Insurer’s Failure to Cancel Motor Carrier’s Insurance Certificate Did Not Continue Coverage

By Jim Sams | July 25, 2023

Coverage from a commercial auto policy does not remain in effect after the policy’s expiration date merely because the insurer failed to give proper notice to the Department of Motor Vehicles that it was canceling a certificate of insurance, the California Supreme Court ruled Monday.

“We hold that an uncanceled certificate of insurance that remains on file with the DMV does not cause the corresponding insurance policy to remain in effect in perpetuity,” the court’s unanimous opinion says.

The decision may save United Financial Casualty Co. from making a $500,000 “equitable contribution” toward the settlement of a wrongful death claim against independent trucker Jose Porras.

The 9th Circuit Court of Appeals asked California’s high court to answer a certified question about coverage as it considered United’s appeal of a US District Court decision that found it was jointly liable because it had not properly canceled coverage.

Porras purchased an insurance policy from United in May 2013. United filed a certificate of insurance with the DMV as required by the Motor Carriers of Property Permit Act. Porras renewed the policy in 2014 but purchased a new policy from Allied Premier Insurance Co. in April 2015 and stopped paying premiums to United.

United sent the DMV a cancellation notice in February 2015, but the DMV determined the notice was incomplete and allowed the certificate of insurance to remain active. Allied sent its own notice of insurance to the DMV, apparently unaware that the United certificate of insurance remained in effect.

On Sept. 1, 2015, Porras’ truck collided with a car driven by Jennifer Jones. She died in the accident. Jones’ parents filed a wrongful death lawsuit against Porras. Allied agreed to pay the policy’s $1 million limit to settle the claim.

Allied then filed a lawsuit seeking an equitable contribution from United. The carrier argued that because United’s cancellation notice was deemed to be incomplete, it continued to have an active certificate of insurance on file. That means United’s policy remained in effect at the time of the fatal crash, the insurer argued.

US District Court Jesus G. Bernal ruled that because United had failed to properly cancel the certificate of insurance, it must make an “equitable contribution” to the settlement because both insurers provided coverage. United appealed to the 9th Circuit Court of Appeals.

The 9th Circuit sent a certified question to the California Supreme Court asking if United’s coverage was still in effect.

Allied relied on a 1995 California Supreme Court decision in Transamerica Insurance Co. v. Tab Transportation for its argument. At that time, insurance coverage for motor carriers was covered by the Highway Carriers’ Act of 1951.

The HCA required commercial carriers operating on California roads to obtain a permit from the California Public Utilities Commission. Trucking companies were required to show evidence of adequate insurance. The PUC adopted a rule that stated insurance is not cancelable without 30 written notice.

Tab Transportation sought coverage from Transamerica and other insurers in 1989 after one of its trucks collided with a train, causing multiple injuries and deaths. Transamerica argued that it was not liable because the policy it issued to Tab had expired. The insurer, however, had not given notice to the PUC that the coverage was being canceled. The Supreme Court ruled that Transamerica had to contribute along with the other insurers toward a $6 million settlement.

The Highway Carriers Act is no longer in effect. The California legislature passed a new law in 1996, the Motor Carriers of Property Permit Act, that transferred authority to verify insurance coverage for motor carriers to the DMV.

The Supreme Court said the two laws have different requirements. The HCA prohibited the cancellation of insurance policies without 30 days notice. The Motor Carriers of Property Permit Act, in contrast, prohibits the cancellation of certificates of insurance without 30 days notice.

“Transamerica does not control here because it interpreted a different statutory scheme,” the opinion says.

The high court said that under the new law, cancellation of a certificate trigger the DMV’s obligation to suspend a motor carrier’s permit.

“The statute does not say that the underlying policy remains active beyond the period called for in the contract between the parties,” the opinion says. “There is no language that ‘converts’ the stated term of the policy.”

The opinion said it’s answer to the certified question will not necessarily put an end to the litigation. Allied argued that even if the court were to decide that a policy does not remain in effect, a certificate of insurance that is not properly canceled acts as a surety bond that ensures some coverage remains available.

The court said the 9th Circuit did not ask it to address that question so it did not offer any opinion.

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