If an insurer’s failure to adequately investigate the insurability of an insured prevents the insurer from later rescinding a policy covering a commercial motor vehicle, the insurer may be liable to the injured party for up to the higher limit of the “Financial Responsibility Law” applicable to commercial vehicles, not the lower limit of the “Financial Responsibility Law” applicable to noncommercial vehicles. ( Integon Preferred Ins. Co. v. Isztojka (2011) 2011 WL 676901)
Facts
Integon Preferred Insurance Company issued a motor vehicle insurance policy to Susana Isztojka d/b/a California Gold Star hauling. Shortly thereafter, a truck owned by Isztojka was involved in an accident in which Scott Eisenbrandt, Jr. was killed. Eisenbrandt’s heirs subsequently filed a state court wrongful death action against Isztojka. Ultimately, Eisenbrandt’s heirs recovered a judgment of over $1 million against Isztojka.
Integon filed a federal court action against Isztojka, seeking to rescind the policy on the ground that Isztojka had made material misrepresentations in the application. Eisenbrandt’s heirs intervened in the rescission action.
In the rescission action the federal district court noted that pursuant to Barrera v. State Farm Mut. Auto. Ins. Co . (1969) 71 Cal.2d 659, if a motor vehicle insurer fails to investigate the insurability of the insured within a reasonable time after the insurer issues the policy, then the insurer loses any right to rescind the policy. The federal district court further noted that under Barrera , if the insurer loses the right to rescind, then once the injured person obtains a judgment against the insured, the injured party “may compel the insurer to pay the judgment to the extent of the monetary limits set forth in the Financial Responsibility Law .” (See Barrera , at 681.)
Integon contended that, if in fact Integon had lost its ability to rescind the policy , then Integon’s liability to Eisenbrandt’s heirs was limited to the amount specified under California’s “Financial Responsibility Law.” Integon further contended that the applicable “Financial Responsibility Law” in this case was the $15,000 limit set forth in California Vehicle Code section 16430.
Holding
The federal district court disagreed, and held that if Integon had lost its right to rescind, then the applicable “Financial Responsibility Law” was not the $15,000 limit set forth in Vehicle Code section 16430. That was because Vehicle Code section 16430 only governs noncommercial motor vehicles. Here, the vehicle that was involved in the accident was a commercial motor vehicle. Thus, the applicable “Financial Responsibility Law” might be either Vehicle Code section 16500.5, which establishes a $750,000 limit for commercial vehicles generally, or Vehicle Code section 34631, which likewise establishes a $750,000 limit for commercial vehicles having three or more axles. The district court deferred ruling on which of these latter two “Financial Responsibility Laws” for commercial vehicles would actually apply in this case. The court simply held that the $15,000 “Financial Responsibility Law” for noncommercial vehicles would not apply.
Comment
The decision in this case is consistent with the California Supreme Court’s earlier decision in the Barrera case . The only difference between the two cases is the amount of the applicable “Financial Responsibility Law” which was at issue. In Barrera, the applicable “Financial Responsibility Law” imposed relatively low liability ($15,000) on the owner of a noncommercial vehicle, whereas in this case, the applicable “Financial Responsibility Law” imposed much higher liability ($750,000) on the operator of a commercial vehicle.