If Your Have no Rights You Have Nothing to Assign

Policy Expires If Premium Not Paid

One month auto policies are issued to people who are high risks or who cannot afford a longer term. It allows them to comply with the statutes that require insurance to register an auto or be licensed to drive in California and are seldom renewed.  William Olivas purchased a one month policy, did pay the premium for a second month of coverage only to get into an auto accident the day after expiration.

After obtaining a $35,000,643 default judgment against William Olivas, Richard V. Forrest gambled that he could collect the judgment from the insurer for Olivas who refused to defend or indemnify Olivas because the policy expired. In Richard V. Forrest v. Hawaiian Insurance & Guaranty Company, B190677, Court Of Appeal Of The State Of California Second Appellate District Division Five (September 14, 2018) Forrest appealed from the grant of summary judgment in favor of Hawaiian Insurance & Guaranty Company (Hawaiian).

FACTS

Forrest was involved in a car accident with Hawaiian’s alleged insured, William Olivas. Hawaiian refused to defend Olivas on the basis that his monthly auto liability insurance policy lapsed on January 10, 2004 — one day before the accident occurred.

On August 5, 2015, Forrest filed the operative complaint, asserting causes of action against Hawaiian, SCJ Insurance Services (SCJ), Prompt Insurance Services (Prompt), Paul Ruelas, and Anthony Medina. As relevant here, the complaint alleged six causes of action against Hawaiian.

The complaint alleged that in June 2002, Hawaiian entered into a Producer Agreement with SCJ, which authorized SCJ to act as Hawaiian’s managing agent to contract with subproducers to solicit insurance policies. SCJ was prohibited from assigning or delegating binding authority to any subproducer under the agreement. SCJ had entered into an agreement with Paul Ruelas, the executive officer of Prompt. Per the agreement, Prompt could sell certain auto liability insurance policies of various insurers as an independent contractor. Prompt was required to sell any given policy in accordance with the underwriting guidelines and procedures of SCJ and the particular insurance company.

Olivas met with Ruelas to purchase auto liability insurance. At the meeting, Olivas paid Prompt $384 and executed an agreement appointing Prompt as his broker and granting Prompt limited power of attorney to execute insurance transactions on his behalf. At that time, Ruelas did not have a valid license to conduct insurance business in the state of California.

On December 10, 2003 Hawaiian issued a personal auto policy and temporary insurance identification card to Olivas the same day. The complaint contends the Hawaiian policy was a quarterly insurance policy. The policy, which is attached as an exhibit to the complaint, stated that coverage was “[e]ffective 12/10/03 at 12:01 am” and “[e]xpires 1/10/04 12:01 am.” The policy was set to be “continuous based on premium being paid when due,” and was “provided only for the specific coverages listed and charged for here.” It had a personal injury limit of $15,000. The temporary identification card also reflected coverage from December 10, 2003 to January 10, 2004.

The offer also stated, “There is no grace period and this is the only notice you will receive. A partial payment will not renew your policy. You must pay the full $210.00 by 01/10/04. [¶] If your policy lapses, it may be reinstated with a lapse in coverage, if your $210.00 is received at SCJ by 02/09/04. Coverage will begin again at 12:01 a.m. . . . on the day your payment is received at SCJ.”

On January 11, 2004, Olivas and Forrest were involved in an automobile accident. On March 15, 2004, Forrest filed suit against Olivas in Orange County Superior Court. Olivas tendered to Hawaiian, and Hawaiian denied Olivas a defense under the policy. A final default judgment was entered against Olivas in favor of Forrest for $35,000,643. Olivas assigned all of his rights as insured against Hawaiian, SCJ, Prompt, Ruelas, and Medina to Forrest, who then sued the many defendants.

Forrest’s claims against Hawaiian are based on his allegation that the insurer wrongfully denied coverage. Hawaiian filed a motion for summary judgment, or in the alternative, summary adjudication.  Forrest offered no evidence to contradict Hawaiian’s assertion that Olivas was issued a one-month policy effective December 10, 2003 to January 10, 2004. The policy expired by its own express terms on January 10 because Olivas failed to make a renewal premium payment in full prior to the expiration. Therefore, at the time of the accident, Olivas did not have insurance coverage with Hawaiian. Olivas failed to make a payment until the day after the accident, causing a lapse in insurance coverage at the time of the accident.

The policy provided that “[a]n insurance broker cannot change the terms of the policy.”

Forrest filed an opposition to the motion for summary judgment. Among other evidence, Forrest submitted Olivas’s declaration that he was rejected by a different insurer before his broker placed the one month policy with Hawaiian.

As Hawaiian’s only California agent, SCJ was expressly precluded from delegating any of its authority to a subproducer. There was no evidence from which an objectively reasonable person could believe that Hawaiian might have held Prompt or Ruelas out as an agent.

DISCUSSION

Forrest’s argument about coverage dates cannot overcome the plain language of the policy provided to him by Hawaiian with respect to the coverage dates of December 10, 2003 to January 10, 2004, nor Olivas’s testimony that he was told and believed that he was already covered as of December 9, 2003.

An insurer, as a principal, may be vicariously liable for the torts of its agent if the insurer directed or authorized the agent to perform the tortious acts, or if it ratifies acts it did not originally authorize. An agency is actual when the agent is really employed by the principal.

The Producer Agreement between Hawaiian and SCJ prohibited SCJ from assigning or delegating binding authority to a subproducer or third party. Ruelas’s unlicensed status triggered the proviso in the 1998 agreement mandating automatic termination.

Ostensible agency arises where the insurer intentionally or carelessly causes a third person to believe someone who is not really employed by the insurer is its agent. Ostensible agency cannot be established by the representations or conduct of the purported agent; the statements or acts of the principal must be such as to cause the belief the agency exists.

There is no evidence in this case that Hawaiian held Prompt or Ruelas out as an agent. Hawaiian’s only representations to Olivas, made through the initial policy, temporary insurance identification cards, and renewal offer were wholly inconsistent with Ruelas’s representations.

The policy and identification cards refer to Prompt as Olivas’s “broker.” A broker has no binding authority, transacts insurance with but not on behalf of the insurer, and is, as a matter of law, not a general agent for the insurer. Because Forrest made no showing that Hawaiian declared or acted in such a way that Olivas could reasonably believe an agency relationship existed, he failed to raise a triable issue of material fact as to whether Ruelas was an ostensible agent.

Hawaiian’s insurance policy clearly stated that failure to make a full premium payment by January 10, 2004 would result in a lapse in the policy. The documents Olivas received consistently reflect the policy and make clear there are no grace periods on making premium payments. With no knowledge of the additional $32 that Olivas deposited with Ruelas, Hawaiian could not knowingly waive its right under the policy. To the contrary, the evidence is consistent with Hawaiian’s intent to enforce the requirement that Olivas make full premium payments on time to extend coverage.

ZALMA OPINION

Olivas complied with the statute on the date he acquired the policy and let the policy expire. Insurance policies are contracts whose clear and unambiguous language must be enforced as written. Here, the policy issued to Olivas was for a one month period and expired by its terms before the accident. The more than $35 million judgment – by the decision of the Court of Appeal – became nothing more than wall paper and the gamble taken by Forrest was lost.


© 2018 – Barry Zalma

This article, and all of the blog posts on this site, digest and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

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About Barry Zalma

An insurance coverage and claims handling author, consultant and expert witness with more than 48 years of practical and court room experience.
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