Allied Premier Insurance v. United Financial Casualty Co.
(Failure to Cancel Certificate of Insurance Filed For Purpose of Proof of Financial Responsibility By Commercial Trucker Does Not Prevent Expiration of Commercial Auto Policy)
(September 2023) - In Allied Premier Ins. v. United Financial Cas. Co., 15 Cal.5th 20 (July 24, 2023), the California Supreme Court responded to a certified question from the U.S. Court of Appeals for the Ninth Circuit, which stated as follows:
… Under California's Motor Carriers of Property Permit Act (Veh. Code, § 34600 et seq.; the Act), does a commercial automobile insurance policy continue in full force and effect until the insurer cancels the corresponding certificate of insurance on file with the Department of Motor Vehicles (DMV or Department), regardless of the insurance policy's stated expiration date? The answer is no. The terms of an insurance contract generally determine the duration of the policy's coverage. Although an endorsement can amend the policy, neither the Act nor the specific endorsement it requires extend coverage beyond the underlying policy's expiration date.
The dispute which gave rise to the question certified to the California Supreme Court involved whether a commercial auto policy issued by United Financial Casualty Company (“United”) remained in effect and provided coverage for wrongful death lawsuit, even though its policy had expired on April 12, 2015, and the accident giving rise to the underlying lawsuit took place on September 1, 2015.
The trucker’s subsequent insurer, Allied Premier Insurance (“Allied”), on the risk at the time of the accident, settled the lawsuit for its $1,000,000 policy limits and filed a contribution action against United contending that it should have paid for half of the settlement of the underlying lawsuit. Allied contended that since the certificate of insurance on file with the California Department of Motor Vehicles (“DMV”) had not been cancelled by United, under the Act, the United policy remained in place and covered the loss as well. In response United argued that its policy had expired and that the failure to cancel a “certificate of insurance” did not extend the United policy period under the Act.
In responding to the Court of Appeals’ certified question, the California Supreme Court distinguished a prior decision of the Court entitled Transamerica Ins. Co. v. Tab Transportation, Inc., 12 Cal.4th 389. The Transamerica decision interpreted a predecessor code section, the Highway Carriers’ Act f 1961 (Pub. Util. Code, former section 3501 et seq.-the “HCA”). The HCA was replaced by the Act in 1996. Most importantly, as opposed to the HCA which required 30 days’ notice before a motor carrier of property’s commercial auto policy could be cancelled, the Act requires written notice of the cancellation of the certificate of insurance on file with the DMV. The Supreme Court stated as follows:
The Act is different. It provides that “[p]roof of financial responsibility shall be continued in effect during the active life of the motor carrier permit,” and that the “certificate of insurance shall not be cancellable on less than 30 days' written notice from the insurer to the [DMV] except in the event of cessation of operations as a permitted motor carrier of property.” (§ 34630, subd. (b), italics added.) Likewise, section 34631.5, subdivision (b)(3) provides that the certificate of insurance, “evidencing the protection, shall not be cancelable on less than 30 days' written notice” to the DMV. Thus, while the HCA specifically prohibited cancellation of an insurance policy without notice, the Act only prohibits cancellation of a certificate of insurance without notice. This prohibition helps to ensure that “proof of financial responsibility” remains “in effect during the active life” of the permit. (§ 34630, subd. (b).)
The difference in statutory language is significant. Under the HCA and the endorsement required by general order No. 100, the underlying policy could not be cancelled without notice to the PUC. As a result, Transamerica remained obligated. Its policy with Tab had been amended by the endorsement, which “converted the policy from a one-year term policy to a policy that was to remain in effect ‘until canceled.’” (Transamerica, supra, 12 Cal.4th at p. 400.) But under the new language of the Act only the certificate of insurance remains active until cancelled. Cancellation of a certificate triggers the DMV's obligation to suspend the motor carrier's permit. The statute does not say that the underlying policy remains active beyond the period called for in the contract between the parties. There is no language that “converts” the stated term of the policy.
The Act prohibits cancellation of a certificate of insurance without notice to the DMV. Unlike the HCA, it does not speak to cancellation or termination of the underlying policy, which embodies the agreement between the parties. As a result, the Act does not prevent cancellation or termination of an insurance policy under the terms of the contract.
It is undisputed that at least one certificate of insurance that United filed during the period it covered Porras remained uncancelled at the time of the accident. The question remains: What impact does a certificate of insurance remaining on file with the DMV have with respect to the coverage that an insurer owes to its insured? Again, we return to the language of the United policy, the certificate of insurance, and the endorsement.
The Supreme Court went on to explain the effect of the certificate of insurance and why it did not extend the term of the United policy. The Supreme Court reasoned as follows:
Insurance coverage is generally understood to mean an obligation on the insurer “to defend and indemnify the insured against loss resulting from specified activities.” (2 Witkin, Summary of Cal. Law (11th ed. 2017) Insurance, § 210, p. 329.) The certificate of insurance required by the Act mentions neither of these obligations. They are, instead, imposed by the terms of the United policy and by the Endorsement, though the obligations are described differently in each document.
In its certificates of insurance, United affirmed that Porras was covered by Policy 772, that the policy covered all vehicles for which Porras's permit was required, and that a fully executed endorsement was attached to the policy. It also agreed the certificate was not cancellable without 30 days' written notice to the Department.
The United policy promised that, if Porras “pa[id] the premium for liability coverage for the insured auto involved,” then United would pay damages up to the policy limits. The policy also provided that United would “settle or defend, at [its] option, any [covered] claim or lawsuit for damages.” Thus, so long as Porras paid the required premium, the policy required United to (1) defend or settle any covered claim against Porras and (2) indemnify Porras for any damages, up to the limits of liability. If Porras did not pay the required premium, however, the policy would “automatically terminate at the end of the current policy period.”
The Endorsement also addressed United's duties to defend and indemnify Porras, but it altered some of the obligations United and Porras owed to each other under the terms of the underlying policy. In the Endorsement, United promised to “pay, consistent with the minimum insurance coverage required by [section 34631.5], and consistent with the limits it provides herein, any legal liability of [Porras] for bodily injury, death, or property damage arising out of the operation, maintenance, or use of any vehicle(s) for which a motor carrier permit is required.” United also promised that “[n]o provision, stipulation, or limitation contained in the attached policy or any endorsement [would] relieve [United] from obligations arising out of this Endorsement or the Act, regardless of insured's financial solvency, indebtedness or bankruptcy.” However, the Endorsement's “coverage” excluded any “costs of defense or other expense that the policy provide[d].” And the Endorsement specifically stated that it did “not prevent [United] from seeking reimbursement from [Porras] for any payment made by [United] solely on account of the [Endorsement's] provisions.” Thus, the Endorsement promised that United would pay Porras's legal liability up to the statutorily required minimum amount notwithstanding any provision or limitation in the policy. But it also allowed United to seek reimbursement from Porras for any payment United made solely on account of its provisions, and it specifically excluded the costs of Porras's defense from its coverage. More importantly for our purposes, the Endorsement was an amendment to the United policy. Unlike the HCA and the endorsement applying general order No. 100 in Transamerica, nothing in the Act or the Endorsement provides that the policy must remain effective until cancellation of the certificate of insurance.
The Supreme Court concluded its response to the certified question as follows:
Under the Act, a commercial automobile insurance policy does not continue in full force and effect until the insurer cancels a corresponding certificate of insurance on file with the DMV. The duration of the policy's coverage is regulated by its terms and those of any endorsement or amendment to the policy itself.