In a case that will impact employers whose employees use their own vehicles for work, the California Supreme Court is about to address whether an employer’s insurance covered a deadly automobile accident caused by an employee driving his own car.  American States Ins. Co. v. Ramirez, No. S205073 (Cal. Oct. 24, 2012).  The Court will consider whether a form included with the employee’s own insurance policy documents that listed him as a driver was part of the insurance policy, even though the employee’s vehicle was not listed as a covered vehicle in the policy’s declarations.  The Court also will review whether this form created an ambiguity in coverage that should be construed against the insurer.

Hector LaBastida was the principal of HLCD, Inc., as well as its employee.  In October 2003, American States Insurance Company issued a commercial auto insurance policy to HLCD with a liability limit of $750,000.  The declarations page indicated that liability coverage applied only to those vehicles for which a separate premium was paid. It listed two vehicles: a 1997 Ford, at premium of $1,490, and a 1998 Chevrolet, at a premium of $1,396.  The Business Auto Coverage Form contained the insuring agreement that stated: “We will pay all sums an insured legally must pay as damages . . . resulting from the ownership, maintenance or use of a ‘covered auto.’”  

When American States sent a copy of the policy to LaBastida, it included various additional documents, known as “stuffers.” One of the stuffers was a form letter, “Form 6-3124A,” stating that “to insure that your policy is issued with the most current information, please review this list and update as necessary.  Include employees who drive their own vehicles on company business or anyone who will drive an insured vehicle. Also remember to report all newly hired employees to your agent during the year.”  The only driver listed on the form was LaBastida.

LaBastida caused a traffic accident that took the life of one person and severely injured two others.  He was driving his own vehicle at the time, in the course of doing HLCD’s business.  LaBastida insured his own vehicle through Wawanesa Insurance Company.  That policy was subject to a limit of $300,000.

In 2005, the injured persons and their families sued HLCD and LaBastida.  HLCD and LaBastida tendered the defense to Wawanesa, LaBastida’s insurance company.  Wawanesa accepted the tender and provided a defense.  HLCD and LaBastida also tendered the defense to American States.  American States denied coverage, arguing LaBastida’s vehicle was not covered under its policy.  In 2007, the injured parties offered to settle their claims within policy limits.  American States refused this settlement offer, again on the ground that its policy did not provide coverage.  

American States subsequently filed an action to determine the coverage issue.  The trial court found that American States had a duty to defend and indemnify because the Form 6-3124A was ambiguous and one “reasonable and plausible interpretation . . . is that employees who drive their own vehicles on company business are covered under the policy.”  American States appealed, and the Court of Appeal reversed.  

The Court of Appeal found that the policy was unambiguous and coverage was “entirely vehicle-based,” not driver-based.  The statement in Form 6-3124A that the policy had been issued “based on” LaBastida being the only driver could not reasonably be understood as altering the very basis of coverage, the Court said.  If that were the case, then coverage would be eliminated if anyone other than LaBastida drove the covered vehicles. The case is now before the state Supreme Court.

While awaiting the Court’s decision, employers whose employees drive personal vehicles on company business should consider discussing with their insurance brokers whether to obtain insurance that covers accidents occurring while the employees are working, since the employer is likely to be sued.  If employers require employees to insure their cars for more than the statutory minimum level of insurance, the California Division of Labor Standards Enforcement takes the position that employers must reimburse employees for those expenses under Labor Code Section 2802.