Defendants appeal from a summary judgment entered in favor of the plaintiff insurance company in a declaratory relief action.
The facts are not in dispute. They involve an accident in a stolen car.
Plaintiff State Farm Mutual Automobile Insurance Company (State Farm) issued a policy of automobile insurance to Fred Flynt, listing him as the "named insured" and describing his 1964 Mercury automobile as the "owned automobile." Richard Flynt was Fred Flynt's 16-year-old stepson who at all times resided with his mother and Fred Flynt. On March 5, 1966, while the policy was in full force and effect, Richard found a 1962 Chevrolet automobile with the keys in the ignition, took it without the permission of its owner, and went joy-riding with defendant Douglas Covert.
State Farm then brought this declaratory relief action, naming Covert and Fred and Richard Flynt as defendants, seeking a judicial determination of its obligations, if any, under the insurance policy as related to the accident of March 5, 1966. Defendants answered, and Covert cross-complained, as an assignee of the policy, for breach of the insurance contract and for failure to defend the action, claiming $55,000 in damages. When the
"IT IS HEREBY ORDERED, ADJUDGED AND DECREED that under the terms of the policy of liability insurance issued by plaintiff to defendant FRED G. FLYNT, no duty arose on the part of said plaintiff to pay on behalf of said defendant[s], or defendant RICHARD CECIL FLYNT, or any other party, any sum of money in discharge of a judgment rendered in the Orange County Superior Court in the matter entitled Covert vs. Flynt, No. 146,206; that under the terms of said policy, no duty arose on the part of said plaintiff to provide a defense to the defendants named in the suit entitled Covert vs. Flynt."
Appellants contend the summary judgment in favor of State Farm was improperly granted because: 1. The policy provision relied upon to deny coverage is against public policy and not permitted by statute. 2. The exclusionary clause relied upon is ambiguous and is misplaced in the policy. 3. The duty to defend is broader than the coverage question, and State Farm breached its contractual duty to defend Covert's suit against Richard Flynt even if the policy did not provide insurance coverage.
The insurance policy issued by State Farm to Fred Flynt contains two separate insuring agreements. Insuring agreement I deals with the "owned automobile"; insuring agreement II concerns "non-owned automobiles." Insofar as pertinent here the policy provides, with italics added:
"INSURING AGREEMENT I — THE OWNED AUTOMOBILE
"To pay ... all sums which the insured shall become legally obligated to pay as damages because of (A) bodily injury sustained by other persons, and (B) property damage, ... arising out of the ... use, ... of the owned automobile; and to defend, ... any suit against the insured alleging such bodily injury or property damage and seeking damages which are payable hereunder even if any of the allegations of the suit are groundless, false or fraudulent; ..."
[As to insuring agreement I, the policy defines the word "insured" to include:]
"(2) if the named insured is a person or persons, also includes his or their spouse(s), if a resident of the same household, and
"(3) if residents of the same household, the relatives of the first person named in the declarations, or of his spouse, and
"(4) any other person while using the owned automobile, provided the operation and the actual use of such automobile are with the permission of the named insured or such spouse and are within the scope of such permission, and
"(5) .... .... .... .... . ."
[This definition of insured is not applicable to insuring agreement II.]
"INSURING AGREEMENT II — NON-OWNED AUTOMOBILES
"... such insurance as is afforded by this policy with respect to the owned automobile under:
"(1) coverages A and B [bodily injury and property damage] applies to the use of a non-owned automobile by:
"(a) the first person named ... or,
"(b) if residents of the same household, his spouse or the relatives of either, ...;
"(c) .... .... .... .... .;
"(2) [Medical Payments] .... .... ...;
"(3) [Collision and Comprehensive] .... ....;
provided such use, operation, occupancy or custody is with the permission of the owner or person in lawful possession of such automobile."
State Farm bases its denial of coverage and its refusal to defend the suit brought by Covert against Richard Flynt upon the last quoted clause beginning with the word "provided" found in insuring agreement II. Since it is conceded the car involved in the accident was a stolen car, it is at once apparent it was a "non-owned automobile" not being used or operated with the permission of its owner. If the clause limiting coverage is permissible and effective, it is also apparent the policy does not afford coverage under the circumstances.
It is the clause limiting coverage on "non-owned automobiles" to automobiles used or operated with the permission of the owner which appellants
In our opinion, the viability of Mid-Century Ins. Co. v. Hernandez, supra, and Abbott v. Interinsurance Exchange, supra, upon which appellants also rely, as well as the applicability of the entire Wildman doctrine to the policy concerned here, has been decimated by the more recent opinion in State Farm Mut. Auto. Ins. Co. v. Allstate Ins. Co., 9 Cal.App.3d 508 [88 Cal.Rptr. 246]. After an exhaustive and well reasoned analysis, the court concluded the Legislature in 1963, by enacting Insurance Code section 11580.1
"Moreover, the legislature did not leave this statutory objective to the hazards of judicial inference. A 1957 amendment to former section 415 had added a phrase (now appearing in the first sentence of Veh. Code, § 16450, fn. 9, supra) designed to confine its demands to those policies certified under the financial responsibility law. [Citation.]
