Do You Know the “Permissible” Exclusions in Your Auto Policy?
Woodland Hills personal injury attorney Barry P. Goldberg has seen almost every possible circumstance arising from automobile accidents. Many cases involve insurance coverage issues ranging from whether a policy was in effect at the time of the accident to more complex concepts—like whether roommate A can sue roommate B when injured as a passenger in roommate B’s vehicle. As one of the few attorneys who actually reads, interprets and understands insurance policies, Mr. Goldberg has noticed an increase in “creative” insurance policy language designed to exclude coverage for various automobile accidents.
Insurance Code Section 11580.1, subdivision (c), lists the only permissible exclusions from coverage allowed under California law for an automobile liability insurance policy. “Any exclusion not expressly authorized by section 11580.1 is therefore impermissible and invalid.” (California State Auto. Assn. Inter-Ins. Bureau v. Gong (1984) 162 Cal.App.3d 518, 528.) (Citation omitted, emphasis added.) That statute provides:
“[T]he insurance afforded by any policy of automobile liability insurance to which subdivision (a) applies, including the insurer’s obligation to defend, may, by appropriate policy provision, be made inapplicable to any or all of the following:
(1) Liability assumed by the insured under contract.
(2) Liability for bodily injury or property damage caused intentionally by or at the direction of the insured.
(3) Liability imposed upon or assumed by the insured under any workers’ compensation law.
(4) Liability for bodily injury to any employee of the insured arising out of and in the course of his or her employment.
(5) Liability for bodily injury to an insured or liability for bodily injury to an insured whenever the ultimate benefits of that indemnification accrue directly or indirectly to an insured.
(6) Liability for damage to property owned, rented to, transported by, or in the charge of, an insured. A motor vehicle operated by an insured shall be considered to be property in the charge of an insured.
(7) Liability for any bodily injury or property damage with respect to which insurance is or can be afforded under a nuclear energy liability policy.
(8) Any motor vehicle or class of motor vehicles, as described or designated in the policy, with respect to which coverage is explicitly excluded, in whole or in part.”
Of course, there are countless cases that have defined the extent to which the eight statutorily authorized exclusions control an insurer’s ability to exclude automobile liability coverage. An in depth analysis of those cases is beyond the scope of this article. However, an excellent starting point for examining the propriety of any auto exclusion is the California Supreme Court case of Farmers Ins. Exchange v. Cocking (1981) 29 Cal.3d 383, 388 (Cocking).
In that Cocking, the Court rejected generalized reasoning based upon “public policy” arguments. Rather, the Court held that, the public policy of this state is contained not in broadly expressed generalized abstractions but in the applicable statutory provisions themselves. Section 11580.05 expressly recites that ‘The Legislature declares that the public policy of this state in regard to provisions authorized or required to be included in policies affording automobile liability insurance or motor vehicle liability insurance issued or delivered in this state shall be as stated in this article, [and] that this article expresses the total public policy of this state respecting the contents of such policies, . . .” (Italics added.)
In a recent case, Mercury Insurance Company attempted to enforce its “new” exclusion to avoid paying for damages caused by one roommate to the other arising from a serious auto accident. (Mercury Casualty Company v. Chu (Sept. 24, 2014) ___ Cal.App.4th____.) The striking aspect of this case is that Mercury actually prevailed in the trial court by arguing that the exclusion was consistent with subsection (5) that the ultimate benefits accrued directly or indirectly to an insured. To add insult, Mercury was suing its own insured to recover about $130,000 in defense costs! Fortunately, the trial court was reversed on appeal.
Mercury attempted to support its position by arguing that it was against public policy to allow one roommate to sue the other because there existed a risk of fraud. The California Supreme Court rejected that argument and held that Mercury’s “new” exclusion was inconsistent with the permissible exclusions listed in 11580.1 and that the “public policy” was already determined by the statute itself. It would not accept alternative reasoning to justify the limitation insurance coverage.
Needless to say, the above is just a small example of the possible areas of dispute between an insurance company and an insured over a policy exclusion. The insurers clearly have the upper hand in most circumstances because they have separate dedicated insurance coverage lawyers with unlimited resources. Most automobile accident cases involve minor or moderate injuries which often do not justify fighting with an insurer over coverage. It is strongly recommended that anytime a coverage dispute arises or is even possible, an injured party or an insured must find a lawyer that has significant insurance coverage expertise.