In American International Underwriters Insurance Co. v. American Guarantee and Liability Insurance Co. (2010) 181 Cal.App.4th 616, the Court of Appeal addressed issues involving commercial auto and trucking coverage risks. The court specifically addressed the meaning of the term “hired auto” as used in the commercial auto policy issued by American to Denbeste, a hauling company. That policy provided coverage for property damage or bodily injury resulting from use of a covered “auto.” The term “auto” applied to “hired autos,” which were those that “you lease, hire, rent or borrow,” and “nonowned autos,” which were those that the policyholder did not own, lease, hire, rent or borrow, but which “are used in connection with your business.”
Denbeste was hired to haul soil from a development project. Denbeste then entered into a written subhaul agreement with Double D, another hauling company, to assist with the job. Double D entered into a separate subhaul agreement with an individual named Camara who was the owner of MJC Trucking. While driving his own tractor, which was connected to a trailer owned by Double D, Camara struck and severely injured a man at the construction site. American agreed to defend its insured, Denbeste, but refused to defend Double D and Camara on the grounds that neither was insured under the policy. AIU, who issued an umbrella policy to Double D, agreed to defend both Double D and Camara.
Following settlement of the personal injury action wherein both American and AIU contributed equal amounts to the settlement, AIU brought suit against American for contribution and indemnity. AIU asserted that it was an excess insurer and that American was the primary insurer for Double D, Camara and Denbeste. American disagreed asserting that neither Double D nor Camara were insured under the policy it issued because neither qualified as a “hired auto” under its policy. American also filed a cross-complaint against AIU seeking recovery of the amount it contributed to the settlement based on an indemnity provision in the subhaul agreement between Denbeste and Double D. American and AIU filed cross-motions for summary judgment and the trial court found in favor of AIU. American appealed.
On appeal, the court addressed whether the American policy provided coverage to Double D and Camara on a primary basis. The court explained, “[t]he outcome turns on the meaning of “hired auto” and the intended scope of the phrase “anyone else while using with your permission” that hired auto.” When looking the meaning of “hired auto”, the court pointed out that “hiring” was synonymous with “renting” and that “the chief characteristic of renting or leasing is the giving up of possession to the hirer, so that the hirer and not the owner uses and controls the rented property.”
In this case, the court found that neither Double D nor Camara gave up possession or control of their vehicles to Denbeste. In fact, Double D was required to maintain its own equipment and pay its own drivers and insurance. The court explained:
the relationship between Denbeste and Double D involved a relationship between a prime carrier and a subhauler acting as an independent contractor, which did not relinquish possession and control of its equipment to Denbeste. Camara likewise was operating his own tractor and a trailer leased from Double D, pursuant to his subhaul agreement with Double D.
The court concluded that the agreement between Denbeste and Double D was not an agreement for the rental of equipment for use by Denbeste as contemplated by the American policy. Rather, the court found that the contract between Denbeste and Double D was for performance of subhaul services.
The court also found that neither Double D nor Camara fell within the provision of the policy providing coverage to “anyone else using with your permission.” The court explained that the phrase “anyone else using with your permission” was synonymous with “borrow” which is when someone has temporary possession of property with the permission of the owner and has the right to exercise dominion and control over the property. Here, the court pointed out, neither Double D nor Camara could “borrow” their own vehicles. As such, the court concluded that Denbeste did not “hire” the vehicles involved in the underlying personal injury accident and, thus, Double D and Camara were not insured under the American policy.