Philadelphia Indem. Ins. Co. v. Barerra

• Decision Date: 05 August 1999
• Docket Number: No. 1 CA-CV 98-0261.,1 CA-CV 98-0261.
• Citation: 196 Ariz. 391,998 P.2d 1064
• Parties: PHILADELPHIA INDEMNITY INSURANCE COMPANY, Plaintiff-Counterdefendant-Appellee, v. Ana BARERRA, individually and as Personal Representative of the Estate of Melvin Sanchez, deceased; Mario Huerta and Lucia Huerta, husband and wife, individually and as the natural parents of Pedro Huerta, a minor child; Juan Eduardo Quintero-Lopez and Michelle Quintero-Lopez, husband and wife, Defendants-Counterclaimants-Appellants.
• Court: Arizona Court of Appeals

998 P.2d 1064

196 Ariz. 391

PHILADELPHIA INDEMNITY INSURANCE COMPANY, Plaintiff-Counterdefendant-Appellee, v. Ana BARERRA, individually and as Personal Representative of the Estate of Melvin Sanchez, deceased; Mario Huerta and Lucia Huerta, husband and wife, individually and as the natural parents of Pedro Huerta, a minor child; Juan Eduardo Quintero-Lopez and Michelle Quintero-Lopez, husband and wife, Defendants-Counterclaimants-Appellants.

No. -0261.

Court of Appeals of Arizona, Division 1, Department C.

August 5, 1999.

Review Granted May 18, 2000.

Goldberg & Osborne by John E. Osborne, Tucson, Attorneys for Appellants.

Warner Angle Roper & Hallam Plc by Charles R. Hallam and Jerome K. Elwell, Phoenix, Attorneys for Appellee.

OPINION

GARBARINO, Judge.

¶ 1 Ana Barerra, the Estate of Melvin Sanchez, the Huertas, and the Quintero-Lopezes (Appellants) appeal from the grant of summary judgment in favor of Philadelphia Indemnity Insurance Company in a declaratory judgment action. Appellants also appeal the denial of their motion for summary judgment. For the reasons discussed below, we affirm.

FACTUAL AND PROCEDURAL HISTORY

¶ 2 On April 23, 1993, Juan Eduardo Quintero-Lopez rented a car from Value Rent-A-Car. At the time of the rental, Quintero-Lopez signed Value's rental agreement and an addendum thereto, and received a brochure explaining the various optional coverages available. Quintero-Lopez purchased supplemental liability insurance (SLI) issued by Philadelphia Indemnity Insurance Company, with policy limits equal to the difference between the primary insurance limits provided by Value and $1,000,000.

¶ 3 Later that day, while under the influence of alcohol, Quintero-Lopez crashed the rental car into a stopped semi-tractor trailer. The accident killed Melvin Sanchez, a passenger in the rental vehicle, and severely injured another passenger, Pedro Huerta. Ana Barerra, Sanchez's estate, and Huerta filed a personal injury suit against Quintero-Lopez, alleging that he had negligently and recklessly operated the rental vehicle at the time of the accident, and that Value provided primary coverage to Quintero-Lopez. In August 1995, the trial court entered judgment in that action against Quintero-Lopez: Pedro Huerta was awarded $435,000 for his personal injury claim and Ana Barerra was awarded $270,000 for the wrongful death of her son, Melvin Sanchez. Value tendered its policy limits of $30,000 to the plaintiffs and, ultimately, the parties entered into a Morris¹ agreement. As part of the agreement, Quintero-Lopez assigned all of his claims against Philadelphia, if any, to the plaintiffs in that underlying action.

¶ 4 Meanwhile, Philadelphia had filed a declaratory judgment action seeking a determination that it had no duty to defend or satisfy any judgment arising out of the accident in question because Quintero-Lopez had voided the rental agreement by breaching the provision against drunk driving. Appellants answered Philadelphia's complaint and counterclaimed, alleging breach of contract. Cross motions for summary judgment were filed. The trial court, without explanation, denied Appellants' motion for summary judgment and granted summary judgment in favor of Philadelphia.

¶ 5 Appellants appeal from the denial of their summary judgment motion and from the grant of summary judgment in favor of Philadelphia. We have jurisdiction pursuant to Arizona Revised Statutes Annotated (A.R.S.) section 12-2101(B) (1994).

ISSUES

1. Is a DUI exclusion in a SLI policy void as against public policy?

2. Was Philadelphia's DUI exclusion unconscionable or contrary to the reasonable expectations of the insured?

3. Did Philadelphia waive its policy defenses by failing to timely deny coverage?

DISCUSSION

I. Standard of Review

¶ 6 On review of summary judgment, this Court views the facts and the inferences drawn therefrom in the light most favorable to the party against whom judgment was entered. See AROK Constr. Co. v. Indian Constr. Servs., 174 Ariz. 291, 293, 848 P.2d 870, 872 (App.1993). "[W]e consider whether there exist genuine issues of material fact and whether the trial court correctly applied the substantive law." Jordan v. Burgbacher, 180 Ariz. 221, 225, 883 P.2d 458, 462 (App.1994). Insurance policies, which are construed as contracts, are interpreted as a matter of law. See Arizona Health Care Cost Containment Sys. v. Bentley, 187 Ariz. 229, 231, 928 P.2d 653, 655 (App.1996). Questions of law are reviewed by this Court de novo. Do by Minker v. Farmers Ins. Co. of Arizona, 171 Ariz. 113, 115, 828 P.2d 1254, 1256 (App.1991).

