American States Insurance Company v. Travelers Property Casualty Company of America,

(Food Truck Constituted “Mobile Equipment” As Defined in General Liability Policy Such That Coverage Was Afforded Under the General Liability Policy For Injuries Caused by Equipment in the Truck)

In American States Ins. Co. v. Travelers Property Cas. Co. of America, 223 Cal.App.4th 495 (January 27, 2014), the California Second District Court of Appeal reversed the trial court’s entry of summary judgment in favor of Travelers Property Casualty Company of America (“Travelers”) in connection with a contribution and indemnity claim filed by American States Insurance Company (“American States”). The insurers’ dispute arose out of an underlying automobile accident involving a food truck. As a result of the accident, plaintiff sustained severe burns from grease which emptied from a fryer attached to the inside of the truck for the purpose of preparing food. American States issued primary and umbrella policies to the owner of the truck, Royal Catering Company (“Royal”). Travelers issued primary and umbrella general liability policies to Royal. Royal leased one of its food trucks to plaintiffs, Esmeragdo Gomez and Irais Gomez (“Gomezes”). The food truck only had two seats and two seatbelts. The truck was not equipped to transport persons other than a driver and a cook. Each day, Mr. Gomez returned the food truck to Royal. Royal washed and maintained the truck and repaired it as necessary. The food truck was equipped with a specially designed deep fryer grill, steam table, oven, refrigerator, and coffee maker. This equipment was built into the truck and was not designed to be used apart from the truck.

On the day of the accident, Mr. Gomez was driving the food truck. A guest sat in the truck’s passenger seat, and Mrs. Gomez stood in the rear of the truck. At an intersection, Mr. Gomez swerved to avoid an approaching truck. Mr. Gomez’s evasive action failed to avoid a collision. Just prior to the collision, hot oil splashed on and burned Mrs. Gomez. Subsequently, the Gomezes and the passenger in the food truck brought an action against Royal for injuries sustained in connection with the subject accident. The Gomezes’ complaint alleged causes of action against Royal for products liability (negligence), products liability (design defect), negligent infliction of emotional distress and property damage. Mr. Gomez also asserted a cause of action against Royal for loss of consortium.

Royal tendered the Gomez action to American States. American States agreed to provide a defense under a reservation of rights. Subsequently, Royal and American States tendered the Gomez action to Travelers which denied the duty to defend and indemnify Royal against the Gomez lawsuit. Thereafter, American States paid the Gomezes $500,000 to settle all possible claims against Royal under the American States’ auto policy. Under the settlement, the Gomezes could pursue their products liability claims against Royal, but only to the extent such claims were covered by the Travelers’ insurance policies.

Pursuant to the terms of this settlement, the Gomezes and Royal submitted their dispute to binding arbitration. The arbitration concerned only Royal’s liability on a products liability theory, i.e., that Royal provided a defective deep fryer basket, which caused the hot oil to spill on Mrs. Gomez. Royal stipulated to liability on a products liability theory but challenged the amount of damages and the apportionment of fault. Consequently, the arbitrator found in favor of the Gomezes against Royal. After apportionment of fault, the total amount of the judgment entered against Royal was $2,428,577.34, including costs.

Subsequent to the judgment, American States brought an action against Travelers seeking to establish coverage under the Travelers policy while contending that a “completed operations exclusion” in its policy barred coverage of the Gomezes’ products liability action in its entirety. In response, Travelers cross-complained against American States arguing that potential coverage was not afforded under its policy and/or the products liability judgment should be prorated under the respective insurers’ policies.

American States filed a motion for summary judgment against Travelers arguing that the food truck constituted “mobile equipment” as defined in the Travelers’ primary policy such that the auto exclusion in the Travelers primary policy did not apply to bar coverage of the Gomezes’ claims. Hence, coverage was afforded under the Travelers’ policies. In response, Travelers filed a cross-motion for summary judgment arguing that the “auto” exclusion in its primary policy applied to bar coverage of the Gomezes’ product liability action. The trial court agreed with Travelers and entered summary judgment in its favor.

In reversing the trial court’s entry of summary judgment in favor of Travelers, the Court of Appeal held that the food truck qualified as “mobile equipment” such that the exception to the “auto” exclusion in the Travelers’ primary policy applied and coverage was afforded under the Travelers’ primary policy to Royal for the Gomez products liability claim. The Court of Appeal reasoned as follows:

The Travelers Primary CGL Policy had an "auto" exclusion. The definition of an "auto" under the policy, and thus the auto exclusion, contained an exception for "mobile equipment." The policy defines "mobile equipment" as including vehicles "maintained primarily for purposes other than the transportation of persons or cargo." Thus, if a vehicle was maintained primarily for purposes other than the transportation of persons or cargo, that vehicle was mobile equipment and not subject to the auto exception in the Travelers Primary CGL Policy.

Under a plain reading of the Travelers Primary CGL Policy, the Gomezes' food truck was "mobile equipment" and not an "auto." The primary purpose of the Gomezes' food truck was to serve as a mobile kitchen and not to transport persons or cargo. (See Employers Mutual Casualty Company v. Bonilla (5th Cir. 2010) 613 E3d 512, 518 [“The 'inherent purpose' of a mobile catering truck certainly could be seen as including the use and maintenance of its kitchen facilities . . .”].) For the first two hours of the day, the Gomezes cooked food in their food truck while parked in the Royal parking lot. During the next eight hours, the Gomezes made 12 to 13 stops to cook, or at least heat, and sell food. During those stops, the food truck was not "transporting" anything, but was immobile. The food truck had only two seats and only two seatbelts, and the truck was not equipped to transport persons other than a driver and a cook.

In addition, the Court of Appeal held that coverage was not afforded under the American States’ policy for the Gomezes’ product liability claim based on the “completed operations” exclusion in the American States policy. The Court of Appeal reasoned as follows:

At the arbitration, Royal stipulated to liability based on a products liability theory. The Travelers Primary CGL Policy provided coverage for "Products-Completed Operations." Travelers does not contend that its policy did not cover products liability claims.

The American States Auto Policy contained a "Completed Operations" exclusion, which, as American States points out, in effect, excludes products liability claims. That exclusion provided:

"Completed Operations

"'Bodily injury' or 'property damage' arising out of your work after that work has been completed or abandoned.

"In this exclusion, your work means:

"a. Work or operations performed by you or on your behalf; and

"b Materials, parts or equipment furnished in connection with such work or operations.

"Your work includes warranties or representations made at any time with respect to the fitness, quality, durability or performance of any of the items included in paragraphs a. or b. above.

"Your work will be deemed completed at the earliest of the following times:

"(1) When all of the work called for in your contract has been completed.

"(2) When all of the work to be done at the site has been completed if your contract calls for work at more than one site.

"(3) When that part of the work done at a job site has been put to its intended use by any person or organization other than another contractor or subcontractor working on the same project.

“'Work that may need service, maintenance, correction, repair or replacement, but which is otherwise complete, will be treated as completed."

The "completed operations" exclusion in the American States Auto Policy excluded coverage in the Gomez action because that action claimed bodily injury arising out of Royal's work—leasing the food truck to Mr. Gomez—which work included equipment (the deep fryer basket) furnished in connection with Royal's work, and which work was, under the policy, "deemed completed" when the work was put to its intended use—i.e., when the Gomezes leased and operated the food truck equipped with the deep fryer and basket.