The California Supreme Court has held that, with respect to an accident involving a tractor-trailer rig, California Insurance Code section 11580.9(b) made the trailer lessor’s commercial auto policy “excess” to the tractor’s owner’s commercial auto policy. ( Sentry Select Ins. Co. v. Fidelity & Guaranty Ins. Co . (2009) 46 Cal.4th 204)
Facts
John’s Trucking, Inc. (JTI) was a trucking company that routinely leased nearly three quarters of its commercial fleet of trailers to independent truckers with whom it contracted for hauling jobs. In 1999, JTI entered into a standard “trailer lease agreement” with independent trucker Richard Justice (Justice), whereby JTI leased two trailers to Justice.
In May 1999, Justice was driving his own tractor while pulling the two trailers leased from JTI. The tractor-trailer rig collided with another vehicle, resulting in injuries to April Russo (Russo) and Patricia Nila (Nila). At the time of the accident, Justice had a commercial auto policy listing his tractor through Sentry Select Insurance Company (Sentry), and JTI had a commercial auto policy listing the two trailers through Fidelity & Guaranty Insurance Company (Fidelity).
Russo and Nila brought personal injury actions against both Justice and JTI, but JTI obtained a dismissal. Justice’s insurer, Sentry, then settled Justice’s alleged liability to Russo and Nila for $600,000 (an amount within Sentry’s policy limit).
Sentry (insurer of Justice and his tractor) subsequently filed a federal court equitable contribution action against Fidelity (insurer of JTI and the leased trailers). (Apparently Sentry’s theory was that since Justice was a “permissive user” of the trailers leased from JTI, Justice qualified as an “insured” under the Fidelity policy.) Fidelity defended the federal court action by arguing that under California Insurance Code section 11580.9(b), the Fidelity policy was conclusively presumed to be “excess” to the Sentry policy, and therefore Fidelity owed nothing to Sentry. However, the United States District Court held that Insurance Code section 11580.9(b) did not apply, and that Sentry and Fidelity thus provided concurrent “primary” coverage for Justice’s liability in the underlying personal injury case
Fidelity appealed to the Ninth Circuit Court of Appeals. The Ninth Circuit, in turn, asked that the California Supreme Court issue an opinion regarding the proper interpretation of Insurance Code section 11580.9(b).
Holding
The California Supreme Court ruled that under section 11580.9(b), the policy Fidelity had issued to JTI for the leased trailers was conclusively presumed to be “excess” to the policy Sentry had issued to Justice for the tractor. At the time of the accident, section 11580.9(b) provided that if a leased commercial vehicle is involved in an accident, and the lessor of that vehicle is “engaged in the business of renting or leasing motor vehicles without operators,” then the lessor’s policy is conclusively presumed to be excess to any other insurance covering the loss.
The Supreme Court acknowledged that California Courts of Appeal had rendered conflicting decisions as to the meaning of the phrase “engaged in the business of renting or leasing motor vehicles without operators,” with some courts focusing on the nature of the insured’s primary business, and other courts focusing on the factual circumstances surrounding the lease of the particular commercial vehicle involved in the accident. However, the Supreme Court concluded that it was not necessary to resolve the conflicting appellate court decisions, because under either test, JTI was “engaged in the business of renting or leasing motor vehicles [i.e., the two trailers] without operators.” As such, under section 11580.9(b), the policy Fidelity had issued to JTI for the leased trailers was conclusively presumed to be “excess” to the policy Sentry had issued to Justice for the tractor. Therefore, Sentry was not entitled to contribution from Fidelity.
Comment
Note that at the time of the accident in this case, section 11580.9(b) applied to an insured who was “engaged in the business of renting or leasing motor vehicles without operators.” Effective January 2007, the Legislature amended the statute, deleting the above phrase and replacing it with the phrase “who in the course of his or her business rents or leases motor vehicles without operators.” This amendment of the statutory language eliminates any ambiguity as to whether the leasing of commercial vehicles must be a regular part of the insured’s business in order for the conclusive presumption to apply. As amended, section 11580.9(b) now clearly provides that the renting or leasing of commercial vehicles without operators in the course of any business can qualify for the conclusive presumption that the insured’s coverage is excess, where all the statutory requirements are otherwise met.