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The Rough Notes Company Inc.

Nice try, but no cigar

Nice try, but no cigar

May 28
07:19 2019

Nice try, but no cigar

Donald Ardoin filed suit on December 15, 2014, alleging that he was injured in an accident that occurred when Cynthia Price failed to stop the vehicle she was driving behind him at a stop sign. Price was driving a vehicle owned by Southern Chevrolet Cadillac, Inc., that it lent her while it repaired her vehicle. Ardoin named Price and State Farm Mutual Automobile Insurance Company, her insurer, as defendants.

Price filed a third-party demand against Southern Chevrolet’s insurer, Federated Mutual Insurance Company, alleging that under the terms of the policy’s garage liability provisions, Federated was obligated to defend her and provide her liability coverage.

State Farm sought a declaratory judgment that Federated was obligated to provide Price a defense and liability coverage for Ardoin’s claim. Price filed a memorandum supporting State Farm’s request for declaratory judgment. Federated then filed a motion for summary judgment, asserting that State Farm’s motion for declaratory judgment should be dismissed because Federated’s policy did not provide liability coverage for Price.

On April 16, 2018, the court denied State Farm’s request for declaratory judgment and granted Federated’s motion for summary judgment. Price and State Farm appealed.

In their first two assignments of error, State Farm and Price argued that the trial court erred in determining that Federated’s policy did not provide coverage for Price. Their claims were based on the following provisions in Federated’s policy:

SECTION II—LIABILITY COVERAGE

  1. Coverage

….

  1. “Garage Operations”—Covered “Autos”

We will pay all sums an “insured” legally must pay as damages because of “bodily injury” or “property damage” to which this insurance applies, caused by an “accident” and resulting from “garage operations” involving the ownership, maintenance or use of covered “autos”.

….

  1. Who Is An Insured
  2. The following are “insureds” for covered “autos”:

(1) You for any covered “auto”.

(2) Anyone else while using with your permission a covered “auto” you own, hire or borrow except:

….

(d) Your customers. However, if a customer of yours:

(i)  Has no other available insurance(whether primary, excess or contingent),they are an “insured” but only up to the compulsory or financial responsibility law limits where the covered “auto” is principally garaged.

(ii) Has other available insurance (whether primary, excess or contingent) less than the compulsory or financial responsibility law limits where the covered “auto” is principally garaged, they are an “insured” only for the amount by which the compulsory or financial responsibility law limits exceed the limit of their other insurance.

The court noted that the Louisiana compulsory liability insurance law requires only that policies provide liability coverage to the named insured and any other person driving a covered auto with the permission of the named insured.

In their third assignment of error, State Farm and Price argued that Federated’s policy contravened a state law that requires liability policies to provide coverage for persons driving vehicles with the owner’s permission, and another law that requires full coverage for insureds and permissive operators. They argued that because Federated’s “policy provided $500,000 in liability coverage for accidents caused by permissive operators of vehicles owned by Southern Chevrolet” but provided limited coverage for customers who are permissive operators only if they do not otherwise have state minimum liability coverage, it violated these two provisions of the law.

The court held that the dealership’s policy unambiguously excluded Price from coverage; that the policy did not conflict with the state’s Motor Vehicle Safety Responsibility Law; and that a provision of the state insurance code that requires that all permissive users covered under a policy be provided the same amount of coverage did not apply to Price’s claims against Federated. The judgment of the trial court was affirmed.

Donald Paul Ardoin v. State Farm Mutual Automobile Insurance Company-Court of Appeals of Louisiana, Third Circuit-December 6, 2018-No. 18-582 and No.18-143.

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