Second Circuit.
SOMPO JAPAN INSURANCE COMPANY OF
v.
UNION PACIFIC RAILROAD COMPANY, Defendant-Appellee.
Docket No. 04-4066-CV.
Argued: July 14, 2005.
Decided: July 10, 2006.
Background: Insurer of tractors damaged during domestic rail
portion of a continuous intermodal shipment originating in
Holdings: The Court of Appeals, Wesley, Circuit Judge, held that:
(1) Carmack Amendment applied to the domestic rail portion of a continuous intermodal shipment originating in foreign country and traveling under through bills of lading, and
(2) ocean carrier could not contractually extend COGSA's terms to domestic rail subcontractor.
Vacated and remanded.
A shipment of thirty-two tractors, en route from
On appeal, Sompo argues that the district court erred in finding that another statute, the Carmack Amendment to the Interstate Commerce Act of 1887 ("Carmack"), Act of June 29, 1906, ch. 3591, 34 Stat. 584 (1906) (current version at 49 U.S.C. § 11706), does not govern the Railroad's liability in this case. We agree and accordingly vacate the district court's order for partial summary judgment and remand this case for further proceedings.
Background
In July 2002, Kubota
hired Mitsui OSK Line Ltd. ("MOL"), an ocean shipping company, to
ship thirty-two tractors from
In the district court, Union Pacific argued that, pursuant to the MOL bills of lading, its liability should be limited to $500 per package. In particular, Union Pacific relied upon two provisions in the bills, Clause 29 and Clause 4. Clause 29 is a "clause paramount," which identifies the law that will govern the rights and liabilities of all parties to the bill of lading. Stephen G. Wood, Multimodal Transportation: An American Perspective on Carrier Liability and Bill of Lading Issues, 46 Am. J. Comp. L. 403, 408 n. 37 (1998). The clause paramount in the MOL bills recognizes COGSA as the governing law for the ocean leg of the journey and further includes a "period of responsibility clause," see id. at 408 n. 36, a contractual provision extending COGSA's reach beyond "the period from the time when the goods are loaded on to the time when they are discharged from the ship." 46 U.S.C. app. § 1301(e). The period of responsibility clause in the MOL bills of lading provides that "[MOL] shall be entitled to the benefits of the defences [sic] and limitations in the U.S. COGSA, whether the loss or damage to the Goods occurs at sea or not." Sompo, 2003 WL 22510361, at(quoting MOL bills of lading) (second alteration in Sompo; emphasis removed).
Clause 4 of the MOL bills of lading constitutes what is referred to as a "himalaya clause," a contractual provision "extend[ing] to third parties the defenses, immunities, limitations or other protections a law or a bill of lading confers on a carrier." Wood, supra, at 408 n. 35. The himalaya clause in the MOL bills expressly authorizes MOL to subcontract the carriage of Kubota's tractors and grants all subcontractors "the benefit of all provisions herein benefiting the Carrier [MOL] as if such provisions were expressly for their benefit." Sompo, 2003 WL 22510361, at(quoting MOL bills of lading) (emphasis removed). Combining the Clause 29 period of responsibility clause with the Clause 4 himalaya clause, Union Pacific argued that its liability as a subcontractor was limited to $500 per tractor.
The district court agreed with Union Pacific. It rejected Sompo's contention that two other federal statutes--Carmack and the Staggers Rail Act of 1980 ("Staggers"), Pub.L. No. 96-448, 94 Stat. 1895 (codified at 49 U.S.C. § 11706)--governed the liability of Union Pacific in this case. Sompo argues on appeal, as it argued below, that Carmack and Staggers together take precedence over the COGSA liability limitation that the MOL bills of lading extend to Union Pacific. Although the district court recognized that Carmack and Staggers apply in certain circumstances to impose full liability upon a rail carrier for any losses caused by the railroad, it nevertheless ruled that, because MOL employed through bills of lading containing period of responsibility and himalaya clauses, the Carmack/Staggers statutory regime was inapplicable to this case. Sompo, 2003 WL 22510361, at *4. We disagree. Carmack applies to the domestic rail portion of a continuous intermodal shipment originating in a foreign country, like the one at issue here. While the through bills attempt to extend COGSA's sweep inland, that contractual extension lacks the force of statute. And in our view, the intermodal through bills, written in the context of COGSA, falls short of the Staggers prerequisite for limiting a rail carrier's Carmack liability. Carmack controls; a remand is required.
Discussion
I. The Statutory Landscape
The issues presented in this case arise out of the confluence of two fairly complex federal statutory schemes that govern different aspects of international commerce.
A. COGSA
COGSA "was
lifted almost bodily from the Hague Rules of 1921, as amended by the Brussels
Convention of 1924." Robert C. Herd & Co. v. Krawill Mach. Corp., 359
COGSA establishes a negligence-based liability regime. The statute also explicitly permits a carrier to limit its liability for loss or damage to the cargo it is carrying to $500 per "package." 46 U.S.C. app. § 1304(5). A carrier cannot avail itself of the COGSA $500-per-package liability limitation unless the shipper is given a "fair opportunity" to declare a higher liability value for its cargo. Gen. Elec. Co. v. MV Nedlloyd, 817 F.2d 1022, 1028 (2d Cir.1987).
Thus, as long as the shipper is given a fair opportunity to declare a value higher than $500 per package--the higher value need not be the full value of the goods--the carrier's maximum liability is limited to whatever value the shipper declares. If the shipper declares no value, the carrier's liability is defaulted to $500 per package. But if the carrier fails to give the shipper a fair opportunity to declare a value, then the carrier is liable for the full value of the cargo.
By its terms, COGSA only applies to "the period from the time when the goods are loaded on to the time when they are discharged from the ship," 46 U.S.C. app. § 1301(e), the so-called "tackle-to-tackle" period. But the statute also contemplates that parties will enter into agreements extending COGSA's terms beyond the tackle-to-tackle period:
Nothing contained in [COGSA] shall prevent a carrier or a shipper from entering into any agreement, stipulation, condition, reservation, or exemption as to the responsibility and liability of the carrier or the ship for the loss or damage to or in connection with the custody and care and handling of goods prior to the loading on and subsequent to the discharge from the ship on which the goods are carried by sea.
46 U.S.C. app. § 1307. Thus, COGSA
does not prevent a carrier in its bill of lading from choosing "to extend
the [COGSA] default rule to the entire period in which the [cargo] would be
under its responsibility, including the period of the inland transport."
Kirby, 543
B. The Carmack Amendment and the Staggers Rail Act of 1980
In 1887, Congress
passed the Interstate Commerce Act ("
Whereas COGSA establishes a negligence-like liability
regime, Carmack "imposes
something close to strict liability upon originating and delivering
carriers." Rankin v. Allstate Ins. Co., 336 F.3d 8, 9
(1st Cir.2003). Indeed, Carmack effectively codified the strict
liability rule that governed the liability of common carriers at common law. See Missouri Pac. R.R. Co. v. Elmore & Stahl, 377
By 1976, the
extensive regulatory scheme created by the
While this exempt order relieved certain rail carriers of rate regulation, it did not free them from all legal obligations to shippers. In particular, exempt rail carriers must satisfy the requirements of 49 U.S.C. § 10502(e), which states:
No exemption order issued pursuant to this section shall operate to relieve any rail carrier from an obligation to provide contractual terms for liability and claims which are consistent with the provisions of section 11706 of this title. Nothing in this subsection or section 11706 of this title shall prevent rail carriers from offering alternative terms nor give the Board the authority to require any specific level of rates or services based upon the provisions of section 11706 of this title.
Section 11706 is the Carmack provision governing the liability of rail carriers. It provides, among other things, that the "rail carrier and any other carrier that delivers the property and is providing transportation or service subject to the jurisdiction of the Board under this part are liable to the person entitled to recover under the receipt or bill of lading. The liability imposed under this subsection is for the actual loss or injury to the property." 49 U.S.C. § 11706(a). Thus, exempt rail carriers, including those operating under an intermodal may limit their liability under Carmack by negotiating "alternative terms." However, the combined effect of § 10502(e) and § 11706(a) is that rail carriers that wish to limit their liability must offer the shipper the option of full Carmack coverage, which includes both the Carmack version of strict liability and full coverage for loss. See Tokio Marine, 996 F.2d at 879 ("rail carriers still must offer full rates"); Am. Trucking Ass'ns, Inc. v. ICC, 656 F.2d 1115, 1124 (5th Cir.1981) ("the exemption does not and could not relieve rail carriers from the provisions of [§ 11706]"); Co-Operative Shippers, Inc. v. Atchison, Topeka & Santa Fe Ry. Co., 613 F.Supp. 788, 791 (N.D.Ill.1985) ("[a]lthough freed from most regulation, [exempt rail carriers] are still subject to the liability provisions of [§ 11706]"), overruled on other grounds, 840 F.2d 447 (7th Cir.1988); cf. Yamazen (U.S.A.), Inc. v. Chicago & Nw. Transp. Co., 790 F.2d 621, 622 (7th Cir.1986) (finding that § 11502(e), coupled with 11706(e), which states that a rail carrier or freight provider "may not provide by rule, contract, or otherwise ... a period of less than 2 years for bringing a civil action against it under this section," requires the carrier to offer the shipper a two-year filing period before offering alternative terms); Ferrostaal, Inc. v. Union Pac. R.R. Co., 109 F.Supp.2d 146, 149-50 (S.D.N.Y.2000) (same). If an exempt rail carrier fails to offer the shipper the option of coverage for the actual loss or injury to the property, then the shipper may sue the carrier under Carmack. See, e.g., Tokio Marine, 996 F.2d at 880.
As noted above, MOL's through bills of lading gave Kubota a
"fair opportunity" to declare a value for the tractors in excess of $500
per package, and Kubota declined. Thus, MOL did all that was required under
COGSA to trigger the statute's $500-per-package liability limitation. But Sompo argues forcefully on appeal that Carmack and Staggers
apply to the domestic rail portion of a shipment that, like Kubota's,
originates in a foreign country and travels under a through bill of lading. We
therefore must decide whether Carmack applies to the inland portion of Kubota's
shipment, a carriage of goods by rail shipped under a through bill of lading
from a foreign country to a destination in the
II. Carmack's Applicability
Carmack applies to
common carriers "providing transportation or service subject to the
jurisdiction of the [Surface Transportation] Board." 49 U.S.C. § 11706(a). The
Board's jurisdiction over rail carriers applies to "transportation in the
Sompo
argues that "if the domestic rail transport is part of a larger
transportation originating in a foreign country, then it fits the statutory
requirement that it is a shipment between a place in the
Most courts that have answered this question tend to reiterate the Eleventh Circuit's articulation of its holding in Swift Textiles v. Watkins Lines, Inc. that "when a shipment of foreign goods is sent to the United States with the intention that it come to final rest at a specific destination beyond its port of discharge," Swift, 799 F.2d at 701, as is the case with a through bill of lading, then Carmack applies only if there is a separate bill of lading covering the inland portion of the shipment. See, e.g., Shao, 986 F.2d at 703; Capitol Converting, 965 F.2d at 394; Toshiba, 841 F.Supp. at 128. We agree with Swift's mode of analysis but think that the court's articulated holding is fatally flawed.
Swift involved a
shipment of textile machinery from
For the court in
Swift, there was no question that Carmack applied to the domestic leg of a
shipment that began in a foreign country. Indeed, the court referred in the
opinion to § 10521(a)(1)(E)
as "the continuation of foreign commerce provision." Swift, 799 F.2d at 699. Thus, the court understood that if the
shipment of goods from
Applying this intent test, the court determined that the
shipment represented a "continuation of foreign commerce" and
therefore Carmack applied. "There was no reason for the container to come
to rest in
Despite the clarity of Swift's analysis, the court muddied the waters when it articulated its holding:
[W]hen a shipment of foreign goods is sent to the United States with the intention that it come to final rest at a specific destination beyond its port of discharge, then the domestic leg of the journey (from the port of discharge to the intended destination) will be subject to the Carmack Amendment as long as the domestic leg is covered by separate bill or bills of lading.
The
disconnect between Swift's reasoning and the articulation of its holding
has not gone unnoticed. See, e.g., Berlanga,
269 F.Supp.2d at 829. In fact, recognizing the inconsistency, one court
has hypothesized that Swift's use of the phrase "as long as" instead
of "even if" was due to a typographical error. See Canon
Nevertheless, although we reject Swift's articulated holding, we have no hesitation about adopting Swift's mode of analysis for determining Carmack's applicability, and in fact we have done so before. See Project Hope v. M/V IBN SINA, 250 F.3d 67, 74-75 (2d Cir.2001). Under that analysis, we must first determine the nature of the shipment in question--whether it is a single continuous intermodal shipment or multiple shipments consisting of separate ocean and domestic legs. Then we must determine whether Carmack applies to the shipment at issue.
The answer to the first question is straightforward. Under
the Swift intent test, which we applied in Project Hope, the domestic leg of the
Kubota shipment is a continuation of foreign commerce rather than a separate
and distinct interstate transport of goods. Kubota's intention that the
tractors travel from
While it is
relatively clear that Kubota's shipment of tractors is a single continuous
shipment of goods originating in a foreign country and destined for the
"The starting
point for [the] interpretation of a statute is always its language,"
Community for Creative Non-Violence v. Reid, 490 U.S. 730, 739, 109 S.Ct. 2166, 104 L.Ed.2d 811 (1989), and "courts must
presume that a legislature says in a statute what it means and means in a
statute what it says there," Connecticut Nat. Bank v. Germain,
503 U.S. 249, 253-54, 112 S.Ct. 1146, 117 L.Ed.2d 391
(1992). As pertinent to this case, Carmack applies to "transportation in
the
In a thoughtful
analysis of Carmack's applicability, a
However, the court in Berlanga, as
well as subsequent courts, failed to notice that the 1978 amendments were
adopted in a codification bill enacting the ICA into positive law, and it is
well-established that courts should not "infer[ ] that Congress, in
revising and consolidating the laws, intended to change their effect, unless
such intention is clearly expressed." Fourco
Glass Co. v. Transmirra Prods. Corp.,
353
Nevertheless,
judicial interpretations of this earlier version of the ICA, combined with
well-settled principles of statutory construction, lead us to conclude that
even the pre-1978 statute, which contained the "from ... to"
language, provided that Carmack applied to the transportation of goods both
exiting and entering the United States. When Carmack was first enacted, it did
not apply to shipments of goods destined for foreign countries but was instead
limited to purely interstate commerce. See Act of June 29, 1906, c. 3591, 34
Stat. 593 (originally codified at 49 U.S.C. § 20(11)); see also J.H. Hamlen & Sons Co. v. Ill. Cent. R. Co., 212 F. 324, 327
(E.D.Ark.1914). By contrast, the ICC's regulatory
jurisdiction originally included transportation "from any place in the
Congress eliminated
that distinction in 1915 when it enacted the First Cummins Amendment, which
extended Carmack's application to transportation
"from any point in the
In
The use of similar
language, let alone identical language, in two different provisions of the same
statute is, as the Supreme Court has emphasized, "a strong indication that
[the two provisions] should be interpreted pari passu," i.e., in the same manner. Northcross v. Bd. of Ed. of Memphis
City Sch., 412
The Alwine court provided two rationales for its decision not
to extend the Woodbury interpretation of the "from ... to" language
of the Carmack liability provision and instead to limit that interpretation to
the language in the ICC jurisdiction provision. First, the Alwine
court noted that the ICC itself had interpreted the First Cummins Amendment as
"extend[ing] the territorial application of the
provisions of the Carmack amendment to ... goods exported to adjacent foreign
countries."
Second, the court in Alwine also relied upon an inference drawn from
congressional action following the Woodbury decision.
We are less sanguine
than the Alwine court about the force of that
inference. The Supreme Court has on numerous occasions expressed a "reluctan [ce] to draw inferences
from Congress' failure to act." Brecht v.
