Hertz Corp. v. Home Ins. Co.

• Decision Date: 31 March 1993
• Docket Number: No. D013976,D013976
• Citation: 18 Cal.Rptr.2d 267,14 Cal.App.4th 1071
• Court: California Court of Appeals Court of Appeals
• Parties: HERTZ CORPORATION et al., Plaintiffs and Respondents, v. HOME INSURANCE COMPANY et al., Defendants and Appellants.

Page 267

18 Cal.Rptr.2d 267

14 Cal.App.4th 1071

HERTZ CORPORATION et al., Plaintiffs and Respondents, v. HOME INSURANCE COMPANY et al., Defendants and Appellants.

No. D013976.

Court of Appeal, Fourth District, Division 1, California.

March 31, 1993.

Rehearing Denied April 21, 1993.

Haight, Brown & Bonesteel, David L. Jones and Thomas N. Charchut, Santa Monica, for defendants and appellants.

Jennings, Engstrand & Henrikson, Cozen and O'Connor, and Kevin D. Bush, San Diego, for plaintiffs and respondents.

FROEHLICH, Associate Justice.

The Home Insurance Company and H.L. Yoh Company (appellants) appeal from a judgment entered in favor of the Hertz Corporation and Fireman's Fund Insurance Companies (respondents) in a declaratory relief action. The parties had disputed the question of who was obligated to fund

the settlement entered into with two third party victims injured in an accident involving a person covered by various policies of insurance. The trial court ruled in favor of respondents, because the insuring agreements issued by respondents contained an exclusion purporting to bar coverage for the accident. This appeal followed.

I GENESIS OF THE DISPUTE

A. Facts

In early 1988 appellant H.L. Yoh Company (H.L. Yoh) sent an employee, Lawrence McIntyre (McIntyre), to work in various locations in San Diego. McIntyre worked in the San Diego area from January through May, during which time he rented several vehicles from appellant Hertz Corporation (Hertz), including the one involved in the subject accident. When he rented Hertz cars, McIntyre signed the Hertz Rental Agreement and elected to purchase the "liability insurance supplement" coverage (the "LIS/excess policy"). The dispute here revolves around this policy.

On May 1, McIntyre, while driving a Hertz car, rear-ended a car, injuring its two occupants. Prior to the accident McIntyre had been drinking, and he subsequently pleaded guilty to driving under the influence of alcohol.

The injured parties filed suits against McIntyre, H.L. Yoh and Hertz. Respondents subsequently filed a separate complaint seeking a declaration that they were not obligated to provide any LIS/excess coverage to McIntyre for the subject accident because McIntyre had violated a contractual clause against driving the vehicle while under the influence of alcohol.

The parties ultimately settled the injury lawsuits using contributions from both respondents and appellants. By stipulation the parties preserved their rights to seek reimbursement from each other in the declaratory relief action. The declaratory relief complaint was then amended to reflect the settlement, and also to reflect respondents' claim that they were entitled to reimbursement for all amounts they paid above $50,000, i.e., the amounts they paid under the LIS/excess policy. ¹

B. The Insuring Agreements

The agreements in question are (1) the Hertz Rental Agreement and (2) the LIS/excess policy issued by Fireman's Fund (Fireman's). We detail the relevant portions of each of these insuring agreements:

1. The Hertz Agreement

The Hertz Rental Agreement contained a provision indemnifying McIntyre from liability to third persons resulting from an accident which occurred while the rented vehicle was in use. The limits of protection were $25,000 per person/$50,000 per accident.

In addition, the second page of the rental agreement contained a section, highlighted both by its format (placed in a separate box) and by its typeface (all capital letters), which described the prohibited uses of the rented vehicle. Paragraph 5 stated:

"5. PROHIBITED USE OF THE CAR.

THE CAR MAY NOT BE USED: BY ANYONE UNDER THE INFLUENCE OF ALCOHOL OR OTHER INTOXICANTS, SUCH AS DRUGS; ... IF THE CAR IS OBTAINED OR USED IN VIOLATION OF THIS AGREEMENT ... LDW, PAI, AND PEC AND ALL LIABILITY PROTECTION, INCLUDING LIS, ARE VOID AND YOU MAY BE RESPONSIBLE FOR ALL LOSS OR DAMAGE TO OR CONNECTED WITH THE CAR, REGARDLESS OF CAUSE." (Emphasis added.)

This second page of the rental agreement, containing the "driving under the influence" exclusion, was also posted at the rental counter for review by customers. ²

2. The LIS/Excess Policy

The LIS/excess policy issued by Fireman's clearly specified it was to serve as an excess policy over the Hertz policy, i.e., it only provided coverage in excess of the protections provided by the "primary policy," which it defined in its "Schedule of Primary Insurance" to be the Hertz Rental Agreement.

