Eastern District of California Finds Policy Covering “Hired” and “Borrowed” Automobiles Does Not Cover Automobiles Driven By the Insured’s Contractual Partners

Eastern District of California Finds Policy Covering “Hired” and “Borrowed” Automobiles Does Not Cover Automobiles Driven By the Insured’s Contractual Partners

Travelers Prop. Cas. Co. of America v. LK Transportation, Inc., 2014 U.S. Dist. LEXIS 33660 (E.D. Cal. Mar. 13, 2014), [enhanced version available to lexis.com subscribers].

In LK Transportation, the district court found that “hired” or “borrowed” automobiles, as those terms were used in an automobile policy, did not include vehicles owned and driven by the insured’s agents and, therefore, an accident caused by the agent did not come within the policy’s coverage for “hired” or “borrowed” vehicles.

LK Transportation arose from a business arrangement whereby the insured (the “Insured”) hired a company (the “Agent”) to retrieve a construction trailer and bring it to Sacramento. While driving the Agent’s vehicle to pick up the trailer, the Agent’s employee (the “Employee”) hit another vehicle, killing the driver and injuring two passengers. Those passengers and the estate of the decedent sued the Employee and the Agent, and their carrier paid its policy limits as part of a settlement. The settlement also included an assignment against the carrier for the Insured, which had denied coverage based on the position that the accident did not involve a covered automobile. Pursuant to the assignment, the claimants sued the Insured’s carrier based on the position that the automobile involved in the accident was “hired” or “borrowed” by the Insured despite the fact that it was owned by the Agent and operated by the Employee. The claimants also argued that the accident arose out of the use of the trailer, which was an automobile covered by the policy, despite the fact that the Employee had not yet reached the trailer at the time of the accident. The carrier moved for summary judgment and the LK Transportation court granted its motion.

In reaching its ruling, the LK Transportation court found that, under California law, a vehicle is only “hired” or “borrowed” if it is within the dominion and control of the insured. Because the accident did not involve an automobile being driven by an insured, but instead involved an automobile driven by another individual, the court found that the vehicle at issue was not a “hired” or “borrowed” automobile as those terms are used in the policy. The LK Transportation court also rejected the claimants’ argument that the accident arose out of the use of the trailer because the trailer had not yet been picked up at the time of the accident.

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