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California Court Declines Reformation of Insurance Policy

9/13/23

By: Joseph Gonnella

The Motor Carriers of Property Permit Act requires certain motor carriers to maintain minimum liability coverage of $750,000 (“MCPPA” codified at Veh. Code, § 34600). Does this also require insurers to issue policies to those carriers with no less than $750,000 limits? Not according to the California Court of Appeal. Infinity Select Ins. Co. v. Superior Court (Cal Leduc), No. F085014 (Cal. Ct. App., Aug. 8, 2023) (petition for writ of mandate from Fresno County Super. Ct., 19CECG01278).

The underlying case arose from a three-vehicle collision that resulted in a fatality.  Infinity Select Insurance Company (“Infinity”) insured defendant Guerra (a motor carrier), and his employee, with bodily injury limits of $50,000 per accident limit. Plaintiff argued that the MCPPA operated to increase those limits to $750,000 and demanded that amount to settle.

That case settled shortly after trial began. The settlement stipulated that: 1) Plaintiff’s damages were approximately $3.5 million; and 2) plaintiff dismissed Guerra and its driver, who assigned their claims against Infinity for alleged bad faith failure to settle.   

In the subsequent coverage action, the parties (plaintiffs and Infinity) stipulated that:

  • Guerra was a motor carrier as defined under the MCPPA and its vehicle was insured by the policy;
  • The policy was not endorsed to incorporate the MCPPA, and the insurer did not issue DMV Form 65 affirming MCPPA compliance;
  • The insurer had paid the undisputed amount of $50,000; and
  • Guerra applied for “minimum” auto liability coverage and represented to Infinity that a DMV filing was not necessary.

The trial court held that the MCPPA amended Infinity’s policy limit to $750,000.  

The Court of Appeal found that the trial court erred in reforming the policy limit. The Court of Appeal held the policy provided only the stated limit of $50,000. The Court also noted that the insurer “issued the type of insurance actually requested in the application Guerra submitted through his broker.” 

Central to the Court of Appeal’s reversal of the trial court’s decision was the Court of Appeal’s determination that an insurer is not required to issue $750,000 minimum limit policies to motor carriers. The MCPPA places no such burden on insurers; the burden is on motor carriers to obtain sufficient insurance. And a motor carrier is not required to obtain a single limit of $750,000 but instead may buy multiple policies with aggregate limits of $750,000. Or, as the Court explained, the MCPPA also permits a motor carrier to satisfy its financial responsibility requirements through a surety bond or certificate of self-insurance.

Thus, the Court found the $50,000 limit in this case was neither against public policy, nor was it against the insurance policy provision that the terms of the policy would “conform to statute” to the extent required by law. Based upon the MCPPA as applied to the subject policy, the $50,000 policy limit could not be reformed.    

For more information, please contact Joseph Gonnella at joseph.gonnella@fmglaw.com or your local FMG attorney.