Acceptance Casualty Insurance Company (Acceptance) sought review of a published decision of the court of appeals that had affirmed the circuit court’s grant of summary judgment in favor of Great West Casualty Company (Great West). Both Acceptance and Great West issued liability insurance policies for a semi-tractor that was owned by John Zeverino and leased to Taylor Truck Line. Acceptance provided a non-trucking use policy and Great West provided a commercial truckers’ policy.
In Casey v. Smith, Supreme Court of Wisconsin, — N.W.2d — 2014 WI 20 (April 18,2014), [enhanced version available to lexis.com subscribers], Acceptance asserted that its policy provided no coverage because it contained two exclusions which preclude coverage. It primarily focused on 14(b) that excluded coverage when a semi-tractor was being used “in the business of” a lessee. Acceptance contended that because the accident occurred while the semi-tractor’s driver, John Zeverino, was on his way to a maintenance facility for repairs to the grille and oil filler tube, the semi-tractor was being used in the business of Taylor Truck Line at the time of the accident.
Alternatively, it advanced that 14(a) excluded coverage when a semi-tractor was “en route to” a “business purpose” and that obtaining maintenance was a business purpose. Acceptance argued that because obtaining repairs constituted a business purpose, there was no coverage under its non-trucking use policy.
Zeverino owned a 2003 Freightliner semi-tractor which he leased to Taylor Truck Line, Inc. Under the terms of the lease Zeverino agreed to provide a driver and use his semi-tractor exclusively for Taylor Truck Line. The lease also provided that Zeverino would “bear all expenses to the operation to the equipment, including … [r]epairs and maintenance” and “[m]aintain[ ] the equipment in a state of repair required by all applicable regulations.”
The lease further required Taylor Truck Line to obtain insurance as required by federal law and Zeverino to obtain “bobtail liability insurance” to cover the semi-tractor “when not used in performance under this agreement .”
Taylor Truck Line obtained a commercial truckers’ insurance policy from Great West. The policy provides coverage for: “[t]he owner or anyone else from whom you lease, for more than 30 consecutive days, a covered ‘auto’ with a driver that is not a ‘trailer’ while the covered ‘auto’: (1) Is being used exclusively in your business as a ‘trucker.’”
In January 2009, Zeverino took the semi-tractor to FABCO, a truck maintenance facility in Eau Claire, to have its engine control module recalibrated. While the semi-tractor was there, FABCO inadvertently damaged its grille. FABCO ordered a new one and called Zeverino when it arrived. Instead of making an appointment to replace the grille, Zeverino was to return to FABCO to have the grille replaced whenever it was convenient for him. In addition, Zeverino had previously ordered a new oil filler tube which he had intended to install himself. FABCO offered to install the new tube at the same time it replaced the grille.
The damaged grille did not put the truck out of service or prevent Zeverino from completing or accepting new loads to haul. Zeverino claimed that he needed to have the repair work done “to have [the] tractor the way [he] needed it to … operate as an owner, operator for Taylor Truck Line.”
On February 27, 2009, approximately a month after the grille was broken, Zeverino left his home in Prescott and headed to Eau Claire to have the grille replaced. Zeverino was off-duty at the time. Taylor Truck Line did not know he was going to Eau Claire that day and he was not under any order or instruction from Taylor Truck Line. Zeverino stated in his deposition that he did not consider himself to be “in the business of Taylor Truck Line at the time.” Zeverino also testified that he could have taken a load that day without service to his grille or oil filler tube.
While en route to Eau Claire, Zeverino’s tractor was involved in a multi-vehicle accident that included vehicles driven by Ronald Smith and Brian Casey. Casey filed a complaint seeking recovery for injuries he sustained in the accident. He included Zeverino, Taylor Truck Line, Acceptance, and Great West as named defendants.
SUMMARY JUDGMENT MOTIONS
Both insurance companies filed cross motions for summary judgment. Acceptance pointed to two relevant exclusions in its non-trucking policy, section 14(a) and section 14(b). It asserted that at the time of the accident the semi-tractor was being used “in the business of” Taylor Truck Line. Additionally, it argued that because the accident occurred while Zeverino was “en route” to have maintenance done on the semi-tractor, it was being used for a “business purpose” of the lessee. Acceptance contended that the exclusions precluded coverage.
The circuit court granted summary judgment in favor of Great West. It found that Zeverino was having non-essential repairs done on his own time. Accordingly, the circuit court determined that Zeverino was not involved in furthering the business of Taylor Truck Line at the time of the accident.