II. A DUI Exclusion in a SLI policy is not Void as Against Public Policy.

¶ 7 Appellants argue that as a matter of public policy, DUI exclusion clauses in excess carrier policies are unconscionable and, as such, void. However, Appellants fail to cite any Arizona cases to support their position. In fact, Arizona case law holds to the contrary; exclusionary clauses in insurance policies, applicable to excess coverages, are valid and enforceable. See Arceneaux v. State Farm Mut. Auto. Ins. Co., 113 Ariz. 216, 217-18, 550 P.2d 87, 88-89 (1976) (holding that a household exclusion in a primary automobile insurance policy was valid, so long as the minimum levels of Arizona's Financial Responsibility Act were met). Other jurisdictions have rejected this argument as well. See, e.g., Philadelphia Indem. Ins. Co. v. Carco Rentals, Inc., 923 F.Supp. 1143 (W.D.Ark.1996) (holding that a DUI exclusion in an excess liability coverage policy did not violate Arkansas' public policy); Hertz Corp. v. Home Ins. Co., 14 Cal.App.4th 1071, 18 Cal.Rptr.2d 267 (1993) (holding that because excess liability coverage is entitled to broader exemptions and exclusions than primary coverage, a conspicuous and unambiguous DUI exclusion is enforceable therein); Public Employees Mut. Ins. Co. v. Hertz Corp., 59 Wash.App. 641, 800 P.2d 831 (1990) (holding that the DUI exclusion in the rental car company's liability policy did not violate Washington's public policy because the prohibitive exclusion was directly related to an increased risk incurred by the rental company as a self-insurer). Additionally, section 28-4009(D) of the Arizona Revised Statutes Annotated specifically excludes excess liability carriers from the provisions of Arizona's Financial Responsibility Act:

D. A policy that grants the coverage required for a motor vehicle liability policy may also grant lawful coverage in excess of or in addition to the coverage specified for a motor vehicle liability policy, and the excess or additional coverage is not subject to this chapter. With respect to a policy that grants the excess or additional coverage, the term "motor vehicle liability policy" applies only to that part of the coverage that is required by this section.

A.R.S. § 28-4009(D) (Supp.1998).

¶ 8 In their reply brief, Appellants seek to distinguish Arceneaux on the grounds that it failed to address other public policy considerations that are present in this case, including the policy that Arizona's Uninsured Motorists Act was designed to protect citizens injured by uninsured drivers. We find this distinction to be inconsequential, and we reject Appellants' argument that any DUI exclusion found in an excess liability insurance policy is void as against public policy.

¶ 9 Alternatively, Appellants suggest that if we accept the holding of Arceneaux, we should overrule it on public policy grounds. We have no authority, however, to "overrule, modify, or disregard" the decisions of the Arizona Supreme Court. City of Phoenix v. Leroy's Liquors, Inc., 177 Ariz. 375, 378, 868 P.2d 958, 961 (App.1993). "Whether prior decisions of the Arizona Supreme Court are to be disaffirmed is a question for that court." Id.

III. Philadelphia's DUI Exclusion is not Unconscionable or Contrary to the Reasonable Expectations of the Insured as a Matter of Law.

¶ 10 Appellants next argue that this particular rental contract is an unenforceable contract of adhesion because it is unconscionable and does not meet the reasonable expectations of the insured. We disagree.

¶ 11 On the back of the one page, double-sided rental agreement, under the heading "PROHIBITED USE OF CAR," it states in part:

I will not use or permit the car to be used for an illegal purpose such as illegal transportation of persons, drugs, or contraband, by anyone under the influence of alcohol or other intoxicants, such as drugs.... If the car is obtained through fraud or misrepresentation or used in violation of this Agreement, I understand that my rental will be terminated and LDW, PAC, no fault and all liability insurance protections are void (unless otherwise prohibited by the laws of the State where I rent the car).

On the front side of the rental agreement, it states in a small font and bolded:

ANY BREACH OF THIS RENTAL AGREEMENT, SPECIFICALLY ANY VIOLATION OF ANY CONDITION(S), RESTRICTION(S), AND/OR TERM(S) OF THE RENTAL AGREEMENT, RENDERS ALL INSURANCE COVERAGE AND THE LOSS DAMAGE WAIVER,

EVEN IF ACCEPTED AND PAID FOR BY LESSEE, NULL AND VOID.

Also on the front side, in a small font and bolded, it states:

I HAVE READ AND I UNDERSTAND ALL OF THE CONDITIONS, RESTRICTIONS AND TERMS OF THIS RENTAL AGREEMENT BOTH FRONT AND BACK AND I AGREE TO BE BOUND BY SAME.

On the addendum to the rental agreement, where Lopez agreed to purchase the SLI, it states:

ASK YOUR RENTAL SALES AGENT FOR ADDITIONAL INFORMATION ON PROVISIONS AND EXCLUSIONS.

Further down, Quintero-Lopez signed his name beneath the paragraph, stating:

I have read this addendum and agree to its terms and conditions. If there are any differences between the rental agreement and this addendum, I understand that this addendum supersedes the rental agreement and will be controlling.

¶ 12 To support their unconscionability argument, Appellants point to the contract's lack of readability and its misleading nature. We cannot say, however, that...