Abrahamson, 507 U.S. 619, 632-33, 113 S.Ct. 1710, 123
L.Ed.2d 353 (1993) (quoting Schneidewind v. ANR
Pipeline Co., 485 U.S. 293, 306, 108 S.Ct. 1145, 99
L.Ed.2d 316 (1988) (citing Am. Trucking Assns., Inc. v. Atchison, T. &
S.F.R. Co., 387 U.S. 397, 416-18, 87 S.Ct. 1608, 18
L.Ed.2d 847 (1967))). That reluctance seems to be particularly apt in a case
like Alwine, where the inference drawn would deny the
effect of a Supreme Court precedent. Indeed, if anything, Congress's
re-enactment of Carmack in the Act of February 28, 1920 without changing the
"from ... to" language would seem to reflect a congressional intent
to ratify the Supreme Court's interpretation of that language in Woodbury. Cf.
Merrill Lynch, Pierce, Fenner & Smith, Inc. v.
Curran, 456 U.S. 353, 382 n. 66, 102 S.Ct. 1825, 72
L.Ed.2d 182 (1982) ("Congress is presumed to be aware of an administrative
or judicial interpretation of a statute and to adopt that interpretation when
it re-enacts a statute without change ...." (quoting Lorillard v. Pons, 434
Nor do we think that
the Supreme Court's later decision in Reider v.
Thompson, 339
Where does that leave
us? We know that Woodbury interpreted the phrase "from a place in the
Our interpretation of
Carmack--that it applies to the domestic inland portion of a foreign shipment
regardless of the shipment's point of origin--also comports with Congress's
view of the law when Congress codified the
III. The Carmack Amendment and COGSA
Because the period of responsibility and himalaya clauses in MOL's through bills of lading together extend COGSA's terms to subcontractors, like Union Pacific, the fact that Carmack also applies to the Union Pacific leg of the Kubota shipment creates a potential conflict between two different liability regimes. In our view, however, the conflict is not between two federal laws but rather between one federal law (Carmack) and a contract that, although incorporating the terms of another statute (COGSA), nevertheless lacks statute-like status.
Section 1307 of COGSA states:
Nothing contained in [COGSA] shall prevent a carrier or a shipper from entering into any agreement, stipulation, condition, reservation, or exemption as to the responsibility and liability of the carrier or the ship for the loss or damage to or in connection with the custody and care and handling of goods prior to the loading on and subsequent to the discharge from the ship on which the goods are carried by sea.
46 U.S.C. app. § 1307. Because COGSA only applies to "the period from the time when the goods are loaded on to the time when they are discharged from the ship," id. § 1301(e), courts have consistently held that when COGSA is extended by contract beyond the tackles, as contemplated by § 1307, the statute does not apply of its own force, or ex proprio vigore, but rather as a contractual term. See Hartford Fire Ins. Co. v. Orient Overseas Containers Lines (UK) Ltd., 230 F.3d 549, 557 (2d Cir.2000); Colgate Palmolive Co. v. S/S Dart Canada, 724 F.2d 313, 315 (2d Cir.1983); Pannell v. U.S. Lines Co., 263 F.2d 497, 498 (2d Cir.1959); Inst. of London Underwriters v. Sea-Land Serv., Inc., 881 F.2d 761, 764-66 (9th Cir.1989); Croft & Scully Co. v. M/V SKULPTOR VUCHETICH, 664 F.2d 1277, 1280 (5th Cir.1982); Commonwealth Petrochems., Inc. v. S/S Puerto Rico, 607 F.2d 322, 325 (4th Cir.1979).
This view of COGSA
finds further support in the fact that Congress explicitly provided that contracts extending the statute's reach in ways other than
over land--in particular, contractual extensions covering trade between
However, Congress
made an important textual distinction between contracts extending the statute's
terms to coastwise trade under § 1312 and contracts extending COGSA's terms beyond the tackles, pursuant to § 1307. With respect to contracts under the
coastwise option, Congress made clear that such contracts "shall be
subjected [to COGSA] as fully as if subject... by the express provisions of
[the statute]." 46 U.S.C. app. § 1312. Thus, when extended by contract
to cover coastwise trade, COGSA does indeed act ex proprio
vigore. [6] However, with respect to period of
responsibility provisions, like the one in the MOL bills of lading, Congress
simply stated that "[n]othing [in COGSA] shall
prevent a carrier or a shipper from entering into any [such] agreement."
In light of the contractual nature of period of responsibility provisions, courts have routinely held that contracts extending COGSA beyond the tackles must give way to conflicting law. See Colgate Palmolive, 724 F.2d at 315-16 (refusing to apply COGSA $500-per-package limitation in view of governing state law because "provisions of COGSA incorporated by contract can be valid only insofar as they do not conflict with applicable state law"); Wemhoener Pressen v. Ceres Marine Terminals, Inc., 5 F.3d 734, 739 (4th Cir.1993) ("To portions of the carriage that take place prior to loading or after discharge and therefore are not covered by the terms of COGSA, the Harter Act controls."); Uncle Ben's Int'l Div. of Uncle Ben's, Inc. v. Hapag-Lloyd Aktiengesellschaft, 855 F.2d 215, 217 (5th Cir.1988) (holding that "[i]f the parties extend the provisions of COGSA to the preloading phase, any inconsistency with the Harter Act must yield to the Harter Act" but finding that the contractual incorporation of COGSA's one-year statute of limitation was not inconsistent with the Harter Act); Toshiba Int'l Corp., 841 F.Supp. at 128 (suggesting that if Carmack applied to the inland portion of the journey, it would disallow the COGSA liability limitations incorporated by contract). [7] But see Schramm, Inc. v. Shipco Transp., Inc., 364 F.3d 560, 565 (4th Cir.2004) (assuming without discussion that a contract incorporating COGSA's terms wins out over any conflict with the Harter Act).
In fact, in cases
involving foreign trade where there is a conflict between a period of
responsibility clause and the Harter Act--which, in international shipments,
applies from the time when the goods are unloaded until "proper
delivery"--the principal issue is not whether a contract incorporating COGSA's terms must give way to conflicting provisions in
the Harter Act, but rather whether there is in fact a conflict. "Because
COGSA and the Harter Act are so similar, it often makes no difference which
statute applies." 2A-II BENEDICT ON ADMIRALTY § 14 (7th 9 ed.1998). Nevertheless, when
courts have identified inconsistencies between the two statutes, they have held
that the Harter Act supersedes the period of responsibility clause. For example, in R.L. Pritchard & Co. v. S.S. Hellenic Laurel,
342 F.Supp. 388, 391 (S.D.N.Y.1972), one of
our district court's noted that "[i]nsofar as the provisions of COGSA are inconsistent with the
Harter Act, they cannot be incorporated into a bill of lading to cover the
responsibilities of the carrier after discharge and before delivery of the
cargo."
These cases are
consistent with the policy motivating COGSA. The driving force behind COGSA was
a need for uniformity in the law governing the contracts central to maritime
commerce. See Vimar Seguros
y Reaseguros,
Consistent with the treaty's intent, Congress specifically provided in COGSA that the statute would have no effect upon laws applying to the inland carriage of goods:
Nothing in [COGSA] shall be construed as superseding any part of [the Harter Act], or of any other law which would be applicable in the absence of [COGSA], insofar as they relate to the duties, responsibilities, and liabilities of the ship or carrier prior to the time when the goods are loaded on or after the time they are discharged from the ship.
46 U.S.C. app. § 1311. As Senator
White explained in the Commerce Committee's report of the bill to Congress,
"[COGSA] supersedes the so-called 'Harter Act' from the time the goods are
loaded on the ship to the time they are discharged from the ship. Otherwise our
law remains precisely as it is, unaffected and unimpaired by the proposed
legislation." 1 Legislative History of the Carriage of Goods by Sea Act
and the Travaux Préparatoires
of
Union Pacific would
have us rely upon the Supreme Court's recent decision in Norfolk Southern
Railway Co. v. Kirby, 543 U.S. 14, 125 S.Ct. 385, 160
L.Ed.2d 283 (2004), but Kirby does not alter our analysis. In Kirby, the
Supreme Court held that federal law should govern the interpretation of a
through bill of lading consisting of sea and land portions, as long as the sea
portions are "substantial."
The Supreme Court
found that the bill of lading, although covering carriage by both sea and land,
was nevertheless a maritime contract to which federal law applied. See id. at 23-27. Adopting a conceptual approach, the Court stated
that "so long as a bill of lading requires substantial carriage of goods
by sea, its purpose is to effectuate maritime commerce--and thus it is a
maritime contract ... [even if] it also provides for some land carriage.... If
a bill's sea components are insubstantial, [however,] then the bill is not a
maritime contract."
Union Pacific contends that the same concern for uniformity and consistency in interpreting international maritime contracts "demands that provisions of 'through bills of lading' which extend limitations of liability to inland carriers should be analyzed under COGSA and not the Carmack Amendment." We cannot read Kirby so broadly. In Kirby, the Court was primarily concerned with the lack of uniformity and consistency that would result if state law were applied to contracts extending COGSA's terms inland. That is a significant concern, especially for the myriad parties potentially responsible for an inland carrier's damage to goods who cannot know before the fact which state law might define the contours of their liability. The Supreme Court's decision that national law will govern the interpretation of an international bill of lading with a substantial sea component adroitly avoids that problem.
However, in Kirby,
the cargo owner failed to raise the issue of Carmack's
applicability. See Brief for the
To apply COGSA here to the exclusion of Carmack would be to contradict well-established circuit precedent holding that period of responsibility provisions do not have statute-like status and would undermine the text of the statute itself, which explicitly states that COGSA does not affect laws governing the carriage of goods prior to loading and after discharge. 49 U.S.C. app. § 1311. [9] We cannot interpret the Kirby Court's language concerning the policy underlying COGSA--language that at most merely supported, but was far from central, to the Court's holding that federal law should apply instead of state law--as implying that a contract extending COGSA inland should supersede an otherwise applicable federal law. Without further guidance from the Supreme Court or from Congress, we must rely on precedent and the plain language of the statutory scheme.
IV. Compliance with the Carmack Amendment and the Staggers Rail Act
Now that we have determined that Carmack applies to the domestic rail portion of an international shipment originating in a foreign country and traveling under a through bill of lading, even where the parties have extended COGSA's liability provisions to domestic rail carriers, one question remains: when Union Pacific negotiated the applicable terms of carriage of Kubota's tractors, did it provide the shipper an opportunity, consistent with Staggers, see 49 U.S .C. § § 10502(e); 11706(a), (c)(3), to receive full Carmack liability coverage as well as "alternative terms"? If so, then under Carmack and Staggers, see 49 U.S.C. § 11706(c)(3), such alternative terms would circumscribe Union Pacific's liability. If not, and in the absence of any other defense, then Union Pacific, having failed to comply with the Carmack and Staggers requirements, would be liable for the full value of the tractors. Because the district court determined that COGSA, rather than Carmack, applied to the Kubota shipment, it did not have the opportunity to address whether Union Pacific satisfied Staggers. Moreover, the question of whether Union Pacific satisfied Staggers raises potential issues of fact and law that the district court, in the first instance, is in a better position to evaluate than are we. Accordingly, we find it prudent to remand the case to the district court to address whether Union Pacific satisfied the requirements of 49 U.S.C. § 10502(e).
We see no reason, however, to refrain from addressing Union Pacific's argument, advanced on appeal, that the MOL bills of lading satisfy Staggers. Union Pacific urges us to view the $500-per-package liability limitation in the MOL bills of lading as "alternative terms" and contends that Clause 29(2) of the MOL bills "gave Kubota the opportunity to declare the full value of the cargo and receive full value coverage as required by 49 U.S.C. § 11706." Clause 29(2) provides:
If the U.S. COGSA applies as Clause 29(1) above, neither the Carrier nor the Vessel shall, in any event, be or become liable for any loss or damage to or in connection with the Goods in an amount exceeding $500.00 per package, lawful money of the United States or in the case of Goods not shipped in packages, per customary freight unit, unless the value of the Goods has been declared and inserted in the declared value box on the face hereof, in which case Clause 6(2) shall apply.
Union Pacific's argument is without merit because, although Clause 29(2) provides the option of full coverage under COGSA, it does not provide the option of full coverage under Carmack. Of course, substituting the liability scheme available under COGSA for that available under Carmack might be a harmless error if the liability rules under COGSA and Carmack were identical. But as discussed above, COGSA liability is grounded in negligence while Carmack liability is rooted in strict liability. Thus, Union Pacific's argument that it is liable under either COGSA's or Carmack's standard of care misses the point. Because COGSA and Carmack create two different liability standards, we cannot assume that the shipper contracting with Union Pacific had the opportunity to choose among several types of liability coverage and opted not to pay a higher freight rate for full coverage under a strict liability rule.
While we hold that the MOL bills of lading do not satisfy Staggers, we express no opinion as to any other potential contention that Union Pacific complied with the requirements of Carmack and Staggers.
Conclusion
For the foregoing reasons, we conclude that Carmack governs Union Pacific's liability in this case. We further conclude that the MOL bills of lading do not satisfy the Staggers requirement that the shipper be given an opportunity to receive full Carmack liability coverage before accepting alternative terms. We remand this case to the district court to consider any other potential arguments that Union Pacific might raise that it complied with the requirements of Carmack and Staggers. Accordingly, we vacate the judgment of the district court and remand the case to the court for further proceedings consistent with this opinion.
The Honorable David G. Trager, Judge of the United States District Court for the Eastern District of New York, sitting by designation.
After the district court denied Sompo's motion for reconsideration, the parties stipulated to a final judgment subject to Sompo's right to appeal. See Sompo Japan Ins. of Am. v. Union Pac. R.R. Co., No. 03-1604 (S.D.N.Y. Nov. 18, 2003); Sompo Japan Ins. Co. of Am. v. Union Pac. R.R. Co., No. 03-1604 (S.D.N.Y. March 31, 2004).
There is some confusion as to how exactly the rail shipment was subcontracted to Union Pacific. See Sompo, 2003 WL 22510361, atn. 2. How the subcontract was entered is of no moment to the resolution of this appeal.
Like bills of lading,
waybills are contracts for the carriage of goods. 1 T. SCHOENBAUM, ADMIRALTY
LAW § 10-11
(4th ed.2006). But in contrast to bills of lading, waybills are nonnegotiable.
The clause derives
its name "from the steamship 'Himalaya' which was involved in Adler v.
Under COGSA, a carrier may avoid liability on a number of grounds, including "due diligence" with respect to damage caused by unseaworthiness. See 46 U.S.C. app. § 1304(1). With respect to damage caused by something other than unseaworthines, the carrier can avoid liability by proving among other things that he was without actual fault and privity and that his agents or servants were without fault or neglect. See id. § 1304(2)(q).
The statute itself does not define the term "package," which is a term that is largely fact-dependent. See 2A-XVI BENEDICT ON ADMIRALTY § 167 (7th ed.1998). In any case, the definition of "package" is not at issue in this case.
The Supreme Court has
indicated that Carmack preserved the defenses available to common carriers at
common law. See
At the time these cases were decided, 49 U.S.C. § 11706 was codified at 49 U.S.C. § 11707.
0. The statute gave the ICC jurisdiction over transportation by motor carrier between "a State and a place in another State" and between "a State and another place in the same State through another State." Act to Revise the Interstate Commerce Act, Pub.L. 95-473, 92 Stat. 1337, § 10521(a)(1)(B), 1361-62 (1978). But because the entire domestic leg of the journey took place solely within one state, these provisions did not apply.
1. For an illustration of the confusion caused by Swift's
articulated holding, one need look no further than the
Seventh Circuit's opinion in Capitol Converting, 965 F.2d at 391. In an attempt
to rationalize Swift's articulated holding, the court in Capitol Converting
explained that Carmack only applies to a shipment of goods originating in a
foreign country if there is a "separate domestic segment," as evidenced
by a separate domestic bill of lading.
