Supreme Court of California Justia
Citation 46 Cal. 4th 204, 205 P.3d 1084, 92 Cal. Rptr. 3d 639

Sentry Select Ins. v. Fidelity & Guaranty Ins.

Filed 5/4/09

IN THE SUPREME COURT OF CALIFORNIA

SENTRY SELECT INSURANCE
COMPANY,
S145087
Plaintiff and Petitioner, )
Ninth
Cir.Ct.App.
No.
04-56265
v.
FIDELITY & GUARANTY ) U.S.
Dist.Ct.
INSURANCE COMPANY,
No. CV-02-01055 LSP
)

Defendant and Respondent.

Pursuant to rule 8.548 of the California Rules of Court, we granted the
request of the United States Court of Appeals for the Ninth Circuit to address the
following question: What is the appropriate test for determining whether an
insured is “engaged in the business of renting or leasing motor vehicles without
operators” under California Insurance Code, section 11580.9, subdivision (b)?1
Under the version of Insurance Code section 11580.9, subdivision (b)
(former subdivision (b))2 controlling in this case, if a leased commercial vehicle is

1
Citations to five appellate court decisions that have construed the statutory
language in question were included in the Ninth Circuit’s order: Travelers
Indemnity Co. v. Maryland Casualty Co.
(1996) 41 Cal.App.4th 1538, 1546-1547;
Western Carriers Ins. Exchange v. Pacific Ins. Co. (1989) 211 Cal.App.3d 112,
116-117; Mission Ins. Co. v. Hartford Accident & Indemnity Co. (1984) 160
Cal.App.3d 97, 101; McCall v. Great American Ins. Co. (1981) 119 Cal.App.3d
993, 998; and Transport Indemnity Co. v. Alo (1981) 118 Cal.App.3d 143, 148.
2
All further statutory references are to the Insurance Code.
1


