Osborne v. Security Ins. Co.

• Decision Date: 13 November 1957
• Citation: 155 Cal.App.2d 201,318 P.2d 94
• Court: California Court of Appeals Court of Appeals
• Parties: Charles Byron OSBORNE, Harold G. Osborne, Arminta M. Osborne, Chris Thwaits and Rex Thwaits, Plaintiffs and Appellants, v. The SECURITY INSURANCE COMPANY, a corporation, the Connecticut Indemnity Company, a corporation, Defendants and Respondents, Farmers Insurance Exchange, an interinsurance exchange, Defendant, Respondent and Appellant. Civ. 22384.

Page 94

318 P.2d 94

155 Cal.App.2d 201

Charles Byron OSBORNE, Harold G. Osborne, Arminta M. Osborne, Chris Thwaits and Rex Thwaits, Plaintiffs and Appellants, v. The SECURITY INSURANCE COMPANY, a corporation, the Connecticut Indemnity Company, a corporation, Defendants and Respondents, Farmers Insurance Exchange, an interinsurance exchange, Defendant, Respondent and Appellant.

Civ. 22384.

District Court of Appeal, Second District, Division 2, California.

Nov. 13, 1957.

Rehearing Denied Dec. 9, 1957.

Hearing Denied Jan. 6, 1958.

Hagenbaugh & Murphy, Los Angeles, for appellants Osborne and Thwaits.

Early, Maslach, Foran & Williams, and Harry Boyd, Los Angeles, for appellant Farmers Ins. Exchange.

Eugene S. Ives, Los Angeles, for respondents.

ASHBURN, Justice.

Action for declaratory relief determining the respective duties of three insurance companies with respect to a personal injury action growing out of a collision between a Buick automobile and a Chevrolet on Mill Creek Road in the mountains of San Bernardino County, on August 9, 1952. The plaintiffs and one of the insurers appeal from the judgment.

The Buick was occupied at the time of the accident by five persons named Smith. The Chevrolet was owned by Rex Thwaits and driven by Charles Byron Osborne, both of whom were minors. All of the Smiths sued for damages for personal injuries. They joined as defendants Rex Thwaits and his mother, Chris Thwaits, Charles Byron Osborne and his parents, Harold G. Osborne and Arminta M. Osborne. The Thwaits had or thought they had liability coverage under a combination automobile liability police No. CA 713138 issued jointly by the Security Insurance Company and the Connecticut Indemnity Company, in which the named insured was Chris Thwaits, the mother of Rex Thwaits. The Osbornes had two liability policies, Nos. 9162959 and 16082208 issued by appellant Farmers Insurance Exchange to Harold G. Osborne, the father of Charles and husband of Arminta. The Thwaits and Osbornes called upon their respective insurers to defend the Smith action. This the Security and Connecticut refused to do, claiming that the Thwaits policy is void and that if valid its terms do not protect Rex Thwaits or the Osbornes. Farmers took the position that any coverage afforded to Harold G. Osborne and Arminta M. Osborne by its policies is excess insurance only and does not cover Charles Byron Osborne at all. The trial court made holdings which require a reversal and can be best clarified when considered separately.

Security-Connecticut Policy.

First as to the claims of the Thwaits under the Security-Connecticut policy. The Chevrolet was owned by Rex Thwaits, aged 17, for whom his mother bought it as a present when he graduated from high school; it was registered in his name as owner; it was a new car; his mother traded a 1949 used Ford on account of the purchase price and executed an agreement to pay to General Motors Acceptance Corporation the balance of the purchase price; Rex also signed this document. The insurance policy was already in existence, covering the Ford and designating Chris Thwaits, the mother, as named insured. On the day of its purchase, June 11, 1952, the coverage was transferred to the Chevrolet but the policy remained in the name of Chris Thwaits and Rex was not specifically mentioned therein as additional insured or otherwise. The insurance companies, Security and Connecticut, contended that the policy was thenceforth void because Chris Thwaits was not the owner of the Chevrolet and had no insurable interest in it.

Insurable Interest of Chris Thwaits.

The trial court did not pass upon this question but declared that the policy did not cover any liability of Rex Thwaits and that there was no duty upon the insurance companies to defend him; that they had a duty to defend Chris Thwaits because it was alleged in the Smith personal injury complaint that she was the owner of the car and that it was being driven by her agent, the truth or falsity of these allegations being immaterial. Appellants claim that the court's silence as to the issue of insurable interest was a failure to find upon a material issue and prejudicial error. We are constrained to agree.

It is the duty of the court hearing an action for declaratory relief to make a complete determination of the controversy. American Enterprise, Inc., v. Van Winkle, 39 Cal.2d 210, 219, 246 P.2d 935. As to the prejudicial nature of failure to find upon a material issue in any case, see Parker v. Shell Oil Co., 29 Cal.2d 503, 512, 175 P.2d 838; De Burgh v. De Burgh, 39 Cal.2d 858, 873, 250 P.2d 598. The grievous nature of this error will become apparent as the discussion proceeds.

