United Specialty Insurance Company v. Bani Auto Group, Inc.

Background

United Specialty Insurance Company issued an auto-dealer policy to Bani Auto Group, Inc. and Sia Bani & Company, LLC; Bani Investments LLC was later added as a named insured. The policy generally covered sums an insured had to pay for bodily injury or property damage caused by an accident involving a covered auto, and it included a duty to defend potentially covered suits.

The policy also contained a leased, rented, or loaned autos exclusion. That exclusion stated that the insurance did not apply to any covered auto leased, rented, or loaned to others. The policy’s schedule of operations listed auto storage without repair, consignment sales, and used-auto dealerships.

David Wright died after losing control of a Ferrari during an Exotic Car Tour organized by Club Sportiva, Inc. The underlying lawsuits alleged that the Ferrari’s tire was dangerously hardened and that the Bani Defendants were negligent in maintaining the vehicle, renting it in a dangerous condition, and selecting the tour course. The Bani Defendants tendered the defense to United, which accepted under a reservation of rights.

United later offered to settle the underlying litigation for the policy’s $1 million limit while reserving its right to seek reimbursement for uncovered claims. It also offered the Bani Defendants the opportunity to take over their defense. The Bani Defendants did not do so, and the underlying claims against Bani Auto Group, Club Sportiva, and Siavosh Banihashemi were dismissed with prejudice in exchange for United’s payment of the policy limit.

United’s complaint asserted seven claims, including declarations concerning its duties to defend and indemnify, policy rescission, and reimbursement of defense and settlement payments. United moved for partial summary judgment on Claims 4, 5, and 7. United later withdrew its motion as to Sia Bani & Company, LLC and Bani Investments LLC.

Legal standard

The court applied the summary-judgment standard under Federal Rule of Civil Procedure 56. Summary judgment is appropriate when there is no genuine dispute about a fact that could affect the outcome and the moving party is entitled to judgment as a matter of law. After the moving party meets its initial burden, the opposing party must identify evidence from which a reasonable jury could rule in its favor.

Claim 4: No duty to indemnify

Claim 4 sought a declaration that the claims in the underlying Wright litigation were not covered and that United therefore had no duty to indemnify any insured sued in that litigation. The court identified the policy’s covered-autos liability provision as the potentially applicable coverage provision.

The court found the leased, rented, or loaned autos exclusion dispositive. The Bani Defendants admitted that the Ferrari driven by David Wright had been rented to him for the Exotic Car Tour. The court held that, even assuming the Ferrari otherwise qualified as a covered auto, the exclusion precluded coverage because it had been rented to Wright.

The Bani Defendants relied on a prior California appellate decision involving an injury connected to a rental truck, but the court found that case factually distinguishable. The court reasoned that this policy’s listed operations did not plausibly include renting a Ferrari to a member of the public for an Exotic Car Tour. Because the rental exclusion barred coverage, the court granted United’s motion for partial summary judgment as to Claim 4. The court did not address the parties’ arguments concerning the policy’s tire exclusion or its limitation-of-coverage endorsement.

Claim 5: Whether Club Sportiva was an insured

Claim 5 sought a declaration that Club Sportiva, formerly known as Drive A Dream, Inc., did not qualify as an insured under the policy. The court denied United’s motion as to this claim because United presented no argument or evidence addressing whether Club Sportiva qualified as an insured. The court concluded that United had not met its initial summary-judgment burden on Claim 5.

Claim 7: Reimbursement of the settlement payment

Claim 7 sought reimbursement of the money United paid to settle the underlying Wright litigation. Under the California procedure discussed by the court, an insurer seeking reimbursement for a settlement of noncovered claims must timely and expressly reserve its rights, notify the insureds of its intent to accept the settlement, and expressly offer the insureds the opportunity to assume their own defense if they disagree with the settlement.

The court found that United presented evidence satisfying those requirements. United’s letters contained an express reservation of rights, notified the Bani Defendants of the proposed $1 million settlement, and offered Bani Auto Group and Club Sportiva the opportunity to take over their defense. After Wright II was filed, United also notified the Bani Defendants that the proposed settlement covered claims involving Siavosh Banihashemi. The Bani Defendants did not object or take over the defense, and they agreed to the policy-limit settlement.

The court rejected the argument that United also had to prove the reasonableness of its settlement assessment under the standards from a different California case concerning an insurer’s refusal to accept a reasonable settlement. The court relied on the California Supreme Court’s later explanation that satisfying the reimbursement prerequisites could establish an implied legal right to reimbursement for noncovered claims.

The court also rejected the argument that United could not seek reimbursement from Siavosh Banihashemi because he had previously been dismissed from Wright I. He had been named in Wright II, which was consolidated with Wright I before settlement, and the record indicated that he signed the settlement agreement individually and was released.

Finally, the court considered whether the settlement amount had to be allocated separately among Bani Auto Group, Club Sportiva, and Siavosh Banihashemi. Based on evidence that Siavosh Banihashemi owned both corporations and that both were involved in maintaining and using the Ferrari, the court found that United had shown an appropriate basis for joint and several liability. The court therefore granted United’s motion for partial summary judgment as to Claim 7.

Disposition

The court granted United’s motion for partial summary judgment as to Claims 4 and 7 and denied it as to Claim 5. The order terminated the motion identified as ECF 67. Beth Labson Freeman signed the order as United States District Judge.