Insurance Law

Automobile Policy’s Exclusion for Bodily Injury to “an Insured” Held Unenforceable and Against Public Policy With Regard to Injuries Sustained by a Non-Relative of the Named Insured

Mercury Cas. Co. v. Chu, 229 Cal. App. 4th 1432 (2014), [enhanced version available to lexis.com subscribers].

In Mercury, the California Court of Appeal held that an exclusion in an automobile policy for “bodily injury to an insured” was contrary to California Insurance Code Section 11580.1, [enhanced version available to lexis.com subscribers], and California public policy when applied to insureds that are not related to the named insured on the policy.

Mercury was based on an underlying personal injury accident between a car driven by the named insured on the policy and a car which carried the named insured’s non-relative roommate. The roommate sued the named insured for his injuries resulting from the accident, and the named insured’s insurance carrier agreed to defend under a reservation of rights. The policy at issue provided insurance for the named insured and other “residents,” which the policy defined to include “an individual who inhabits the same dwelling as the named insured.” The policy also contained an exclusion for all bodily injury suffered by “an insured.” Based on these provisions, the carrier filed a declaratory relief action and sought a declaration that it had no duty to defend the named insured in the underlying action. The carrier filed a motion for judgment on the pleadings and the trial court granted that motion. The named insured appealed, and the Mercury court reversed.

In reaching its ruling, the Mercury court noted that California Insurance Code Section 11580.1 listed all exclusions that may be properly included in an automobile policy issued in California. One exclusion listed in that statute is “[l]iability for bodily injury to an insured . . . .” While several California cases have held that this exclusion applies to all insureds under the policy, the Mercury court explained that each of those cases involved bodily injury to a relative of the named insured. With regard to non-relative residents, the Mercury court held that the case before it was a case of first impression. It further held that providing automobile insurance to such individuals was improper because they do not hold an insurable interest in the named insured’s automobile. In other words, it determined that the non-relative roommate was not an insured under the policy. Based on this finding, the Mercury court held that application of the exclusion for bodily injury suffered by “an insured” did not apply to bar coverage for the roommate’s lawsuit.

Originally published in California Insurance Law Quarterly - Fall 2014 Newsletter 12.16.14

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