2. In particular, Congress stated the following:
Like other codifications undertaken to enact into positive law all titles of the United States Code, this bill makes no substantive change in the law. It is sometimes feared that mere changes in terminology and style will result in changes in substance or impair the precedent value of earlier judicial decisions and other interpretations. This fear might have some weight if this were the usual kind of amendatory legislation where it can be inferred that a change of language is intended to change substance. In a codification statute, however, the courts uphold the contrary presumption: the statute is intended to remain substantively unchanged.
H.R.Rep. No. 1395, 95th Cong., 2d Sess. 9 (1978), reprinted in U.S.Code Cong. & Ad. News 3009, 3018.
3. One could fairly raise the objection that, regardless of
the proper interpretation of the "from ... to" language in the
pre-codification version of Carmack, the pre-codification version of the
statute contained language making clear that Carmack only applied to
international shipments of goods involving "an adjacent foreign
country," Berlanga, 269 F.Supp.2d at 827
(quoting 49 U.S.C. § 20(11) (1976)
(emphasis added)), and that the codification bill's omission of the word
"adjacent" should not be interpreted as a change in the law. Under
this objection, it would follow that Carmack does not apply in this case
because the Kubota shipment involved transportation from a non-adjacent
country,
See Project Hope, 250 F.3d at 75. Although Project Hope involved motor, rather than rail, carriage, the post-codification language governing the Board's jurisdiction, and therefore Carmack's applicability, is identical regardless of the mode of transport. Compare 49 U.S.C. § 13501(1)(E) with 49 U.S.C. § 10501(2)(F). Thus, we find ourselves bound by Project Hope's holding, which effectively extended Carmack's applicability to international shipments involving non-adjacent foreign countries.
4. We note that, even if we were to view Union Pacific's domestic, interstate carriage as a shipment entirely distinct from the rest of the transport, Carmack would still apply by virtue of 49 U.S.C. § 10501(a)(2)(A), because the Union Pacific waybill covers the interstate carriage of goods.
5. Enacted in 1898, the Harter Act imposes a duty of
"proper loading, stowage, custody, care, [and] proper delivery." 46
U.S.C. app. § 190.
It prohibits any exculpation clause in a bill of lading or shipping document
relieving the carrier from liability arising out of negligence or fault in
loading, stowage, custody, care, delivery of cargo, and the provision of a
properly equipped and seaworthy vessel. See 46 U.S.C. app. § § 190, 191. Like COGSA, the Harter Act
also provides for exoneration of the carrier in certain circumstances,
including "errors of navigation," "dangers of the sea," and
"acts of God." 46 U.S.C. app. § 192. Although COGSA superseded the
Harter Act with respect to the tackle-to-tackle period of international
shipments, the Harter Act nevertheless continues to govern the carrier's duties
in international shipments prior to the time when the goods are loaded on the
ship and after the time they are discharged from the ship, until "proper
delivery." See Wemhoener Pressen
v. Ceres Marine Terminals, Inc., 5 F.3d 734, 741-42 (4th Cir.1993)
("['Proper delivery' includes] actual or constructive delivery. Actual
delivery consists [of] completely transferring the possession and control of
the goods from the vessel to the consignee or his agent. Constructive delivery
occurs where the goods are discharged from the ship upon a fit wharf and the
consignee receives due and reasonable notice that the goods have been
discharged and has a reasonable opportunity to remove the goods or put them
under proper care and custody." (quoting B. Elliott (Canada) Ltd. v. John
T. Clark & Son, 704 F.2d 1305, 1308 (4th Cir.1983) (in turn quoting Orient
Overseas Line, Inc. v. Globemaster Baltimore, Inc.,
33 Md.App. 372, 365 A.2d 325, 335-36 (Md.1976)))).
"It is clear from the legislative history that Congress intended the
Harter Act to continue to apply to all cases not governed by COGSA." 2A-II
BENEDICT ON ADMIRALTY §
14 (7th ed.1998). Because COGSA only applies to the
tackle-to-tackle period in international shipments, see 46 U.S.C. app. § 1300 ("Every bill of lading or similar
document of title which is evidence of a contract for the carriage of goods by
sea to or from ports of the United States, in foreign trade, shall have effect
subject to the provisions of this Act." (emphasis
added)), the Harter Act continues to apply to trade between
6. Accordingly, the First and Ninth Circuits, along with the Southern District of New York, have held that COGSA applies with the force of statute when a bill of lading in domestic trade incorporates COGSA's terms with an "express statement." Hanover Ins. Co. v. Shulman Transp. Enters., Inc., 581 F.2d 268, 270 & n. 2 (1st Cir.1978); Pan Am. World Airways v. Cal. Stevedore & Ballast Co., 559 F.2d 1173, 1175 n. 3 (9th Cir.1977) (per curiam); Orion Ins. Co. v. M/V "Humacao", 851 F.Supp. 575, 578 (S.D.N.Y.1994); Watermill Export, Inc. v. MV Ponce, 506 F.Supp. 612, 614-15 (S.D.N.Y.1981). The Fourth and Fifth Circuits, on the other hand, have held that, notwithstanding § 1312's language to the contrary, COGSA applies simply as a contractual term even when extended to domestic bills of lading. Commonwealth Petrochems., 607 F.2d at 326-27; Ralston Purina Co. v. Barge Juneau & Gulf Carribean Marine Lines, Inc., 619 F.2d 374, 375-76 (5th Cir.1980) (per curiam). But see Burdines, Inc. v. Pan-Atlantic S.S. Corp., 199 F.2d 571, 573 (5th Cir.1952).
7. In Norfolk Southern Ry. Co. v.
Kirby, the Supreme Court held that a through bill of lading consisting of a
"substantial" sea component is governed by federal law, even if the
bill covers inland carriage. 543
8.
9. Section 1311 was irrelevant to the Court's analysis in Kirby . Once again, § 1311 states: Nothing in [COGSA] shall be construed as superseding any part of [the Harter Act], or of any other law which would be applicable in the absence of [COGSA], insofar as they relate to the duties, responsibilities, and liabilities of the ship or carrier prior to the time when the goods are loaded on or after the time they are discharged from the ship.
46 U.S.C. app. § 1311. Once the Kirby Court had determined that federal, not state, law governed the bill of lading, state law would not have been "applicable in the absence of [COGSA]," and therefore § 1311 did not require that the period of responsibility provision yield to state law.
--- F.3d ----, 2006 WL 1900996 (2nd Cir.(N.Y.))
Briefs and Other Related Documents (Back to top)
• 04-4066 (Docket) (Jul. 26, 2004)
END OF DOCUMENT
Motions, Pleadings and Filings
E.D. California.
CLARENDON NATIONAL INSURANCE COMPANY, a New Jersey Corporation, Plaintiff,
v.
INSURANCE COMPANY OF the WEST, a Texas Corporation, et al., Defendants.
Insurance Company of the West, Counter-Claimant,
v.
Clarendon National Insurance Company, Counter-Defendant.
No. 1:99-cv-5461-SMS.
July 7, 2006.
Andrew Karonis,
Schindel Farman And
James
Patrick Wagoner, McCormick
Andrew Karonis, Ira S. Lipsius, Lorienton Palmer, Schindel Farman and Lipsius, New York, NY, Michael John Czeshinski, Wilkins Drolshagen and Czeshinski, Fresno, CA, for Counter-Defendant.
James Patrick
Wagoner, McCormick
MEMORANDUM OF LAW, FINDINGS OF FACT, AND CONCLUSIONS OF
TRIAL
SANDRA M. SNYDER, Magistrate Judge.
This matter was tried to the Court on September 20 and 21,
2004. Ira S. Lipsius and Andrew Karonis of Shindel,
Farman & Lipsius, LLP, appeared and argued on behalf of Plaintiff Clarendon
National Insurance Company (Clarendon); and James P. Wagoner and Dana E. Denno of McCormick,
ISSUES TRIED
The parties have stipulated that all legal issues resolved by the Court's order of June 30, 2000, with the sole exception of the Court's determination regarding the materiality of G & P's alleged misrepresentation which is set forth at II.C. of the June 30, 2000 order, are deemed the law of the case. (Joint Pretrial Statement and Pretrial Order filed May 14, 2004 at 28.)
In the order of June 30, 2000, Judge Coyle determined that the ICW policy's coverage of G & P under the base policy is primary over the Clarendon policy; the Clarendon policy's MCS-90 endorsement provides no coverage for purposes of disputes among insurers over ultimate liability and thus provides no coverage as against ICW; and Clarendon is entitled to indemnity/reimbursement of legal fees Clarendon paid in defending H & G because Clarendon's liability arises only from the MCS-90, a governmentally required filing.
In the order of January 16, 2001, Judge Coyle granted Defendant's motion for a new trial or to alter and amend judgment, determining that there was a dispute of material fact regarding whether G & P engaged in material misrepresentation and/or concealment in applying for the ICW policy which had not been waived or lost by estoppel because neither waiver nor estoppel had been established on the evidence submitted by Clarendon, the subrogee of G & P, ICW's insured.
At the trial, the
Court determined that Judge Coyle had thus already decided that the ICW base
policy covering G & P was primary and that the truck, which included the
trailer, was a specifically described auto. (R.T. at 10-11.) The Court further
concluded that in addition to the misrepresentation defense to ICW's coverage, the trial would also cover the issues of
waiver and/or estoppel against denying coverage on
the ground of misrepresentation. (
The parties reserved the right to stipulate to the amounts
expended by the parties in defending underlying legal actions that were filed
as a result of the accident in which the insured was involved. (
Therefore, the issues tried at the bench trial in September 2004 are whether or not material misrepresentation or concealment rendered the ICW insurance contract void or otherwise provided a defense to ICW, and whether or not this defense was waived, or ICW is estopped to raise it.
MEMORANDUM OF LAW
I. Governing Law
In his order of June
30, 2000, Judge Coyle determined that the law governing the interpretation of
the policies and the insurer's obligations was the substantive law of
II. Burden of Proof, Persuasion; Defense
Defendant has the
burden of proof by a preponderance of the evidence of each fact the existence
or nonexistence of which is essential to the affirmative defense of
misrepresentation. Cal. Evid.Code § § 115, 500; Thompson v. Occidental Life
Ins. Co. of California, 9 Cal.3d 904, 915-916, 919 (1973); see, Liodas v. Sahadi, 19 Cal.3d 278,
286-90 (1977). The elements in the present case
are intentionally false material
misrepresentation or concealment of facts with the intent to defraud and in
order to obtain insurance coverage; a mere mistake or negligence is not
sufficient. Leasure v. MSI Insurance Co., 65 Cal.App.4th 244, 247-48 (1998); Hyland v.
Millers Nat. Ins. Co. 91 F.2d 735, 743 (9th Cir.1937), rehg.
denied, 92 F.2d 462, cert. denied, 303
As is later discussed, the parties' contract provided that it would be void if there were fraud or intentional concealment or misrepresentation; thus, a higher standard (i.e., requiring intentional misrepresentation or concealment as to a material matter) than that otherwise provided for by statute is operative in the instant case.
III. Intentional or Negligent Concealment or Misrepresentation
A. California Statutory Law
Under
The completion of the contract of insurance is the time to
which a representation must be presumed to refer.
B. Contractual Interpretation
The provisions of the contract before the Court must be considered.
Unless it turns on the credibility of conflicting extrinsic evidence or on underlying facts that are in dispute, the interpretation of an insurance policy is solely a question of law. Waller v. Truck Ins. Inc., 11 Cal.4th 1, 18 (1995); Parsons v.. Bristol Development Co., 62 Cal.2d 861, 865-66 (1965); Merced Mutual Ins. Co. v. Mendez, 213 Cal.App.3d 41, 45 (1989).
Pursuant to
C. The Contract
1. Two References to Fraud
The principal contractual provision in question, and the only one adverted to by the parties, is as follows:
2. CONCEALMENT, MISREPRESENTATION OR FRAUD
This Coverage Form is void in any case of fraud by you at any time as it relates to this Coverage Form. It is also void if you or any other "insured," at any time, intentionally conceal or misrepresent a material fact concerning:
a. This Coverage Form;
b. The covered "auto";
c. Your interest in the covered "auto", or
d. A claim under this Coverage Form.
(Jt.
Ex. 1 at 21.) Review of the policy (Jt.Ex.1) reveals that this provision
appears in Section V of the policy, entitled, "Truckers Conditions,"
which begins with the statement, "The following conditions apply in
addition to the Common Policy Conditions."
The Common Policy Conditions refer to matters such as cancellation, changes, examination of the insured's books and records, inspections and surveys, premiums, and transfer of rights and duties.
Terms and provisions must be read in their ordinary and
popular sense, but each must be interpreted in the context of the contract as a
whole and the circumstances of the case.
There are no
definitions in the policy pertaining to the pertinent contract terms of
"concealment," "misrepresentation," "fraud," or
"intentionally." (
THIS ENDORSEMENT CHANGES THE POLICY. PLEASE READ IT CAREFULLY.
(
The cancellation provision in the Common Policy Conditions section states that all coverage parts are subject to cancellation by the insurer by delivery of ten days' or thirty days' notice, depending on the reason for cancellation; specifies the contents, effective date, and address for delivery of notice of cancellation; and provides for refund of premiums. (Jt. Ex. 1 at 31.)
... [W]e may cancel this policy only upon the occurrence, after the effective date of the policy, of one or more of the following:
....
(2) Discovery of fraud or material misrepresentation by
(a) any insured or his or her representative in obtaining this insurance; or
(b) You or your representative in pursuing a claim under this policy.
(
It might be argued
that the cancellation and nonrenewal endorsement
directly affects or modifies the provision regarding the policy being void for
concealment, misrepresentation, or fraud that appears in the Truckers
Conditions section. (Jt. Ex. 1 at 21). However, the
cancellation and nonrenewal change endorsement does
not state that it modifies the Truckers Conditions, the Truckers Coverage Form,
or even the Common Policy Conditions in general. Instead, it expressly adds
provisions to the Cancellation Common Policy Condition. (
The Court concludes that the endorsement regarding grounds and procedures for cancellation does not directly affect the provision in the Truckers Conditions section of the Truckers Coverage Form that concerns when the policy may be declared void.
2. Inconsistency
between the Policy and
Insurers and insureds
are generally free to enter into contracts that provide for coverage more
favorable to the insured than those permitted by statute.
The contract does not expressly refer to the inconsistent statutes noted hereinabove.
In other respects,
the contract does refer to provisions of law. In the liability coverage section
of the Truckers Coverage Form, there are "Out-of-State Coverage
Extensions" that increase the limit of insurance and provide for minimum
amounts and types of other coverages required by laws of the jurisdiction where
a covered auto is being used (Jt. Ex. 1 at 15), and
there are coverage exclusions for any obligation of the insured pursuant to
workers' compensation, disability benefits, or unemployment compensation laws,
(id. at 16). Endorsements also reflect "CALIFORNIA CHANGES" regarding
primary coverage in cases involving insureds in the auto-related businesses,
(id. at 26); cancellation and nonrenewal, (id. at
28-30); and California uninsured motorists coverage-bodily injury, (id. at
37-39). The policy also refers to uninsured motorist coverage in connection
with a California Uninsured and Underinsured Motorist Coverage Selection Form
and an election form concerning Uninsured Motorist-Property Damage Coverage. (
The Court will first consider the contractual language. The contractual provision clearly and unambiguously states that the coverage form is void in any case of fraud by the insured relating to the coverage form, and it is also void if an insured intentionally conceals or misrepresents a material fact concerning the coverage form or other specific matters. Common usage would indicate, and a reasonable layperson would understand, that "void" means of no legal force or effect; the reference to "fraud" denotes deceit or trickery; the use of "intentional" means having an intention or purpose; the reference to "concealment" denotes conscious prevention or avoidance of disclosure; and the use of "misrepresentation" means a misleading or untrue representation. See Webster's Third New International Dictionary of the English Language, Unabridged (1986) at 2562, 904, 1176, 469, and 1445. The plain meaning of "fraud" would not include an unintentional or negligent misrepresentation. Further, a reasonable layperson would understand that the adjective "intentional" modifies both "concealment" and "misrepresentation." See, Ward General Services, Inc. v. Employers Fire Ins. Co., 114 Cal.App.4th 548, 554 (2003); Tri-State Ins. Co. of Minnesota v. H.D.W. Enterprises, Inc., 180 F.Supp.2d 1203, 1217 (D.Kan.2001) (construing a provision virtually identical with the one in the instant policy, and noting that the goal of avoiding unreasonable results also supports this construction). The plain meaning of the provision, then, is that the coverage form is void if an insured engages in fraud (trickery or deceit), intentional concealment, or intentional misrepresentation.
