Ohio Farmers Ins. Co. v. Quin, D005558

• Decision Date: 25 February 1988
• Docket Number: No. D005558,D005558
• Citation: 198 Cal.App.3d 1338,244 Cal.Rptr. 359
• Court: California Court of Appeals Court of Appeals
• Parties: OHIO FARMERS INSURANCE COMPANY, Plaintiff and Appellant, v. Donald QUIN, Defendant and Respondent.

Page 359

244 Cal.Rptr. 359

198 Cal.App.3d 1338

OHIO FARMERS INSURANCE COMPANY, Plaintiff and Appellant, v. Donald QUIN, Defendant and Respondent.

No. D005558.

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

Feb. 25, 1988.

Goodheart and Wakcher, Michael R. Goodheart and Thomas R. Woelfel, Woodland Hills, for plaintiff and appellant

Haskins, Nugent, Newnham, Kane & Zvetina, Thomas P. Nugent and Michael H. Fish, San Diego, for defendant and respondent.

TODD, Associate Justice.

Ohio Farmers Insurance Company (Ohio Farmers) appeals a judgment in favor of Donald Quin in a declaratory relief action. The trial court ruled Ohio Farmers was liable for damages caused by a permissive user who was not specifically identified in an exclusionary provision of its policy. The primary issue before us is whether the word "use" in the 1982 version of INSURANCE CODE SECTION 11580.1¹, subdivision (d)(1), included entrustment.

FACTS

In October 1982, Quin was injured when his bicycle was struck by an automobile driven by Sylvia Chiaravallo. The automobile was owned by Kathleen Sullivan, who was insured by Ohio Farmers. Sullivan's son, Murray Martin, had entrusted the automobile to Chiaravallo. Sullivan's policy contained an endorsement excluding coverage while Martin was "using" the vehicle and defining "use" as "including permitting some other person to operate" the vehicle. ² In June 1983, Quin filed a complaint for damages against Chiaravallo, Martin and Sullivan, and Ohio Farmers defended Sullivan under a reservation of rights. In May 1984, Ohio Farmers filed this declaratory relief action. Among other things, the parties stipulated: (1) Sullivan did not know Chiaravallo; (2) Martin had unlimited authority from Sullivan to drive the automobile and allow others to do so, and (3) Chiaravallo would not have been driving the automobile had Martin not entrusted it to her.

The parties stipulated at the trial court the sole issue was whether the endorsement exceeded the scope of permissible automobile insurance exclusions under California law as it existed in 1982. After a court trial in which each side presented expert testimony, the trial court ruled in favor of Quin, concluding "use" did not include entrustment in 1982 and Ohio Farmers' attempt to exclude coverage of Sylvia was improper. In its statement of decision, the trial court said:

"It is public policy in California that all car insurance policies provide coverage to protect persons injured because of the negligence of a permissive user. Wildman v. Government Employees' Ins. Co. (1957) 48 Cal.2d 31 ; Insurance Code § 11580.1 (b)(4) enacted in 1963 [sic]; Metz v. Universal Underwriters Insurance Co. (1973) 10 Cal.3d 45 [109 Cal.Rptr. 698, 513 P.2d 922]. Thus § 11580.1 starts from the point of coverage for all permissive users and then creates a narrow exception to the general rule of subsection (d)(1) for a name designated natural person or persons in an insurance policy. Under the insurance policy here if Martin had been driving Sullivan's car at the time of the accident there would be no question that the exclusionary endorsement excluded coverage because it expressly designates Martin for exclusion.

"The Court also notes that it must strictly construe a statutory exception to promote the Legislature's objective. See Valdez v. Federal Mutual Insurance Co. (1969) 272 Cal.App.2d 223, 227 . Since it is the objective of § 11580.1 to include coverage extending to all permissive users in all insurance policies, it follows that an insurance policy cannot circumvent the objective of § 11580.1(b)(4) (as plaintiff's endorsement does in this case) by excluding a designated person's use but defining 'use' to include that designated person's entrustment of the car to others, i.e., undesignated permissive users. It follows from this conclusion that § 11580.1(d)(1)'s language 'used or operated by ...' cannot be construed to include entrustment. To do so would: (a) allow an insurer to exclude coverage for an anonymous class of individuals, which it may not do [Lovy v. State Farm Insurance Co. (1981) 117 Cal.App.3d 834, 173 Cal.Rptr. 307], and (b) interpret a statute in a way which creates a conflict between its sections. It is a rule of statutory construction that an interpretation is favored which reconciles what otherwise might be an internal conflict in a statute. Adams v. Howerton ( [9th Cir.] 1982) 673 F.2d 1036, 1040. In 1982, as now, 'use' does not include the act of entrustment.

