Truck Insurance Exchange v. Wilshire Insurance

Citations: 8 Cal. App. 3d 553; 87 Cal. Rptr. 604; 1970 Cal. App. LEXIS 2063Docket: Civ. 1031

Court: California Court of Appeal; June 9, 1970; California; State Appellate Court

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In the case 8 Cal.App.3d 553 (1970), Arnold Wiebe, doing business as Arnold Wiebe Buick, and Truck Insurance Exchange filed a lawsuit to reform an insurance policy and seek declaratory relief against defendants Charlotte Preston, the heirs of George T. Dudney, and Wilshire Insurance Company. The trial court reformed the policy as requested, ruling that Charlotte Preston was not covered by the Exchange policy for an accident involving Dudney but was covered by the Wilshire policy. The defendants appealed, raising three main arguments: the policy reform was against public policy, the court violated Insurance Code section 11580.1 by attaching endorsement ET-279, and the evidence was inadequate to support the judgment.

The factual background reveals that in July 1965, Charlotte Preston transferred her 1964 Buick Electra to her husband due to a property settlement agreement. Subsequently, she test drove a Rambler from Arnold Wiebe Buick and decided to purchase it before being involved in an accident with George T. Dudney, who later died from his injuries. At the time of the accident, she was insured under a Wilshire policy that covered the Buick and other vehicles not owned by her. Arnold Wiebe Buick had a liability policy with Exchange, which included "limited loaner car coverage" for customer vehicles. During negotiations, Mr. Wiebe sought liability coverage for loaner cars, which was incorporated into the policy application along with a premium discount. The Exchange policy, however, included an endorsement (ET-279) limiting coverage for permissive users unless they had no other valid insurance available.

An endorsement meant to limit coverage was mistakenly omitted from an insurance policy, replaced by another endorsement that also mentioned "limited loan car coverage." This oversight was discovered following the wrongful death action initiated by the heirs of George T. Dudney against Mrs. Preston and Arnold Wiebe Buick. The case seeks reformation and declaratory relief due to this omission. Under section 11580.1(f) of the Insurance Code, insurers can limit coverage for permissive users if the named insured is in the automobile business. This section allows policies to avoid cumulative coverage when multiple policies apply to the same loss, stating that only the policy covering the named insured’s liability will apply if valid insurance exists. 

Appellants argue against the reformation of the policy, citing public policy concerns that protect innocent third parties injured by permissive users. They claim that allowing reformation post-accident would undermine this protection. However, the court refutes this, affirming that contracts can be reformed due to mutual mistakes regarding the parties' true intentions. It is established that coverage can be altered even to the detriment of non-contracting third parties. Furthermore, while section 11580.1 mandates coverage for permissive users, it does not prevent the reformation of an insurance policy when the intended limited coverage was agreed upon but mistakenly omitted.

Prince and Wiebe's failure to identify a mistake in the insurance policy prior to Charlotte Preston's accident raises claims of negligence, but the trial court found their explanation satisfactory based on sufficient evidence presented. The accident occurred shortly after the policy issuance, and both Prince and Wiebe confirmed they reviewed the policy, with Wiebe believing limited loaner coverage was included due to an endorsement and a discount he received.

The court agreed that endorsement ET-279, which excludes permissive users with other valid insurance, is broader than allowed by California law, which only excludes users covered as named insureds or their agents. However, this overbreadth does not invalidate the endorsement entirely, as it likely aligns with state insurance laws and was designed to limit the insurer's liability. The court ruled that the endorsement is ineffective only to the extent it exceeds legal limits, noting that Charlotte Preston, as the named insured, had valid insurance at the time of the accident.

Regarding the burden of proof for reformation, the court clarified that while "clear and convincing evidence" is required, the appellate standard is whether substantial evidence supports the judgment. Testimony from Arnold Wiebe established that he communicated his intent for limited coverage to Prince, who assured him the policy would reflect that intent, supported by a proposal containing limited coverage and a premium discount shown to Wiebe before policy application.

The application for the insurance policy included limited coverage and a premium discount. Mr. Piacentini prepared an order for the policy, intending to attach endorsement ET-279, but mistakenly attached a different endorsement that indicated a 5% discount. Appellants claim there is no evidence of mutual mistake, arguing that Mr. Prince miscommunicated the nature of the company’s standard limited loaner car endorsement to Arnold Wiebe, who also misunderstood it. They assert that ET-279 does not provide excess coverage for permittees using vehicles owned by Arnold Wiebe Buick, although Prince testified he informed Wiebe that his policy would cover excess liability beyond the limits of the driver’s insurance.

The court found the appellants' arguments unconvincing, interpreting Prince’s statements as ensuring protection for Arnold Wiebe Buick against liabilities exceeding customer policy limits, rather than implying full excess coverage for permissive users. Additionally, testimony revealed that Arnold Wiebe loaned a Rambler to Charlotte Preston for a limited purpose—testing it for potential purchase—allowing the court to infer the use was limited in duration and scope, despite the car being used for several weeks. 

The court referenced the case of Pacific Auto. Ins. Co. v. Lewis, noting that whether a vehicle is considered furnished for regular use depends on its intended use, time, and place. The court clarified that a vehicle used strictly for business or personal purposes at different times cannot be classified as for regular use in all contexts. Lastly, the court addressed the interpretation of "loaner car" within the negotiations, stating that Arnold Wiebe’s business involved both servicing vehicles and selling cars, implying a broader definition of coverage was intended. The endorsement used was deemed suitable for Wiebe's business as a car dealer, leading to the affirmation of the judgment. The petition for a hearing by the Supreme Court was denied on August 5, 1970.