The rule that the purchaser of an insurance policy must have an insurable interest in the subject matter at the time of procuring the insurance pervades the entire field of insurance law, not excepting that of automobile liability protection. 44 C.J.S. Insurance § 175, p. 869. The object to be obtained by this rule, the reason for its being, is avoidance of wagering contracts. Williston on Contracts (Rev.Ed.), § 1665A, pp. 4705-4706; 4 Appleman on Insurance Law and Practice, § 2121, pp. 18-19; Annotation, 77 A.L.R. 1256. Hence any kind of an interest in the risk attendant upon the existence or use of the insured property is enough to negate a wager and support the policy. 2 Joyce Law of Insurance (2nd Ed.), § 888, p. 1920; Rest., Law of Contracts, § 520, comment e, p. 1008; Annotation, 77 A.L.R. 1257. This principle has been carried into §§ 250 and 281 Insurance Code, which respectively read as follows:

' § 250. Events subject to insurance. Except as provided in this article any contingent orunknown event, whether past or future, which may damnify a person having an insurable interest, or create a liability against him, may be insured against, subject to the provisions of this code.' ' § 281. Definition. Every interest in property, or any relation thereto, or liability in respect thereof, of such a nature that a contemplated peril might directly damnify the insured, is an insurable interest.'

Mrs. Thwaits, though she had given the car to her son, signed a conditional sale contract and separately obligated herself to pay to General Motors Acceptance Corporation the full balance of the purchase price; the destruction of the vehicle would subject her to substantial loss in the absence of protecting insurance. Also, she had signed her minor son's application for a driver's license and thus rendered herself liable for damages for injuries to person or property caused by his negligence arising out of driving the vehicle upon a highway (Veh.Code, § 352(a)). Mrs. Thwaits had an undoubted right to insure against this risk, especially as the car was intended primarily for the son's use upon the highway. The argument that it does not appear that he was driving (actually or constructively) or even present at the time of the accident seems to be contrary to the record and in any event is misplaced. In all cases other than life insurance the question of insurable interest presents the matter of protection against possibilities, contingencies and hazards, not inevitable events. Mrs. Thwaits was insuring against these hazards generally, not that of one specific trip. That she had a cognizable in surable interest appears from perusal of the following authorities, all of which proceed upon the basis that ownership is not an exclusive test of insurable interest: Davis v. California Highway Indem. Exch., 118 Cal.App. 403, 405-406, 5 P.2d 447; American Surety Co. of New York v. Heise, 136 Cal.App.2d 689, 289 P.2d 103; Fageol Truck & Coach Co. v. Pacific Indemnity Co., 18 Cal.2d 731, 738, 117 P.2d 661; Pratt v. Hanover Fire Ins. Co., 50 R.I. 203, 146 A. 763, 764; 28 Cal.Jur.2d § 508, p. 256; 44 C.J.S. Insurance § 177, p. 873; 5 Am.Jur. § 513, pp. 793, 794; Annotation, 77 A.L.R. 1256. It thus appears that Mrs. Thwaits had an insurable interest in the subject matter of the insurance, the policy is not void and the court should have so determined.

Security-Connecticut Obligation to Protect Chris Thwaits.

The court properly held that Security and Connecticut were obligated to defend Mrs. Thwaits because she was charged in the personal injury action with ownership of the Chevrolet and operation of same through her agent. That obligation is measured by the terms of the policy applied to the allegations of the complaint whether they be true or false. Ritchie v. Anchor Casualty Co., 135 Cal.App.2d 245, 250, 286 P.2d 1000; Lamb v. Belt Cas. Co., 3 Cal.App.2d 624, 630, 40 P.2d 311. An insurer who has undertaken such defense is bound by the judgment (45 C.J.S. Insurance § 933, p. 1055), and if the defense proves unsuccessful the insurer must pay the judgment. This latter phase of Mrs. Thwaits' right to protection was not declared in the judgment but that should have been done.

Security-Connecticut Obligation to Protect Rex Thwaits.

Security and Connecticut were obligated to protect Rex Thwaits. Their refusal to do so stemmed, at least partially, from the faulty view that the policy is void. Reliance is also placed by respondents upon III of the insuring agreements, which says: 'With respect to the insurance for bodily injury liability and for property damage liability the unqualified word 'Insured' includes the named Insured and also includes any person while using the automobile and any person or organization legally responsible for the use thereof, provided the actual use of the automobile is by the named Insured or with his permission.'

Mrs. Thwaits was named insured; Rex Thwaits and Charles Osborne were using the automobile; Rex was responsible for its use by Osborne; and that use was with the permission of Mrs. Thwaits, the named insured. The trial judge found: 'that the words 'using the car' clearly means driving the car; that Rex Thwaits was not driving the car on August 9, 1952 at the time of the accident.'...