Court: Court of Appeals of Arizona; May 28, 1992; Arizona; State Appellate Court
A legal dispute arose between automobile insurer Arnica and common carrier Auto Driveaway regarding liability for damage to a Toyota Four Runner during transport. Auto Driveaway entered into a transportation agreement on September 1, 1989, which included a clause allowing it to benefit from any insurance covering the vehicle, provided it reimbursed the insured for applicable premiums. While in transit, the vehicle was damaged due to a rollover caused by a driver contracted by Auto Driveaway. Arnica, which had insured the vehicle, paid the owner, Ann Montgomery, $8,018.73 for the damages and subsequently sued Driveaway for reimbursement, asserting subrogation rights.
The trial court ruled in favor of Arnica after considering cross-motions for summary judgment. Three primary issues were raised on appeal: 1) how to reconcile conflicting provisions between the insurance policy and transport agreement; 2) whether the driver was considered an insured under the policy, which would affect subrogation rights; and 3) whether the outcome would differ if the driver was classified as an independent contractor instead of an employee of Driveaway.
Driveaway conceded its status as a carrier under 49 U.S.C.A. 11707, which imposes liability for damages to transported goods, but argued that Arnica should bear the loss due to the insurance policy's provision that coverage would not benefit the carrier. The Arizona courts had not previously addressed the legal conflict arising from the interaction between the carrier's rights under the shipping agreement and the insurer's subrogation rights.
In jurisdictions where this issue has been litigated, courts often side with insurers regarding the validity of clauses that allow carriers to benefit from shippers' insurance. The 7th Circuit's ruling in *United States v. Auto Driveaway Co.* established that a carrier's clause for insurance benefits is permissible as long as it does not compel customers to obtain insurance for the carrier's advantage and reimburses them for premiums if insurance is utilized. Despite validating the clause, the court noted its limited practical effect due to potential conflicts with policy endorsements that could nullify the clause.
The Iowa Supreme Court in *Hartford Fire Ins. Co. v. Payne* emphasized that carriers cannot avoid liability to shippers or require shippers to insure them against negligence. However, carriers can benefit from insurance if shippers voluntarily choose to obtain it. Insurers maintain the right to impose limitations on their liability in contracts, and if a contract between a shipper and carrier compromises the insurer's subrogation rights, the insurance becomes void. Numerous other cases have echoed this reasoning, consistently favoring the insurer in conflicts between insurance policy provisions and transport agreements.
A notable exception cited by Driveaway is *Grahame v. Mitchell*, where a court assigned the loss to a vehicle's insurer rather than the transporting company. However, this case focused on specific policy exclusions and did not address the broader implications of insurance clauses in shipping agreements.
Driveaway failed to provide sufficient justification for disregarding the majority view of courts regarding the applicability of insurance coverage. It contends that the driver responsible for the vehicle damage was a permissive user and thus 'insured' under the policy, which defines 'insured' as someone using the vehicle with a reasonable belief of entitlement. Consequently, Driveaway argues that Arnica cannot pursue subrogation rights against Driveaway, as it merely secured a driver deemed 'insured.' Driveaway references Western States Mut. Ins. Co. v. Standard Mut. Ins. Co. to support its position that an insurance company cannot seek action against a person entrusted with a vehicle, even if that person is at fault.
However, in a similar case, Auto Driveaway Co. v. Aetna Casualty, Surety Co., the court ruled that the driver hired to transport the vehicle was not an 'insured' under the collision coverage, which specifically excluded bailees for hire. The court differentiated between the liability and collision coverage provisions, noting that in Aetna's policy, bailees were excluded from collision coverage. Thus, Aetna retained subrogation rights for damages caused by the driver.
In the current case, while the driver is classified as 'insured' under liability coverage, he is excluded from collision coverage, which explicitly states that it does not benefit any carrier or bailee for hire. The court upheld Arnica's right to subrogation for damages attributed to Driveaway as a bailee.
Driveaway also argued that the classification of the driver as an independent contractor could alter the case's outcome. However, the court found this irrelevant, asserting that Driveaway's contractual obligation to transport the vehicle stands regardless of the driver's employment status. Furthermore, Driveaway's analogy to a newspaper facilitating a driver-owner connection was rejected, as it had assumed greater responsibility under the transport agreement.
Arnica was granted attorneys' fees on appeal, with the judgment in favor of Arnica affirmed.