involved in an accident with one or more other vehicles, and its owner, the
insured, is “engaged in the business of renting or leasing motor vehicles without
operators,” then the insured’s policy is conclusively presumed to be excess to any
other insurance covering the loss. The rule is part of a statutory scheme intended
to establish workable, bright line rules for allocating loss among coinsurers in the
context of liability policies covering multiple-vehicle accidents. The public policy
behind section 11580.9 is to avoid conflicts, litigation, and resulting court
congestion in the determination of which liability policies covering multiple
vehicles in an accident will provide primary, excess, or sole coverage for the
resulting personal injury and property damage. (§ 11580.8.) It has further been
observed, “The purpose in shifting the risk of damage from the owner’s policy to
the commercial lessee’s policy recognizes the commercial reality that the
profitmaking lessee would be better able to absorb the expense of the policy as a
cost of doing business.” (Mission Ins. Co. v. Hartford Accident & Indemnity Co.,
supra, 160 Cal.App.3d at p. 102.)
Two of the appellate court decisions cited in the Ninth Circuit’s order —
Travelers Indemnity Co. v. Maryland Casualty Co., supra, 41 Cal.App.4th 1538
(Travelers), and McCall v. Great American Ins. Co., supra, 119 Cal.App.3d 993
(McCall) — hold that courts should look to the nature of the insured’s primary
business in determining whether the insured is “engaged in the business of renting
or leasing motor vehicles without operators” within the meaning of former
subdivision (b). The other three decisions — Western Carriers Ins. Exchange v.
Pacific Ins. Co., supra, 211 Cal.App.3d 112, Mission Ins. Co. v. Hartford Accident
& Indemnity Co., supra, 160 Cal.App.3d 97, and Transport Indemnity Co. v. Alo,
supra, 118 Cal.App.3d 143 — suggest the focus should be on the factual
circumstances surrounding the lease of the particular commercial vehicle involved
2
in the accident when making that determination. This court to date has not
rendered a decision interpreting the disputed former statutory language.
In August 2006, one month after the Ninth Circuit requested this court to
clarify the test for determining whether an insured is “engaged in the business of
renting or leasing motor vehicles without operators” under former subdivision (b),
the Legislature amended the statute, deleting the language with which we are here
concerned and replacing it with the phrase “who in the course of his or her
business rents or leases motor vehicles without operators.” (§ 11580.9, subd. (b).)
(Stats. 2006, ch. 345, § 1.) This amendment of the statutory language eliminates
any ambiguity as to whether the leasing of commercial vehicles must be “a regular
part of the insured’s business” (see Travelers, supra, 41 Cal.App.4th at p. 1546) in
order for the conclusive presumption to apply under the amended language.
Section 11580.9, subdivision (b), now clearly provides that the renting or leasing
of commercial vehicles without operators in the course of any business can qualify
for the conclusive presumption that the insured’s coverage is excess, where all the
statutory requirements are otherwise met.
As a result of the Legislature’s amendment in 2006 of the very language in
former subdivision (b) that the Ninth Circuit has asked us to construe, our
interpretation of the deleted language would be of limited precedential value. Nor
is a definitive construction of the former statutory language necessary to resolve
this matter. The insured lessor below, John’s Trucking, Inc. (JTI), routinely leased
nearly three quarters of its commercial fleet of trailers to independent truckers
with whom it contracted for hauling jobs. The lease in question was a business
transaction through which JTI received compensation for the lease of two trailers
to the lessee, independent trucker Richard Justice (Justice), who in turn made a
profit from their use. Such leasing activity cannot within reason be viewed as
“merely incidental” to JTI’s hauling business. (Travelers, supra, 41 Cal.App.4th
3
at p. 1547.) We conclude that JTI’s leasing of the commercial trailers in question
plainly qualified under former subdivision (b) for the conclusive presumption that
its policy was excess to other insurance covering the loss.
FACTUAL AND PROCEDURAL BACKGROUND
In May 1999, Justice, an independent trucker, was involved in a collision in
the City of San Diego with a vehicle driven by April Russo, in which her mother,
Patricia Nila, was a passenger. Justice was driving his Peterbilt tractor while
pulling two semi-trailers owned by the insured, JTI, pursuant to a subhaul
agreement. Russo and Nila brought personal injury actions against Justice and
JTI. JTI successfully moved for summary judgment. The John Deere Insurance
Company (John Deere), which insured Justice and was an undisputed primary
insurer, eventually settled the personal injury actions on his behalf for $600,000,
which was less than the policy limits. Thereafter, Sentry Select Insurance
Company (Sentry) became John Deere’s successor in interest, and was assigned
any rights or claims that might be due and owing to John Deere from JTI’s insurer,
Fidelity & Guaranty Insurance Company (Fidelity), in connection with the
litigation. Sentry then brought this diversity action against Fidelity in the United
States District Court for the Southern District of California, alleging causes of
action for contribution, implied equitable indemnity, and implied contractual
indemnity.
Sentry’s claims turn on the question whether the insured JTI’s lease of the
two semi-trailers to Justice is a lease of qualifying commercial vehicles within the
meaning of former subdivision (b), which in turn depends on whether JTI was