The court of appeals affirmed. Casey v. Smith, 2013 WI App 24, 346 Wis.2d 111, 827 N.W.2d 917.
The Supreme Court established a methodology for determining insurance coverage. First, it looks to a policy’s initial grant of coverage. Second, if there is an initial grant of coverage, the court will examine whether any exclusions withdraw coverage from a claim. Third, if an exclusion applies, the court will then consider whether there are any exceptions to the exclusion that reinstate coverage.
It is undisputed that Acceptance’s non-trucking use policy makes an initial grant of coverage for the accident. Looking at the exclusions the Supreme Court noted that “in the business of” an organization to whom an automobile is rented clearly refers to occasions when the truck is being used to further the commercial interests of the lessee. Not all repairs and maintenance to a leased semi-tractor further the commercial interest of the lessee. Repairs are in furtherance of a lessee’s commercial interests when they are necessary to allow the semi-tractor to continue to accept and complete hauls for the lessee. Repairs may also be in furtherance of a lessee’s commercial interest when they are being done to comply with the lessee’s orders or the lessor’s contractual duties.
The undisputed facts in the record establish that the repairs to the grille and oil filler tube were not required to comply with the federal regulations. The record contains the report of the state trooper who inspected the semi-tractor after the accident. Rather than marking the semi-tractor out-of-service, the trooper indicated in his inspection report that there were no violations and permitted Zeverino to continue on to Eau Claire.
When a lease includes a clause requiring the lessor to obtain bobtail coverage, it clearly contemplated a situation where the vehicle, though rented, would not be engaged “in the business” of another. Acceptance contended that since Zeverino had indicated in his Daily Trip Log that he was “driving” prior to the accident and “on duty” at the scene of the accident, meant that he was working on behalf of Taylor Truck Line while he was on his way to obtain the repairs. Federal regulations require drivers to keep daily logs of their driving status. Under federal regulations the notation of “on duty” in a log book is appropriate for “[a]ll time inspecting, servicing, or conditioning any commercial motor vehicle at any time” and “[a]ll time repairing, obtaining assistance, or remaining in attendance upon a disabled commercial motor vehicle.” [49 C.F.R. § 395.2.]
Because the repairs were not required by the lease agreement, were not done pursuant to orders by Taylor Truck Line, and were not necessary for the semi-tractor to continue its service, the Supreme Court concluded that Zeverino was not acting in furtherance of Taylor Truck Line’s commercial interest at the time of the accident.
Section 14(a) does not exclude coverage. Here, Zeverino was on his way to have the grille and oil filler tube on the semi-tractor replaced when the accident occurred. It is undisputed that the semi-tractor could still carry loads without the repairs. Thus, the repairs were not necessary to allow the semi-tractor to carry property and the exclusion in section 14(a) of Acceptance’s policy does not apply.
The Supreme Court concluded, therefore, that Acceptance’s interpretation that any operation towards repair may render its coverage illusory. Instead, the Supreme Court concluded that the exclusion refers to maintenance necessary to allow the semi-tractor to carry property. It is undisputed that the semi-tractor could and did carry loads without the repairs to the grille and oil filler tube.
Insurance policies must be interpreted to provide the coverage that meet the reasonable expectations of the insured and the clear and unambiguous language of the policy. Here, Acceptance, providing bobtail coverage, wanted the court to interpret its policy that it provided no coverage while the tractor was in operation for any reason. That interpretation would make the policy illusory. The Supreme Court, as did the lower courts, found that Acceptance’s policy applied since the trip was not in the business of Taylor but only in that of Zeverino.
By Barry Zalma, Attorney and Consultant
Reprinted with Permission from Zalma on Insurance, (c) 2014, Barry Zalma.
Barry Zalma, Esq., CFE, is a California attorney who limits his practice to consultation regarding insurance coverage, insurance claims handling, insurance bad faith and fraud and acting as a mediator or arbitrator on insurance disputes. Mr. Zalma serves as a consultant and expert almost equally for insurers and policyholders. He founded Zalma Insurance Consultants in 2001 and serves as its only consultant. He recently published the e-books, "Zalma on Rescission in California - 2013"; "Random Thoughts on Insurance" containing posts from this blog; "Zalma on Insurance;" "Murder and Insurance Don't Mix;" “Heads I Win, Tails You Lose — 2011,” “Zalma on Diminution in Value Damages,” “Arson for Profit” and “Zalma on California Claims Regulations,” and others that are available at Zalma Books.
Mr. Zalma can be contacted at Barry Zalma or email@example.com, and you can access his free "Zalma on Insurance Fraud" newsletter at Zalma’s Insurance Fraud Letter.
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