Two recent decisions from the California Court of Appeal highlight the importance of understanding one’s auto insurance. Both cases left the policyholders without coverage for serious injuries that a simple policy review could have avoided.

Shimon

Nationwide Mutual Ins. Co. v. Shimon, No. C071776 (Third Dist., pub. order December 17, 2015), addressed whether a personal auto policy covers family members’ vehicles not listed in the policy. In that case, Simone lived with her mother, Kristen, but drove a GMC pickup that her father had bought her. Her father lived a few miles away. Simone’s mother insured her own vehicle and her new husband’s vehicle with Nationwide, but did not list the pickup on her policy because her ex-husband owned it. The father left the pickup off his own insurance to save money.

When Simone caused a serious accident, she sought coverage from Nationwide under her mother’s policy, but Nationwide argued its policy excluded autos owned by the mother’s resident relatives. The Court of Appeal agreed. It is well established that personal auto policies exclude vehicles that the policyholder’s family members regularly use but do not list on the policy accompanied by an appropriate premium charge. Otherwise, policyholders could effectively get free insurance by owning several vehicles but paying premiums for just one of them. Therefore, although Simone would have been covered while using a listed vehicle, or while using someone else’s vehicle, the one vehicle that was notcovered was her own vehicle that was not listed on the policy. 

Haering

Meanwhile, in Second District Court of Appeal, another policyholder was disappointed by a different type of uncovered loss—an underinsured motorist claim. In Haering v. Topa Ins. Co., No. B260235 (2ndDist., Feb. 3, 2016), the court rejected a challenge to an insurer’s denial of underinsured motorist coverage. In that case, Larry Haering had been injured by a negligent driver, and received the maximum $25,000 coverage from the driver’s liability insurer. He then filed an underinsured motorist claim with his company’s auto insurer, State National, which paid its policy limit of $1,000,000, less the $25,000 received from the tortfeasor’s policy. Claiming his injuries exceeded $1,000,000, Haering turned to Topa, which had issued an excess liability policy that “followed form” to his auto policy. Topa denied coverage, however, arguing its policy did not cover underinsured motorist risks.

Haering filed suit, claiming the Topa policy, as a “following form” coverage, incorporated all terms of the primary State National policy. The court disagreed. As its language made abundantly clear, the Topa policy was an excess “liability” policy, and “liability” insurance by its nature covers injuries to otherpeople, not to the policyholder. An underinsured motorist claim involves injuries to the policyholder, not to another person. As a result, Haering had no reason to think his excess “liability” policy would cover his own injuries, even if it “followed form” to State National’s policy.

Lessons

Although Shimon and Haering involve different coverages, they teach the same lesson: a policyholder cannot simply buy auto insurance and assume he or she is covered, but needs to understand precisely what risks are covered. Most policyholders do little more than look at their billing statements to see what premium is owed or, at most, what their policy limits are. In Shimon, Simone had no liability insurance for the vehicle she drove every day, because it was not listed on her mother’s policy. In Haering, the insured could not fully recover for his injuries because he purchased excess “liability” insurance, not excess “underinsured motorist” coverage. Both outcomes could have been easily avoided had the policyholders sat down with their insurance agent and confirmed exactly what coverages they had and did not have. So, when that insurance agent calls and suggests a policy review, the smart move is to take an hour out of the day and accept that invitation—it could mean the difference between recovery and financial disaster.