“engaged in the business of renting or leasing motor vehicles without operators,”
the statutory language in effect at that time. If former subdivision (b) is found
applicable to JTI’s business and lease of the two semi-trailers to Justice, any
4
coverage for the loss afforded through JTI’s Fidelity policy would conclusively be
presumed excess to any coverage afforded under the John Deere policy insuring
Justice’s tractor. Since John Deere settled the third party claims against Justice for
less than its policy limits, no contribution or indemnity would be owed by Fidelity
to Sentry (as John Deere’s successor in interest) if the statutory presumption
applies.
JTI’s Business and Insurance Coverage
JTI is a carrier company that usually performs its hauling contracts by
subcontracting with independent truckers, although it owns a fleet of tractors and
trailers. In 1999, the year of the accident in question, JTI owned 12 tractors,
sometimes commonly referred to as “power units,” and 80 trailers, sometimes
referred to as “semi-trailers” when doubled up for towing behind a power unit.
Each tractor is designed to pull two trailers. Accordingly, JTI utilized up to 12
tractors and 24 paired trailers, employing its own drivers for those rigs. It
routinely leased the remaining 56 trailers to independent contractors pursuant to a
standard trailer lease agreement, such as the one executed by Justice and JTI
below. During 1999, JTI had approximately 70 active subhaul agreements with
various independent contractors it used on a regular basis. Under those
agreements, the independent contractors received 95 percent of the fee JTI charged
its customers for jobs undertaken while using their own trailers, but only 75
percent if they leased trailers from JTI. Put differently, JTI charged the
independent truckers 20% percent of the fee earned on a hauling job for the lease
of its trailers. JTI’s gross income from trailer rentals to independent contractors
during the year in question was nearly $650,000. JTI did not lease its trailers to
the general public.
Fidelity insured JTI under a comprehensive general liability policy that
specifically described and rated the two trailers owned by JTI and leased to Justice
5
as “covered” vehicles. Justice was not named as an additional insured, nor was his
self-owned Peterbilt tractor mentioned or rated under JTI’s policy. The policy
also contained an “other insurance” clause, which provided that “while a covered
‘auto’ which is a ‘trailer’ is connected to another vehicle, the liability coverage
this Coverage Form provides for the ‘trailer’ is: . . . [¶] (1) Excess while it is
connected to a motor vehicle you [i.e., JTI] do not own. . . . (2) Primary while it is
connected to a covered ‘auto’ you own.”
Justice’s Business and Insurance Coverage
Justice is an independent contractor-subhauler who regularly subcontracted
with JTI for hauling jobs at the time of the accident. He owned his own tractor but
no trailers, and routinely leased two semi-trailers from JTI to perform jobs under
their subhaul agreement. That subhaul agreement provided, in part, that “Carrier
[JTI] shall have no control over the persons or operations of equipment used or
employed by Subhauler [Justice] in providing services under the Agreement.” The
trailer lease agreement executed with JTI under which Justice was also operating
provided, in part, that “During the term of this Trailer Lease Agreement lessee
[Justice] shall have sole possession, custody and control of the trailing equipment
at all times.” Pursuant to that lease agreement, JTI furnished Justice with the two
1979 Fruehauf semi-trailers, license nos. 1UA6363 and 1UA6364, which he used
almost exclusively to perform jobs for JTI under the subhaul agreement, with the
exception of five or six days when the trailers were being serviced and different
ones were provided by JTI. The record further reflects that Justice’s trucking
business was separate and distinct from JTI’s operations, that he was not an
employee of JTI, that he operated under his own motor carrier license, and that he
independently realized a profit from his business.
John Deere insured Justice under a comprehensive general liability policy
with a $750,000 limit and effective dates covering the period of the underlying
6
accident. The policy specifically described and rated Justice’s 1987 Peterbilt
tractor in its “Schedule of Covered Autos.” Pursuant to an endorsement, JTI was
also named as an additional insured. The two Fruehauf semi-trailers owned by JTI
and leased to Justice were neither mentioned nor rated under Justice’s policy.
Sentry later became John Deere’s successor in interest.
The District Court’s Holding
As noted, under former subdivision (b), if a leased commercial vehicle is
involved in an accident with one or more vehicles, and the insured owner of that
vehicle is “engaged in the business of renting or leasing motor vehicles without
operators,” the insured’s policy is conclusively presumed to be excess to any other
insurance covering the loss. The district court acknowledged the two semi-trailers
leased to Justice by JTI qualified as “commercial vehicles” under former
subdivision (b), but nonetheless concluded JTI was not “engaged in the business
of renting or leasing motor vehicles without operators” within the meaning of
former subdivision (b), and on that basis ruled that the statute’s conclusive
presumption did not apply to make Fidelity’s coverage for JTI “excess” to the
coverage under Justice’s John Deere/Sentry policy, which named JTI as an
additional insured.3
JTI’s insurer Fidelity appealed. The Ninth Circuit thereafter issued its
order requesting this court to answer the question of statutory interpretation
regarding the language of former subdivision (b).