"In further support of this conclusion, it is significant to note that in 1984 the definitional section of this Insurance Code chapter, § 11580.06 was amended to add subsection (g) as follows: 'The term "use" when applied to a motor vehicle shall only mean operating, maintaining, loading or unloading a motor vehicle.' In light of the problems discussed above which would occur if the Court construes 'use' to constitute entrustment, it seems reasonably clear that the 1984 definition of use merely clarified rather than changed the law.

"Ohio Farmers relies on Hyer v. Interinsurance Exchange (1926) 77 Cal.App. 343, 347 , and Sutton v. Tanger (1931) 115 Cal.App. 267 to support its contention that use constitutes entrustment. The reliance is misplaced. Hyer has no relevance to the issue here. Sutton is distinguishable as "Since the purpose and subject matter of Vehicle Code § 17150 and Insurance Code § 11580.1(d)(1) are not the same, plaintiff's argument that Sutton 's interpretation of 'operate' should apply to § 11580.1(d)(1) is neither controlling nor persuasive.

a case holding that a person driving with a permittee's permission is an implied permittee of the owner of the vehicle. 115 Cal.App. at 270 [1 P.2d 521]. It concerns itself with an owner's liability without regard to insurance and construes former Civil Code § 1714.25, now Vehicle Code § 17150, not Insurance Code § 11580.1(d)(1). Section 11580.1(d)(1) involves coverage of the permissive user him/herself.

"For the above reasons, the Court concludes that Ohio Farmer's attempt to exclude coverage of Sylvia, as a member of the class of persons defined as direct permittees of Martin is invalid...."

DISCUSSION

Ohio Farmers contends (1) the trial court incorrectly applied canons of insurance policy interpretation to a matter of statutory construction, (2) the 1984 amendment to section 11580.06 adding a definition of "use" that excluded entrustment was a change in the law and thus in 1982 "use" included entrustment, (3) the trial court incorrectly concluded that the interpretation of "use" in Sutton, supra, did not apply to section 11580.1, subdivision (d)(1), and (4) Ohio Farmers' concern in excluding entrustment by a named individual is legitimate.

I

We have reviewed the trial court's statement of decision and are unable to find or discern any improper application of insurance policy interpretation. It is true that at trial Quin cited authorities that hold in interpreting insurance policies: (1) coverage clauses are interpreted broadly to afford the greatest possible extent of coverage, whereas exclusionary clauses are interpreted narrowly; and (2) if two or more interpretations are reasonable, the court must adopt the interpretation favoring coverage. However, Quin--both at trial and here--has relied principally on cases interpreting section 11580.1, especially the public policy argument advanced by the courts in reaching their interpretations of the statute. In any event, the trial court did not misapply rules of construction regarding insurance policies but rather correctly applied rules of statutory construction to conclude "use" did not include entrustment in 1982.

In 1982, section 11580.1 provided in pertinent part:

"(b) Every policy of automobile liability insurance ... shall contain all of the following provisions:

"...

"(4) Provision affording insurance to the named insured with respect to any motor vehicle covered by such policy, and to the same extent that insurance is afforded to the named insured, to any other person using, or legally responsible for the use of, such motor vehicle, provided such use is by the named insured or with his permission, express or implied, and within the scope of such permission....

"...

"(d) Notwithstanding the provisions of paragraph (4) of subdivision (b), ... the insurer and any named insured may, by the terms of any policy of automobile liability insurance to which subdivision (a) applies, or by a separate writing relating thereto, agree as to either or both of the following limitations, such agreement to be binding upon every insured to whom such policy applies and upon every third party claimant:

"(1) That coverage ... under such policy shall not apply nor accrue to the benefit of any insured or any third party claimant while any insured motor vehicle is being used or operated by a natural person or persons designated by name...." (Stats.1981, ch. 36, § 1, p. 79-81.)

Thus the key question is: Did the term "used" in the 1982 version of section 11580.1, subdivision (d)(1) encompass entrustment? We believe it did not.

Since 1957, when our Supreme Court issued its decision in Wildman v. Government Employees' Ins. Co. (1957) 48 Cal.2d 31, 307 P.2d 359, the public policy of this state has been that every automobile liability policy, as a matter of law, must cover permissive users, and any provision in the policy excluding them is illegal. ³ (See also Interinsurance Exchange v. Ohio Cas. Ins. Co. (1962) 58 Cal.2d 142, 145, 23 Cal.Rptr. 592, 373 P.2d 640.)

The Wildman court was presented with the question of whether, in light of Vehicle Code section 415, subdivision (a)(2), ⁴ an insurance company authorized to do business in California could, by restrictive endorsement in a policy, limit coverage to the named insured and his immediate family. ⁵ At the time of the accident in which Mrs. Wildman was injured, the insured car was being driven by Victoria Villanueva with the permission of...