Tuesday, May 18, 2004
S.C. Voids Permissive User Limitation in Auto Insurance Policy
By a MetNews Staff Writer
An auto insurance policy endorsement used by one of the state’s largest auto insurers, limiting coverage for permissive users to the statutory minimum, was insufficiently conspicuous to be valid, the state high court ruled yesterday.
In a 6-1 decision, the justices agreed with a Fourth District Court of Appeal panel that Joshua Haynes’ declaratory judgment action against Farmers Insurance Exchange was erroneously dismissed.
Haynes is the plaintiff in a separate suit against the driver and owner of a vehicle in which Hayes alleges he was injured in an accident caused by the driver’s negligence. Haynes brought the declaratory action after Farmers insisted in discovery that the maximum coverage for the accident is $15,000, rather than the $250,000 that would have applied if the owner were operating the vehicle.
Justice Kathryn M. Werdegar, writing for the high court, said the coverage limitation in the 39-page “E-Z Reader Car Policy” failed to adequately inform the insured that he had less coverage if the car was operated by a permissive user. Since the insured had a reasonable expectation that the coverage would be the same, the lack of a “conspicuous, plain, and clear” statement to the contrary renders the limitation invalid, the justice added.
The policy, the justice explained, lists the limitation on its declarations page, along with other endorsements, by number only. Nothing on that page explains what “S9064,” the number applied to the permissive-user limitation, or any of the other numbers, means, Werdegar said.
To learn what “S9064” means, the justice explained, one must go forward 23 pages.
To meet the conspicuousness requirement, Werdegar explained, there should have been language on the declarations page that would have alerted the insured that coverage for permissive users would be limited to “amounts less than the policy coverages prominently displayed in specific dollar amounts on that same page.” The language of the endorsement itself, she said, should have been, in the words of an earlier case, “bolded, italicized, enlarged, underlined, in different font, capitalized, boxed, set apart, or in any other way distinguished from the rest of the fine print.”
The lone dissenter, Justice Marvin Baxter, said the policy at issue was not unusual in incorporating preprinted endorsements identified on the declarations page. The permissive-user endorsement, he said, “is plain and clear,” regardless of its location.
The justice argued:
“In determining whether an insurance policy provides reasonable notice of a lawful limiting provision, we assume the insured reads the entire policy,” Baxter argued.
He also disagreed with the majority’s conclusion that the lack of a definition of “permissive user” was fatal to the endorsement.
“[T]the fact that a term is not defined in the policy does not render it ambiguous... Nothing about the term, moreover, suggests that the average insured would have difficulty understanding its likely application in situations where, as here, the insured grants a friend permission to use his or her car. Contrary to the majority’s suggestion otherwise, the permissive user provision is not ambiguous in the context of the policy or the circumstances at issue.:
The case was argued in the high court by Jean Ballantine of Los Angeles for the plaintiff, Sharon J. Arkin of Newport Beach’s Robinson, Calcagnie & Robinson for Consumer Attorneys of California, amicus for the plaintiff, and Daniel J. Gonzalez of Encino’s Horvitz & Levy for Farmers.
The case is Haynes v. Farmers Insurance Exchange, 04 S.O.S. 2490.
Copyright 2004, Metropolitan News Company