For purposes of commercial automobile coverage, an insured is deemed to “hire” or “borrow” a vehicle only if the insured exercises exclusive “dominion and control” over the vehicle. ( Travelers Prop. Cas. Co. of Am. v. LK Transp., Inc. (E.D. Cal. 2014) — F.Supp.2d —-)
Facts
Descor, Inc. hired LK Transportation, Inc. to drive to Yuba City, pick up a trailer owned by Descor, and move the trailer to Sacramento for a fee. While LK’s employee was driving an LK tractor to Yuba City to pick up Descor’s trailer and transport it to Sacramento, LK’s employee was involved in a two-vehicle accident. The driver of the other vehicle, Martha Shower, was killed. At the time of the accident, LK’s employee had not yet arrived at Descor’s work site and had not yet begun to haul Descor’s trailer. However, LK’s employee was on the road only because he was on his way to pick up Descor’s trailer.
On the date of the loss, LK was the named insured and its tractor was a covered auto on a $1 million commercial auto policy issued by Northland Insurance Company. Descor, on the other hand, was the named insured and its trailer was a covered auto on a $1 million commercial auto policy issued by Travelers Property Casualty Company of America.
Shower’s heirs filed a wrongful death lawsuit LK, which tendered defense of the action to Northland. Northland paid its $1 million policy limit in partial settlement of LK’s liability to Shower’s heirs. As part of the settlement, Shower’s heirs were allowed to continue pursuing LK, but only to the extent that LK was entitled to coverage under the Travelers policy.
Travelers filed a declaratory judgment action against LK and Shower’s heirs, seeking a judicial determination that the Travelers policy did not cover any liability LK might have to Shower’s heirs in the underlying action. Thereafter, Travelers moved for summary judgment.
Holding
The United States District Court, applying California law, granted Travelers’ motion and held that the Travelers commercial auto policy did not cover LK’s alleged liability to Shower’s heirs.
Shower’s heirs argued that Descor had “hired” or “borrowed” LK’s tractor (making the tractor a covered auto under the Travelers policy), and that Descor had then allowed LK to use the tractor (making LK an insured under the Travelers policy). The district court rejected this argument. Under California insurance law, an insured “hires” or “borrows” a vehicle only if the insured exercises exclusive “dominion and control” over the vehicle. Here, Descor did not exercise any “dominion and control” over LK’s tractor. Rather, LK merely used the tractor in furtherance of LK’s own business interests, and never relinquished control of the tractor to Descor. Accordingly, LK’s use of the tractor could not provide a basis for coverage under Descor’s policy through Travelers.
Show’s heirs also argued that LK’s liability “resulted from the use” of Descor’s trailer (which admittedly was a covered auto under the Travelers policy). Again, however, the district court disagreed. Under California’s “predominating cause / substantial factor” test, in order for an auto policy to apply, the vehicle’s “operation, movement, maintenance, loading, or unloading must be a substantial factor or predominating cause of the claimant’s injury.” Here, although LK had the intention of eventually moving Descor’s trailer, it was undisputed that the trailer had not been moved at the time of the accident. Thus, because the accident did not “result from the use” of Descor’s trailer, the Travelers policy did not apply.
Comment
With regard to the issue of “hiring” or “borrowing,” the mere fact that a vehicle is being used for the insured’s business purposes, without more, is insufficient to establish that the vehicle has been “hired” or “borrowed.” Rather, the insured must have use of the vehicle for the insured’s own purposes, to the exclusion of the vehicle’s owner.