Denial of Coverage for Temporary Substitute Automobile found to Violate Louisiana Public Policy
Case: State Farm Mutual Automobile Ins. Co. v. Safeway Ins. Co. of Louisiana
Louisiana Third Circuit Court of Appeals
Case No. 16-357
Judge James “Jimmy” Genovese of the Louisiana Third Circuit Court of Appeals recently authored an opinion which could potentially have a broader impact, as Judge Genovese is Louisiana’s newest elected Supreme Court Judge. The court found the temporary substitute automobile provision typically found in auto policies, as applied in this case, ran afoul of Louisiana’s public policy.
A Safeway insured’s vehicle became inoperable in late September 2012. The day following, the Safeway insured borrowed a friend’s car to go to work. One day later, on his way home from work, the Safeway insured rear-ended another vehicle. The borrowed car owner’s insurance – State Farm – paid for the claimant’s property damage and then filed this subrogation claim against Safeway.
The court first reviewed the applicable statute, Louisiana Revised Statute 22:1296, which requires that insurers issuing automobile liability policies in the state “shall extend to temporary substitute motor vehicles as defined in the applicable insurance policy and rental motor vehicles any and all such insurance coverage in effect in the original policy or policies. … Such insurance shall be primary….”
Safeway argued the wording of the statute was clear, and that its policy language clearly defined a temporary substitute automobile to include an automobile “… not owned by the named insured or any resident of the same household, while temporarily used as a substitute for the owned automobile when the owned automobile is being serviced or repaired by a person engaged in the business of selling, repairing, or servicing motor vehicles.” (Emphasis added.) Thus, Safeway essentially argued that because its insured repaired his own vehicle instead of sending it to a repair shop, his policy did not extend to the vehicle he borrowed. Safeway urged that the provision prevented the insurer from unwittingly insuring a vehicle used as a temporary substitute for an extended period of time, because commercial mechanics typically repair cars faster than home mechanics.
The trial court rejected Safeway’s rationale. On appeal, Judge Genovese agreed with the trial court, finding Safeway’s denial penalized poverty and thus violated public policy. Notably, Judge Genovese also referred to a Second Circuit case between the same parties, State Farm Mutual Automobile Insurance Co. v. Safeway, Insurance Co., 50,098, 50,099 (La. App. 2 Cir. 9/30/15), 180. So.3d 450, writ denied, 15–2005 (La. 1/15/16), 184 So.3d 706. There, Safeway argued that a mother whose car was inoperable and borrowed a car so she could take her kids to daycare and go to work had no coverage when she rear-ended another driver. Apparently, she did not get her car to a mechanic until a few days following the accident. The Second Circuit found it unreasonable to require the insured to deposit her car with the mechanic before borrowing another.
In sum, these cases do not stand for the proposition that denial of coverage for a temporary substitute automobile will always violate public policy, but it appears the facts of the particular case will be determinative.