Robertson v. Fowler

• Decision Date: 12 July 1996
• Docket Number: No. 22892,22892
• Citation: 197 W.Va. 116,475 S.E.2d 116
• Court: West Virginia Supreme Court
• Parties: Gary L. ROBERTSON and Janet S. Robertson, Plaintiffs Below, Appellees, v. Gene FOWLER; Galigher Ford, Inc., a West Virginia Corporation; Car Spot, Inc., a West Virginia Corporation; Charles F. Runyon, Jr.; Bank One, Formerly Known as The Wayne County Bank, a National Banking Association; and Corky Runyon, Defendants and Third-Party Plaintiffs Below, Appellees. and CAR SPOT, INC.; Charles F. Runyon, Jr.; and Corky Runyon, Defendants and Third-Party Plaintiffs Below, Appellees, v. UNITED STATES FIDELITY & GUARANTY COMPANY, Third-Party Defendant Below, Appellant.

Page 116

475 S.E.2d 116

197 W.Va. 116

Gary L. ROBERTSON and Janet S. Robertson, Plaintiffs Below, Appellees, v. Gene FOWLER; Galigher Ford, Inc., a West Virginia

Corporation; Car Spot, Inc., a West Virginia Corporation;

Charles F. Runyon, Jr.; Bank One, Formerly Known as The

Wayne County Bank, a National Banking Association; and

Corky Runyon, Defendants and Third-Party Plaintiffs Below, Appellees.

and

CAR SPOT, INC.; Charles F. Runyon, Jr.; and Corky Runyon, Defendants and Third-Party Plaintiffs Below, Appellees, v. UNITED STATES FIDELITY & GUARANTY COMPANY, Third-Party

Defendant Below, Appellant.

No. 22892.

Supreme Court of Appeals of West Virginia.

Submitted March 5, 1996.

Decided July 12, 1996.

Syllabus by the Court

1. "With respect to insurance contracts, the doctrine of reasonable expectations is that the objectively reasonable expectations of applicants and intended beneficiaries regarding the terms of insurance contracts will be honored even though painstaking study of the policy provisions would have negated those expectations." Syl. Pt. 8, National Mut. Ins. Co. v. McMahon & Sons, Inc., 177 W.Va. 734, 356 S.E.2d 488 (1987).

2. Before the doctrine of reasonable expectations is applicable to an insurance contract, there must be an ambiguity regarding the terms of that contract.

3. "A misrepresentation in insurance is a false representation of a material fact by one of the parties to the other, tending directly to induce such other to enter into the contract, or to do so on less favorable terms to himself, when without such representation such other party might not have entered into the contract at all, or done so on different terms." Syl. Pt. 1, Woody v. Continental Life Ins. Co., 105 W.Va. 215, 141 S.E. 880 (1928), superseded by statute on distinguishable grounds as stated in Powell v. Time Ins. Co., 181 W.Va. 289, 382 S.E.2d 342 (1989).

Robert L. Godbey, Huntington, for the Robertsons.

Richard Thompson, Huntington, for Car Spot, C.F. Runyon, Jr. and Corky Runyon.

Johnnie E. Brown, Molly Underwood-Korwan, McQueen & Brown, Charleston, for United States Fidelity & Guaranty Company.

Daniel J. Konrad, Huntington, for Bank One.

WORKMAN, Justice:

United States Fidelity & Guaranty Company ("USF&G") appeals from an adverse summary judgment ruling, directing it to defend and indemnify Appellee Car Spot, Inc. ("Car Spot") in connection with a used vehicle that Car Spot sold. Based on our conclusion that the Circuit Court of Cabell County erroneously applied the doctrine of reasonable expectations, we reverse.

The plaintiffs below, Gary and Janet Robertson, filed a complaint on October 6, 1993, in the circuit court against Gene Fowler, Galigher Ford, Inc., Car Spot, Charles F. Runyon, Jr., Bank One, and Corky Runyon. ¹ Included in the complaint were averments that: the odometer had been tampered with; ² the catalytic converter had been removed or rendered inoperative; the vehicle had a bad paint job; and the vehicle had defective brakes, a defective transmission, a defective motor, and defective power windows. Car Spot filed a third-party complaint against USF&G seeking a declaration that USF&G had a duty to defend and indemnify Car Spot under the terms of a commercial insurance policy issued to Car Spot.

In connection with the third-party complaint, both Car Spot and USF&G filed motions for summary judgment. On April 8, 1994, the court heard arguments on Car Spot's motion and by order entered on June 15, 1994, granted summary judgment in favor of Car Spot. USF&G appeals the lower court's ruling which requires it to defend and indemnify Car Spot in connection with the Robertsons' claims.

Car Spot purchased an insurance policy ³ from USF&G for the policy period of May 17, 1992, to May 17, 1993, for an annual premium of $12,541. The policy provided coverage for premises liability and garage operations as well as an endorsement for false pretense coverage. The false pretense endorsement provided:

A. COVERED AUTOS is changed by adding the following:

Any "auto" you have acquired is a covered "auto" under False Pretense Coverage.

