COURT DECISIONS

Rough Notes, Oct 2007

INSURANCE-RELATED COURT CASES

Digested from case reports published in Westlaw, West Publishing Co., St. Paul, MN

Failure to transfer title triggers coverage dispute

Theresa Dassinger owned a 1993 Mazda automobile that she insured with State Farm Mutual Automobile Insurance Company. In March 2003, Dassinger gave the car to her son, Timothy. However, she never transferred the title. The State Farm policy was in effect at that time, with an expiration date of August 31, 2003.

On March 17, 2003, Progressive American Insurance Company issued an automobile policy covering the Mazda to Timothy and his then girlfriend, Tami Phillips. The Progressive policy was in effect for six months. The terms of the State Farm and Progressive policies were virtually identical. They both had bodily injury and property damage liability coverage with limits of $100,000 per person and $300,000 per accident. They both had collision coverage as well.

On May 8, Tami Phillips was driving the Mazda when she was involved in an accident with James Stokely. Stokely was injured, his vehicle was damaged, and there was damage to the Mazda. After they learned of the accident, State Farm and Progressive agreed informally to share responsibility for the claims.

Pursuant to the agreement between Progressive and State Farm, Progressive paid $3,201.25 for collision damage to the Mazda as well as Timothy's $240 in car rental costs. It also paid $3,792.81 to the owner of the Stokely vehicle for damage to the vehicle. State Farm paid Progressive $1,896.41, one-half of the amount paid to the owner of the Stokely vehicle. Timothy paid the $250 deductible. After fulfilling its obligations under the agreement, Progressive learned that Theresa Dassinger had never transferred the title to the Mazda.

On March 22, 2005, Progressive filed a lawsuit against State Farm seeking $7,484.06 in restitution costs. It also asked the court to declare that Theresa was the owner of the Mazda at the time of the accident, that the State Farm policy provided primary coverage for all claims arising out of the accident, and that the Progressive policy provided excess coverage for all claims arising out of the accident. State Farm sought a declaration that the Progressive policy provided primary coverage, or that it at least shared a pro rata obligation. State Farm also asked the court to declare that the State Farm policy provided excess coverage.

The trial court found that only the Progressive policy provided liability and collision coverage for the Mazda at the time of the accident. Accordingly, it ordered regressive to repay the amount State Farm had paid Progressive pursuant to the agreement. Progressive appealed.

The Court of Appeals of North Carolina reversed the decision of the lower court. While it did agree with the lower court that Theresa, not Timothy, owned the car at the time of the accident, it found that Theresa's State Farm policy did not automatically terminate at the time the Progressive policy was issued. The State Farm policy contained an automatic termination clause that provided: "If you obtain other insurance on your covered auto, any similar insurance provided by this policy will terminate as to that auto on the effective date of the other insurance."

"You" was defined as the "named insured" shown in the declarations. "Your covered auto" was denned as "any vehicle shown in the declarations." The court reasoned that because the State Farm policy and the Progressive policy were procured by different persons, the State Farm policy did not automatically terminate on March 17, 2003.

With regard to liability coverage, both the State Farm and Progressive policies contained the following "Other Insurance" clauses: "If there is other applicable liability insurance we will pay only our share of the loss. Our share is the proportion that our limit of liability bears to the total of all applicable limits. However, any insurance we provide for a vehicle you do not own shall be excess over any other collectible insurance."

Because Timothy did not own the Mazda at the time of the accident, Progressive's liability coverage was excess. The State Farm policy was "other collectible insurance." Therefore the State Farm policy provided primary liability coverage, and the Progressive policy's liability coverage was excess.

With regard to collision coverage, both insurers agreed to "pay for direct and accidental loss to your covered auto or any non-owned auto, including their equipment." Both policies also contained "Other Insurance" clauses that provided: "If other insurance also covers the loss we will pay only our share of the loss. Our share is the proportion that our limit of liability bears to the total of all applicable limits. However, any insurance we provide with respect to a non-owned auto shall be excess over any other collectible insurance."

"Non-owned auto" was denned in relevant part as a vehicle "owned by or furnished or available for the regular use of you or any family member while in the custody of or being operated by you or any family member." Under this definition, the Mazda was not a "nonowned auto." Thus, the court found that State Farm and Progressive were to share pro rata the cost of damages to the Mazda.