, Fresno Economy Import Used Cars, Inc. The third party suits are based on a sale and a lease of two automobiles by appellant to the plaintiffs in the third party suits and seek damages for negligent misrepresentations and breach of an implied warranty of fitness due to the mechanical condition and mileage of the automobiles. Appellant contends that under the terms of a comprehensive general liability policy that USF&G had a duty to defend appellant in the third party actions and to indemnify appellant should it be found liable on the causes of action contained therein. ¹ To answer appellant's contention, we must examine the allegations in the third party actions and the coverage provisions of the insurance policy.

ALLEGATIONS OF THE THIRD PARTY ACTIONS

In Susan Neely v. Fresno Economy Import Used Cars, Inc., et al., there are four causes of action pertinent to this appeal.

The first cause of action alleges that the plaintiff purchased a 1969 Fiat automobile from Fresno Economy Import Used Cars, Inc., on February 17, 1973, for a total purchase price of $2,461.95. It further alleges that at the time of the sale, the odometer reading was 25,703 miles and that said defendant represented to the plaintiff that the odometer reading was correct, that the odometer had been manipulated by the defendants and the vehicle had been driven more than 75,000 miles prior to the sale. Plaintiff further alleges that she relied upon these representations concerning the odometer reading and was induced to purchase the vehicle all to her damage in the amount of $2,646.20. The charging allegations are that the acts of the defendant were "willful, deliberate, malicious, and intended to oppress and defraud plaintiff" so that plaintiff is entitled to $100,000 exemplary or punitive damages.

The third cause of action incorporates several paragraphs of the first cause of action and further alleges that the vehicle in question had a blown head gasket at the time of sale, and the defendant had represented to the plaintiff that the vehicle had no "major mechanical defects." Plaintiff alleges intentional fraud and again seeks recovery in the amount of $2,646.20 and $100,000 for exemplary damages.

The fifth cause of action incorporates several paragraphs of the first cause of action and alleges that the defendant "negligently, carelessly and recklessly failed to obtain said information and data or any information and data concerning said automobile and negligently, carelessly and recklessly made said representations, without said information and data regarding the actual mileage."

The seventh cause of action is for breach of an implied warranty of fitness; it incorporates several paragraphs of the first cause of action and alleges that plaintiff was required to make necessary repairs on the automobile at her own expense because the defendant refused to make the repairs. Plaintiff seeks damages for the down payment and monthly payments on the purchase of the automobile and for necessary repairs in the sum of $2,646.20.

In Don G. Nicholson and Herbert D. Lawley v. Fresno Economy Import Used Cars, et al., there are two causes of action pertinent to this appeal. The first alleges that on February 19, 1973, the plaintiffs leased a 1972 Porche from the defendant, the vehicle having a total value of $9,700. It further alleged that this automobile was represented to be a new demonstration model, but that it had been involved in a collision on November 1, 1972, causing substantial damage. The plaintiffs also alleged that defendant knew that the representations were false and were made to induce both plaintiffs to lease the car and that the said representations were "willful, deliberate, malicious and intended to oppress and defraud" plaintiffs all to the plaintiffs' damage in excess of $5,000. Plaintiffs also seek $100,000 for punitive and exemplary damages.

The fourth cause of action incorporates several paragraphs of the first cause of action and further alleges that the defendants "negligently, carelessly and recklessly made said representations without ascertaining their truth" and that the representations were made regarding the condition of the automobile when the defendants were well aware that without these facts, they could not accurately state that it was a new demonstration model.

THE INSURANCE COVERAGE

There was in effect at the time of the occurrences alleged in the third party actions insurance coverage by USF&G under a "Master Insurance Policy." The applicable coverage provision is entitled "Comprehensive General Liability Insurance" and provides:

"The Company will pay on behalf of the Insured all sums which the Insured shall become legally obligated to pay as damages because of

"A. bodily injury or

"B. property damage

"to which this insurance applies, caused by an occurrence, and the Company shall have the right and duty to defend any suit against the Insured seeking damages on account of such bodily injury or property damage, even if any of the allegations of the suit are groundless, false or fraudulent, and may make such investigation and settlement of any claim or suit as it deems expedient, but the Company shall not be obligated to pay any claim or judgment or to defend any suit after the applicable limit of the Company's liability has been exhausted by payment of judgments or settlements." (Original emphasis.)

"Property damage" is defined as "injury to or destruction of tangible property." An "occurrence" is defined as "an accident, including injurious exposure to conditions, which results, . . . in bodily injury or property damage neither expected nor intended from the standpoint of the Insured." (Original emphasis.)

DISCUSSION

The question is whether the duty to defend set forth in the coverage clause applies to any of the causes of action alleged in the third party suits against appellant. Appellant contends that the causes of action for negligent misrepresentation and breach of implied warranty established a "potentiality" of liability for property damage, thereby triggering the duty to defend. As we shall explain, however, the duty to defend did not arise because the suits against appellant do not allege a possible injury to or destruction of tangible property.

Three fundamental principles have been judicially developed for determining the obligation of a liability insurer to its insured: First, any ambiguities in the language of a policy are to be construed against the insurer (Gray v. Zurich Insurance Co. (1966) 65 Cal.2d 263, 269, 54 Cal.Rptr. 104, 419 P.2d 168). This rule applies to ambiguities relating to the peril insured against, the amount of liability, and the persons protected (id, at p. 269, fn. 3, 54 Cal.Rptr. 104, 419 P.2d 168). Second, the duty to defend is broader than the obligation to indemnify. This results from the difficulty in determining whether the third party suit falls within the indemnification coverage before the suit is resolved. To solve this problem, the courts have imposed a duty to defend whenever the insurer ascertains facts which give rise to the possibility or "potential" of liability to indemnify (id., at pp. 276-277, 54 Cal.Rptr. 104, 419 P.2d 168). Therefore, before an insurer may rightfully reject a tender of defense, it must investigate and evaluate the facts expressed or implied in the third party complaint as well as those which it learns from its insured and any other sources (id., at p. 276, 54 Cal.Rptr. 104, 419 P.2d 168). Third, while the courts look to the provisions of the policy to determine the existence of a duty to defend, the fact that the contract is one of adhesion requires the court to ascertain the meaning of the contract "which the insured would reasonably expect." (Id., at pp. 269-270, 54 Cal.Rptr. p. 108, 419 P.2d p. 172.)

Applying these principles to the present case, we conclude that appellants were not entitled to a defense by USF&G. There is no uncertainty in the coverage provided. While the policy is titled "Comprehensive General Liability Insurance," the coverage is expressly limited to "bodily injury" or " property damage." This limitation is set forth by itself in bold print in the coverage paragraph.

The third party complaints set forth no facts which constitute an allegation of personal injury or property damage. While the damages claimed to have been suffered by the plaintiffs relate to the automobiles sold and leased, they are predicated on the misrepresentations made by appellant concerning the automobiles. There are no allegations suggesting that appellant's representations caused injury or damage to the automobiles. To the contrary, the damage was to the plaintiffs' pecuniary interests the out-of-pocket loss caused by the fact that plaintiffs did not receive full value for the money paid for the purchase and lease of the automobiles. Such loss of anticipated value does not constitute an "injury to or destruction of tangible personal property" as defined in the policy.

Appellant argues that the language "Comprehensive General Liability Insurance" in the title of the policy conflicts with the "property damage"...