B. PHYSICAL DAMAGE COVERAGE is changed as follows:

1. The following is added:

We will pay for "loss" to a covered "auto" under:

False Pretense Coverage. Caused by:

a. Someone causing you to voluntarily part with the covered "auto" by trick, scheme or under false pretenses.

b. Your acquiring an "auto" from a seller who did not have legal title.

(emphasis supplied)

In ruling for Car Spot, the circuit court found that:

6. Third-party defendant U.S.F. & G. knew the type of business of its insured (the used car business) and was in a position to realize and appreciate the exposure of its insured to these kinds of actions.

7. Third-party plaintiff [Car Spot] had a reasonable expectation of coverage based on the coverage titled false pretense coverage and purchased from third-party defendant, U.S.F. & G. The lower court concluded that the false pretense endorsement when viewed in conjunction with the doctrine of reasonable expectations "oblige[d] coverage and a duty to defend."

USF&G argues that the circuit court erred by applying the doctrine of reasonable expectations without first finding that the policy language was ambiguous. We defined the doctrine of reasonable expectations in National Mutual Insurance Co. v. McMahon & Sons, Inc., 177 W.Va. 734, 356 S.E.2d 488 (1987): "With respect to insurance contracts, the doctrine of reasonable expectations is that the objectively reasonable expectations of applicants and intended beneficiaries regarding the terms of insurance contracts will be honored even though painstaking study of the policy provisions would have negated those expectations." Id. at 736, 356 S.E.2d at 490, Syl. Pt. 8. We explained further that "[i]n West Virginia, the doctrine of reasonable expectations is limited to those instances ... in which the policy language is ambiguous." Id. at 742, 356 S.E.2d at 496.

We examine the policy language to determine if any ambiguity exists to permit the application of the doctrine of reasonable expectations. Since the trial court looked to the false pretense endorsement as the source for coverage, we start with those policy provisions. There are clearly two scenarios under which the false pretense coverage applies: a. someone causing Car Spot to "voluntarily part" with the covered vehicle "by trick, scheme or under false pretenses[;]" or b. Car Spot acquiring a vehicle "from a seller who did not have legal title."

USF&G correctly explains why the "trick, scheme or under false pretenses" condition of coverage is inapplicable. The intended coverage is for instances when a car dealer entrusts an individual with a vehicle for an ostensible test drive and the individual fails to return the car. The additional conditions placed within the false pretense endorsement demonstrate that a failure to return a vehicle following a purported test drive is the first scenario under which coverage exists: "The insurance ... does not apply unless (1) You had legal title to the covered 'auto' prior to the 'loss;' and (2) You make every effort to recover the covered 'auto' when it is located." Also, the insured is required to "obtain a warrant, as soon as practicable, for the arrest of anyone causing a 'loss' defined within the False Pretense Coverage." The facts of this case are utterly devoid of any allegations that the Robertsons effected a trick, scheme or false pretense which resulted in a loss to Car Spot. Accordingly, the test drive/failure to return type of false pretense coverage is clearly not invoked by the facts of this case.

In support of its contention that USF&G has a duty to defend and indemnify, Car Spot relies on the second type of false pretense coverage under the policy. This coverage applies when the insured acquires a vehicle "from a seller who did not have legal title." According to Car Spot, coverage is invoked because Car Spot lacked legal title at the time it acquired the vehicle from Galigher Ford given the false statement of odometer mileage that appeared on the title. This argument is flawed for several reasons. First and foremost, the false pretense coverage purchased by Car Spot is first party coverage. The coverage Car Spot purchased was for losses suffered directly by it as opposed to third-party coverage for losses that parties, such as the Robertsons, experience and then look to Car Spot for indemnification. USF&G maintains that Car Spot was familiar with the first-party nature of the false pretense coverage based on the fact that Car Spot made a claim in October 1991 under that portion of the policy and negotiated a settlement with USF&G for that claim. ⁴ While the claim for which Car Spot seeks false pretense coverage is clearly third-party in nature, the USF&G policy does not provide this type of coverage.

A second problem with Car Spot's attempt to rely on the title provision to invoke false pretense coverage is the absence of any proof that Car Spot lacked legal title to the vehicle. Reasoning that a violation of West Virginia Code § 17A-3-12a(a) (1991) ⁵ negates the legality of the car's title, Car Spot contends that it acquired the subject vehicle from a seller (Galigher Ford) who did not have legal title. ⁶ The problem with this argument is that a violation of West Virginia Code § 17A-3-12a does not result in a title defect. The only penalty provided for a violation of the statute is a misdemeanor conviction plus a fine of $200 to $1,000 or imprisonment in the county jail for up to six months. See W. Va.Code § 17A-3-12a(f). Since a violation of this statute has no effect on ownership or title, we find no merit to Car Spot's position that the false odometer reading listed on the title requires coverage under the legal title section of the false pretense endorsement.

Alternatively, Car Spot looks to the definitional section of the policy for coverage. The term that Car Spot relies on is ...