State Farm Mut. Auto. Ins. Co. v. Renova

• Decision Date: 26 April 2012
• Docket Number: 1 CA-CV 10-0657
• Parties: STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, an Illinois corporation, Plaintiff/Appellee, v. EMILIO RENOVA, individually and on behalf of all wrongful death beneficiaries of ARACELI RENOVA and ISABEL CUEVAS-RENOVA; and SAUL RENOVA, individually and on behalf of all wrongful death beneficiaries of CLAUDIA RENOVA, Defendants/Appellants.
• Court: Arizona Court of Appeals

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, an Illinois corporation, Plaintiff/Appellee, v. EMILIO RENOVA, individually and on behalf of all wrongful death beneficiaries of ARACELI RENOVA and ISABEL CUEVAS-RENOVA; and SAUL RENOVA, individually and on behalf of

all wrongful death beneficiaries of CLAUDIA RENOVA, Defendants/Appellants.

1 CA-CV 10-0657

COURT OF APPEALS STATE OF ARIZONA DIVISION ONE DEPARTMENT C

Dated: April 26, 2012

NOTICE: THIS DECISION DOES NOT CREATE LEGAL PRECEDENT AND MAY NOT BE CITED

EXCEPT AS AUTHORIZED BY APPLICABLE RULES.

See Ariz. R. Supreme Court 111(c); ARCAP 28(c);

Ariz. R. Crim. P. 31.24

MEMORANDUM DECISION

Not for Publication - (Rule 28, Arizona Rules of Civil Appellate Procedure)

Appeal from the Superior Court in Maricopa County

Cause No. CV2008-009498

The Honorable Linda H. Miles, Judge

REVERSED AND REMANDED

Stark Williamson & Clausen LLP

By Curt W. Clausen and Michael P. Stark

And

Phoenix

Michael Cordova, PC Phoenix

By Michael Fairbairn Cordova and Teri Marscovetra Rowe

Co-Counsel for Defendants/Appellants

Ehmann DeCiancio, PLLC

By Joel DeCiancio and Christopher Robbins

Attorneys for Plaintiff/Appellee

Tempe

BROWN, Judge

¶1 The narrow question we address here is whether a "course of employment" exclusion in an auto insurance policy is enforceable when an employer has failed to provide workers' compensation coverage for its injured employees. Based on prior case law from this court and our supreme court, we conclude that the exclusion violates public policy as contemplated under Arizona's Financial Responsibility Act. We therefore reverse the trial court's grant of summary judgment.

BACKGROUND

¶2 Isabel Cuevas-Renova, Araceli Renova, and Claudia Renova ("the decedents"), passengers in a vehicle driven by Veronica Renova, suffered fatal injuries in an auto accident. The four women worked as a house-cleaning crew for Roberto and Linda Cangas-Aguilar, who owned the cleaning business. At the time of the accident, they had just finished a cleaning job and were on their way to another house.

¶3 Roberto and Linda owned the vehicle and insured it with State Farm Mutual Automobile Insurance Company ("State Farm") under a policy which provided bodily injury coverage of $100,000 per person and $300,000 per accident ("the Policy").Roberto and Linda, however, had no workers' compensation insurance for their employees. Heirs ("the Renovas")¹ of the decedents made claims against the Policy for the wrongful death of the decedents arising from the accident.

¶4 State Farm filed a declaratory judgment action seeking confirmation that (1) the Policy provided no bodily injury coverage for any wrongful death claims arising out of the accident, and (2) State Farm had no obligation to defend or indemnify Linda, Roberto, or Veronica for such claims. According to State Farm, the decedents were excluded under the following Policy exclusion because they were employees of Roberto and Linda:

THERE IS NO COVERAGE

* * *

2. FOR ANY BODILY INJURY TO:

b. ANY EMPLOYEE OF AN INSURED ARISING OUT OF HIS OR HER EMPLOYMENT. This does not apply to a household employee who is not covered under any workers' compensation insurance.

***

5. FOR ANY OBLIGATION OF AN INSURED, OR HIS OR HER INSURER, UNDER ANY TYPE OF WORKERS' COMPENSATION OR DISABILITY OR SIMILAR LAW.

¶5 Veronica contended that the Policy covered wrongful death claims arising from the accident. The Renovas likewise contested the coverage issue in a separate answer and asserted that State Farm was obligated to defend and indemnify Roberto and Linda and/or Veronica against wrongful death claims arising from the accident.²

¶6 The parties filed cross-motions for summary judgment on whether the Policy excluded coverage and whether application of the course of employment exclusion violated the Financial Responsibility Act. See Arizona Revised Statutes ("A.R.S.") sections 28-4001 to -4153 (2004 & Supp. 2011).³ The trial court determined that no issue of material fact existed as to the course of employment exclusion, finding it was valid and enforceable. After further briefing, the court also determined that no genuine issue of material fact existed that thedecedents were employees of Roberto and Linda and were acting in the course and scope of their employment at the time of the accident.

