Wednesday, September 24, 2014

Mercury Casualty & Ins. Co. v. Chu (Cal. Ct. App. - Sept. 24, 2014)

I'd have thought that the insured was totally out of luck in this one.

I'd have been wrong.

Chu's driving a car and his roommate Pham is his passenger.  Chu hits another car, and Pham is injured.  Chu sues Pham for his injuries.

Not surprising that Pham would win, since Chu's at fault in the accident.  But this dispute is about insurance coverage.

Chu has a minimal $15K/$30K auto insurance policy with Mercury Insurance.  But that policy -- like pretty much every one I've ever had and/or seen -- expressly excludes coverage for injuries to anyone with whom you reside.  So if you accidentally hit your spouse (or child) with your car, or they're in the vehicle and get injured in an accident in which you're driving, your insurance doesn't cover that.  Your wife and/or child can't sue you and get money from the insurance company.

Ditto for roommates.  Or other relatives with whom you live.  If they live with you, your policy does not cover your injuries to them.  The policy couldn't be clearer.  And Chu and Pham repeatedly admit in sworn testimony that they live together.

End of story, I figure.

Not so.

Justice O'Leary's opinion persuades me.  Yeah, that's what the policy says.  But that doesn't mean it's legal.  California has an interest in providing insurance coverage for victims of accidents.  It has thus passed a statute that regulates exclusions in policies.  One of those is admittedly relevant here:  it says companies can exclude coverage when the benefits of that coverage would ultimately inure to the benefit of the insured.  Hence the spouse example.  There's no coverage for that since letting your wife sue you and get money from your insurance company would essentially flow money your way.  Something that precedent affirms isn't required.

But Justice O'Leary holds that what's true for your resident family members isn't true for roommates.  Letting your roommate get money from your insurer doesn't flow back to you.  He's your roommate, not your spouse.  So since the exception in the statute doesn't apply, the exclusion is void as against public policy.  Hence Pham gets to recover his $330,000.

Mercury Insurance doesn't like that result.  It says that the reason for the exclusion is because there's too much risk of collusion.  We don't cover husbands who hit wives, it contends, because there's then we'd be worried that husbands might deliberately hit their spouse in order to collect insurance money.  Ditto for roommates.  They might be scamming the system.

But Justice O'Leary articulates the right response.  We trust juries.  They get to separate out the true "accidents" from the frauds.  The risk of collusion shouldn't invalidate coverage when, as here, there is no reason at all to believe that it's a fraud.  Plus, Justice O'Leary rightly notes that if we're worried about collusion between non-related roommates because they're "friends", there's no limit to that principle.  Friends can collude even if they don't live together.  Mercury's argument proves too much.

So there's insurance coverage.  Pham gets his money notwithstanding the provisions of the policy.  And Chu doesn't have to repay the six-figure sum in attorney's fees that Mercury spent defending him at trial.

So what I originally thought was a loser for the insured turns out -- rightly enough -- to be a winner.  The trial court, which shared my initial view (albeit with much more information), gets reversed.

The only thing I'll add to what Justice O'Leary says is that I wonder if the holding doesn't go far enough.  Justice O'Leary seems to assume, via precedent and otherwise, that coverage exclusions for resident relatives are entirely okay.  I wonder if that's really true.  I get the point about spouses and kids.  The money they'd receive from an insurance company can, broadly speaking, be said to belong to the insured, so coverage maybe "flows" to him.  But what about a nephew who lives with you?  A cousin?  A stepbrother?  Their money doesn't seem to me to be yours.  We rightly tell insurers that they have to cover -- at least with minimal liability coverage ($15,000) -- auto accidents in which you hit a stranger and are at fault, or injure a passenger in your car who's a friend.  Why isn't the same true for at plenty of categories of relatives?  Yes, Justice O'Leary is right that they could have refused to have been a passenger with you driving.  But so could your friend, and he's still covered.  What's the difference.  Moreover, pursuant to the Court of Appeal's holding, all that matters for purposes of the statute is that the money doesn't "flow your way".  That's true for strangers as well as cousins.

Plus, although Justice O'Leary's "they can stay out of your car" argument works in some cases -- e.g., as here, with passengers -- it doesn't work for others.  Imagine you're driving home, take a left turn, and plow into a pedestrian in a crosswalk you somehow failed to see.  If it's a stranger, you're covered.  If it's a neighbor, you're covered.  If it's a roommate, you're covered (at least after today).  If it's your cousin or spouse who lives with you, however, you're not.  Even though that made not the slightest bit of difference in the accident:  You had no idea at all who you were hitting before you did it.  Doesn't seem to make an infinite amount of sense.

Again, maybe on the spouse part, I get it.  I could see an argument that the statute applies.  Cousin?  Don't see how what the Court of Appeal says here isn't equally true.  Relative or no.

One final point.  Notice that roommates are now covered but spouses are not.  After today, add that fact to the list of marriage penalties.  "Sorry, baby, I'd love to marry you.  But we can't afford the additional taxes.  Plus, I love you too much to not have you covered in case you're a passenger in my vehicle and accidentally injure you.  Let's stay roommates instead."