Molinar v. 21st Century Ins. Co.

318 Cal.Rptr.3d 608

Tania MOLINAR, et al., Plaintiffs and Appellants,

v.21ST CENTURY INSURANCE COMPANY, Defendant and Respondent.

D081431

Court of Appeal, Fourth District, Division 1.

Filed February 26, 2024

APPEAL from a judgment of the Superior Court of San Diego County, Carolyn M. Caietti, Judge. Reversed and remanded. (Super. Ct. No. 37-20-00034682-CU-BC-CTL)

Law Offices of Brandon M. Smith and Brandon M. Smith for Plaintiffs and Appellants.

Horvitz & Levy, Mitchell C. Tilner, Cameron Fraser, Steven Fleischman, Burbank; Demler, Armstrong & Rowland, James P. Lemieux, and David W. Jennings, Long Beach, for Defendant and Respondent.

BUCHANAN, J.

When adult children still live with their parents, it is not unusual for the parents to keep them on their automobile insurance policies and provide coverage for vehicles owned by the children. If the parents fail to pay the premiums, however, their adult children face the risk of becoming uninsured when the insurer cancels the policy for nonpayment.

The question presented here is whether an automobile insurer had a duty to give advance notice of cancellation not only to the parents as policyholders, but also to an adult daughter who was named as an insured driver on her parents’ policy and whose vehicle was also insured under the policy. Under Insurance Code¹ section 662, subdivision (a), we conclude that the answer is yes. Because the insurer did not give advance notice of cancellation to the adult daughter, the policy was still legally in effect when she got into an accident driving her covered vehicle without knowledge of the purported cancellation. We therefore reverse the trial court’s summary judgment in favor of the insurer on claims arising out of its refusal to defend or indemnify the daughter in a lawsuit brought against her by one of the accident victims.

FACTUAL AND PROCEDURAL BACKGROUND

Plaintiffs Silvia Escarcega and Alberto Molinar live in Jamul. They have been married since 1992 and have three children, including plaintiff Tania Molinar, their youngest child who was born in 1995.

In 2006, Silvia and Alberto purchased an automobile insurance policy from defendant 21st Century Insurance Company (21st Century). In July 2013, shortly after Tania turned 18 years old, Silvia contacted 21st Century to add Tania to the policy. She provided all the information 21st Century requested about Tania to add her to the policy. Silvia was not familiar with the term "rated driver" and had no conversa- tion with the 21st Century representative about adding Tania as a "rated driver."

21st Century agreed to add Tania to the policy, increased the premium to cover her, and sent a new declarations page to Silvia and Alberto. In determining the new premium, 21st Century considered Tania’s driving record, the kind of vehicle she was driving, the year of the vehicle, and how many miles she drove per year. 21st Century also gave her a good student discount.

Under "Named Insured and Mailing Address," the new declarations page listed Silvia and Alberto at their address in Jamul. The declarations page also identified Silvia, Alberto, and Tania as "Rated Driver[s]." The policy itself did not define the terms "named insured" or "rated driver." According to the testimony of 21st Century’s representatives, a "rated driver" is "a person in the household or persons in the household who are insured for purposes of driving a vehicle." A "rated driver" who is listed on the declarations page is "insured" to drive any of the vehicles listed on the declarations page and is "covered the same way" as a named insured when driving one of those vehicles. Under 21st Century’s internal underwriting guidelines (which are not part of the policy), there can be no more than two people designated as named insureds for a single policy, and if there are two, they must be spouses who live in the same household.

In 2016, Tania purchased a 2009 Mazda for herself. Alberto contacted 21st Century to add Tania’s Mazda to the policy. He informed 21st Century that Tania was the registered owner and would be driving the Mazda. 21st Century added the Mazda to the policy and updated the declarations page and monthly premiums to reflect the change. 21st Century also issued an insurance identification card in Tania’s name.

Effective January 31, 2017, 21st Century renewed the policy for six months. Under "Named Insured and Mailing Address," the declarations page for the renewed policy continued to list Silvia and Alberto at their Jamul address. It also continued to list Silvia, Alberto, and Tania as "Rated Driver[s]" and Tania’s Mazda as one of the covered vehicles.

Beginning in 2012, Silvia and Alberto paid the monthly policy premium to 21st Century by automatic debit withdrawal from Silvia’s Wells Fargo account. The premium payments were due by the end of each month. In March 2017, Wells Fargo issued Silvia a new debit card. As a result, Wells Fargo was unable to process the monthly payment on March 31, 2017. Silvia and Alberto were not aware of the nonpayment.