A s noted, the policy states that it is void in any case of "fraud ... as it relates to this Coverage Form," and it is also void if an insured at any time "intentionally conceal[s] or misrepresent[s] a material fact concerning:
a. This Coverage Form;
b. The covered "auto";
c. Your interest in the covered "auto", or d. A claim under this Coverage Form." (Jt. Ex. 1 at 21.)
Defendant argues that the policy does not state that it is void "only" where the insured has intentionally concealed or misrepresented material facts, and such a meaning is not necessarily implied; further, the policy provision speaks to when the policy is void, whereas an insurer may defend against a claim on the basis of concealment or misrepresentation without declaring the entire policy void.
It is true that the policy does not expressly state that it
is void "only" in cases of
intentional misrepresentation or concealment; further, it does not address
"rescission," the distinction between void and voidable
contracts, or the interrelationship of the various legal remedial concepts
potentially involved in a formal legal analysis of these issues. However, the
question to be determined is whether the policy is ambiguous in light of the
context of the underlying
Whether a contract is ambiguous is a question of law for the Court. Airborne Freight Corp. v. McPherson, 427 F.2d 1283, 1285 (9th Cir.1970); Winet v. Price, 4 Cal.App.4th 1159, 1164-65 (1992).
A policy is ambiguous
when it is capable of two or more constructions, both of which are reasonable.
Even if it is assumed
that an ambiguity is present, the goal of interpreting a contract of insurance
in
If the policy provision is considered ambiguous, then it must be interpreted in the sense that the promisor reasonably believed that the promisee understood it at the time the policy was issued, that is, whether the meaning is consistent with the insured's objectively reasonable expectations. Bank of the West v. Superior Court (Industrial Indemnity Co.), 2 Cal.4th 1254, 1264-65 (1992). It is not reasonable to conclude that the insured would expect from the policy language that unmentioned, lesser species of nondisclosure or misrepresentation would nevertheless permit the insurer, under the rubric of a defense to specific coverage as distinct from a wholesale avoidance of the contract, nevertheless to argue that the contract was of no legal effect as to the insured. This is not within the objectively reasonable expectation of an insured layperson, who would understand from the policy language that for the contract not to be binding, the conduct would have to fraudulent or intentional.
It is established that insurance policies are subject to the rule of construction applicable to all contracts, namely, to construe them so as to give effect to all terms and not to render them surplusage. ACL Technologies, Inc. v. Northbrook Property & Casualty Ins. Co., 17 Cal.App.4th 1773, 1785-86 (1993). The fraud provision states that the policy is void if the insured intentionally conceals or misrepresents a material matter. To interpret it to mean that unintentional, or negligent, misrepresentations also render the policy ineffectual would remove any limiting effect of the provision and render the specification of intentionality mere surplusage, a result not only precluded by the pertinent canon of construction, but also not within an insured's reasonable expectation.
This result is consistent with decisions in other jurisdictions that have considered similar issues of construction of policy provisions that set standards that were inconsistent with, and more favorable to the insured than, analogous statutory provisions. It has been held that where statutes permit rescission or avoidance of liability under a policy on the ground of innocent or negligent misrepresentations, a policy term providing that the policy is void for fraud or intentional misrepresentation or concealment will be given effect such that intentional or fraudulent conduct is required for the insurer to rescind or defend on the basis of nondisclosure or misrepresentation. See State Farm General Insurance Co. v. Oliver, 658 F.Supp. 1546, 1550 (N.D.Ala.1987), aff'd. 854 F.2d 416, 419-20 (11th Cir.1988) (a statute that provided that misrepresentation, concealment, or omissions and incorrect statements shall not prevent recovery under the policy or contract unless either material to acceptance of the risk or the hazard, or the insurer in good faith would not have issued the policy or would not have issued it at the premium rate in question if the true facts had been known to the insurer as required either by the application or contract or otherwise, was held not to determine the meaning of the contract, where the contract by its terms provided that if an insured intentionally concealed or misrepresented a material fact, the policy was void as to the insured; the court reasoned that the insurer had contracted for something different and had contractually excused innocent misrepresentations in the application); Gainsco v. ECS/Choicepoint Services, Inc., 853 So.2d 491, 492-3 (Fla.2003) (the policy provided that it was voidable for intentional concealment or misrepresentation, whereas the statute voided a policy without regard to the whether omission or concealment was intentional); Tri-State Ins. Co. of Minnesota v. H.D.W. Enterprises, Inc., 180 F.Supp.2d 1203, 1216-17 (D.Kan.2001) (holding that a policy provision that the coverage form was void in case of fraud or intentional concealment or misrepresentation of a material fact unambiguously required intentional conduct to render the policy void such that inconsistent statutes would not be considered, but noting that the result would be the same if it were considered ambiguous because the language should be construed against the drafter); see also, Green v. Life & Health of Am., 704 So.2d 1386 (Fla.1998) (policy concerned representations made to the best of the insured's knowledge and belief); Hauser v. Life General Security Ins. Co., 56 F.3d 1330 (11th Cir.1995) (ERISA case, policy provision that concerned the insured's knowledge and belief); Simmons v. Conseco Life Ins. Co., 170 F.Supp.2d 1215, 1222 (M.D.Fla.2001) (unintentional misrepresentation by applicant regarding grade of prior convictions was held insufficient to permit the insurer to void the policy despite a statute permitting avoidance for innocent material misrepresentations because the policy affirmation regarding the truth of the representation was in terms of "best of the applicant's knowledge and belief" pursuant to the insurer's choice to draft a standard of truthfulness of representations that was less rigid than the statutory language).
The fact that many of the cases cited by Plaintiff rely on
law other than
Defendant relies on Mitchell v. United National Insurance Company, 127 Cal.App.4th 457 (2005), in which the intermediate appellate court was faced with reconciling two conflicting statutes, both of which were applicable to a fire insurance policy. Cal. Ins.Code § § 331 and 359, which are applicable to the type of policy involved in the present case, declare the injured party is entitled to rescind insurance by "[c]oncealment, whether intentional or unintentional," (§ 331), or for a materially false representation (§ 359).
Two other statutes were involved in Mitchell. One was Cal. Ins.Code § 2070, which provided that all fire policies "shall be on the standard form" and shall not contain additions, and that any peril coverage must be substantially equivalent to or more favorable to the insured than that contained in the standard fire insurance policy form. Cal. Ins.Code § 2080 stated that except as provided in that article, clauses imposing specified duties and obligations upon the insured and limiting the liability of the insurer may be attached to the standard form as riders. Section 2071, the standard fire insurance policy form, stated:
"Concealment, fraud: This entire policy shall be void if, whether before or after a loss, the insured has willfully concealed or misrepresented any material fact or circumstance concerning this insurance or the subject thereof, or the interest of the insured therein, or in case of any fraud or false swearing by the insured relating thereto."
California case law established that in order to void a policy based on the insured's violation of this fraud and concealment provision, the false statement must have been knowingly and willfully made with the intent (express or implied) of deceiving the insurer, and the materiality of the statement would be determined by an objective standard of its effect upon a reasonable insurer. Mitchell, 127 Cal.App.4th at 634-35. Thus, the insurer's right to void a fire insurance policy under § 2071 was more limited than the right to rescind accorded by § § 331 and 359.
In Mitchell, the court ruled that § § 2070 and 2071 did not preclude rescission by
the insurer for unintentional misrepresentation under the more liberal standard
of rescission set forth in § § 331 and 359 1) because of legislative intent,
2) because § §
2070 and 2071 did not expressly exclude application of other statutory
provisions; 3) it made no sense to exclude a fire insurance contract from the
terms afforded by other statutes; 4) the canon of statutory construction that
different statutes within the same code should be interpreted to be consistent;
5) freedom of contract and the right of an insurer to make an informed decision
whether or not to insure a given risk were strong policy considerations that
support more liberal rescission rights for misrepresentations made at the
inception of the insurance contract; and 6) § § 331 and 359 apply to misrepresentations made
at any time but normally govern parties' obligations during formation of the
contract, whereas the standard fire insurance fraud and concealment provisions
typically was exercised in connection with a claim for policy benefits.
In contrast, in the present case, the issue is not reconciling two conflicting statutes; rather, it is determining the appropriate construction of a contract in light of its terms. The governing object is not to attempt to reconcile inconsistent statutes, but rather to give effect to the expressed intent of the parties, and to consider statutory limitations on coverage only as appropriate in the course of construction of the contractual language.
Review by the California Supreme Court was not sought in Mitchell.
Mitchell was followed
in Atmel Corporation v. St. Paul fire & Marine,
426 F.Supp.2d 1039 (N.D.Cal.2005), where an errors and omissions policy stated
that the policy was void if specified persons hid important information or
attempted to defraud or lie; the policy stated that everyone made mistakes and
that unintentional errors or omissions would not affect the insured's rights
under the policy. The insured, who allegedly had provided inaccurate
information in the application process, argued that the insurer had waived its
statutory right to rescind for anything but intentional fraud. The court
concluded that it was not a waiver of a statutory right to material information
because the insurer asked specific questions in the application. The court
relied on Mitchell as holding similar language inapplicable to rescission of a
policy based on misrepresentation and concealment in a policy application. The
Court followed Mitchell because even though Mitchell was different because it
concerned language from two statutes, as distinct from contractual language and
statutory language, there was "nevertheless no persuasive or logical
reason to arrive at a different interpretation of a very similar clause in this
case." 426 F.Supp.2d at 1050. The Court also
stated that common sense dictated that the fraud and misrepresentation clause,
which was contained in the policy issued after the application had been
approved, did not apply to misrepresentation or concealment in an insurance
application.
The Atmel decision is not persuasive because it really did not
analyze the different canons of construction applicable in the two types of
cases (construction of a contract which conflicted with statutory language,
versus construction of language in a contract which was based on and required
by statutes). In Mitchell, the
Mitchell has been criticized. Although Mitchell succeeded in avoiding different rescission standards for fire insurance than for other coverages in the same policy, the result may be contrary to settled rules of statutory construction because the specific provision of § 2071 dealing with fire insurance should control over contrary provisions in § § 331 and 339 dealing with insurance generally, Miller v. Superior Court, 21 Cal.4th 883, 895 (1999); and § 2071 should have controlled over the earlier enacted sections 331 and 359, see, Croskey and Kaufman, California Practice Guide: Insurance Litigation at 5:172 (Rutter, 2005).
Defendant argues that as in Mitchell, it is appropriate to give effect to the statutes giving the insurer a broader right to void a contract to the application process. However, despite the statutory policy in favor of disclosure at the inception of the contract identified in Mitchell, Mitchell also recognized the policy supporting the freedom of contracting. Here, the insurer freely chose to include language more favorable to the insured that is reasonably understood as limiting the circumstances under which the insurer may assert that the contract is of no effect based on nondisclosure or misrepresentation.
When contracting parties use terms that provide for broader coverage than that otherwise provided by reference to statute, those terms are regularly interpreted to provide broader coverage. Mission v. Coachella, 210 Cal.App.3d 484 (interpreting "efficient proximate cause" in a coverage clause as referring to a predominating cause, which resulted in broader coverage, as distinct from a triggering cause, which would have resulted in a more restrictive scope of coverage consistent with judicial interpretations of Ins.Code § 530 and 532); State Farm Casualty Co. v. Martin, 872 F.2d 319, 321 (9th Cir.1989) (interpreting a contractual term that excluded losses from concurrent causes more strictly than the statute, Ins.Code § 530, which the court noted would correctly have been implied as the meaning of the policy only in the absence of contractual language to the contrary). It is established that in the absence of any general declaration of public policy, there is no reason to interfere with the parties' full freedom to contract for coverage on any terms not specifically prohibited by statute. National Insurance Underwriters v. Carter, 17 Cal.3d 380, 387-88 (1976).
Although statutory
terms may be incorporated into a contract, this is applied to find coverage
required by statutes where insurance policies otherwise do not afford coverage.
Utah Property and Casualty Insurance Guaranty Association v. United Services
Automobile Association, 230 Cal.App.3d 1010, 1019-20 (1991) (collecting cases).
A limitation on coverage contained in a statute will not be implied into a
policy that lacks such a limitation where a layperson reading the policy would
have no reason to suspect the limitation would apply. Utah Property and
Casualty Insurance Guaranty Association v. United Services Automobile
Association, 230 Cal.App.3d 1010, 1015-16 (not implying a statutory one-year
time limit for uninsured carriers to become insolvent into a policy providing
for coverage of insolvent insurers' responsibilities). Where statutory
provisions set a minimum or floor amount of coverage, statutory exclusions or
limitations intended to provide a ceiling must be expressly, clearly, and
plainly incorporated into a policy.
Laypersons cannot be
expected to know of statutory limitations or exclusions on coverage not
contained in their insurance policies; a rule invalidating lay persons' trust
in the language of their policies would result in unanticipated gaps in
coverage at the least.
Focusing on the use of the word "void" in the contract, and the reference to rescinding in § 331, Defendant argues that the provision specifying that the policy is void does not impliedly negate ICW's right under the law alternatively to rescind, or defend on grounds that the risk was misrepresented.
Defendant's argument
rests on two prongs. Defendant asserts that the statutory and decisional law in
force at the time a policy is issued must be read into each policy with full
binding effect. Defendant cites to Interinsurance
Exchange v. Ohio Cas. Ins. Co., 58 Cal.2d 142, 147-48
(1962), in which a customer of an insured car dealer who was involved in an
accident was excluded under the terms of the dealer's policy, a policy written
at a time when the applicable statutory law, public policy, and decisional law
required coverage of permissive users. At the time of the accident for which
coverage was sought, the statute had been amended. It was held that even if it
were assumed that the amendment had changed the public policy, it could not
have retroactively validated an agreement that was either void, or
unenforceable, pursuant to the statutory law in effect when it was written.
Defendant does not cite, and the Court is unaware of, any authority either requiring a lay person in the position of the insured to read into a policy a statutory provision that would put more restrictive limits on coverage than those stated in a policy, or recognizing a public policy that would preclude a condition that was more favorable to the insured and provided coverage except with respect to intentional concealment in circumstances such as those in the present case. Such a position would be contrary to established principles that a policy should be interpreted in light of the expectations of a reasonable insured person, not a reasonable attorney or insurance expert, Crane v. State Farm Fire & Cas. Co., 5 Cal.3d 112, 115 (1971), and not necessarily one with knowledge of subtle legal distinctions, Safeco Ins. Co. of America v. Robert S., 26 Cal.4th 758, 765-66 (2001) (declining to conclude that an insured's reasonable expectations would include understanding of the distinction between gross and ordinary negligence).