"The 1963 amendment now added the last sentence to section 16450 (fn. 9, supra), in effect reiterating the confinement of sections 16451 and 16452 to those insurance policies certified to the Department of Motor Vehicles under the financial responsibility law, implicit[l]y but firmly foreclosing their application to voluntary insurance sold on the general market. [Citations]." (State Farm Mut. Auto. Ins. Co. v. Allstate Ins. Co.,
Beyond our own agreement with its content, logic and reasoning, we find another compelling reason to follow State Farm Mut. Auto. Ins. Co. v. Allstate Ins. Co., supra, rather than the earlier appellate court decisions in Abbott and Mid-Century, which expressed contrary views. The Supreme Court denied a hearing in both the Abbott and Mid-Century cases, but it later, by implication, indicated the question of the effect of the 1963 amendments to the Vehicle and Insurance Codes remained open. (See Herzog v. National American Ins. Co., 2 Cal.3d 192, 196, fn. 1 [84 Cal.Rptr. 705, 465 P.2d 841].) Fastening upon this opening (see p. 525), the court, in State Farm Mut. Auto. Ins. Co. v. Allstate Ins. Co., supra, expressed specific disagreement with both the Abbott and Mid-Century decisions and reached contrary conclusions. Thereafter, the Supreme Court, on September 3, 1970, denied a hearing. Under these circumstances, we regard the Supreme Court's denial of a hearing in the State Farm case as a strong indication of its approval of the conclusions reached.
The policy of insurance under consideration here was issued before the accident in question. No contention is made the policy was issued for certification as proof of ability to respond in damages after an accident under Vehicle Code section 16431. Accordingly, the validity of its provisions must be tested by Insurance Code section 11580.1, as it read at the time in question, and not by the requirements of the financial responsibility laws as expressed in Vehicle Code sections 16451 and 16452. Nothing in Insurance Code section 11580.1 prohibited an insurance company from providing in its policy that coverage for liability arising out of the use or operation of "non-owned automobiles" was limited to those situations where the use or operation of the automobile by the insured was with the owner's permission. (See fn. 2.) The policy provision upon which State Farm based its denial of coverage and its refusal to defend was permitted by statute and did not violate the public policy of this state. (State Farm Mut. Auto. Ins. Co. v. Allstate Ins. Co., supra, 9 Cal.App.3d 508, 526.)
It is apparent to us the policy provision under consideration here is a revision which eliminates the defect revealed in the Anderson case. Not only is the limiting clause here separated from the last antecedent clause by a semicolon, but is it also separated from it on the page both vertically and horizontally so as to indicate clearly it is intended to modify all preceding clauses, including clause (1) which affords coverage for bodily injury.
The contention the limiting clause should not be given effect because it is misplaced in the policy is without merit. The limiting clause is contained in insuring agreement II, which affords coverage for nonowned
While it is true, the duty to defend litigation brought against an insured may exist even where coverage is in doubt and ultimately does not develop, "The `groundless, false, or fraudulent' clause, ... does not extend the obligation to defend without limits; it includes only defense to those actions of the nature and kind covered by the policy." (Gray v. Zurich Insurance Co., supra, 65 Cal.2d 263, 274.) Nor are the allegations of the complaint filed by the third party against the insured determinative of the insurance company's obligation to defend the suit.
The judgment is affirmed.
Brown (Gerald), P.J., and Coughlin, J., concurred.
A petition for a rehearing was denied June 1, 1971, and appellants' petition for a hearing by the Supreme Court was denied July 7, 1971.
"No policy of liability insurance covering liability arising out of the ownership, maintenance or use of any motor vehicle shall be issued or delivered in this state to the owner of a motor vehicle, or shall be issued or delivered by any insurer licensed in this state, upon any motor vehicle then principally garaged or principally used in this state unless it contains the following provisions:
"(a) Provision with coverage limits at least equal to the financial responsibility requirements specified in Section 16059 of the Vehicle Code.
"(b) Provision designating by explicit description or by appropriate reference all motor vehicles with respect to which coverage is intended to be granted.
"(c) Provision designating by explicit description the purposes of use of such motor vehicles with respect to which coverage is not intended to be granted.
"(d) Provision insuring the insured named therein and to the same extent that coverage is afforded such named insured in respect to said described motor vehicles, any other person using, or legally responsible for the use of, said motor vehicles, provided the motor vehicles are being used by the named insured or with his permission, express or implied.
"(e) Notwithstanding the foregoing subdivisions, the insurer and any named insured may, by the terms of such policy or by a separate writing, agree that coverage under the policy shall not apply while said motor vehicles are being used by a natural person or persons designated by name. Such agreement by any named insured shall be binding upon every insured to whom such policy applies.
".... .... .... .... .