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April 2010

Dominguez v. Financial Indemnity Co. ? Permissive User Liability Limitation is Conspicuous, Plain and Clear

Auto Policy's Permissive User Provisions Conspicuously, Plainly and Clearly Set Forth Reduction in Coverage

(2010) _____Cal. App. 4th ____, 10 C.D.O.S. 3924

The California Court of Appeal, First Appellate District, affirmed a trial court ruling that the liability limitation provisions for permissive users in an automobile insurance policy issued by Financial Indemnity Company ("FIC") is sufficiently conspicuous, plain and clear and is, therefore, enforceable. 

Lucia Dominguez ("Dominguez) was involved in an automobile accident with a vehicle driven by Janet Qiu ("Qiu").  The vehicle Qiu was driving was owned by Michael Welch ("Welch").  Welch was the named insured under a Family Car Policy ("Policy") issued by FIC, and Qiu was an insured person under the Policy because she was driving Welch's vehicle with Welch's permission. Dominguez filed a lawsuit against Qiu and Welch for injuries arising out of the accident.  Dominguez also filed a separate declaratory relief action against FIC related to the amount of coverage available to pay out any claims asserted in the lawsuit by Dominguez against Welch and Qui. 

The Policy's declaration page provides coverage limits of $100,000 for each person and $300,000 for each accident for bodily injury. The Policy's face sheet, table of contents and liability section referred to a reduction in coverage on page 7.   Page 7 provides "REDUCTION IN COVERAGE" and states if the Policy provides coverage that exceeds the minimum limits required by California's Financial Responsibility Law, the excess limits shall not apply to a loss "where the operation, maintenance or use of your insured car is by a person other than you, a relative, and an agent or employee of you or a relative. . . ."  In addition, the Policy's insuring agreement on page 3, states 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 argued that the Policy's "step-down" provisions which reduce bodily injury liability limits from $100,000/$300,000 to the statutory minimum of $15,000/$30,000 for certain permissive users are unenforceable.  The trial court concluded that those provisions are "sufficiently conspicuous, plain and clear as to be enforceable."  Dominguez timely appealed.

The Court of Appeal first stated that in general, provisions relating to exclusions from coverage must be "conspicuous" (i.e., placed and printed so that they will attract the readers attention) and "plain and clear" (i.e., stated precisely and understandably in words that are part of the working vocabulary of the average layperson.")  The Court of Appeal further stated that in construing an automobile policy's permissive user limitations, it must examine the reasonable expectations of the insured car owner.

The Court of Appeal noted that California's Financial Responsibility Law (Vehicle Code § 16000 et seq.) and Insurance Code section 11580.1 set minimum limits for coverage for automobile owners and operators of $15,000 for bodily injury caused to one person in any one accident.  Although the insured and insured are empowered to provide in the policy that permissive users will be provided only the minimum statutory coverage, such a limitation of liability is subject to the "closest possible scrutiny." 

Dominguez argued that the Policy is not conspicuous because the Policy directs the policyholder to the location of a coverage reduction on page 7, but not to the insuring agreement on page 3 of the Policy.  The Court of Appeal rejected Dominguez' contentions, finding that the placement of the lesser coverage limits within the insuring agreement on page 3 of the Policy in combination with multiple emphasized references to coverage limitations on the face page, table of contents and page 7 of the Policy, conspicuously advised the insured that the coverage for a permissive user of the insured vehicle are not coextensive with his or her own, and explicitly tells the policyholder what those limits are. 

Dominguez next argued that the permissive user coverage was not plain and clear because the policy referenced California's "Financial Responsibility Law" which required the policyholder to look outside the terms of the Policy to determine what restricted policy coverage limits applied and used the undefined term "permissive user."  The Court of Appeal rejected Dominguez' argument, finding that the policyholder did not need to go outside the document to determine the extent of coverage, because the insuring agreement set forth the state mandatory minimum limits of coverage of $15,000/$30,000 for permissive users of the insured vehicle. 

The Court of Appeal also distinguished the case of Haynes v. Farmers Ins. Exchange (2004) 32 Cal.4th 1198, which held that a policy's permissive user coverage limitation was unenforceable where the policy did not define the term "permissive user" in combination with confusing language surrounding and introducing the permissive user limitation and confusing cross-references to other insurance policies that the insured did not possess.  The Court of Appeal found that, unlike Haynes, the minimum limits were conspicuous.  The Court of Appeal also found that even though the Policy did not define the term "permissive user," a reasonable insured, aware of the coverage reduction language in the Policy, would likely conclude that anyone operating the insured vehicle, other than the insured, would be limited to coverage of $15,000/$30,000 for bodily injury. 

The Dissent stated that even though the Policy before the Court was better written than the policy at issue in Haynes, the language of the Policy was still not sufficiently plain and clear, and therefore, the Policy should be unenforceable.

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This opinion is not final.  Though it has been certified for publication, it may be modified on rehearing, or granted review by the Supreme Court of the State of California.  Should any of these events occur, the opinion would be unavailable for use as authority in other cases.

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Aaron P. Rudin
Christopher R. Wagner