Defendant also argues
that because the policy provision voids the policy for intentional concealment
or misrepresentation, and because an insurer need not rescind for
misrepresentation or concealment but may take advantage of an alternate remedy
of defending against a claim on the policy on the basis of misrepresentation or
concealment, the policy provision should be interpreted only to affect the
remedy of rescission and not the alternate remedy of defending against a claim
on the policy. Defendant cites De Campos v. State Comp. Ins. Fund, 122
Cal.App.2d 519, 528 (1954). In De Campos, the court upheld a judgment for an
insurer against an insured employer. The insurer had previously unsuccessfully
litigated a worker's compensation action against heirs of an employee who died
in the scope of employment. The insurer had refused to defend the insured
employer in the worker's compensation action, but no issue of fraud or
misrepresentation by the insured employer had been raised in the worker's
compensation case. When the insured employer brought an action against the
insurer for the employer's costs of defending itself in the worker's
compensation action, the insurer took the position that coverage for the
decedent had been excluded by various policy provisions, and that the policy
had issued based on material concealment by the insured employer of 1) the
decedent's status as an excluded partner (which was found to have been an
ambiguous exclusion and was resolved against the insurer), and 2) the
decedent's compensation, which was a basis for assessment of the risk and
should have been figured into the premium cost. When the insured employer sued
the insurer on the policy for the costs of its defense, the insurer defended
because 1) the policy was not in effect because of fraud (of the intentional
variety), 2) the employer waived its contractual right to a defense under the
policy and was estopped to seek it because of the
fraud and breach of warranty, and 3) the employer was in breach and default,
and thus could not seek performance of the contract. The insurer also claimed
damages from the employer for the fraud. In upholding the trial court's
judgment for the insurer based on fraud, the Court noted that the insurer had
alternate, inconsistent remedies for damages or rescission; the court
characterized the damages action as one on the contract for breach of contract,
and it relied on the fact that insurer there had not argued that there was no
contract, but in fact had argued that the contract was in effect, but that the
decedent had been excluded based on his status. (
In the present case, the Defendant insurer is not defending against a claim brought by a policy holder; rather, it is resisting a third party insurer's claim for reimbursement or contribution. The basis of Defendant's resistance is that Defendant's obligation under the policy, or policy coverage, may be avoided because of the insured's concealment or misrepresentation of a material matter; Defendant is not seeking damages on the contract. To the extent that Defendant is relying on the contract, it is resorting to the provision that permits the policy to be declared void for fraud or intentional concealment or misrepresentation.
In any event, under the pertinent California law, the intricacies of the terminology and substance of the law of remedies do not necessarily determine the interpretation of the policy provision according to the reasonable expectations of a lay insured, who is not in the position to recognize and appreciate fine distinctions pertaining to alternate legal remedies not referred to in the contract. A reasonable insured would understand the provision to exclude coverage on the basis of fraud, and not to constitute a partial reference to one of a multitude of legal remedies. Likewise, a reasonable insured layperson would not expect the provision to describe situations in which the contract is void, as distinct from voidable or subject to rescission, or to distinguish among remedies which are based on the invalidity of the contract due to fraud but which arise in different procedural contexts or differ in some manner with regard to legal scope or effect.
Finally, if there is ambiguity with respect to coverage, a contract may be interpreted most strongly against the party who caused the uncertainty to exist, Cal. Civ.Code § 1654, and specifically against the insurer, in order to protect the insured's reasonable expectation of coverage in a situation in which the insurer-draftsman controls the language of the policy. Accordingly, coverage language is interpreted in its most inclusive sense, and exclusions in a policy are narrowly interpreted. Mission National Insurance Co. v. Coachella Valley Water District, 210 Cal.App.3d 484, 496-7 (1989). An insurer has an obligation to use such language as to make the conditions, exceptions and provisions of a policy clear to the ordinary mind engaging in a plain, commonsense reading of the terms; if the insurer's language should fail, any ambiguity or reasonable doubt must be resolved in favor of the insured and against the insurer. It is established that ambiguous terms are resolved in the insured's favor, consistent with the insured's reasonable expectations. Safeco Ins. Co. of America v. Robert S., 26 Cal.4th 758, 763 (2001); Pacific Heating and Ventilating Co. v. Williasmburgh City Fire Ins. Co. of Brooklyn, 158 Cal. 367, 370 (1910); Paramount Properties Co. v. Transamerica Title Ins. Co., 1 Cal.3d 562, 569 (1970).
Applying these canons, Plaintiff's construction, namely, that the contract provided for the insurer to avoid coverage on the basis of concealment or misrepresentation only for intentional or fraudulent conduct, should be adopted because Defendant drafted, or was responsible for the wording of, the contract, and the Defendant is the insurer. Had Defendant wanted to have a broader ground upon which to avoid the contract for merely negligent or fully innocent conduct, Defendant could have said nothing, or Defendant insurer could have specifically provided that all forms of nondisclosure and misrepresentation would have been a basis for voiding the contract.
The Court concludes that in order to prevail on its defense, Defendant must show that the insured engaged in intentional concealment or intentional misrepresentation with respect to the coverage form.
IV. Intentional Concealment or Misrepresentation
The Defendant asserts that G & P misrepresented that Pannu was the only driver and concealed the fact that Inderjit was also a driver.
Plaintiff argues that the intentional element of intentional misrepresentation or concealment is defined by California Jury Instructions, Civil, Book of Approved Jury Instructions [BAJI], January 2005 Edition, § 12.31, which defines the essential elements of a claim of fraud by an intentional misrepresentation as including a false representation with respect to which:
3. The defendant (here G & P) must have known that the representation was false when made [or must have made the representation recklessly without knowing whether it was true or false];
4. The defendant (here G & P) made the representation with an intent to defraud the plaintiff, that is, [he][she] (here G & P) must have made the representation for the purpose of inducing the plaintiff to rely upon it and to act or to refrain from acting in reliance thereon....
3. The defendant (here G & P) intentionally concealed or suppressed the fact with the intent to defraud the plaintiff.
The Court further notes that California Jury Instructions, Civil, January 2005 Edition, CACI 335 governs the affirmative defense of fraud that vitiates consent and prevents formation of a contract. It states in pertinent part that to succeed in the defense, the defendant must prove with respect to the plaintiff's representation:
2. That [G & P] knew that the representation was not true;
3. That [G & P] made the representation to persuade [ICW] to agree to the contract;
4. That [ICW] reasonably relied on this representation; and
5. That [ICW] would not have entered into the contract if [it] had known that the representation was not true.
Plaintiff also cites to Kentucky Cent. Life Ins. Co. v. Marin Bay Park Trust, 958 F.2d 377 (9th Cir.1992) (unpublished disposition) (TABLE, TEXT IN WESTLAW, NO. 91-15004, 91-15276), to the effect that although an insured must read the contract and report any misrepresentations or omissions, a contract may not be rescinded by an insurer if the insured in good faith gives answers that are truthful but, owing to the fraud, mistake, or negligence of the insurance company's agent filling out the application, are incorrectly transcribed, or if the agent gave the insured the impression that additional responses were unnecessary.
Here, there does not appear to be evidence that Mirko was the insurer's agent; rather, she was the insured's agent.
Defendant argues that the requirements for making out the defense should be governed by California Jury Instructions, Civil, January 2005 Edition, CACI 2308 (revised October 2004), rescission for misrepresentation or concealment in an insurance application, which does not necessarily require intentional misrepresentation or concealment. Defendant also criticizes Plaintiff's citation of an unpublished case (Kentucky Cent. Life Ins. Co. v. Marin Bay Park Trust ), and Defendant notes that the case involved life and disability insurance, which by statute (Cal. Ins.Code § 10380) requires intentional falsity in an insurance application. However, these points are based on an assumption that Cal. Ins.Code § 331 governs the Defendant's right to rescind, and it is untenable in light of the Court's previously discussed construction of the contract to provide more favorable insurance coverage than that provided by Cal. Ins.Code § 331.
The BAJI and CACI
instructions regarding intentional misrepresentations or concealment accurately
reflect California law, namely, that a representation or concealment must be
accomplished "with intent to deceive another party thereto, or to induce
him to enter into the contract"; and the action may be either "[t]he
suggestion, as a fact, of that which is not true, by one who does not believe
it to be true ... or "[t]he suppression of that which is true, by one
having knowledge or belief of the fact...."
V. Materiality of Misrepresentation or Concealment
The materiality of a
representation is determined by the same rule as the materiality of a concealment.
Materiality is a
question of law.
The California Insurance Code contains multiple provisions regarding disclosures that are required. Cal. Ins.Code § 332 provides:
Each party to a contract of insurance shall communicate to the other, in good faith, all facts within his knowledge which are or which he believes to be material to the contract and as to which he makes no warranty, and which the other has not the means of ascertaining.
Cal. Ins.Code § 333 provides that absent inquiry, neither party is bound to communicate things that are waived or which pertain to risks excluded by warranty, or which the other knows or ought to know and of which the party has not reason to suppose the other ignorant.
Materiality is to be
determined not by the event, but solely by the probable and reasonable
influence of the facts upon the party to whom the communication is due, in
forming his estimate of the disadvantages of the proposed contract, or in
making his inquiries.
The test is subjective in the sense that the critical question is the effect truthful answers would have had on ICW, not on some average reasonable insurer. Imperial Casualty & Indemnity Co. v. Sogomonian, 198 Cal.App.3d 169, 181 (1988).
It has been held in
Even where lip service is given to the determinative character of the factor of asking for information, the California courts nevertheless complete a more thorough analysis of the materiality question, Cohen, 48 Cal.2d at 726-28 (focusing on the nature of the misrepresentation); Thompson, 9 Cal.3d at 916-918 (considering the questions, the testimony of medical witnesses, and all inferences).
It is acknowledged that an incorrect answer on an insurance application does not alone give rise to the defense of fraud where the true facts, if known, would not have made the contract less desirable to the insurer. Thompson v. Occidental Life Ins. Co., 9 Cal.3d 904, 916 (1973); California-Western States Life Ins. Co. v. Feinstein, 15 Cal.2d 413, 423-24 (1940); Imperial Casualty & Indemnity Co. v. Sogomonian, 198 Cal.App.3d at 181.
It has also been emphasized in connection with such analysis that the trier of fact is not required to believe the "post mortem" testimony of an insurer's agents that insurance would have been refused had the true facts been disclosed. Thompson at 916.
Thus, the more reasoned view is that the fact that information was solicited on an application for insurance is a factor to be considered in determining materiality, but it is not the sole factor; determination of materiality remains a question to be determined based on a multitude of factors.
A misrepresentation of loss history or drivers' qualifications may be material. Certain Underwriters at Lloyd's v. Montford, 52 F.3d 219, 222 (9th Cir.1995) (concealment of history of a previous total loss claim in application for marine insurance); Civil Service Employees Ins. Co. v. Blake, 245 Cal.App.2d 196, 198 (1966) (casualty policy, driver's health history and history of driver's license revocation and denial); Allstate Ins. Co. v. Golden, 187 Cal.App.2d 506, 512 (1960) (auto policy, concealment of prior suspension of driver's license for speeding).
If the applicant for insurance had no present knowledge of the facts sought or failed to appreciate the significance of information related to him that formed the basis of his answers, his incorrect or incomplete responses would not constitute grounds for rescission. Thompson, 9 Cal.3d at 916.
As against a
principal, both principal and agent are deemed to have notice of whatever either has notice of, and ought, in good faith and the exercise
of ordinary care and diligence, to communicate to the other.
The burden of proving misrepresentations is on the insurer. Thompson 9 Cal.3d at 919.
VI. Agency
The existence and scope of an agency is generally a question of fact, Brokaw v. Black-Foxe Military Institute, 37 Cal.2d 274, 278 (1951), unless the essential facts are undisputed and subject to only one inference, in which case it is a question of law, Van't Rood v. County of Santa Clara 113 Cal.App.4th 549, 562 (2003).
A. Broker
An insurance broker
is a person who, for compensation and on behalf of another person, transacts insurance
other than life insurance with, but not on behalf of, an insurer.
B. Agent
The most definitive
characteristic of an insurance agent is the agent's ability to bind the agent's
principal, the insurer. Marsh & McLennan of
VII. Language Difficulty and Duty to Read the Contract
Generally an insured has
a duty to read a policy and report any misrepresentations or omissions as part
and parcel of the duty to engage in fair dealing with respect to the contract.
Even where
misrepresentation or concealment need not be intentional to constitute a
defense, rescission of a contract is not permitted for an incorrect or
incomplete response if the applicant had no present knowledge of the facts
sought or failed to appreciate the significance of information related to him.
Trinh v. Metropolitan Life Insurance Co., 894 F.Supp. 1368, 1373 (N.D.Cal.1995).
Where an applicant, acting in good faith, does not understand the significance
of the information he fails to disclose, the applicant is not at fault.
VIII. Named Driver Exclusions
Cal. Ins.Code § 11580.1(b)(4) and (d)(1) requires that every policy of automobile liability insurance shall contain insurance for any person using a covered motor vehicle, provided the use is by the named insured or with his or her permission, express or implied, and within the scope of the permission; however, exceptions may be effected by designating an excluded driver by name. This requires coverage for all permissive users and only authorizes exclusions for specifically named drivers.
Assuming for the sake of argument that this provision applies to the policy in issue in the present case, the Court notes that ICW cites several cases (ICW F. & C. at 25-26) which concern coverage that was inconsistent with that mandated by statute, not coverage limited by a named driver exclusion within the scope of the statute. See Metz v. Universal Underwriters Ins. Co., 10 Cal.3d 45, 50-53 (1973) (exclusion of coverage of vehicles while rented to others, or used by permissive users with other insurance); Hertz Corp. v. Home Ins. Co., 14 Cal.App.4th 1071, 1078 (1993) (driving while intoxicated); C.S.A. etc. v. Gong, 162 Cal.App.3d 518, 528 (1984) (concerning limitations of liability for permissive use of non-owned vehicles); Contreras v. America, Compania General De Seguros, S.A., 48 Cal.App.3d 270, 281 (1975) (exclusion of liability for injuries to occupants of the insured vehicle found invalid); Glens Falls Ins. Co. v. Globe Indemnity Co., 276 Cal.App.2d 643, 645-48 (1969) (provision regarding permissive users loading or unloading a vehicle). Thus, although a policy limitation against permissive users would have been inconsistent with statute and in contravention of the public policy to protect permissive users and third parties, it is not clear that the same could be said about a warranty by G & P not to permit Inderjit Singh to drive, coupled with a named driver exclusion within the terms of the statute.
IX. Cancellation
Cancellation is
termination of coverage by an insurer (other than termination at the request of
the insured) during a policy period.
Pursuant to Cal. Ins.Code § 676.2(b),
an insurer may cancel commercial insurance for any reason in the first sixty
days; the statute limits the form of cancellation notices and the grounds for
cancellation or policies that have been in effect for more than sixty days.
After sixty days of the policy being in effect, no notice of cancellation shall
be effective unless it complies with Cal. Ins.Code
§ 677.2
and is based on the occurrence,
after the effective date of the policy, of nonpayment of premium; a judgment by
a tribunal that the named insured has violated a California law by an act that
materially increases any of the risks insured against; discovery of fraud or
material misrepresentation by the insured or his or her representative in
obtaining the insurance or in pursuing a claim under the policy; discovery of
willful or grossly negligent acts or law violations which materially increase
the risk; failure to implement loss control; a change by the named insured or
his or her representative in the activities or property of the commercial or
industrial enterprise which results in a material added risk, a materially
increased risk or a materially changed risk, unless the added, increased, or
changed risk is included in the policy; or various determinations by the
insurance commissioner. After a policy has been in effect for more than sixty days,
no increase in rate or change in conditions of coverage shall be effective
unless written notice is delivered at least thirty days prior to the change. § 676.2(c). The same
statute limits the procedures for implementing a premium or rate increase; a premium
increase may occur if it is calculated on the basis of a current rating manual
and is justified by a physical change in the insured property or by a change in
the activities of the commercial or industrial enterprise which materially
increases any of the risks insured against.
Section 677.2 requires all notices of cancellation to be in writing, be mailed to the named insured at a specified address, state the effective date of cancellation and the reasons therefor, and be given at least thirty days prior to the effective date of the cancellation (except notice ten days before the effective date is sufficient for cancellation for fraud or nonpayment of premiums).
Witnesses testified that a policy could be cancelled for a material increase in hazard. The policy permitted this (Cancellation and Nonrenewal Endorsement), as did statute (Cal. Ins.Code § 676.2 [violation of law causing serious accident, resulting in material increase of hazard] ).
ICW argues that the failure to cancel was not probative of a lack of materiality because ICW would in any event have the option to keep the policy in effect and defend any later claim of loss on the basis of fraud. During the period of time in question, however, ICW asserts that it did not discover the alleged fraud. Thus, it is not clear how ICW's asserted right to determine which remedy to utilize is material to this period of time. However, if it were material, one logical possibility regarding ICW's lack of awareness of the alleged fraud is that ICW did not know because it did not bother to investigate the status of Inderjit as a driver. The Court has rejected the factual claim that ICW was informed or knew that Inderjit no longer was driving for G & P. Thus, the failure to investigate as well as the failure to cancel would seem to be pertinent to the issue of materiality of the alleged concealment.
