Fairmont Specialty v. The Estate of Karina Hoohuli

NOT FOR PUBLICATION
UNITED STATES COURT OF APPEALS FILED
FOR THE NINTH CIRCUIT JUL 13 2011
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
FAIRMONT SPECIALTY, a division of No. 09-16904
Crum & Forster Group, FKA Fairmont
Insurance Company, agent of North River D.C. No. 1:08-cv-00450-JMS-
Insurance Company, LEK
Plaintiff - Appellee,
MEMORANDUM*
v.
THE ESTATE OF KARINA HOOHULI,
deceased,
Defendant - Appellant,
and
TESSIE KOTRYS,
Defendant.
FAIRMONT SPECIALTY, a division of No. 09-16921
Crum & Forster Group, FKA Fairmont
Insurance Company, agent of North River D.C. No. 1:08-cv-00450-JMS-
Insurance Company, LEK
Plaintiff - Appellee,
*
This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
v.
THE ESTATE OF KARINA HOOHULI,
deceased,
Defendant,
and
TESSIE KOTRYS,
Defendant - Appellant.
Appeal from the United States District Court
for the District of Hawaii
J. Michael Seabright, District Judge, Presiding
Argued and Submitted June 15, 2011
Honolulu, Hawaii
Before: ALARCÓN, WARDLAW, and N.R. SMITH, Circuit Judges.
Plaintiff-Appellee Fairmont Specialty sought declaratory judgment that it
was not required to provide coverage under its Garage insurance policy for claims
arising from a motor vehicle accident in which Defendant-Appellant Tessie Kotrys
was injured and her passenger, Karina Hoohuli, was killed. The Garage Policy was
issued to South Bay Auto and, as relevant here, covers only those vehicles that
South Bay Auto “owns.” The sole question confronting us is whether South Bay
Auto “owned” the subject vehicle at the time of the accident, even though it had
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already sold the vehicle to Kotrys. The district court concluded that it did not, and
that the defendants therefore were not entitled to coverage. We affirm.
1. Kotrys owned the subject vehicle at the time of the accident. The word
“owner,” in its “plain, ordinary, and accepted sense in common speech,” includes
someone like Kotrys, who entered into a valid sales agreement, took possession of
the vehicle, and obtained her own no-fault insurance. See Hawaiian Ins. & Guar.
Co. v. Fin. Sec. Ins. Co. (HIG), 807 P.2d 1256, 1260 (Haw. 1991) (citing Pac. Ins.
Co. v. Or. Auto. Ins. Co. (Pacific), 490 P.2d 899 (Haw. 1971)). That South Bay
Auto retained legal title to the vehicle is not dispositive of ownership for insurance
purposes. See id. at 1258-62; Pacific, 490 P.2d at 901-02.
Moreover, we must enforce “‘the objectively reasonable expectations’ of
parties claiming coverage under insurance contracts, which ‘are construed in
accord with the reasonable expectations of a layperson.’” HIG, 807 P.2d at 1260
(citations omitted). In this case, the fact that Kotrys was required to obtain, and did
obtain, her own no-fault insurance indicates that South Bay Auto did not intend,
and Kotrys could not have reasonably expected, that South Bay Auto would
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provide insurance coverage for the subject vehicle.1 See id.
2. Defendants’ reliance on the transfer-of-title provision in the motor vehicle
registration statute and on the definition of “owner” under Hawaii no-fault
insurance law is unavailing. See Hawaii Revised Statutes (HRS) §§ 286-52(e),
431:10C-103. The Supreme Court of Hawaii has clearly held that definitions
found in the insurance and registration statutes are not determinative of ownership
in the context of insurance coverage disputes. See HIG, 807 P.2d at 1258-60
(discussing HRS § 286-52(e)); id. at 1261-62 (discussing HRS § 294-2(13), the
predecessor statute to HRS § 431:10C-103); Pacific, 490 P.2d at 901-02
(discussing Revised Laws of Hawaii § 160-10(e), the predecessor statute to HRS §
286-52(e)).