3
The district court went on to grant Sentry’s summary judgment motion,
ruling that because former subdivision (b) did not apply on these facts, a different
provision, subdivision (d), controlled, making both policies primary and requiring
both insurers to share the loss.
7


DISCUSSION
Former subdivision (b) provided: “(b) Where two or more policies apply to
the same loss, and one policy affords coverage to a named insured engaged in the
business of renting or leasing motor vehicles without operators, it shall be
conclusively presumed that the insurance afforded by that policy to a person other
than the named insured or his or her agent or employee, shall be excess over and
not concurrent with, any other valid and collectible insurance applicable to the
same loss covering the person as a named insured or as an additional insured under
a policy with limits at least equal to the financial responsibility requirements
specified in Section 16056 of the Vehicle Code. The presumption provided by this
subdivision shall apply only if, at the time of the loss, the involved motor vehicle
either: [¶] (1) Qualifies as a ‘commercial vehicle.’ For purposes of this
subdivision, ‘commercial vehicle’ means a type of vehicle subject to registration
or identification under the laws of this state and is one of the following: [¶] . . .
[¶] “(B) Designed, used, or maintained primarily for the transportation of
property. [¶] (2) Has been leased for a term of six months or longer.” (Italics
added.)
The decision interpreting the language of former subdivision (b) with facts
most akin to those before us is Travelers, supra, 41 Cal.App.4th 1538.
In Travelers, a moving and storage company contracted with an
independent contractor for moving jobs. The independent contractor was to use
his own tractor, and the insured moving company was to provide a suitable trailer
for his use. Under the terms of the contract, if the independent contractor provided
his own trailer, his commission would increase by 5 percent. At the time of the
accident, the trailer being towed was provided by the moving company, but the
independent contractor was not driving his own tractor because it was being
repaired. Instead, he was driving a tractor that the moving company had itself
8
leased from another company, Westrux International, Inc. (Westrux). “Westrux
would not lease a tractor to [the independent contractor] as an individual, so, with
[the insured moving company’s] consent, the tractor was provided to [the
independent contractor] through a general lease agreement between Westrux and
[the moving company].” (Travelers, supra, 41 Cal.App.4th at p. 1542.)
The Travelers court observed that in order for an insurer to receive the
benefit of former subdivision (b)’s conclusive presumption, “its insured must be
‘engaged in the business of renting or leasing motor vehicles without operators’
and the involved motor vehicle must be either a commercial vehicle or one leased
for at least six months. Both elements must be present in order for [former]
section 11580.9, subdivision (b) to apply.” (Travelers, supra, 41 Cal.App.4th at
p. 1545, fn. omitted.) In Travelers, as here, it was undisputed that the trailer
involved in the accident qualified as a “commercial vehicle,” thereby satisfying
the second prong of the test. (Ibid.)
The Travelers court went on to reason that “In order for an insured to be
‘engaged in the business of renting or leasing motor vehicles,’ renting or leasing
activities must be a regular part of the insured’s business. . . . However, limits on
the scope of the phrase ‘engaged in the business’ can be identified. Neither a
single lease of a motor vehicle, nor the occasional leasing of motor vehicles
incidental to a different business is sufficient. [Citations.] Were this not the case,
section 11580.9, subdivision (b) would apply to any rental of a commercial
vehicle, and the ‘engaged in the business of renting or leasing motor vehicles
without operators’ language of the subdivision would be rendered nugatory.”
(Travelers, supra, 41 Cal.App.4th at p. 1546, fn. omitted, first italics added.)
The Travelers court concluded that even if the arrangement whereby the
moving company provided trailers to its independent contractor subhaulers was a
lease, “such leasing activity was merely incidental to [the insured moving
9
company’s] primary business of moving and storage, such that [it] was not
‘engaged in the business of renting or leasing motor vehicles without operators’ as
a matter of law. [The moving company] did not rent or lease trailers to the general
public. Indeed, the only individuals who could lease trailers from [the moving
company] for use on the highway were independent contractor subhaulers with
whom [it] had entered into independent contractor agreements. Although [the
moving company] may have made a slight profit on the lease of these trailers, such
leases were wholly incidental to its business of moving and storage. If [the
company] had no moving and storage business for a subhauler, no trailer would be
leased. The concurrent leasing of a trailer in order to enable an independent
contractor to conduct subhauling work for [the company] cannot turn [its] moving
and storage business into a commercial vehicle rental operation. Therefore,
[former] section 11580.9, subdivision (b) does not apply.” (Travelers, supra, 41
Cal.App.4th at p. 1547, fn. omitted, italics added; see also McCall, supra, 119
Cal.App.3d at p. 998 [“the nature of the insured’s business, not the status of the
particular vehicle, determines which insurance policy is primary in a multipolicy
situation under Insurance Code section 11580.9”].)
The Travelers court’s conclusions are in conflict with earlier decisions
suggesting that whether the insured was “engaged in the business of renting or
leasing motor vehicles without operators” under former subdivision (b) should be
determined on a case-by-case basis, by looking to the particular factual
circumstances surrounding the lease of the commercial vehicle in question.
For example, in Western Carriers Ins. Exchange v. Pacific Ins. Co., supra,
211 Cal.App.3d 112 (Western Carriers), a trucking company used a farming
company’s trailers during cotton season, and the farming company used a set of
the trucking company’s tractors during melon season. There was an accident
when the trucking company was using its own tractor and the insured farming
10
company’s trailers. The court held that even though the transaction was simply a
“bargained exchange,” and did not involve the payment of money or a written
lease, the insured farming company was nonetheless engaged in the business of
leasing commercial vehicles within the meaning of the statute, and, therefore, its
policy was excess. (Id. at pp. 117-118.) The court reasoned that the trucking
company’s use of the insured’s trailers during the cotton season was
“unquestionably commercial” because the insured farming company had
reciprocal use of the trucking company’s tractor, and therefore “[t]he commercial
realities of the situation are sufficient to support the trial court’s invocation of the
conclusive presumption of subdivision (b) of section 11580.9.” (Western
Carriers, at p. 118.)
Similarly, in Mission Ins. Co. v. Hartford Accident & Indemnity Co., supra,
160 Cal.App.3d 97 (Mission Ins.), the insured construction company leased a
trailer to a transport company. The trailer was involved in an accident with a
motorcycle in which the motorcycle driver was killed. The construction company
leased trailers to the transport company several times a year, for a nominal fee that
covered “wear and tear” and reflected little profit. (Id. at p. 100.) “[T]he purpose
for the lease was merely an accommodation to other companies, which would in
turn lease trailers to [the construction company] when needed.” (Ibid.) The
practice was apparently common in the industry.
The Mission Ins. court concluded the construction company was in the
business of leasing the trailers for purposes of the conclusive presumption of
former subdivision (b), even though it did so only several times a year and derived
little or no profit from it. (Mission Ins., supra, 160 Cal.App.3d 97.) The court
reasoned, “The fact that the leasing arrangements were only a small part of [the
insured construction company’s] business is not determinative. If it can be
reasonably stated that the transaction involved was a commercial transaction, then
11
section 11580.9, subdivision (b) will apply. [Citation.] Even if [the insured
construction company] does not make a profit on the leasing of its trailers, that is
irrelevant. We look to the actual use of the trailers by [the transport company].
[Citation.] [The transport company] intended and did use the trailers for financial
gain, i.e., to fulfill a subhaul agreement to transport wood chips. [The transport
company’s] decision to lease the trailers from [the insured construction company]
was based on a profit motive. It therefore cannot be denied that, at least from [the
transport company’s] perspective, the leasing of the trailers was a commercial
transaction. Furthermore, [the insured construction company’s] decision to lease
the trailers to another trucking firm, albeit only at the cost of maintenance, was
also a commercial decision in every sense of the word. This accommodation was
insurance in the event [the construction company] was caught short and would
need to lease trailers from other firms. [The construction company’s] motive was
not charitable, but was designed to ensure profitability.” (Mission Ins., at pp. 101-
102.)
We need not, however, resolve the tension between the holding in
Travelers and the holdings in Western Carriers and Mission Ins. over the deleted
language of former subdivision (b) in order to furnish the Ninth Circuit with
sufficient guidance to correctly decide the matter before it.4 Even under the
holding in Travelers, the requirements of former subdivision (b) for applying the
conclusive presumption were plainly met. In 1999, the year in question, JTI
routinely leased 56 of the 80 trailers it owned to independent contractors pursuant
to a standard trailer lease agreement. Under the leases, the independent
contractors were charged 20% percent of the fee earned on a hauling job for the