Further, even if it is true that an insurer could choose to maintain the policy but not accept the risk because of a failure or breach of condition (ICW's term, post-trial brief p. 37), here the issue is not a choice of remedy, but rather a question of drawing an inference as to materiality based on post-application conduct (failure to ascertain drivers, investigate, cancel). Although there might not have been an obligation to cancel, that should not negate the probative force of an inference from the failure to investigate or cancel when legally entitled to do so.
The authorities cited by ICW go more to waiver than to lack of an inference of non-materiality. The cases cited by ICW are factually distinct. Purefoy v. Pacific Auto Indem. Exchange, 5 Cal.2d 81 (1935) held that the trial court correctly ruled that an insurer could defend against the suit of a third party, which had sued and received a favorable judgment against the insured for an injury otherwise covered by insurance, based on the insured's failure to give timely notice of the claim as required by the policy, even though the insurer retained the premium after it knew that the accident had happened; retention of the premium may not have been a waiver of the earlier failure to give notice, but rather a waiver of right to rescind and thereby not cover future accidents at all; and it should be noted that the insured was still unavailable/unlocated for a substantial portion of the policy period thereafter); Allstate Ins. Co. v. Golden, 187 Cal.App.2d 506, 512 (1960) was a case where the insured misrepresented his driver's license history; the insurer reserved rights because of that with respect to an accident while investigating the accident and then instituted an action to rescind three months after the accident, cancelling the policy pursuant to a policy provision at a later time (thereby considering the policy in force at some time period after the accident); it was held that some coverage that existed during the cancellation notice period (between the sending of the cancellation letter and the effective date of the cancellation) did not preclude the insurer's reliance on the misrepresentation earlier); Resure, Inc. v. Superior Court, 42 Cal.App.4th 156, 161 (1996), involved the insurer's suit to rescind the contract, and the court interpreted a California Insurance Code provision requiring an insurer to exercise the right to rescind before action on the contract to mean that the rescission had to be exercised before the insured sued to enforce the contract in an action at law; the statute was also interpreted to require an insurer being sued on the contract at law to raise the contract as a defense in the action at law instead of beginning a new action in equity; it was not a bar that the insurer had not offered to return the premium earlier, had defended against a third party who had sued the insured on the merits and had initiated another coverage action earlier, and had defended other actions against the insured with a reservation of rights; the insurer could be made whole regardless); in Williamson & Vollmer Engineering, Inc. v. Sequoia Ins. Co., 64 Cal.App.3d 261 (1976), it was held that the insurer could not be forced to pay for costs of defense and indemnification, even though when it learned of the concealment on the claim in question, it undertook defense of another claim and renewed coverage for another term; it was permissible to reform the policy to exclude the concealed matter because rescission was not the only remedy, and the insurer could be made whole); in Barrera v. State Farm Mut. Automobile Ins. Co., 71 Cal.2d 654, 681 (1969), it was held that the insurer's failure to undertake a reasonable and prompt investigation of insurability resulted in loss of the insurer's right to rescind (which would affect responsibility to injured third parties), but it did not preclude cancellation regarding the future; further, as against the insured, the insurer might still prosecute a cause of action for damages for wrongful misrepresentation after satisfying the injured person's claim, or, in an action brought by the insured, after he has satisfied a judgment against him by the injured person, might defend on the ground of misrepresentations in the application).
The fact that multiple remedies for a claimed misrepresentation exist does not preclude looking at the entire course of conduct undertaken by the insurer with respect to the circumstances surrounding the alleged misrepresentation or concealment in determining not whether the insurer can raise the issue, but rather, whether the alleged misrepresentation or concealment concerned a material matter. The test of materiality is subjective. The fact that an insurer was not legally required to cancel does not render irrelevant to the subjective test of materiality a decision not to cancel or investigate circumstances that could in turn give rise to a right to cancel or rescind.
X. Bad Faith and Cancellation
ICW argues that it did not cancel the policy because of a fear of being perceived as proceeding in bad faith.
Asserting that fraud with respect to one risk does not necessarily affect the enforceability of the remaining insurance, ICW cites (ICW post-trial Brief at 42) Coca Cola Bottling Co. v. Columbia Casualty Ins. Co., 11 Cal.App.4th 1176, 1188 (1992), in which it was held that fraud regarding coverage of products liability was not material with respect to coverage of automobile liability to which a claim related and which was a separately rated subject of insurance. This does not appear to be pertinent to ICW's asserted desire to avoid the appearance of proceeding in bad faith.
The policy's
Further, although there was testimony of Barbot that it would have been vengeful and inappropriate to cancel for nonpayment of the premium, it would appear that cancellation for nonpayment was a perfectly valid reason for cancellation. The concern of Schwarz that cancellation would have required a discussion with ICW does not render cancellation for a valid reason inappropriate; no authority is presented that demonstrates that the fact of the accident eliminated an otherwise appropriate option to cancel.
XI. Duty to Investigate
An automobile
liability insurer must undertake a reasonable investigation of the insured's
insurability within a reasonable period of time from the acceptance of the application
and the issuance of a policy. Barrera v. State Farm Mutual
Ins. Co., 71 Cal.2d 659, 663 (1969). This duty directly inures to the
benefit of third persons injured by the insured; the third party, who has
obtained an unsatisfied judgment against the insured, may properly proceed
against the insurer; the insurer cannot then successfully defend upon the
ground of its own failure reasonably to investigate the application.
XII. Waiver and Estoppel
The insured has the burden of proof to establish the facts necessary to demonstrate a waiver or estoppel. Waller v. Truck Ins. Exchange, Inc., 11 Cal.4th 1, 31, 33-34 (1995).
Waiver is the
intentional relinquishment of a known right and exists where an insurer
intentionally relinquishes its right to rely on an exclusion; it depends on the
intent of the insurer, and it is not made out by evidence that an insurer
merely failed to specify the exclusion in a letter reserving rights. State Farm
Fire & Cas.
Waiver may be found
where the insurer neglects to make inquiries as to material facts where they
are distinctly implied in other facts of which information is communicated.
It has been held that
an insurer does not waive any right to withdraw from a defense or dispute an
obligation to indemnify claims simply because the insurer agrees to defend the
underlying lawsuits and fails promptly to reserve rights. See, Ringler Associates Inc. v. Maryland Casualty Co., 80
Cal.App.4th 1165, 1188-90 (2000) (no waiver found despite payment of defense
costs for over two years before reserving rights and then withdrawing from the
defense), and cases there cited. Denial of coverage on one ground does not
impliedly waive grounds not stated in a denial absent clear and convincing
evidence otherwise.
The elements of an equitable estoppel are 1) the party to be estopped must know the facts; 2) such party must intend that its conduct will be acted on, or must so act that the party asserting the estoppel had a right to believe that it was so intended; 3) the party asserting the estoppel must be ignorant of the true state of facts; and 4) the party asserting the estoppel must rely on the conduct to his injury. Insurance Company of the West v. Haralambos Beverage Company, 195 Cal.App.3d 1308, 1321 (1987). Estoppel requires proof by the insured of detrimental reliance, Waller, 11 Cal.4th at 33-34, as well as proof of a reasonable belief that the insurer would provide coverage, State Farm Fire & Casualty Co. v. Jioras, 24 Cal.App.4th at 1627-28 ns. 7,8.
Failure to contest a reservation of rights by a declaratory relief action or other means evinces a lack of reliance. Ringler, 80 Cal.App.4th at 1190-91.
Failure to retain
separate counsel by itself, and particularly the failure absent a showing that
separate counsel might have obtained a more advantageous settlement, does not
show detriment. State Farm Fire and Casualty Co. v. Jioras, 24 Cal.App.4th 1619, 1628-29 (1994). On the
other hand, detrimental reliance would be indicated by placing counsel in a
conflict of interest position in the preparation and pretrial conduct of the
defense and depriving the party of separate counsel at the insurer's expense,
or of an opportunity to request such counsel (pursuant to San Diego Federal
Credit Union v. Cumis Ins. Society, Inc., 162 Cal.App.3d
358 (1984)) until trial was at hand and it would have been too late for an
attorney representing solely the interests of the insured to have replaced the
attorney who was representing the insurer's interests as well. Stonewall Ins. Co. v. City of
Cal. Civ.Code § 2860(b) provides in part:
For purposes of this section, a conflict of interest does not exist as to allegations or facts in the litigation for which the insurer denies coverage; however, when an insurer reserves its rights on a given issue and the outcome of that coverage issue can be controlled by counsel first retained by the insurer for the defense of the claim, a conflict of interest may exist....
A mere reservation
of rights does not necessarily create a conflict of interest that requires the
appointment of independent counsel; rather, it depends on the nature of the
coverage issue and its relationship to the issues in the underlying case.
Blanchard v. State Farm Fire and Casualty Co., 2 Cal.App.4th 345, (1991) (where
the insurer accepted defense of the insured contractor in a construction
defects action and reserved its right to deny coverage for damages excluded by
the policy language (specifically, the (uncovered) cost of replacing faulty
workmanship, as distinct from (covered) costs of replacing damaged property),
it was held that it was appropriate for the insurer not to have provided
independent counsel because unlike Cumis, in which
the underlying suit against the insured contained allegations in part that the
conduct of the insured was intentional and thus would not be covered, and in
which the attorney selected by the insurer would have to deal with clearly
divergent interests, in Blanchard the issue upon which coverage turned was
independent of the issues in the underlying case). A conflict of interest does
not arise unless the outcome of the coverage issue can be controlled by counsel
first retained by the insurer for the defense of the underlying claim.
The conflict must be actual and significant, not merely potential and theoretical; no right to cumis counsel arises where the issue is independent of and extrinsic to the issues in the underlying action such that the retained attorney was not in fact subject to conflicting interests and had no actual incentive to attach liability to the insured. Gulf Ins. Co. v. Berger, Kahn, Shafton, Moss, Figler, Simon & Gladstone, 79 Cal.App.4th 114, 130 (2000) (where the theory of liability was not such that liability could have been transferred from covered claims to uncovered claims).
Here, the issue of misrepresentation by G & P regarding who was a driver has not been shown to be an issue in the underlying tort actions which ICW defended. In the underlying actions, it was to the advantage both of G & P and ICW to minimize the liability of G & P; there is no showing that the defense attorney could have controlled the outcome of the coverage issue to the detriment of the insured.
The question of the existence of a conflict is a question of law unless there is a dispute over an underlying fact. Blanchard, 2 Cal.App.4th at 350-51.
FINDINGS OF FACT
I. Introduction
After hearing the proofs of the parties, considering the testimony of all witnesses, the exhibits received into evidence, the statements and arguments of counsel, the stipulations of the parties, and all the submissions concerning proposed findings of fact and conclusions of law submitted by the parties, the Court enters the following findings of fact and conclusions of law. In making a finding of fact, the Court intends to rely on all evidence in the record that is consistent with or supports the Court's finding. If the Court has mistakenly categorized a finding as factual or legal, the Court intends the substance of the finding to predominate. To the extent that any finding of fact may be interpreted or construed as a conclusion of law, or any conclusion of law may be interpreted or construed as a finding of fact, it is the Court's intention that such construction or interpretation be adopted.
II. Jurisdiction
It is undisputed that the citizenship of the parties is diverse and that the amount in controversy exceeds $75,000.00, exclusive of interest. The Court has jurisdiction pursuant to 28 U.S.C. § 1332.
Further, the parties have presented an actual and justiciable controversy regarding the respective rights and responsibilities of Clarendon and ICW under policies of insurance issued by the parties. Granting declaratory relief would serve the useful purposes of clarifying both the legal relations of the parties and the nature and extent of any the controversy remaining before the Court. The Court exercises its discretion to determine the parties' claims for declaratory relief and thereby to declare the rights of the parties.
III. Facts
A. Undisputed Facts
The parties stipulated in the joint pretrial statement/order of May 14, 2004, that all facts set forth in the Court's June 30, 2000, order under the heading "I. FACTS," sections A through D, are deemed admitted and/or are the law of the case except to the extent listed in sections III and IV of the order of May 14, 2004." The parties further agreed in the order of May 14 that specific facts were uncontested. Thus, the undisputed facts are as follows:
The Court notes that this stipulation is unclear because sections III and IV of the May 14, 2004 pretrial statement, which was later adopted as the order governing the trial, were "UNDISPUTED FACTS" and "DISPUTED FACTUAL ISSUES," respectively. Section V of the May 2004 order was "DISPUTED EVIDENTIARY ISSUES." Clearly the parties did not intend that undisputed facts from Judge Coyle's order be rendered disputed simply because they were later referred to as undisputed facts in the pretrial order. Thus, the Court concludes that the designation of sections III and IV as exceptions was erroneous; the parties must have intended to designate sections IV and V instead of III and IV. The Court thus interprets the stipulation in the May 2004 order as agreeing that the facts in Judge Coyle's order of June 30, 2000, were undisputed except to the extent listed in section IV and V of the May 2004 order.
1. Insurance Company of the West (ICW) is a
2. On or about January 13, 1998, G & P Transport (G & P) was a motor carrier and the owner of a 1997 Kenworth tractor, VIN 1XKADB9XIVR741771 (the tractor), and a refrigerated trailer unit (the trailer).
3. On or about January 13, 1998, there was a written lease agreement between G & P and H & G Transport (H & G) for the use of the tractor.
4. On or about January 13, 1998, while being operated by Inderjit Singh, the 1997 Kenworth tractor, with a refrigerated trailer in tow, was involved in a vehicular accident involving a 1994 International tractor being operated by Craig McAlexander, a 1996 blue Chevrolet Cavalier (the Cavalier) being operated by Richard Moore and occupied by passenger Mary Ellen Moore, and a 1975 tan Chevrolet being operated by William Hatley near Shawnee in Pottawatomie County, Oklahoma (the accident). At the time of the accident, Inderjit Singh was twenty-two years old, and the tractor was displaying placards listing the federal operating authority of H & G, with the permission of H & G and pursuant to a written lease agreement between H & G and G & P. G & P was hauling cargo for H & G transport under H & G's federal operating authority (ICC permit) because G & P did not have its own authority. Richard Moore suffered fatal injuries as a result of the accident. Mary Ellen Moore was a passenger in the Cavalier. It is alleged that Mary Ellen Moore, Craig McAlexander, and William Hatley sustained injuries as a result of the accident.
5. On or about May 4, 1998, an action was filed by Mary
Ellen Moore styled Mary Ellen Moore Individually and Mary Ellen Moore as Administratrix of Richard Harris Moore, deceased v. H &
G Transport Inc. and G & P Transport, Inc., case number CV-98-233, in the
District Court of Pottawatomie County, Oklahoma (the Moore action). On our
about March 18, 1999, Craig McAlexander filed a
complaint in intervention, naming as defendants H & G, G & P, ICW, and
Clarendon. Subsequently,
6. On or about June 2, 1998, an action was filed by Mr. Wiliam Hatley styled William Hatley Individually and dba A-Hote Wrecker Service v. Inderjit Singh, Parampreet Singh, H & G Transport Inc., G & P Transport and ICW, case number CV-98-289, in the District Court of Pottawatomie County, Oklahoma (the Hatley action). The action settled, with ICW paying a total of $21,750.00 towards the settlement and $7,277.50 for environmental clean-up fees in connection with the accident.
7. On or about January 6, 1998, Parampreet Pannu submitted an application for insurance on behalf of G & P (the application).
8. Rosemary Mirko, an owner of RAM Commercial Insurance Services (RAM), a retail insurance brokerage, signed and helped prepare the application. It is the usual practice of Ms. Mirko to ask the applicant who would be driving the vehicles. Mirko would then run a motor vehicle report (MVR) for all disclosed drivers. On January 6, 1998, Mirko sent the application by facsimile and mail to Kleiner, Fields & Burton (KFB), a wholesale insurance agency that acted as the middleman between retail agents and ICW. After receiving G & P's application, KFB forwarded it to ICW.
