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December 2011

George v. Automobile Club of Southern California ? Insurer Not Required to Pay Policy Limit in the Event of a Total Loss of Insured Vehicle

An Automobile Insurance Policy That States a Limit of Liability for Physical Damage Coverage Is Not a "Valued Policy" under California Insurance Code Section 412

(December 12, 2011) __ Cal.App.4th __; 11 C.D.O.S. 14914

The California Court of Appeal, Second Appellate District, affirmed a trial court's order sustaining an insurer's demurrer to a class-action complaint, which alleged an auto policy required the insurer to pay the policy limit in the event of a total loss of the insured vehicle, without regard to the fair market value of the vehicle at the time of the loss.  The Court held the policy was unambiguous in stating the insurer would pay "Actual Cash Value" ("ACV") -- up to $25,000 -- in the event of a total loss.  This policy limit was not an agreement to value the vehicle at $25,000, as the insured contended.  The insured's extrinsic-evidence allegations were insufficient to show the parties intended the insurer to pay $25,000 in the event of a total loss of the vehicle.

In December 2007, Plaintiff insured obtained an auto policy from Defendant Interinsurance Exchange of the Automobile Club.  The declarations page stated the "physical damage" liability limits as ACV "unless otherwise stated, less deductible."  The policy provisions specified the limits for total loss as "the actual cash value up to the limit stated in the declarations for that automobile." 

Plaintiff sustained a total loss when the insured vehicle was stolen and not recovered.  The insurer determined the ACV of the vehicle was $13,227 at the time of loss, and paid that amount (less a $250 deductible).  Plaintiff filed a class action complaint alleging the insurer identified a specified amount as an insured vehicle's ACV (in this case, $25,000) in its policies, but only pays the fair market value of the vehicle in the event of a total loss.  He alleged that, by defining the ACV of the insured vehicle as a specific dollar amount, the policy was a "valued policy" within the meaning of California Insurance Code section 412.  Plaintiff further alleged that parol-evidence concerning the insurer's inspection of the vehicle and the calculations of premiums based on the vehicle's value rendered the policy ambiguous.  Based on these allegations, Plaintiff alleged breach of contract and "bad faith," fraud, violation of Section 17200 of California's Business and Professions Code, and rescission based on unilateral mistake.

The trial court sustained the insurer's demurrer, without leave to amend.  After considering the parol-evidence as alleged in the complaint, the court held the contract "was clear on its face that the limit on insurer liability is the actual cash value of the vehicle unless otherwise stated."

The Court of Appeal affirmed the judgment.  The Court held the declarations page, when interpreted in the context of the entire policy, unambiguously provided that the policy would pay actual cash value up to $25,000, less the deductible, in the event of a total loss.  The Court held Plaintiff's interpretation of the policy would render the operative provisions of the policy nonsensical and also render meaningless the provision of the policy in which the parties agreed, in case of a total loss, to appraisal procedures for establishing the amount of loss.

In reaching its holding, the Court engaged in a detailed analysis of the rules governing a court's consideration of a parol-evidence when ruling on a demurrer.  The Court explained that a trial court must provisionally considered a party's parol-evidence allegations, but unless those allegations would support an interpretation to which the policy is reasonably susceptible, a demurrer is properly sustained.  In this case, the trial court considered the insured's parol-evidence allegations and correctly determined they were insufficient as a matter of law to show the parties intended the insurer to pay out $25,000 in the event of a total loss.  Where the insurance contract is not reasonably susceptible to the meaning alleged in the complaint, it is proper to sustain a demurrer without leave to amend. 

For the same reasons as those discussed above, the Court also held the trial court properly sustained the demurrer to the remaining causes of action.

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This opinion is not final.  It may be withdrawn from publication, modified on rehearing, or review may be granted by the California Supreme Court.  These events would render the opinion unavailable for use as legal authority.

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Jordan S. Altura