4
This court is free to reframe the question asked by the federal court. (See
Cal. Rules of Court, rule 8.548(f)(5).)
12


lease of its trailers. JTI’s gross income from trailer rentals to independent
contractors during 1999 was nearly $650,000.
Given the facts of this case, JTI’s trailer leasing activities were
unquestionably “a regular part of [its trucking] business.” (Travelers, supra, 41
Cal.App.4th at p. 1546.) To the extent the Travelers decision suggests a leasing
arrrangement like the one in the present case, which is a regular and significant
part of the insured’s business activities, is “merely incidental” (id. at p. 1547) to
the main business of hauling because the trailer leases are entered into with the
hauling subcontractors themselves rather than “the general public” (ibid.), and
generate only a “slight profit” (Travelers, at p. 1547), we disagree with it, at least
where, as in the present case, substantial income is realized from the leasing
activity.
CONCLUSION
Under the conclusive presumption of former subdivision (b), Fidelity’s
policy of insurance issued to JTI for the semi-trailers leased to Justice that were
involved in the accident was excess to the John Deere/Sentry policy of insurance
issued to Justice naming JTI as an additional insured.
BAXTER, J.
WE CONCUR:

GEORGE, C.J.
KENNARD, J.
WERDEGAR, J.
CHIN, J.
MORENO, J.
CORRIGAN, J.
13


See next page for addresses and telephone numbers for counsel who argued in Supreme Court.

