Pamela Spangle v. Farmers Insurance Exchange, et al.
In the Court of Appeal of the State of California
29 August 2008
B198340 (Los Angeles County Super. Ct. No. BC340069)

Car Dealer’s Insurer Held Liable for Buyer’s Tort Liability

This case arose from one’s father generosity in buying his minor son a car after the son, approximately a week later after the purchase, figured in a motor vehicle accident.

The antecedent facts were as follows.

Anthony McCarty, the father of a 16 year old Kevin, bought the latter a used Chevy Blazer from the Triple Crown Auto Sales, Inc. (Triple Crown). Not long after, Kevin turned left in one street and drove the vehicle onto an oncoming traffic. The Blazer collided with the car driven by Pamela Spangle, the herein petitioner. As a result of the accident, Pamela suffered severe injuries and her passenger was killed.

Subsequently, Pamela obtained a judgment against Kevin far in excess of the insurance covering him. She now seeks to recover against a “garage operations” liability issued to Triple Crown by herein defendant and respondent Mid-Century Insurance Company (Mid-Century). Pamela theorized that because Triple Crown incorrectly filled out the Department of Motor Vehicle (DMV) paperwork, title never transferred to Kevin and therefore Kevin was insured as a permissive user of the Blazer under the Mid-Century’s policy.

Mid-Century rejected Pamela’s demand. So she comes to court alleging insurance bad faith and breach of contract. She claims that as a judgment creditor, she can directly recover against a debtor’s (Kevin) insurer pursuant to Insurance Code. She thereafter moved for summary adjudication of the coverage issues. Mid-Century in turn, cross-moved for summary judgment or, in the alternative, summary adjudication.

The Superior Court of Los Angeles County denied Pamela’s motion for summary adjudication. Instead, the trial court granted Mid-Century’s motion for summary judgment. It held that there was no relationship between Kevin’s use of the Blazer at the time of the accident and Triple Crown’s “garage operations” as defined in the policy; as a result, the accident did not “result from Triple Crown’s “garage operations” and was thus not covered.

Pamela appealed, hence this case.

The Court of Appeal of California resolved the issue of “garage operations” coverage by analyzing its definition as contained in the policy. The policy defines “garage operations” in this wise:

“’Garage operations’ means the ownership, maintenance or use of locations for garage business and that portion of the roads or other accesses that adjoin these locations. ‘Garage operations’ include the ownership, maintenance or use of the autos indicated in Section 1 of this Coverage Form as covered autos. Garage operations also include all operations necessary or incidental to a garage business.”

The Court said that by virtue of the second sentence of the definition, the insurance coverage encompasses liability for bodily injury or property damage incurred by an insured that is caused by an accident and that results from an insured’s use of any auto. Kevin’s use of the Blazer was thus under the policy – a “garage operation”. Because the accident resulted from Kevin’s use of the Blazer, Pamela’s bodily injuries fall within the basic coverage provision of the policy.

In sum, what the Court of Appeal did was to reasonably read the “garage operations” policy so as to afford coverage for liability arising from use of an automobile that the insured dealer had ostensibly sold but to which it had not affected transfer of title regardless of how far from the dealership the accident occurred. The Court concluded that where dealership ostensibly sold vehicle to an adult who acquired it for the exclusive use of his minor child, child was not a “customer” of the dealership within meaning of the policy exclusion.