Opinion ID: 2085597
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Heading Rank: 1

Heading: Was the LeSabre Covered as an Additional or Replacement Car?

Text: The Guzoreks must prove two things to establish coverage under the Colonial Penn policy: (1) a covered car (the LeSabre); and (2) a covered driver (Donald). [1] Colonial Penn contends neither exists. Because we agree, summary judgment for Colonial Penn is appropriate. We first address whether the car was covered.
Resolution of this issue turns primarily on interpretation of the automatic coverage clause in Dorothy Guzorek's policy: You may get an additional private passenger auto or utility truck during the policy period. If We insure all your private passenger autos and utility trucks at the time You get the additional auto or truck, We 'll automatically consider it to be listed on your Declarations Page. It will have the same coverages as your other autos. For the coverages to apply, however, You must notify us within 30 days after getting the vehicle or within the policy period and pay an additional premium from the date You got it. We `ll adjust your premium as described below, under Premium Adjustment. (Italics in original.) The accident that gave rise to this lawsuit occurred twenty-nine days after Dorothy acquired the LeSabre. Colonial Penn argues that the LeSabre was not covered as an additional car at the time of the accident because Dorothy failed to notify the company within thirty days that the car had been acquired. The Guzoreks and Illinois Farmers respond that coverage during the first thirty days was automatic irrespective of any duty to notify Colonial Penn and, accordingly, the LeSabre was covered. The record does not disclose whether all of Dorothy's cars were insured by Colonial Penn, as this provision required, when she acquired the LeSabre on September 22, 1992. [2] In any event, assuming this prerequisite was met, the LeSabre was not covered as an additional car under the policy. Automatic coverage provisions for additional vehicles are typical in automobile insurance policies. They benefit the insured and other drivers by guaranteeing a source of compensation if a recently acquired vehicle is involved in an accident. In holding that the LeSabre was covered here as an additional vehicle, the Court of Appeals majority observed that other jurisdictions have split over whether notice to the insurer is required to trigger retroactive application of an automatic coverage clause during the grace period (here thirty days). This appears to be an unaddressed question in Indiana. [3] Some courts have referred to a general rule that coverage is automatic during the grace period and that notice is required only to extend coverage beyond the grace period. This is also sometimes described as the majority rule. Under this view, courts have found coverage of the additional car during the grace period irrespective of whether the insured notified the insurer of the acquisition during the grace period. See generally James L. Isham, Annotation, Construction and Application of Automatic Insurance or Newly Acquired Vehicle Clause (Replacement,  and Blanket, or Fleet Provisions) Contained in Automobile Liability Policy, 39 A.L.R.4th 229, at §§ 23-24 (1985 & Supp.1997). Coverage for an accident occurring during the grace period has been found even where the policy described notification as a condition precedent to retroactive application of the automatic coverage clause. Republic Mut. Ins. Co. v. State Farm Mut. Auto. Ins. Co., 527 F.2d 1002 (4th Cir.1975). However, examination of these cases finds less than meets the eye. Some, including Hoffman v. Illinois Nat'l Cas. Co., 159 F.2d 564 (7th Cir.1947) (applying Indiana law but citing no Indiana authority), are unclear as to whether notice of a potential claim for the accident (and therefore notice of the new car) was given within the grace period. Others found the policy ambiguous as to whether coverage during the grace period was automatic but notice was required to extend it. See Farm & City Ins. Co. v. Anderson, 509 N.W.2d 487 (Iowa 1993) (tracing evolution of majority view and discussing cases from other jurisdictions). Indeed, Anderson may be part of a growing minority challenging application of the majority rule to an unambiguous policy clearly requiring notice as a condition to effect coverage. See also Guerra v. Sentry Ins. 927 S.W.2d 733 (Tex.App.1996), reh'g overruled, writ denied; Auto-Owners Ins. Co. v. Winter, 188 Mich.App. 230, 469 N.W.2d 314 (1991). We agree with the Supreme Court of Iowa that in the case of an unambiguous policy requiring notice to trigger automatic coverage of additional cars, that provision is enforceable and can be invoked to deny coverage if notice is not given. Although coverage of an additional car retroactive to the date of acquisition is a laudable goal, this objective cannot be carried to the extent that the policy itself is disregarded. In construing an insurance contract, we ultimately must give effect to the intent and reasonable expectations of the parties as expressed in the contract. See, e.g., Marshall v. Universal Underwriters Ins. Co., 673 N.E.2d 513, 517 (Ind.Ct.App.1996), trans. denied. Here the policy stated that an additional car would be covered retroactive to the date of acquisition if Dorothy notified Colonial Penn within thirty days or the end of the policy period, and paid an adjusted premium. She did neither. To hold that the LeSabre was covered during the grace period irrespective of these omissions would effectively read Dorothy's duties out of the policy, in contravention of what the policy plainly provided. Because an additional premium is often due for a new vehicle, finding coverage would give her insurance for which she has not paid. It is well settled that the power to interpret contracts does not extend to changing their terms. See, e.g., Firemen's Ins. Co. v. Temple Laundry Co., 195 Ind. 194, 198, 144 N.E. 838, 839 (1924) ([W]here the contract is plain and its meaning clear, the court will not change its evident meaning, by rules of construction, and thereby make a new contract for the parties.). And as federal courts predicting Indiana law in diversity cases have observed, insurance policies in this state will not be given an unreasonable construction to provide added coverage. Alexander v. Erie Ins. Exch., 982 F.2d 1153, 1157 (7th Cir.1993). Contracts of insurance are often not the product of an equal bargaining relationship: The insurer not only fully knows the contents of the writing, but also adequately comprehends its legal effect. The insured has no voice in fixing or framing the terms of [the] policy, but must accept it as prepared and tendered, usually without any knowledge of its contents, and often without ability to comprehend the legal significance of its provisions. Glens Falls Ins. Co. v. Michael, 167 Ind. 659, 677, 74 N.E. 964, 969 (1905). However, the automatic coverage clause in this case brooked no offense to public policy or unfairness to the Guzoreks. On the contrary, it proposed an entirely reasonable bargain: the Guzoreks would receive immediate coverage on the LeSabre in exchange for notification within a reasonable time of the acquisition (here thirty days) and, if necessary, compensation for the adjusted risk. This is entirely consistent with the objective of covering an additional car (for the benefit of all drivers) as soon as it is acquired. Coverage merely hinged on some action by the insured within thirty days to trigger its retroactive effect. We hold that the automatic coverage clause in this case was not triggered because of Dorothy's failure to notify Colonial Penn during the grace period that the LeSabre had been acquired.
