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Automobile Insurance in California – Overview

Posted by Alan Fassonaki | May 04, 2023


There are typically two basic categories into which Californian vehicle insurance policies fall. Family plans, which are policies provided to individuals for the noncommercial use of automobiles, typically only differ minimally because the liability terms of such policies are governed by laws. Commercial "package" policies, which combine commercial auto insurance with other insurance policies like property insurance and general liability insurance, typically provide coverage that is different from family policies.

i. First Party vs Third Party Claims 

The "predominating" cause, or the cause that initiated the series of events that resulted in the loss, must typically be a covered risk in order for coverage to be provided in first party claims. If not, often no coverage is provided. On the other hand, coverage is typically provided for third-party claims if any independent concurrent cause is protected by the policy. This subject has been the subject of extensive judicial debate in case law. 

ii. Policy Structure

The written agreement between the insurer and the insured is known as the "policy." The policy must meet general requirements that are applicable to all types of insurance policies, such as identifying the parties, the policy's duration, and the covered risks. Furthermore, the policy must specify specific provisions for liability policies in general and automobile liability policies in particular.

iii. Analyzing a Policy

Analysis of a policy usually begins with a review of the declarations page, followed by a review of the insuring agreement to determine the general scope of coverage. Further, the policy is reviewed for exclusions and conditions and finally, distinction must be made between the insurer's duty to indemnify and their duty to defend.

II. Formation of Contract

Insurance agreements can be made either orally or in writing in California. It is important to review the California Insurance Code for each specific situation because it has a variety of regulations on the formation of insurance contracts. The insurer normally receives an application from a prospective insured, which the underwriting division of the insurer then reviews. A filed application might be presumed accepted if an insurer doesn't respond to it in a reasonable amount of time. If the insurer finds the application to be acceptable, insurance will be provided. The insurance must be presented to the insured in a written document in order to be effective.

Regulations set forth by the Department of Insurance and the legislation control auto insurance premiums. Certain required elements, including years of experience and a driver's safety record, must be taken into account when determining a premium. Case-by-case consideration should be given to additional premium recommendations that can be found in the Insurance Code and case law.

III. Interpretation of Policy

Historically, the courts had strictly interpreted insurance policies in favor of the insured. However, in the early part of the 21st century, the Supreme Court of California has made clear through multiple judgements that an insurance policy is to be construed under the same rules as any contract. Thus, like any other contract, the courts must adhere to the “clear and explicit” meaning of the language in the policy.

IV. Agency

When it comes to transactions between insurers, insured parties, and insurance salespeople, the law of agency has applicability in the area of insurance law. The key question of whether the producer is an agent of the insurer or the insured may be answered with the use of an agency contract or notice of agency appointment. The producer may be viewed as a broker or an agent depending on the situation. The establishment of the agency relationship may also be caused by estoppel.

It's critical to consider if the individual selling you insurance is an agent or a broker. It does not count as notice to the insurance company if you notify a broker of an accident. However, if a broker knows, they won't be held accountable. If an agent knows that you made a mistake on your insurance application, the insurance company may be held accountable for not catching it. The issue of the scope of authority typically affects agents, but it can also affect brokers.

i. Ostensible Authority

The foundation of insurance agency cases is the idea of ostensible authority. Ostensible authority is the power that the agent's principal gives the impression she or he holds, whether on purpose or accidentally. The extent of the agent's power becomes important under these circumstances. The notion of ostensible authority may apply if an insurer disputes liability on the basis that the agent lacked the authorization to bind a specific risk. 

If someone relied on the agent's purported authority against them, the insurer might be held liable for their losses. A corporation may not afterwards deny the existence of a policy it has endorsed even though the producer lacked the power to get it.

ii. Waiver and Estoppel

The legal principles of waiver and estoppel are frequently employed in insurance cases, which often involve issues related to authority and agency. Waiver refers to the voluntary surrender of a right, while estoppel centers on the reasonable impression conveyed by a party's actions to the other party. 

These concepts play a crucial role in preventing the loss of rights under insurance policies, especially in stopping policy conditions from negating coverage and precluding an insurer from revoking or terminating policies. Waiver necessitates a conscious renouncement of a known right, whereas estoppel demands that the other party suffers harm from such reliance. In general, courts tend to identify instances of waivers by and estoppels of the insurer but are hesitant to do so for the insured. In California, coverage can be created by estoppel, despite contrary authority elsewhere. It also mentions that insurance policies often contain provisions stating that notice to an agent or their knowledge does not waive or change the policy.

V. Agent's or Broker's Liability

Insurance brokers and agents owe a duty to the insured and are subject to liability if they don't fulfill this duty. If an agent lacks the authority to place the insurance as asked, they may be held accountable for breach of warranty of authority. On the basis of a contract principle, an authorized agent acting on behalf of a disclosed or partially disclosed principal is not directly accountable. 

A tort claimant may hold an agent personally liable for fraud or willful misrepresentation but normally cannot hold them accountable for negligently failing to secure required quantities of insurance. For careless deception or willful infliction of emotional distress, insurance adjusters may be held liable. Special obligations may result from a contract or affirmative representation, but the insured must provide evidence of their existence.

VI. Coverage Suits

i. No-action Clauses

Liability policies frequently contain a "no-action" clause that prohibits legal action against the insurer until the insured's financial responsibility has been proven, either through a court ruling against the insured or a settlement between the insurer, the insured, and the claimant. There may be exceptions to this clause's applicability in California, such as where an insurer unjustly delays addressing a third-party claim and the insured is required to make a voluntary payment to maintain good business relations.

ii. When is Liability Established Against Insured?

Many courts have addressed the question of whether responsibility against the insured can be proven without a formal trial. Without the insurer's permission, a stipulated judgement does not permit a direct action against the insurer in situations where the insurance has offered a defense. However, agreed judgements that have been deemed to be in good faith by the trial court may be binding on the insurer and not precluded by the "no-action" provision if the insurer chooses not to defend the underlying case.

iii. Declaratory Relief

Declaratory relief is a type of legal remedy used to resolve issues with insurance coverage. Insureds or insurers frequently use it to resolve coverage-related issues. The court may reject to consider the declaratory relief action if coverage questions will be resolved in an ongoing personal injury case. In a similar vein, a stay of the declaratory relief action is necessary where problems of coverage depend on factual judgements made in underlying actions. An insurer may be held liable for malicious prosecution if a declaratory relief lawsuit brought without probable cause is successfully dismissed. An action by the insurer seeking a declaration of rights regarding coverage under the policy may be joined by the insured as a cross-complaint for damages for tortious breach of the covenant of good faith and fair dealing.

iv. Choice of Law

With the exception of contractual interpretation, choice of law issues in California are typically resolved using a governmental interest analysis. According to CC 1646, a contract must be understood in accordance with the law of the location of the performance; if that location cannot be identified, the contract is interpreted in accordance with the law of the state in which it was created. Even if a policy contains an express choice of law clause, it might not be implemented if the legislation at issue addresses basic public policy in California and the Golden State has a considerably larger interest in having its law applied than the state. 

The necessary laws are chosen after taking into account the contract's nature, contact with the concerned states, and other relevant circumstances. Examples of the use of choice of law include Frontier Oil Corp. v. RLI Ins. Co., California Cas. Indem. Exch. v. Deardorff, and Allstate Ins. Co. v. Hague.

About the Author

Alan Fassonaki

What inspired me to practice personal injury law? I was 9 and imagining the win. My mother was driving me to my basketball game. My older sister came along to support me. While on the road, I thought about practice and replayed our team's game-plan in my mind. Suddenly, I hea...

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