Name of Opinion Sentry Select Insurance Company v. Fidelity & Guaranty Insurance Company
__________________________________________________________________________________

Unpublished Opinion


Original Appeal
Original Proceeding XXX (on certification pursuant to rule 8.548, Cal. Rules of Court)
Review Granted
Rehearing Granted

__________________________________________________________________________________

Opinion No.

S145087
Date Filed: May 4, 2009
__________________________________________________________________________________

Court:


County:
Judge:


__________________________________________________________________________________

Attorneys for Appellant:

Higgs, Fletcher & Mack, John M. Morris; Schindel, Farman, Lipsius, Gardner & Rabinovich and Laurence
J. Rabinovich for Plaintiff and Petitioner.

__________________________________________________________________________________

Attorneys for Respondent:

Harrington, Foxx, Dubrow & Canter, Mark W. Flory and Michael C. Denlinger for Defendant and
Respondent.


Counsel who argued in Supreme Court (not intended for publication with opinion):

Laurence J. Rabinovich
Schindel, Farman, Lipsius, Gardner & Rabinovich
14 Penn Plaza, Suite 500
New York, NY 10122
(212) 563-1710

Mark W. Flory
Harrington, Foxx, Dubrow & Canter
1055 West Seventh Street, 29th Floor
Los Angeles, CA 90071-2547
(213) 489-3222


Document Outline

  • ��
  • ��
  • ��

Request under California Rules of Court, rule 29.8, that this court decide a question of California law presented in a matter pending in the United States Court of Appeals for the Ninth Circuit. The question presented is: "What is the appropriate test for determining whether an insured is 'engaged in the business of renting or leasing motor vehicles without operators' under California Insurance Code section 11580.9(b)? Compare Travelers Indem. Co. of Ill. v. Md. Cas. Co., 41 Cal.App.4th 1538, 1546-47 (1996), and McCall v. Great Am. Ins. Co., 119 Cal.App.3d 993, 998 (1981), with W. Carriers Ins. Exch. v. Pac. Inc. Co., 211 Cal.App.3d 112, 116-17 (1989), Mission Ins. Co. v. Hartford Accident & Indem. Co., 160 Cal.App.3d 97, 101 (1984), and Transp. Indem. Co. v. Robert Alo, 118 Cal.App.3d 143, 148 (1981)."

Opinion Information
Date:Citation:Docket Number:Category:Status:
Mon, 05/04/200946 Cal. 4th 204, 205 P.3d 1084, 92 Cal. Rptr. 3d 639S145087Question of Law - Civilclosed; remittitur issued

Parties
1Sentry Select Insurance Company (Plaintiff and Appellant)
Represented by William Albert Miller
Higgs Fletcher & Mack, LLP
401 West "A" Street, Suite 2600
San Diego, CA

2Sentry Select Insurance Company (Plaintiff and Appellant)
Represented by Laurence Rabinovich
Schindel, Farman & Lipsius, LLP
14 Penn Plaza, Suite 500
New York, NY

3Fidelity & Guaranty Insurance Company (Defendant and Appellant)
Represented by Mark W. Flory
Harrington, Foxx, Dubrow & Cantor, LLP
1055 W. Seventh Street, 29th Floor
Los Angeles, CA

4Fidelity & Guaranty Insurance Company (Defendant and Appellant)
Represented by Robert C. Carlson
Koeller Nebeker et al,. LLP
225 Broadway, Suite 2100
San Diego, CA

5United States Court Of Appeals For The Ninth Circuit (Overview party)
95 Seventh Street
San Francisco, CA 94103


