Know Your Insurance Policy

The theft

The car in question is a 1968 Mustang “Bullitt” replica. It is one of Bob’s 27 collector cars, which he customarily stores in his locked garage building about 2.5 miles from his home. After taking the Mustang out for a drive, he drove it home and parked it in the porte-cochère of his residence (on the West Coast, we call that a covered driveway) for the night, planning to take it back to the garage in the morning. Bob thought this was safe, as his residence is located in a gated subdivision with a 24-hour security guard at the entrance gate. The Mustang was stolen and recovered four days later. It sustained $12,279 of damage.

Claim denied

“Legal Files” apologizes in advance for the next few paragraphs, which will undoubtedly involve enough semantic nit-picking to remind you why lawyers can drive you nuts. However, there is no way to understand what happened in this Legal File — and what might happen to you — without slogging through some of it. Bob’s policy contained a very important exclusion — it did not cover “loss or damage to ‘your covered auto’ when not stored in a locked garage facility.” A “locked garage facility” was defined as “a permanent structure which is capable of protecting the vehicle from the elements, is fully enclosed, and all entranceways must have a functioning locking system.” The insurance company pointed to these provisions to deny coverage. The porte-cochère wasn’t a “locked garage facility” because it was open and not fully enclosed. Further, Bob had access to a perfectly good locked garage facility 2.5 miles down the road, but he didn’t want to put the Mustang away that night. Not so fast, Bob’s lawyers pointed out. This exclusion from coverage had one very important exception — it did not apply to “your covered auto” when it was being used for “occasional pleasure use.” “Occasional pleasure use” was defined to include leisure/pleasure drives, which is what Bob used the Mustang for that day. The definition included time that the auto was “located at the lodging of the named insured during overnight...leisure/pleasure drives.” Bob’s lawyers argued that he fit within the exclusion. It was an overnight leisure/pleasure drive that started that afternoon and was planned to end the next morning. His residence was his “lodging” during the “overnight leisure/pleasure drive.” The insurance company responded that the overnight exception was intended to cover situations in which one parks at a hotel while away from home on an overnight drive — not when you stay in your own residence because you’re too lazy to put the car away.

Key legal principles

That all sounds pretty logical, but the legal meaning of the words is not necessarily the same as their dictionary meanings, especially when they are found in car insurance policies. Here are a few legal principles that you need to understand to be able to sort this out:

1. A policy provision is ambiguous if it is subject to two or more reasonable interpretations. 2. If a policy provision is so determined to be ambiguous, it must be interpreted in the manner that most favors coverage. 3. If an exclusion from coverage is involved, the insurance company has the burden of proving that the exclusion applies. 4. If an ambiguity exists in an exclusion from coverage, the provision must be interpreted in any reasonable manner presented by the insured. 5. Ambiguities in a contract are interpreted against the party who wrote the contract, since that party had the ability to choose the precise wording of the provision.

In an unusual move, the insurance company filed suit against Bob to establish that it was not obligated to pay the claim. Bob responded with a claim that they owed him the money. Both parties filed motions for summary judgment.

What is a summary judgment?

To understand the procedure, one has to understand that judges and juries do two things in a lawsuit: First, they determine what happened, or what the facts of the case are. Second, they apply the law to the facts to determine who wins. The purpose of the trial is to determine what the facts are. If the parties agree on the facts (what happened), then there is no need for a trial and the judge can just apply the law to the agreed-upon facts and decide who wins. But if there is any disagreement about any one or more material facts, they have to go through a full trial in order to make all the factual determinations. In this case, both sides thought that the facts were clear and undisputed. They both asked the judge to simply apply the law and decide who would win.

Legal Files’ analysis

After reading both parties’ court filings, “Legal Files” can offer some neutral observations. It seems pretty clear that the main issue is whether the leisure/pleasure drive would be considered to have ended when Bob got back home that evening — or whether it ended in the morning when he got back to the locked garage facility. The insurance company’s view that it ended when he got home is most likely what the lawyer who wrote this policy provision would think it meant. But it’s very hard to say that this is the only way that the language could be interpreted. If Bob stopped at a motel next door to his residence for the night and planned to take the Mustang back to the garage in the morning, he would have been covered. Why the difference if he slept in his home instead of the motel next door? Although it seems pretty clear that the insurance company did not intend to provide coverage in this situation, the law goes the other way on that point. If Bob’s interpretation of this provision’s wording is reasonable, he wins, no matter what the insurance company had in mind. This probably sounds like the deck is stacked against the insurance company. It is — and it should be. Most car owners buy car insurance policies based upon advertisements, proposals, statements from agents, and their “common sense.” That is the benefit they think they have bargained and paid for. They don’t see the detailed policy until afterward, and they usually don’t read it. If the technical policy terms always controlled the argument, there would be many instances in which owners reasonably expect coverage and don’t get it. For that reason, the law bends over backwards to interpret insurance policies in light of the owners’ reasonable expectations.

The result

Once the summary judgment motions were filed — but before the judge’s decision was made — the case settled. According to Bob’s attorneys, Bob was paid the full amount claimed plus full reimbursement of his legal fees. Does this mean the insurance company decided it was going to lose? Maybe, but we can’t know. But clearly, every reader with any significant business experience is asking, “What were they thinking?” Why choose to bring litigation against a seemingly loyal customer with such an insignificant claim? Undoubtedly, it probably cost them more than the $12,279 to just file the lawsuit.

Reader takeaways

This is not typical practice for collector-car insurance companies. What happened here is that someone used a very technical and literal reading of a policy provision to deny a claim. To evaluate whether this could happen to them, savvy readers will immediately check their policies: Carefully read the exclusions from coverage. They basically mean: If these specified things happen, you’re on your own. Understand what you are required to do about storage of your collector car. This policy had a pretty specific storage restriction, which may not fit everyone’s storage arrangements. Consider the use-restrictions in the policy. This case didn’t focus on the use itself, as it was agreed that it was a leisure/pleasure use. But, for example, this and many other policies exclude coverage when the car is being driven to and from work. This makes perfect sense when you use your “collector car” as your daily driver. But what if you just drive it to work on Wednesday because it’s a sunny day and the car needs some miles? Does it make a difference if you take the long scenic route? Or plan to take off early and go play golf? Your best protection is to carefully read your policy, understand its coverage and exclusions, and be sure they fit your use patterns. And if you have questions, it’s worth the expense to have a capable attorney review the policy for you to make sure you understand, from the insurance company’s point of view, just when you are insured and when you’re not. ♦ John Draneas is an attorney in Oregon. His comments are general in nature and are not intended to substitute for consultation with an attorney.