On April 3, 2017, 21st Century mailed a letter to Silvia and Alberto at their correct address informing them that the March 31, 2017 payment had not gone through and asking them to make payment arrangements. Three days later, 21st Century mailed a notice of cancellation of the policy to Silvia and Alberto at their correct address as shown on the policy’s declarations page. The notice of cancellation explained that the policy would be cancelled on May 1, 2017 due to nonpayment of the premium. The notice was only addressed to Silvia and Alberto. 21st Century did not send a separate notice to Tania. At the time, Tania was 21 years old and lived with her parents at their Jamul residence.

Silvia and Alberto do not recall receiving or reading the April 3, 2017 letter or April 6, 2017 notice of cancellation. Tania also never saw the notice. Tania did not open mail that was addressed to her parents. Because Silvia and Alberto did not contact 21st Century to make the missed premium payment, 21st Century deemed the policy cancelled as of May 1, 2017.

Four days later, Tania caused a serious car accident resulting in grave injuries to her passenger and another driver, James Dodson. Tania’s passenger died from his injuries. At the time of the accident, Tania and her parents were still unaware that the 21st Century policy had been cancelled.

In February 2018, Dodson filed a complaint against Tania alleging general and special damages exceeding $7.5 million. After Tania tendered the lawsuit to 21st Century, its counsel responded with a letter denying Tania a defense or indemnity on the basis that the policy had been validly cancelled four days before the accident. The letter did not discuss whether 21st Century had an obligation to give advance notice of cancellation to Tania as a covered insured.

As a territory manager for 21st Century, Elizabeth Mancilla was involved in the investigation of Tania's claim and was the person most knowledgeable on the denial of her claim. According to Mancilla, Tania did not receive a notice of cancellation because she was not the named insured on the policy, and she was only designated as a rated driver. Mancilla did not conduct any research on the issue and was not aware of anyone else researching whether this conclusion was consistent with California law. She did not investigate whether Tania should have been sent notice of cancellation.

Tania and her parents sued 21st Century for breach of contract and breach of the implied covenant of good faith and fair dealing. After completion of discovery, 21st Century moved for summary judgment primarily on the ground that it had validly cancelled the policy before Tania’s accident. Plaintiffs opposed the motion on the basis that 21st Century did not properly cancel the policy because it never provided Tania with notice of cancellation as required by the policy and section 662, subdivision (a).

The trial court granted summary judgment for 21st Century. As to the breach of contract claim, the court found that 21st Century was not required to give Tania advance notice of cancellation because she was not a "named insured, lienholder or additional interest" within the meaning of section 662, subdivision (a). The court concluded that 21st Century effectively cancelled the policy by mailing the notice of cancellation to Silvia and Alberto at the address shown on the declarations. The court further concluded that because there was no coverage under the policy due to its cancellation, plaintiffs could not maintain a claim for bad faith and could not recover punitive damages.

The court entered judgment for 21st Century based on the summary judgment order. Plaintiffs timely appealed.

DISCUSSION

We must decide whether 21st Century validly cancelled the policy after giving notice to Silvia and Alberto, but not Tania. Plaintiffs argue that 21st Century was required both by statute (§ 662, subd. (a)) and the specific terms of the policy to give advance notice to Tania. Applying a de novo standard of review, we agree with their statutory argument. (See Gonzalez v. Mathis (2021) 12 Cal.5th 29, 39, 282 Cal. Rptr.3d 658, 493 P.3d 212 [de novo review for summary judgment rulings]; Lopez v. Ledesma (2022) 12 Cal.5th 848, 857, 290 Cal.Rptr.3d 532, 505 P.8d 212 [de novo review for statutory interpretation].)

The Insurance Code permits cancellation of an automobile insurance policy for nonpayment of premiums. (§§ 660, subd. (f), 661, subd. (a)(1).) Section 662, subdivision (a) provides: "A notice of cancellation of a policy shall not be effective unless mailed or delivered by the insurer to the named insured, lienholder, or additional interest at least 20 days prior to the effective date of cancellation; provided, however, that where cancellation is for nonpayment of premium, at least 10 days’ notice of cancellation accompanied by the reason for the cancellation shall be given." Section 664 provides: "Proof of mailing of...