Opinion Authors
OpinionJustice Marvin R. Baxter

Disposition
May 4 2009Opinion filed

Dockets
Jul 17 2006Request to answer question of state law filed
  By U.S. Court of Appeal, Ninth Circuit
Jul 17 2006Received:
  Record from U.S. Court of Appeal, 9th Cir. containing: court order, docket report case 04-56265, appellant Fidelity's brief, appellant Sentry's brief, appellant Fidelity's reply brief, appellant Fidelity's supplemental brief, appellant Sentry's supplemental brief.
Aug 23 2006Request for certification granted
  The request, made pursuant to California Rules of Court, rule 29.8, that this court decide a question of California law presented in a matter pending in the Ninth Circuit Court of Appeals is GRANTED. For the purposes of briefing and oral argument, plaintiff Sentry Select Insurance Company is deemed petitioner to this court. (Cal. Rules of Court, rule 29.1(a)(6).) Corrigan, J., was absent and did not participate. Votes: George, C.J., Kennard, Baxter, Werdegar, Chin, and Moreno, JJ.
Sep 22 2006Opening brief on the merits filed
  Sentry Select Insurance Co., plaintiff and appellant John Morris, Laurence Rabinovich, counsel
Oct 23 2006Answer brief on the merits filed
  Appellant, Fidelity & Guaranty Insurance Company attorney Mark W. Flory, retained
Nov 14 2006Reply brief filed (case fully briefed)
  Sentry Select Insurance Company, Plaintiff and Appellant John Morris and Laurence J. Rabinovich, counsel (CRC, rule 40.1 - Fed Ex)
Aug 7 2007Received:
  Supplemental Brief on the Merits Appellant Fidelity & Guaranty Insurance Company Attorney Mark W. Flory
Aug 9 2007Motion filed (non-AA)
  Leave to file Supplemental Brief Appellant Fidelity & Guaranty Insurance Company Attorney Mark W. Flory
Aug 17 2007Order filed
  Respondent's motion for permission to file a supplemental brief on the merits is hereby granted. A reply to the supplemental brief may be served and filed by appellant within ten days of the filing of the brief.
Aug 17 2007Supplemental brief filed
  Fidelity & Guaranty Insurance Company, Defendant and Respondent. Mark W. Flory, counsel
Aug 27 2007Supplemental brief filed
  Sentry Select Insurance Company, Plaintiff and Appellant John M. Morris, counsel **** Reply to respondent's supplemental brief ***
Jan 6 2009Case ordered on calendar
  to be argued on Tuesday, February 3, 2009, at 2:00 p.m., in Sacramento
Jan 16 2009Application to appear as counsel pro hac vice (granted case)
  Application filed by Luarence J. Rabinovich of New York, to appear on behalf of appellant Sentry Select Insurance Company. Filed with declarations.
Jan 16 2009Application to appear as counsel pro hac vice granted
  The application of Laurence J. Rabinovich (Bar Number 115267) of New York, New York for admission pro hac vice to appear on behalf of appellant Sentry Select Insurance Company is hereby granted. (See Cal. Rules of Court, rule 9.40.)
Feb 4 2009Cause argued and submitted
 
May 4 2009Opinion filed
  Opinion by: Baxter, J. .....Joined by: George, C.J.; Kennard, Werdegar, Chin, Moreno and Corrigan, JJ. Under the conclusive presumption of former subdivision (b), Fidelity's policy of insurance issued JTI for the semi-trailers leased to Justice that were involved in the accident was excess to the John Deere/Sentry policy of insurance issued to Justice naming JTI as an additional insured.
Jun 9 2009Letter sent to counsel: opinion now final
 

Briefs
Sep 22 2006Opening brief on the merits filed
 
Oct 23 2006Answer brief on the merits filed
 
Nov 14 2006Reply brief filed (case fully briefed)
 
If you'd like to submit a brief document to be included for this opinion, please submit an e-mail to the SCOCAL website
May 28, 2010
Annotated by siller

-Key Players-

John’s Trucking, Inc. (JTI). Carrier company. Routinely leased nearly three quarters of its fleet of trailers to independent truckers with whom it subcontracted out hauling jobs.

Richard Justice. (Justice). Trucker. More precisely, an independent contractor and subhauler. Profitably leased two trailers from JTI which he transported using a tractor he owned.

-Facts-

While driving his own tractor pulling two semi-trailers he had leased from JTI, Justice was involved in a collision with a vehicle operated by April Russo. Russo’s mother, Patricia Nila, was a passenger in the car. Russo and Nila sued Justice and JTI. Justice was insured by John Deere Insurance Company. JTI was insured by Fidelity & Guaranty Insurance Company. Justice was not named as an insured on JTI’s policy. In contrast, JTI was named as an insured on Justice’s policy.

