Insurance is a Contract of Personal Indemnity
Appellant James West appealed summary judgment in favor of Shelter Mutual Insurance Company (“Shelter”). West arguedthat the circuit court erred in granting summary judgment to Shelter. In James West v. Shelter Mutual Insurance Company, No. CV-21-54, 022 Ark.App. 38, Court of Appeals of Arkansas, Division IV (January 26, 2022) the Court of Appeals resolved the disputes with regard to who Shelter insured.
FACTS
Nancy Mathis applied for an automobile liability insurance policy through Shelter covering a 1996 Dodge Ram. On the insurance application, Nancy stated that she was the owner of the vehicle and claimed her name was on the vehicle’s title. No additional drivers or insureds were listed on the application for insurance. Based on Nancy’s application, on May 1, 2018, Shelter issued a policy of automobile liability insurance covering the Dodge Ram.
On June 10, 2018, West; Stacy Mathis, Nancy’s adult son; and others were involved in a motor-vehicle accident. West, who was riding his motorcycle at the time, alleged to have suffered serious injuries due to Stacy’s negligent operation of the Dodge Ram identified on Nancy’s insurance policy. Stacy had no policy of his own.
West filed a claim for the loss; however, during the investigation of West’s claim, Shelter discovered that Nancy was not, and had never been, the registered or titled owner of the Dodge Ram driven by Stacy when the accident occurred. Instead, Shelter determined that Stacy was the sole registered and titled owner of the Dodge Ram, and he was not residing with Nancy at the time of the accident.
Shelter, in a September 11, 2018 letter to Nancy, denied liability coverage for the accident, stating: “Specifically, you are the only listed ‘Named Insured’ on the Policy Declarations and you do not, nor did you ever, own the 1996 Dodge Ram, the vehicle listed on your Policy. Instead, your adult son, Stacy Mathis, who does not live with you, is the sole registered owner of the 1996 Dodge Ram. Your Automobile Policy only provides Auto Liability Coverages when damages are owed by an insured, and damages means money an insured is legally obligated to pay another person because of bodily injury or property damage arising out of an accident caused by that insured’s ownership, maintenance, or use, of the ‘described auto’ or a ‘non-owned auto.’ Because you, the only Named Insured on the Policy do not own the 1996 Dodge Ram (the vehicle listed on the Declarations Page of your Policy), the Dodge Ram does not satisfy the Policy’s definition of the ‘described auto.’ … Therefore, Shelter denies coverage for this claim under this policy.”
In a similar letter to Stacy, Shelter again denied coverage for the claim and refused to defend Stacy in the underlying lawsuit filed by West.
Shelter filed a successful motion for summary judgment. Ordinarily, on appeal from a summary-judgment disposition, the evidence is viewed in the light most favorable to the party resisting the motion, and any doubts and inferences are resolved against the moving party.
West argued on appeal that both Stacy and the Dodge Ram were covered under Nancy’s liability policy through Shelter. West argued that, just prior to the wreck, Shelter issued proof of insurance covering the Dodge Ram, but immediately following the accident denied coverage of the same. He also argued that Shelter rescinded coverage and denied the claim stemming from the accident because of fraud and misrepresentation in the initial policy-application materials.
ANALYSIS
Nancy did not own the Dodge Ram, Stacy did. Because the Dodge Ram listed in the Declarations was not owned by the named insured, it failed to meet the policy definition of described auto. Further, according to the policy definitions, because Nancy, the only named insured, had no ownership of, no interest in, no possession of, nor the ability to exercise control of the Dodge Ram, she lacked the authority to grant Stacy permission to use the truck.
West also contended that Shelter rescinded the insurance policy and denied coverage with respect to his claim in violation of Arkansas statutes that were designed to protect the rights of innocent injured third parties against insurer’s attempts to avoid coverage based on fraud or misrepresentation by the insured. Importantly, and undisputedly, Nancy canceled the insurance policy shortly after the accident. Shelter did not rescind the policy but instead canceled the policy as requested by Nancy, the insured. Because Shelter, the insurer, did not rescind the policy, West’s anti-rescission argument was misplaced.
Shelter denied West’s claim because it was not payable under the terms of the automobile liability insurance policy. Accordingly the court affirmed the summary judgment.
Had Shelter learned of the lies made by Nancy in the application for insurance before the accident Shelter could have rescinded the policy. It did not. Rather, its investigation revealed that Nancy neither owned, controlled, nor had any interest in the vehicle that was the subject of the insurance, her son, was. Since insurance is a contract of personal indemnity it only insured the risks faced by Nancy, which were non-existent. The summary judgment was, therefore, properly granted.
© 2022 – Barry Zalma
Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders.
He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business.
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