9. Inderjit Singh is not listed as a driver for G & P on the application. The section of the application entitled "Driver's Schedule" lists only Parampreet Pannu (Pannu) as the driver of the listed 1997 Kenworth. At the time of the application, Inderjit Singh was twenty-two years old.
10. Under ICW's underwriting guidelines, the minimum age for a driver was twenty-three, and age twenty-five or older was preferred; drivers were required to have a minimum of two years of experience in commercial over-the-road driving. ICW's underwriting guidelines required that drivers' MVR's be "received and approved before qualifying to drive." This meant that the retail agent was to send any disclosed drivers' MVR's to KFB for approval.
11. ICW issued liability policy number XHO1557531-00 to G & P with effective dates of January 6, 1998, through January 6, 1999 (the ICW policy or the policy). The tractor was a specifically described auto on the ICW policy. The policy was issued under ICW's small fleet trucking program.
12. Both the ICW and the Clarendon policies were issued and
delivered in
13. ICW did not cancel the policy or issue a named driver exclusion after learning that Inderjit Singh was a driver for G & P. ICW continued to insure G & P until the ICW policy expired by its own terms.
14. On or about October 9, 1997, Clarendon issued to H & G insurance policy number T07-702350 (the Clarendon policy), a commercial automobile liability insurance policy which was in full force and effect on the day of the accident. The Clarendon policy contained an "Endorsement for Motor Carrier Policies of Insurance For Public Liability Under Sections 29 and 30 of the Motor Carrier Act of 1980" (MCS-90 endorsement), which was in effect at the time of the accident.
B. Disputed Facts
1. Coverage under the ICW policy was $750,000.00 per accident. The policy provided:
CONCEALMENT, MISREPRESENTATION OR FRAUD
This Coverage Form is void in any case of fraud by you at any time as it relates to this Coverage Form. It is also void if you or any other "insured," at any time, intentionally conceal or misrepresent a material fact concerning:
a. This Coverage Form;
b. The covered "auto";
c. Your interest in the covered "auto", or
d. A claim under this Coverage Form.
2. The ICW policy was underwritten as part of the small fleet trucking program, the underwriting guidelines of which were developed by ICW and KFB and provided that there be included on the schedule of drivers on the application all drivers who would be operating the equipment, including owners and part-time drivers; drivers' minimum age was twenty-three years; applicants or insureds must require as a minimum in their hiring practices two years of commercial over-the-road driving experience; and any motor vehicle record (MVR) of the drivers be received, be acceptable, and be approved before qualifying to drive.
3. The guidelines set a motor vehicle report (MVR) point system whereby violations of law, accidents, and failures to appear were assigned point values; four points required a driver exclusion, and three probation, which might prompt an exclusion for further violations. Nevertheless, the limits were negotiated in various circumstances; occasionally ICW permitted coverage of drivers who were otherwise unacceptable and charged a higher premium or imposed other conditions; sometimes a policy was issued to an insured who employed an unacceptable driver, and the driver would be specifically excluded.
4. The purpose of the age requirement was to obtain mature drivers, and the purpose of the experience requirement was risk control.
5. The evidence established by a preponderance that the ICW underwriting guidelines were not inflexible, were not invariably or carefully observed or followed in the underwriting process, were not attended to in connection with the claims process, and were also subject to negotiation; the evidence established by a preponderance that ICW and KFB were sloppy and lax in their business practices.
6. Rosemary Mirko acted on behalf of RAM, which in turn acted as G & P's broker and agent but not as the agent of the insurer.
7. RAM did not have the authority to bind coverage on behalf of ICW.
8. KFB generally acted as ICW's broker and managing general agent; KFB was also a broker or general agent for Clarendon and had underwritten H & G's Clarendon transportation policy.
9. KFB had the authority to issue ICW policies and bind coverage, subject to being overruled by ICW if ICW determined to reject bound coverage as not within the guidelines.
10. The evidence establishes by a preponderance that Mirko spoke with Gurdial Singh Gill (Gill), whom Mirko knew through business that RAM had done with H & G Trucking, a company to whom Gill had leased a truck. However, the evidence does not establish the time, place, or manner of the conversation; the precise questions uttered by Mirko; or the responses thereto.
11. In completing the application process, Mirko used to some extent a standard form provided by KFB that was written in English and that was not translated into Punjabi, the principal language spoken by Gill and Pannu. No interpreter assisted during the application process for the ICW policy.
12. Mirko was the only direct participant in the process of taking the application from G & P who testified in person at trial; testimony given by deposition was limited to short excerpts; thus, the evidence provided a limited context for the drawing of inferences regarding the application process.
13. The evidence did not establish by a preponderance that either Gill or Pannu understood, spoke, or read English; the evidence did not establish that either of them could understand Mirko, understand the policy or application therefor, or communicate reliably or clearly with Mirko respect to the matters included in the application for the policy.
14. The limited testimony presented to the Court, even when considered in light of the other evidence, did not establish that Mirko did, or was able to, communicate the matters on the application to Gill or Pannu clearly or accurately for them to understand the substance of what was being communicated to them or recorded on the application form.
15. The application form did not specifically request the listing of independent contractors, subcontractors, driver's helpers, trainees, co-drivers, or all drivers. However, it asked whether the applicant used subhaulers or owner-operators, and it had a schedule for the listing of multiple drivers that had columns for the date of birth, driver's license information, and full- or part-time status of each driver. It directed completion of the equipment and drivers' list forms.
16. The application form did not specifically state that the applicant had to list the driver's commercial driving experience or require the identification of all principal owners; it did ask if the applicant agreed promptly to report all driver and vehicle changes to the agent; it also had a driver's schedule with space to list drivers, and the only driver listed was Pannu.
17. The evidence did not establish by a preponderance that Mirko asked for all the drivers of the vehicles, the age or years of experience of all the drivers or of every driver, or for a report of any or all changes in drivers or vehicles.
18. The evidence did not establish by a preponderance that Mirko, or anyone acting on behalf of RAM, KFB, or ICW, informed or instructed any applicant of a duty promptly to report all driver changes or all vehicle changes.
19. The Court rejects Mirko's testimony that she simply read the questions on the form and received answers. The evidence did not establish by a preponderance that Mirko had a clear memory of the details of the application process, including the precise questions asked, the precise answers given, who gave her what information, or whether the conversations regarding the application proceeded in person or over the telephone.
20. The Court finds not worthy of belief Mirko's position that communication with Gill and/or Pannu was not difficult and that speaking slowly and spelling words was sufficient to effectuate communication.
21. The evidence did not establish that Mirko understood or believed that the guidelines or requirements regarding age and experience for drivers were important or material; the evidence did not establish that Mirko knew or understood at the time she participated in filling out the application that there was any driver of G & P who was not disclosed on the application.
22. At all pertinent times, H & G was a corporation engaged in the commercial transportation of property in interstate and intrastate commerce.
23. The evidence does not establish by a preponderance the precise time of the formation of G & P as a business entity. The application listed the form of the entity as a partnership, and it was signed by Pannu.
24. Mirko understood that the policy was being obtained for a business that would be called G & P, the partners of which would be Gill and Pannu.
25. Gill told Mirko that he would not be driving because of kidney problems. The underwriting guidelines provided that if a principal owner of a prospective insured did not meet the guidelines, the account should be declined. Although pursuant to the underwriting guidelines and customary underwriting practices, it was necessary to obtain MVR's for all owners or partners, no effort was made to ascertain the MVR of Gill.
26. The application form was not part of the policy, incorporated therein, or attached to the policy sent to the insured, but it asked the applicant if he agreed to report all driver and vehicle changes to the agent. Although Mirko testified that standard form correspondence sent out to the insured from RAM with the policy reminded the insured to report all drivers, the evidence did not establish by a preponderance that correspondence with such an admonition was sent to G & P.
27. On or about January 8, 1998, the application was submitted to KFB with an MVR of Pannu, which reflected his birth date of April 6, 1974, which made him twenty-three years old; the MVR did not indicate Pannu's experience, and it reflected issuance of a license on December 9, 1997. When questioned by Martha Escobar of KFB, Mirko informed Escobar that for four to five years, Pannu had been driving for H & G.
28. The evidence did not establish by a preponderance that ICW knew, or should have known, that Pannu did not meet any ICW underwriting guidelines at the time that coverage was bound for G & P.
29. The customary practice of KFB and ICW was for KFB to forward a copy of an application for insurance to ICW for review, but it was not uncommon for ICW to receive copies of an application several days after coverage had already been bound by KFB.
30. On or before January 8, 1998, the application was reviewed by Sherry Barbot and/or Karen Klase of ICW's underwriting department.
31. On or before January 8, 1998, Karen Klase confirmed that coverage for G & P was bound pursuant to ICW policy No. XHO 1557531-00, with effective dates of January 6, 1998, through January 6, 1999 (the ICW policy).
32. The declarations section of the ICW policy provides in relevant part as follows:
ITEM TWO-SCHEDULE OF COVERAGES AND COVERED AUTOS
This policy provides only those coverages where a charge is shown in the premium column below. Each of these coverages will apply only to those "autos" shown as covered "autos." "Autos" are shown as covered "autos" for a particular coverage by the entry of one or more of the symbols from the "COVERED AUTOS" Section of the Truckers Coverage From next to the name of the coverage.
Under Item Two of the declarations of the ICW policy, the symbol "46" is indicated next to "Liability," under the heading captioned "Covered Autos."
Section I of the policy provides in relevant part:
SECTION I-COVERED AUTOS
ITEM TWO of the Declarations shows the "autos" that are covered "autos" for each of your coverages. The following numerical symbols describe the "autos" that may be covered "autos". The symbols entered next to a coverage on the Declarations designate the only "autos" that are covered "autos."
A. DESCRIPTION OF COVERED AUTO DESIGNATION SYMBOLS SYMBOL DESCRIPTION
* * *
46 = SPECIFICALLY DESCRIBED "AUTOS".
Only those "autos" described in ITEM THREE of the Declarations for which a premium charge is shown (and for Liability Coverage any "trailers" you don't own while attached to any power unit described in ITEM THREE).
Item Three of the declaration page of the ICW policy refers to Schedule I-97, which lists the following vehicles:
97KENWORTH# 1xkadb9x1vr741771
00 UNID # U01
The tractor was a specifically described auto in the ICW policy.
The ICW policy provides in relevant part:
SECTION V TRUCKERS CONDITIONS
B. GENERAL CONDITIONS
* * *
2. CONCEALMENT
This Coverage Form is void in any case of fraud by you at any time as it relates to this Coverage Form. It is also void if you or any other "insured" at any time intentionally conceal or misrepresent a material fact concerning:
a. This Coverage Form;
b. The covered "auto";
c. Your interest in the covered "auto"; or
d. A claim under this Coverage Form.
32. The evidence did not establish by a preponderance that Inderjit Singh was employed by, or was a driver for, G & P at the time of the application for the insurance policy; the evidence did not establish by a preponderance that Gill, Pannu, or G & P understood, believed, or knew that Inderjit was an employee of G & P before the time of the application for insurance.
33. The evidence established that Inderjit Singh was driving for G & P at the time of the accident.
34. The evidence did not establish by a preponderance that Gill or Pannu knew or understood that they had been asked to disclose all drivers, including Inderjit.
35. The evidence did not establish by a preponderance that Gill or Pannu knew or understood when submitting the application, or at any time during the application process, that they were omitting desired information regarding drivers or Inderjit.
36. The evidence did not establish by a preponderance that Gill or Pannu knew or understood at any time during the application process, when submitting the application, or at any time thereafter, that they made an untrue statement regarding drivers or Inderjit.
37. The evidence did not establish by a preponderance that Mirko knew or understood that information regarding drivers was omitted from the application.
38. The evidence did not establish by a preponderance that there was any knowing or intentional concealment or failure by G & P, Gill, or Pannu to disclose any fact concerning the identity of drivers during the application process or thereafter.
39. The evidence did not establish by a preponderance that there was any knowing or intentional concealment or failure by G & P, Gill, or Pannu to disclose any fact concerning the age of any driver during the application process or thereafter.
40. The evidence did not establish by a preponderance that there was any knowing or intentional concealment or failure by G & P, Gill, or Pannu to disclose any fact concerning the experience of any driver during the application process or thereafter.
41. The evidence did not establish by a preponderance that Gill, Pannu, or G & P concealed or failed to disclose any fact regarding any driver with the intent to induce reliance by ICW.
42. The evidence did not establish by a preponderance that Gill, Pannu, or G & P concealed or failed to disclose any fact regarding any driver for the purpose of obtaining insurance or for inducing ICW to write the policy.
43. The evidence did not reveal sufficient circumstances surrounding the coverage of H & G by Clarendon to provide a context for the drawing of inferences by the Court; the evidence did not establish by a preponderance that any failure to disclose drivers in connection with Clarendon's coverage of H & G was intentional.
44. The evidence established by a preponderance that on or about January 22, 1998, ICW was aware of the accident and that Inderjit Singh had driven for G & P and had been involved in the accident even though he was not listed on the ICW policy. The Court credits the evidence to this effect and discredits testimony and evidence that would support a contrary conclusion.
45. The Court credits the testimony of Ronald Schwarz, President of KFB, to the effect within a few days of the accident, Sherry Barbot, ICW's underwriting manager, contacted Schwarz of KFB to complain that Inderjit Singh, the driver during the accident, was not disclosed as a driver on the application.
46. The Court credits the testimony of Rosemary Mirko and related documentation that Mirko sent Inderjit's MVR to KFB on January 28, 1998.
47. At all pertinent times, Karen Kirk was the senior claims representative of ICW assigned to the loss from the accident on January 13, 1998. Her duties involved determining whether coverage for an accident was excluded, including determining whether the driver was listed in a named driver exclusion and identifying whether any potential policy exclusions might be applicable. Kirk nevertheless was unaware of ICW's underwriting guidelines until after the inception of this litigation. Her duties included forwarding claims abstracts to the underwriting manager, Sherry Barbot, who would then review any changes in risks for the underwriting department.
48. ICW claimed that it would issue a named driver exclusion for any driver it considered unacceptable, regardless of whether or not that driver was still employed by the insured; however, ICW did not issue a named driver exclusion for Inderjit Singh.
49. On or about January 23, 1998, Kirk telephoned Inderjit Singh (Inderjit). In the conversation on January 23, 1998, Kirk did not ask Inderjit when he began driving trucks for G & P or any other questions regarding his commercial or over-the-road experience.
50. Although ICW and its agents believed after the accident that at the time of the accident Inderjit was driving for G & P, and although the employment status of Inderjit at the time of the application was unknown to ICW or its agents, no inquiry regarding or investigation of Inderjit's employment status as of the time of the application was undertaken by ICW or its agents after the accident.
51. Although Kirk claimed that she was told by Inderjit that he had been terminated by G & P and was no longer employed, her notes do not reflect any discussion of Inderjit's employment status with Inderjit or anyone else.
52. It was Kirk's custom to keep a running computerized log identifying ICW's activities in handling a claim and noting any facts or issues pertaining to coverage; however, none of the notes provided by ICW refer to Inderjit's employment status; further, none of Kirk's pre-litigation computerized log notes provided by ICW identify Inderjit Singh's status as an undisclosed driver to be a potential coverage issue.
53. On or about March 10, 1998, Kirk again spoke with Inderjit, but the conversation did not include mention of Inderjit's employment status, history of driving with G & P, or his driving experience.
54. The Court rejects the evidence tending to show that Kirk learned in her conversations with Inderjit or from other sources that he was no longer driving for G & P.
55. The testimony of Karen Kirk was inconsistent, vague, and lacked specifics. The evidence did not establish by a preponderance that by March 10, 1998, or in March 1998, Kirk or anyone else had informed Sherry Barbot, underwriting manager of ICW, that Inderjit was no longer working for G & P.
