The California Court of Appeal has held that an automobile liability policy’s “step-down” provision, which reduced liability limits for permissive users, was “conspicuous, plain and clear” and thus limited the coverage that was available to a permissive user. ( Dominguez v. Financial Indem. Co. (2010) 183 Cal.App.4th 388)
Facts
Lucia Dominguez (Dominguez) was allegedly injured in an automobile accident caused by Ningju Qui (Qui). The vehicle Qui was driving was owned by, and used with the permission of, Michael Welch (Welch). Welch was the named insured on an auto policy issued by Financial Indemnity Company (FIC), and Qui as a permissive user also qualified as an insured on the FIC policy.
The FIC policy’s declaration page stated that the bodily injury liability limits were $100,000 each person and $300,000 each accident. However, the policy’s face sheet, table of contents and liability section all referred to a “Reduction in Coverage” on page 7 of the policy. On page 7, under a heading labeled “REDUCTION IN COVERAGE,” the policy limited coverage for permissive users to the minimum limits required by the applicable financial responsibility laws. In addition, the policy’s insuring agreement stated that “[t]he limits shown on the Declarations page are subject to reduction to the state mandatory minimum of $15,000 each person, $30,00 each accident … where there is a permissive user of the ‘insured vehicle.’”
Dominguez filed an action against Qui and Welch for her injuries arising out of the accident. While that action was pending, Dominguez also filed an action for declaratory relief action against FIC to obtain a determination as to what limits were available to the permissive user, Qui. FIC prevailed in the declaratory relief action, with the trial court concluding that the “step-down” permissive user limitation was sufficiently “conspicuous, plain and clear.” Dominguez appealed.
Holding
The Court of Appeal affirmed. Insurance Code §11580.1 (b)(4) provides that an automobile policy must provide the same coverage to a permissive user as is afforded the named insured, but only up to the limits of the Financial Responsibility Law. However, a policy which includes such a limitation on coverage and will be subjected to “close scrutiny.” The Court of Appeal noted that it is the insurer’s burden to make its coverage exclusions and limitations “conspicuous, plain and clear.” The court also observed that in interpreting an automobile policy’s permissive user limitations, the court must examine the reasonable expectations of the insured car owner, not the reasonable expectations of the permissive user.
The Court proceeded to hold that the permissive user limitation in the FIC policy was “conspicuous” and distinguished the limitation from that in Haynes v. Farmers Ins. Exch. (2004) 32 Cal.4th 1198 because of the location of the limitation in the FIC policy. According to the Court, the FIC policy notified the insured “early and often” that a permissive user had lower limits than the named insured.
The Court also found the limitation “plain and clear” because the policy did more than simply state that a permissive user was only covered to the extent of the “Financial Responsibility Law.” On the first page of the FIC policy, the insuring agreement provided that the limits in the Declarations are subject to a reduction “to the state mandatory minimum of $15,000 each person, $30,000 each accident, and $5,000 for property damage when there is a permissive user of the insured vehicle.” According to the Court, that was “plain and clear.”
Comment
Provisions which limit the amount of coverage available to permissive users are subject to close judicial scrutiny. However, as this case makes clear, if an insurer uses language which is “conspicuous, plain and clear,” the insurer can in fact limit a permissive user to the statutory minimum limits.