3. The Estate of Karina Hoohuli further argues that the definition of “owned
by” in the “Personal Injury Protection” (PIP) endorsement to the Garage Policy
supersedes the plain meaning of the word “owner.” This definition, however, does
1
Defendants argue the sales agreement was not binding unless, and until,
Kotrys’s financing was approved. However, there was no evidence in the record
that any of the provisions relied upon by defendants would have allowed Kotrys to
escape the contract. Further, the evidence indicates that at the time of the accident:
(1) Kotrys’s financing was approved by her bank; (2) South Bay Auto (the only
party with authority to do so) had not disavowed the agreement; and (3) South Bay
Auto regarded Kotrys as owning the vehicle, even assisting her in procuring
financing when it fell through in the past, rather than demanding the return of the
vehicle.
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not mandate a different result. Pursuant to it, the vehicle could have been “owned
by” South Bay Auto, Kotrys, or both at the relevant time.
Allowing the PIP’s definition of “owned by” to control would also lead to
absurd results. In the “Liability Coverage” portion, the Garage Policy expressly
excludes “customers” from the definition of an “insured.” Given this language, it
follows that the reasonable expectations of the parties were that the Garage Policy
would not cover customers of South Bay Auto. It would be “absurd” for the
Garage Policy to exclude customers from coverage in one part of the policy
(liability coverage), only to provide a definition in another part (PIP) that would
include that customer’s vehicle among the vehicles covered under the overall
policy, including for purposes of the liability coverage. See HIG, 807 P.2d at 1259
(“absurd and unjust” results should be avoided); Pacific, 490 P.2d at 901 (same).
4. Finally, the Garage Policy’s exclusion of “customers” from the definition of
an “insured” is not contrary to public policy. Numerous courts have concluded
that clauses identical to the one in this case, which exclude “customers” from
liability coverage, do not violate public policy as long as the statutory requirements
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of compulsory and financial responsibility laws are met.2 Nor does this clause
contravene any statutory requirements, see, e.g., HRS § 431:10C-301(a)(2),
because it provides that if the other insurance is absent or inadequate, then the
Garage Policy will cover up to the minimum required limits. See Harden, 626
N.E.2d at 819 (“[A] policy provision which limits an insurer’s liability for a
particular class of drivers to the statutory minimum is valid.”); accord Goodwin,
880 So. 2d at 987-88; Leader Nat’l Ins. Co., 545 N.W.2d at 455; State Farm Mut.
Auto. Ins. Co., 733 N.Y.S.2d at 200; Okla. Farmers. Union Mut. Ins. Co., 967 P.2d
at 482.
The Estate of Hoohuli’s reliance on Bowers v. Alamo Rent-A-Car, Inc., 965
P.2d 1274 (Haw. 1998), is misplaced. While it may be impermissible for a rental
car company to shift primary responsibility to the driver’s insurance company in
all cases, the insurer is within its rights to limit who qualifies as an “insured” under
its policy. See id. at 1279 (the owner of an automobile may not meet legal
obligations by “contractually shifting responsibility”); First Ins. Co. of Hawaii,
2
See, e.g., Harden v. Monroe Guar. Ins. Co., 626 N.E.2d 814, 819 (Ind. Ct.
App. 1993); Goodwin v. W. Heritage Ins. Co., 880 So. 2d 985, 987-88 (La. Ct.
App. 2004); Leader Nat’l Ins. Co. v. Am. Hardware Ins. Group, 545 N.W.2d 451,
455 (Neb. 1996); State Farm Mut. Auto. Ins. Co. v. John Deere Ins. Co., 733
N.Y.S.2d 198, 200 (App. Div. 2001); Okla. Farmers Union Mut. Ins. Co. v. John
Deere Ins. Co., 967 P.2d 479, 482 (Okla. Civ. App. 1998).
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Inc. v. State, 665 P.2d 648, 655 (Haw. 1983) (“‘[L]iability insurers have the same
rights as individuals to limit their liability, and to impose whatever conditions they
please on their obligation, provided they are not in contravention of statutory
inhibitions or public policy.’” (citations omitted)). Thus, the Garage Policy’s
customer-exclusion clause is valid.
AFFIRMED.
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