56. Because the accident involved a significant loss, Karen Kirk was required to submit quarterly reports that would discuss coverage issues. None of the quarterly reports on the accident and loss occasioned thereby prepared by ICW ever discussed Inderjit's employment status or his qualifications under ICW's underwriting guidelines, identified misrepresentation as a potential ground for disclaiming coverage, or suggested that G & P's failure to disclose Inderjit Singh on the application might serve as a basis for disclaiming coverage.
57. ICW's investigation of the accident included retention of GAB Robins, who interviewed Inderjit and provided ICW with a written report dated January 27, 1998, which reflected Inderjit's date of birth as August 13, 1975, and which did not reflect any discussion of Inderjit's employment status or history of driving with G & P; it indicated that he had a Class A license since August 1997 and also that he had been a commercial truck driver since 8/77 (apparently an error). ICW did not attempt after the accident to learn the employment status of Inderjit at the time of the insurance application.
58. The Court credits Klase's testimony that she and Barbot discussed cancelling the policy because Inderjit was not on the application and was an unacceptable risk. The Court also credits Klase's testimony that during the term of the policy, she and Barbot discussed not renewing the policy, instead of canceling it, because of the named insured problem.
59. The credible evidence does not establish that any discussion at ICW of Inderjit's no longer driving for G & P occurred before October 1998.
60. As of January 23, 1998, no one was driving for G & P under the ICW policy because the only covered vehicle was totaled in the accident.
61. The evidence established by a preponderance that after the accident, ICW was not happy about having written or writing the risk. Barbot wanted to cancel the policy after learning of the unreported driver and the loss. She offered as an explanation for not cancelling that it was too late (beyond sixty days after policy inception), it would have looked vengeful, and it might have precipitated an investigation by the insurance authorities. However, ICW had had notice of the loss and the unreported driver during the sixty days following inception of the policy; ICW knew it could have cancelled the policy for any reason within the first sixty days. ICW had two opportunities to cancel the policy (upon the requests of the insured and the finance company) and nevertheless did not cancel the policy.
62. Although ICW's normal procedure upon learning that an unscheduled driver who did not meet guidelines was involved in an accident was to insist on a named driver exclusion or cancellation, ICW neither cancelled the policy nor sought a named driver exclusion. It was the customary practice of KFB and ICW to make a decision with respect to renewal of a policy within five business days or a week of learning of an unacceptable risk.
63. The Common Policy Conditions portion of the policy provided that ICW could cancel the policy by mailing or delivering to the insured written notice of the cancellation at least ten days before the effective date of cancellation if it canceled for nonpayment of premium, or thirty days before the effective date of cancellation if it canceled for any other reason; the notice of cancellation would state the effective date of cancellation, and the policy period would end on that date.
64. The California Changes--Cancellation and Nonrenewal endorsement to the policy provided that as to policies in effect for more than sixty days, the insurer might cancel the policy only upon the occurrence of enumerated occurrences, including nonpayment of premium and discovery of any violations of state laws or regulations establishing safety standards by the insured or its representative which materially increased any of the risks insured against.
65. G & P requested that ICW cancel the policy on or about February 4, 1998, and again on March 5, 1998.
66. On or about February 4, 1998, pursuant to the G & P's request and a loss policy release prepared by Rosemary Mirko of RAM dated January 21, 1998, RAM directed KFB to cancel the ICW policy because the only covered vehicle was totaled in the accident.
67. ICW and its agents understood that they were legally entitled to, and could have, cancelled the policy at that time and would have had no obligation to reinstate the policy, even if the insured subsequently requested it. However, the policy was not cancelled.
68. On March 4, 1998, Mirko and Shannon Gwinn of RAM directed KFB to process the cancellation because the insured had not notified them of having purchased another vehicle.
69. Imperial Premium Finance, Inc., the company that was financing G & P's payment of the premium on the ICW policy, sent to RAM a notice of intention to cancel dated February 17, 1998, with an effective date of cancellation of March 5, 1998, because of a delinquency in payment.
70. ICW and its agents understood that they were legally entitled to, and could have, initiated cancellation procedures at that time and would have had no obligation to reinstate the policy, even if the insured subsequently requested it; they could have ignored the request for reinstatement and proceeded to cancel the policy.
71. On or about March 5, 1998, the finance company again instructed ICW to cancel the ICW policy for nonpayment.
72. ICW and its agents understood that once they received a request to cancel a policy from a premium finance company, they were not obligated to reinstate the policy, even if the finance company subsequently requested that they do so.
73. On March 5, 1998, Shannon Gwinn of RAM faxed a memo to Martha Escobar of KFB directing KFB to discard the previous day's memo because the insured had purchased another vehicle. Escobar replied that notice of cancellation for nonpayment of the premium had issued from the finance company, and she asked for clarification of whether or not she should add the vehicle.
74. An endorsement to the ICW policy effective March 5, 1998, added a 1998 Volvo and a 1998 utility to the policy.
75. KFB prepared a notice of cancellation, dated March 10, 1998, which was to be effective March 28, 1998.
76. On or about March 11, 1998, RAM replied to the inquiry of Escobar of KFB, informing her that the insured had just paid and that reinstatement would follow and be processed as soon as possible.
77. On March 12, 1998, RAM was informed by a facsimile transmission from the finance company that the delinquent payment was received on March 12, 1998, and the company requested reinstatement. A formal notice of request to insured for reinstatement was sent out to RAM by the finance company on March 13, 1998.
78. The cancellation that had been directed was not effected. ICW chose to honor the premium finance company's request for reinstatement even though it understood that it was not obligated to do so.
79. A request for cancellation by the insured or the premium finance company would permit cancellation of the policy, even over any subsequent objection by either the insured or the premium finance company.
80. Any fear on the part of KFB or ICW personnel or agents that they would be perceived to be acting in bad faith if they cancelled the contract was without objective basis.
81. The Court finds that neither KFB nor ICW personnel or agents had a genuine or sincere, subjective fear of appearing to have acted in bad faith by cancelling the policy after the accident.
82. Documentation of
any
83. The evidence did not establish by a preponderance the driving experience of Inderjit.
84. To cancel a policy because of an underage driver or noncompliance with underwriting rules would normally have required a discussion between KFB and the carrier as to whether the policy should be canceled.
85. Although there was limited testimony to the effect that the ICW policy would not have issued had Pannu and Inderjit been the drivers, neither this testimony nor the other evidence, including but not limited to guidelines, practices, and conduct of the insurance entities and representatives involved, established by a preponderance that the policy would not have issued had Inderjit been disclosed as a driver, or that the policy would not have issued had Inderjit's age and experience been disclosed.
86. After G & P requested to add a 1998 Volvo tractor to the ICW policy on or about March 5, 1998, KFB retained inspectors, in this instance MLK, to go to the facility of G & P and to report, inter alia, anything contrary to the application. The report of MLK revealed that the only person to drive the 1998 Volvo tractor would be Gurdial Gill.
87. Gill had represented that he would not be driving. As an owner, however, he could potentially drive the truck. ICW requested an MVR for Gill. Gill's MVR reflected several moving violations and was not adequate to meet the underwriting guidelines.
88. The evidence did not establish by a preponderance that on April 22, 1998, Gill misrepresented to MLK Inspections his status as the only driver.
89. ICW did not issue a named driver exclusion for Gill or require him to sign any warranty that he would not drive for G & P; further, it proceeded to continue the coverage in effect under those circumstances.
90. On or about June 11, 1998, the ICW policy was amended to add a 1996 Kenworth Tractor.
91. On or about July 8, 1998, ICW asked KFB to identify the persons who would be driving the 1996 Kenworth; KFB requested RAM to identify the drivers, and on or about July 11, 1998, RAM faxed the MVR of Tarlok Singh to KFB.
92. The evidence did not establish by a preponderance that an MVR of Inderjit was faxed to KFB at that time. The evidence did not establish by a preponderance that KFB advised ICW in July 1998 that Inderjit Singh would be driving the 1996 Kenworth. The evidence did not establish by a preponderance that Inderjit Singh was sought to be added as a driver to a policy in the summer of 1998.
93. Between June 11, 1998, and early July 1998, neither ICW nor KFB was advised of the identity of the driver(s) for the 1996 Kenworth.
94. Neither ICW nor any person or entity on its behalf issued a named driver exclusion with respect to Inderjit Singh.
95. At some time during the term of the policy, the file was marked by ICW for nonrenewal. In October 1998, Barbot decided not to renew G & P's policy because of an owner with a poor MVR.
96. The evidence did not establish by a preponderance that an applicant's use of Inderjit as a driver would have affected ICW's decision to enter into the contract.
97. The evidence did not establish by a preponderance that an applicant's use of Inderjit as a driver would have affected ICW's decision to enter into the contract at a particular premium rate.
98. On behalf of ICW, Kirk requested contribution from Clarendon towards a settlement of approximately $21,000.00 paid by ICW. Clarendon refused to share in the settlement.
99. The settlement
agreement regarding the
Both [ICW] and Clarendon National Insurance Co. make such payment with full reservation of rights against one another. Both insurers, [ICW and Clarendon], specifically reserve the right to argue that they are entitled to reimbursement for some or all of the monies paid respectively to the Plaintiffs. No insurer shall be treated as a "voluntary payor." Each insurer has denied that it provides any coverage. The execution of this agreement is not an admission of coverage.
100. Between January 21, 1998, and January 28, 2000, ICW did not disclaim coverage or reserve its rights to disclaim coverage based on the fact that Inderjit Singh was operating the truck.
101. In a letter from ICW to Clarendon dated November 10, 1998, ICW argued that Clarendon provided primary coverage by virtue of its MCS-90 endorsement; ICW did not indicate that ICW contemplated declining the Hatley claim based on a material misrepresentation by G & P.
102. After Judge Coyle's June 30, 2000 order, ICW alleged for the first time that the reason it did not decline coverage or cancel the ICW policy upon learning about Inderjit Singh was because Inderjit told Kirk that he was no longer employed by G & P.
103. In support of ICW's motion for new trial, Kirk submitted a declaration dated July 13, 2000, wherein she stated that the issue of her conversation about Inderjit Singh's employment status did not come up in her deposition of January 12, 2000, and did not come up until a conversation she had with Mr. Wagoner on July 10, 2000.
104. ICW's underwriting file does not contain any notations of a conversation involving anyone at ICW regarding the coverage implications of Inderjit Singh's driving.
105. The only reservation of rights letter issued by ICW was issued on January 28, 2000, approximately two weeks after Karen Kirk's January 12, 2000, deposition.
106. The reservation
of rights letter issued approximately two years after ICW was notified of the
accident, one year and seven months after the filing of the Hatley
action, and one year and eight months after the filing of the
107. By letter dated February 14, 2000, Gill responded to the reservation of rights letter.
108. The reservation of rights letter was the first document generated by ICW (apart from those generated by counsel in this litigation) in which ICW indicated that Inderjit's status as the driver created any coverage issues.
109. The evidence established by a preponderance that it was not uncommon for insured trucking concerns to have changes or additions in drivers during the life of a policy.
110. The evidence did not establish by a preponderance when ICW learned of facts concerning Inderjit's having driven with or for Gill before the accident.
111. In failing to rescind earlier or to issue an earlier reservation of rights, or in participating in the Moore and Hatley actions in any respect, neither ICW nor any of its agents intended to forego a coverage defense based on concealment or misrepresentation by G & P regarding Inderjit being a driver or regarding Inderjit's age or driving experience.
112. Neither ICW nor
any of its agents intended that G & P or Clarendon rely on its failure to
rescind, or its participation in, or payments made regarding, the
113. ICW did not waive its coverage defense.
114. Clarendon defended H & G in the Moore and Hatley actions despite its conclusion that it had no duty to defend subject to a reservation of rights.
115. ICW settled the Hatley action on November 17, 1998, for $21,750.00, and on April 7, 1998, paid $7,277.50 in settlement of an environmental cleanup claim.
116. On February 28,
2000, Clarendon and ICW settled the
117. G & P did not retain independent counsel in the Moore and Hatley actions.
118. The evidence did not establish by a preponderance that G & P was prejudiced by ICW's failure to rescind.
119. The evidence did not establish by a preponderance that G & P reasonably relied on ICW's failure to issue a reservation of rights.
120. The evidence did not establish by a preponderance that G & P detrimentally relied on ICW's failure to issue a reservation of rights.
121. ICW was not estopped from raising an alleged concealment or misrepresentation regarding Inderjit Singh as a defense to coverage.
122. There is no showing of any manifest injustice or any intervening change in the law, evidence, or other circumstances bearing upon Judge Coyle's previous determination that the trailer was not a covered vehicle under the Clarendon policy.
123. In connection with the ICW policy, in June 1998 ICW processed and mailed a Motor Carrier Automobile Bodily Injury and Property Damage Liability Certificate of Insurance (Form MC 91X) and issued an MCS-90 endorsement.
124. It was ICW's understanding that the MCS-90 increased ICW's exposure, but ICW did not charge a higher premium for the issuance of the MCS-90.
125. Clarendon did not act as a volunteer in its participation in and settlement of the state court actions.
The Court believes that Judge Coyle necessarily decided this issue, but the Court adds this finding in an abundance of caution.
CONCLUSIONS OF LAW
1. On or about January 6, 1998, G & P through Gill and Pannu applied for insurance coverage in the form of the ICW policy.
2. The policy provided that an intentional, fraudulent, and material misrepresentation or concealment would void the policy; reasonably construed, this requires for a defense to coverage not an innocent or negligent misrepresentation or concealment, but rather an intentional and fraudulent misrepresentation or concealment.
3. The policy thus provided for a different standard from that stated in Cal. Ins.Code § 331.
4. On or about January 6, 1998, Gill and/or Pannu on behalf of G & P did not misrepresent or conceal the status of Inderjit Singh as a driver on the application for insurance.
5. Gill and/or Pannu on behalf of G & P did not knowingly, intentionally, recklessly, with the intent to obtain coverage, with the intent to deceive or defraud, or with the intent to induce reliance by ICW, misrepresent, conceal, or fail to disclose facts concerning drivers or Inderjit in connection with the application for the ICW policy.
6. There was no knowledge or belief on the part of Gill, Pannu, G & P, or Mirko that there had been any misrepresentation, concealment, or failure of disclosure.
7. Considering the probable and reasonable influence of the facts upon ICW, the evidence did not establish by a preponderance that a failure to disclose Inderjit as a driver and/or his age and/or experience would have affected ICW's decision to enter into the contract; the disclosure or nondisclosure of Inderjit Singh as a driver was not material with respect to the decision to issue the ICW policy.
8. Considering the probable and reasonable influence of the facts upon ICW, the evidence did not establish by a preponderance that a failure to disclose Inderjit as a driver and/or his age and/or experience would have affected ICW's decision to enter into the contract at a particular premium rate; the disclosure or nondisclosure of Inderjit Singh as a driver was not material with respect to the decision to enter into the contract at a particular premium rate.
9. ICW did not meet its burden of establishing a defense to coverage on the ICW policy on the basis of material misrepresentation and/or concealment.
10. ICW did not waive its coverage defense.
11. ICW was not estopped from asserting its coverage defense.
12. Clarendon did not
act as a volunteer in contributing towards settlement of the
13. Judge Coyle's
previous determination that the trailer was not a covered vehicle under the
Clarendon policy was not clearly erroneous; no manifest injustice or
intervening change in the law, evidence, or other circumstances bearing on the
determination has been shown. Because in the order of June 30, 2000, Judge
Coyle implicitly decided that the trailer was not a covered vehicle under the
Clarendon policy, ICW is foreclosed under the doctrine of the law of the case
from raising this issue.
JUDGMENT AND DECLARATION OF THE PARTIES' RIGHTS AND OBLIGATIONS
The content and form
of the judgment to follow in this case were disputed in a motion to alter or
amend judgment, which Judge Coyle denied because of mootness
due to the anticipated trial. However, the Court notes that the parties
reserved the right to stipulate to amounts expended in the defense of the
IT IS SO ORDERED.