The LIS/excess policy then incorporated by reference the limitations on coverage imposed by the Hertz Rental Agreement. Specifically, the policy stated:

"The insurance afforded by Coverage A [i.e., the excess liability coverage] is subject to the same definitions, terms, conditions and exclusions as are contained in the Primary Policy...." (Emphasis added.)

C. The LIS Summary

When McIntyre elected to purchase the LIS/excess coverage, he initialed a box on the rental agreement signifying he desired such coverage. Next to his initials within the LIS box was the statement: "You acknowledge reading SUMMARY of coverage." That summary was in a "question and answer" format. One of the questions, formatted in boldface type, asked, "Are there any exclusions under LIS? Yes." The first of the six nonexclusive categories listed as examples of exclusions was "[i]f the customer ... uses or permits the Rental Vehicle to be used in violation of the terms of the Rental Agreement."

D. The Trial Court Judgment

Respondents moved for summary judgment, contending there was no triable issue of fact and that as a matter of law McIntyre was precluded from coverage under the LIS/excess policy because the accident occurred while he was drunk, thereby triggering the "driving under the influence" exclusion. Appellants opposed the motion, arguing the Fireman's policy was by its own terms a primary policy, and under Insurance Code section 11580.1 an exclusion for "driving under the influence" would not be valid in a primary policy. ³ Appellants also argued that even assuming such an exclusion was valid, it was intrinsically vague and insufficiently incorporated into the LIS/excess policy.

Appellants cross-moved for summary judgment, raising essentially the same contentions and claiming they were therefore entitled to have Fireman's act as the first-layer insurer for the accident. In response, Fireman's argued the LIS/excess policy was excess to the liability limits of the Hertz Rental Agreement and therefore not subject to Insurance Code section 11580.1's limitations on permissible exclusions. Fireman's argued that it therefore could exclude, and did exclude with sufficient clarity, accidents caused by drunk drivers.

The trial court granted respondents' motion and denied appellants' cross-motion. Appellants unsuccessfully moved for reconsideration, and judgment in respondents' favor was entered. This appeal followed.

E. Summary of Issues

Several issues are disputed by the parties. Importantly, however, it is not disputed that INSURANCE CODE SECTION 11580.1⁴, upon which this appeal turns, permits an excess insurer to have exclusions broader than allowed by section 11580.1 so long as the "underlying insurance" requirement of that statute is satisfied. The key issues are: (1) Is the Hertz Rental Agreement a primary insurance policy? (2) Does the presence of the exclusion in the Hertz rental agreement mean there is no "available" underlying insurance, thereby causing the LIS/excess policy to be the only (and hence primary) policy available to McIntyre? (3) Is the exclusion clear enough and sufficiently incorporated into the LIS/excess policy to be enforceable?

II ANALYSIS

A. The Hertz Rental Agreement Is the Primary Policy, and the Purported Exclusion Is Invalid As to that Level of Coverage

The first set of issues requires little discussion. The terms of the Hertz Rental Agreement provide that Hertz would indemnify and hold McIntyre harmless from liabilities to third parties. Ordinarily, where there is a risk of loss to which one party is subject based on contingent or future events and a contract which shifts that risk to another, together with a distribution of the risks among similarly situated persons, the contract is one of insurance. (Metropolitan Life Ins. Co. v. State Bd. of Equalization (1982) 32 Cal.3d 649, 654, 186 Cal.Rptr. 578, 652 P.2d 426.) ⁵ All of those elements are present here. Indeed, the terms of Hertz's agreement suggest Hertz understood the agreement served as insurance, because its contract referred to its own coverage as "primary" to other insurance protections available to the lessee.

Since the Hertz Rental Agreement provided primary coverage, the purported exclusion for driving while intoxicated is unenforceable, under section 11580.1, as to the Hertz layer of coverage. Section 11580.1 has repeatedly been interpreted to contain the exhaustive list of exclusions permissible in an automobile policy. (See, e.g., California State Auto. Assn. Inter-Ins. Bureau v. Gong (1984) 162 Cal.App.3d 518, 528, 208 Cal.Rptr. 649 ["Any exclusion not expressly authorized by section 11580.1 is ... impermissible and invalid"]; Contreras v. America, Compania General De Seguros, S.A. (1975) 48 Cal.App.3d 270, 281, 121 Cal.Rptr. 694 ["[I]t was the legislative intent that exclusions not therein listed are impermissible"].) We have examined the provisions of section 11580.1 and found nothing which would permit an insurer under a primary automobile insurance policy to exclude accidents caused by an intoxicated driver. ⁶ Accordingly, to the extent the exclusion purported to exclude coverage under Hertz's primary insuring agreement it would be void.

B. Because There Was Valid Collectible Underlying Insurance, Fireman's Excess Insurance Policy Is Not Precluded from Adopting Exclusions Beyond Those Authorized by Section 11580.1

The parties agree that an "excess policy" is not bound by the limitations on permissible exclusions if...