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November 2011

Palp, Inc. v. Williamsburg Nat. Ins. Co. ? Insurer Not Relieved Of Its Duty To Defend By The Mechanical Device Exclusion

"Mechanical Device" Exclusion Applies Only Where Movement Of Property Was In Relation To The Covered Automobile

(October 27, 2011) ___ Cal.App.4th ___; 11 C.D.O.S. G043956

The California Court of Appeal, Fourth Appellate District, Division Three, reversed summary judgment in favor of insurer based on the "mechanical device" exclusion in a commercial lines policy for truckers.  The Court of Appeal refused to interpret the exclusion so broadly as to apply it to bodily injury or property damage resulting from the movement of property that had nothing to do with the loading or unloading of the covered automobile.

REH Trucking, Inc. was hired by Palp, Inc. d/b/a Excel Paving to provide hauling services at Excel's parking lot demolition jobsite.  On July 23, 2007, an Excel employee finished loading an REH-owned dump truck driven by an REH employee with broken pieces of asphalt.  Before the REH employee could drive away, the empty bucket at the end of the boom arm of an excavator struck the cab of the dump truck, injuring the REH employee and damaging the dump truck.  The excavator was operated by another Excel employee who was not involved in loading the REH dump truck.  The REH employee subsequently sued Excel.

At the time, Excel was insured under a CGL policy issued by Virginia Surety.  Excel was also an additional insured under a commercial lines automobile/trucker's insurance issued by Williamsburg National Ins. Co. to REH, as the named insured.  Under the terms of the blanket additional insured endorsement to the Williamsburg policy, coverage for Excel was not limited to its vicarious liability for the negligence of REH, but also included coverage for Excel's own negligence.

Excel tendered the REH employee's lawsuit to Virginia Surety and Williamsburg.  Virginia Surety accepted the tender without a reservation of rights. 

Williamsburg declined the tender based the "mechanical device" exclusion which excluded coverage for bodily injury or property damage "resulting from the movement of property by a mechanical device (other than a hand truck) unless the device is attached to the covered 'auto.'"  Williamsburg concluded the exclusion eliminated any potential for coverage under its policy because the accident resulted from the movement of property by a non-attached device.

Virginia Surety paid all defense costs and eventually settled the claim.  It then, along with Excel, sued Williamsburg, asserting causes of action for declaratory relief, breach of contract, bad faith, equitable indemnity and equitable contribution.

Williamsburg moved for summary judgment, relying on the mechanical device exclusion.  Williamsburg argued exclusion was clear and unambiguous on its face and there is no requirement that the movement of the property have anything to do with the loading or unloading of the covered auto.  The trial court granted Williamsburg's motion.

The Court of Appeal reversed.  It first concluded Excel met its burden by showing its claim came within the Williamsburg policy.  It then turned to the issue of whether Williamsburg met its burden of showing the mechanical device exclusion applied to preclude coverage.

The Court of Appeal disagreed with Williamsburg's interpretation of the mechanical device exclusion as too broad.  Such a construction could lead to the exclusion of coverage for "the most random of acts simply because a mechanical device that was moving property was involved."  Instead, the Court of Appeal interpreted the exclusion narrowly and in accordance with the reasonable expectations of an insured.  In doing so, the Court of Appeal concluded the movement of property must be in relation to the covered auto – i.e., moving property to or from the covered auto by a mechanical device not attached to the covered auto – in order for the exclusion to apply.

While there are no reported California cases considering the mechanical device exclusion, the Court of Appeal acknowledged "numerous" decisions from other jurisdictions enforcing the exclusion.  The Court of Appeal noted that in every instance, the exclusion was applied in the context of the movement of property in relation to the covered auto, specifically, the loading or unloading of the covered auto.  Here, the movement of property bore no relationship to the REH dump truck.  Accordingly, there was coverage for the accident under the Williamsburg policy and summary judgment in Williamsburg's favor was improper.

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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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Trucking & Transportation

David C. Capell

Trucking & Transportation