John Deere settled with Russo and Nila on Justice’s behalf for $600,000, less than the policy’s limit. The claim against JTI was dismissed on summary judgment. Sentry Select Insurance Company became John Deere’s successor in interest and brought a diversity action for contribution, implied equitable indemnity, and implied contractual indemnity against Fidelity in the United States District Court for the Southern District of California.

-Procedural Posture-

The California Supreme Court granted a request from the United States Court of Appeals for the Ninth Circuit to offer an interpretation of a California statute. Clarification was needed because of contradictory interpretations in various California court opinions.

-Relevant Statutory Language-

The statutory language at issue in this case provided that if a leased commercial vehicle is involved in an accident with another vehicle and its owner is “engaged in the business of renting or leasing motor vehicles without operators,” then the owner’s insurance policy is conclusively presumed to be excess to any other insurance covering the loss.

-Question Presented-

What is the appropriate test for determining whether an insured is “engaged in the business of renting or leasing motor vehicles without operators” under California Insurance Code, section 11580.9, subdivision (b) as it was written prior to its amendment in August 2006? (N.B. that the Ninth Circuit requested an answer to this question so it could determine whether JTI's policy was excess or whether Fidelity was obligated to indemnify Sentry.)

-Holding-

JTI’s leasing of the commercial trailers at issue plainly qualified under former subdivision (b) for the conclusive presumption that its policy was excess to other insurance covering the loss. Consequently, JTI’s Fidelity policy for the semi-trailers it leased to Justice that were involved in the accident was excess to the Justice’s John Deere/Sentry policy that named JTI as an additional insured.

-Analysis-

The Court noted that the purposes of the statutory scheme were to set forth bright-line rules governing the allocation of loss among coinsurers in multiple-vehicle accidents and to minimize litigation and attendant burden on courts. The statute embodied a policy judgment that the lessee is in best position to absorb the expense of insurance as cost of doing business (i.e., it is the least cost avoider).

The Ninth Circuit sought guidance because of a split in the case law of how this provision was interpreted. Two cases (Travelers and McCall, linked to below) held that courts should consider the nature of the insured’s primary business to determine whether the insured is “engaged in the business of renting or leasing motor vehicles without operators” under the statute. Three other decisions (Western, Mission, and Transport, also linked to below) focused on the factual circumstances of the particular leased vehicle involved in an accident.

After the Ninth Circuit requested clarification from the Supreme Court of California, the Legislature amended the statute, replacing the language that is the focus of this decision with the phrase “who in the course of his or her business rents or leases motor vehicles without operators.” This eliminated the ambiguity which concerns the Court in this case, clarifying that the conclusive presumption that the lessor’s insurance is excess applies to any business that rents or leases commercial vehicles without operators.

The Court noted that there would be limited precedential value in interpreting the deleted statutory provision, and after discussing the approaches taken in each of the relevant previous cases it resolved the question on factual grounds. In particular, because JTI generated nearly $650,000 in 1999 from routinely leasing 56 of the 80 trailers it owned to independent contractors under a standard lease agreement in consideration of 20% of the fee earned, its leasing activities were unquestionably a regular part of its trucking business.

-Disposition-

Pursuant to Rule 8.548(f)(5) of the California Rules of Court, the Supreme Court reframed the question asked by the Ninth Circuit and declined to resolve the tension between the contradictory cases at issue. Instead, it held that the requirements of former subdivision (b) were met under either of the contradictory approaches developed in the earlier opinions and that this holding provided adequate guidance to the Court of Appeals.

-Key Related Cases-

Travelers Indemnity Co. v. Maryland Casualty Co. (1996) 41 Cal.App.4th 1538
http://www.scholar.google.com/scholar_case?case=13544025188023578700

Western Carriers Ins. Exchange v. Pacific Ins. Co. (1989) 211 Cal.App.3d 112
http://www.scholar.google.com/scholar_case?case=3816215187241289045

Mission Ins. Co. v. Hartford Accident & Indemnity Co. (1984) 160 Cal.App.3d 97
http://www.scholar.google.com/scholar_case?case=15931891282690057915

McCall v. Great American Ins. Co. (1981) 119 Cal.App.3d 993
http://www.scholar.google.com/scholar_case?case=15702429526693050205

Transport Indemnity Co. v. Alo (1981) 118 Cal.App.3d 143
http://www.scholar.google.com/scholar_case?case=8893634301054579800

-Tags-
California Insurance Code
rental or lease of commercial vehicles without operators
allocation of loss among co-insurers
indemnity
contribution
common carriers