The Guzoreks advance an alternative basis for finding coverage of the LeSabre. Dorothy Guzorek's policy allowed her to replace a listed car with a different car during the policy period: You may replace a listed auto with another private passenger auto, during the policy period. If You do, We `ll automatically consider the replacement to be listed. The coverages You bought for your former auto will apply to the replacement.... We `ll adjust your premium as described below, under Premium Adjustment. (Italics in original.) The policy does not define replace or replacement nor what Dorothy had to do to effect the change. The Guzoreks contend that the LeSabre was covered as a replacement vehicle on the day of the accident because Dorothy intended to replace the Skylark with the LeSabre when her policy came up for renewal a week after the accident. We disagree. Under any reasonable definition, the LeSabre was not a replacement vehicle. Replace broadly means to take the place of or to provide a substitute. WEBSTER'S NEW WORLD DICTIONARY OF AMERICAN ENGLISH 1138 (3d ed. 1988). In this context, read most favorably to the Guzoreks replace could have meant (1) a substitution of ownership (the Skylark was sold); (2) a substitution of coverages (the Skylark was no longer covered because it was taken off the policy); or (3) a substitution of customary use (the Skylark was no longer used because it was in storage or was no longer operable). See id. (replace implies a taking the place of someone or something that is now lost, gone, destroyed, worn out, etc.) (emphasis deleted). Although the record indicates Dorothy tried to sell the Skylark after she acquired the LeSabre, the Skylark had not been sold as of the date of the accident. Cf. West Am. Ins. Co. v. Mid-American Fire & Cas. Co., 611 N.E.2d 646 (Ind.Ct.App.1993) (new car was covered as a replacement vehicle because the car it replaced had recently been sold and the insured intended to keep coverage on same number of vehicles). Dorothy never contacted Colonial Penn to substitute the LeSabre for the Skylark on her policy. Donald drove the Skylark as well as the LeSabre on the day of the accident. Thus, in no sense was the Skylark replaced by the LeSabre. Indeed, there was no time limitation for advising Colonial Penn of a replacement comparable to the thirty-day provision for additions. If a replacement could be found on these facts, an insured could get free coverage indefinitely and retroactively add a new car to the policy when an accident occurs. See Nationwide Mut. Ins. Co. v. Fleming, 257 F.Supp. 261, 266 (D.S.C.1966) (Is it reasonable for an insured to assume that he can transfer coverage from his all purpose truck to a saloon car and retain and operate the truck for another four weeks or so? The court does not think so and the cases do not indicate that the contract can be stretched so far.), aff'd, 383 F.2d 145 (4th Cir.1967). Even assuming Dorothy's later expressed intentions are relevant, State Sec. Ins. Co. v. Ottinger, 487 N.E.2d 446, 449 (Ind.Ct.App.1985), her actions do not support the conclusion that a replacement had occurred as of October 20, 1992. Indeed, the record reveals that she did not intend to effect the change until her policy came up for renewal on October 27, 1992, and that she did not believe the LeSabre was covered until she sent the premium or called. Some jurisdictions have established multipart tests for determining whether a car is a replacement vehicle under an automobile insurance policy. See, e.g., United Farm Bureau Mut. Ins. Co. v. Elder, 86 Ill.2d 339, 56 Ill.Dec. 47, 49, 427 N.E.2d 127, 129 (1981). A closer case might require examination of some of these nuances, but this case does not present a close question. The legal effect of the undisputed facts is clear: because the Skylark was retained by the Guzoreks, was still in use, and was still listed on the policy at the time of the accident, the LeSabre cannot be considered a replacement for the Skylark. In sum, the LeSabre was not covered as an additional or replacement vehicle. Colonial Penn's motion for summary judgment with respect to those issues should have been granted.