¶7 The trial court subsequently entered judgment in favor of State Farm, declaring that the Policy provided no coverage for claims by the Renovas. The court also found that State Farm had no duty to defend or indemnify Veronica, Roberto, or Linda in any claim or action arising from the accident. This timely appeal followed.

DISCUSSION

¶8 The Renovas argue that the trial court erred in granting summary judgment to State Farm. In evaluating the positions of each party, we start from the premise that if we are governed by the clear and unambiguous terms of the Policy, the Renovas are not covered by the Policy based on the course of employment exclusion. See State Farm Mut. Auto. Ins. Co. v. Karasek, 22 Ariz. App. 87, 88, 523 P.2d 1324, 1325 (1974). Neither party disagrees with that premise. However, the Renovas contend that the exclusion violates public policy within the context of the Financial Responsibility Act because the decedents were not provided workers' compensation coverage.

¶9 A trial court may grant summary judgment if "there is no genuine issue as to any material fact and [] the moving party is entitled to a judgment as a matter of law." Ariz. R. Civ. P.56(c)(1). "[W]e determine de novo whether any genuine issues of material fact exist and whether the trial court properly applied the law." Tierra Ranchos Homeowners Ass'n v. Kitchukov, 216 Ariz. 195, 199, ¶ 15, 165 P.3d 173, 177 (App. 2007). We also review issues of statutory interpretation and application de novo. Farmers Ins. Co. of Ariz. v. Young, 195 Ariz. 22, 24, ¶ 5, 985 P.2d 507, 509 (App. 1998).

¶10 The purpose of the Financial Responsibility Act is to protect "[t]he public using the highways . . . from financial hardship resulting from the use of automobiles by financially irresponsible persons." Schwab v. State Farm Fire & Cas. Co., 27 Ariz. App. 747, 749, 558 P.2d 942, 944 (1976) (internal quotations and citation omitted); accord Young v. Beck, 227 Ariz. 1, 6, ¶ 20, 251 P.3d 380, 385 (2011) (describing the Financial Responsibility Act as requiring "all vehicle owners to carry liability insurance and all policies to provide liability coverage for not only the owner but also all permissive drivers"). Consistent with that purpose, exclusionary clauses in basic motor vehicle liability policies are void as against public policy with respect to the minimum coverage requirements set forth in the Act, unless authorized by statute. See Phila. Indem. Ins. Co. v. Barerra, 200 Ariz. 9, 12, ¶ 8, 21 P.3d 395, 398 (2001).

¶11 Section 28-4009 (2004) of the Financial Responsibility Act authorizes exclusions pertaining to employees of the insured who are injured in the course of employment, providing as follows:

A. An owner's motor vehicle liability policy shall comply with the following:

* * *

2. The policy shall insure the person named in the policy as the insured and any other person, as insured, using the motor vehicle or motor vehicles with the express or implied permission of the named insured against loss from the liability imposed by law for damages arising out of the ownership, maintenance or use of the motor vehicle or motor vehicles within the United States . . . .

* * *

C. A motor vehicle liability policy:

* * *

4. Is not required to insure liability either:

(a) Under any workers' compensation law.

(b) On account of bodily injury to or death of an employee of the insured while engaged in the employment, other than domestic, of the insured or while engaged in the operation, maintenance or repair of the motor vehicle.

(Emphasis added.) Thus, notwithstanding the obligation that an insurance policy must provide that all permissive drivers arecovered, the language of the Act permits an insurance company to exclude coverage as provided in § 28-4009(C)(4)(b).

¶12 Despite the seemingly clear statutory authorization for the exclusion, the Renovas assert that Arizona courts have previously construed "course of employment" exclusions as unenforceable under the Financial Responsibility Act. Although these cases analyzed the exclusions in the context of § 28-4009's predecessor statute, the Renovas maintain that the legislative history reflects no intent to substantively change the prior version and therefore case law interpreting the predecessor statute governs here.⁴

¶13 In Farmers Ins. Grp. v. Home Indem. Co. ("Farmers"), 108 Ariz. 126, 493 P.2d 909 (1972), our supreme court interpreted a "course of employment" exclusion in light ofA.R.S. § 28-1170.⁵ An independent contractor, operating a crane to load equipment onto a truck owned by Rite-Way Company, caused the death of a Rite-Way employee. Id. at 127, 493 P.2d at 910. The employee's surviving spouse brought a wrongful death claim against the independent contractor. Id. Although, "[o]rdinarily, [Right-Way's insurer] would cover for the negligence of [the independent contractor] while loading and unloading the truck[,]" the insurance policy contained a "course of employment" exclusion.⁶ Id. at 127-28, 493 P.2d at 910-11.

¶14 The court concluded that the exclusionary clause in the vehicle insurance policy supplied by Farmers was unenforceable because it conflicted with the "principal purpose" of the Financial Responsibility Act, which is to protect thepublic "from financial hardship resulting from the use of automobiles by financially irresponsible persons." Id. at 128, 493 P.2d at 911. The court explained:

In the present case, we think that public policy would be thwarted by holding that the exclusion will be applied where a person is injured by a third party insured by the owner because he is an employee of the owner. Obviously, the purpose of the exclusion is to protect the owner from the expense

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