Opinion ID: 1444881
Heading Depth: 2
Heading Rank: 2

Heading: Public Policy Issue

Text: We next address whether the owned vehicle exclusion, as a matter of law, violates public policy under Hawaii's No-Fault Law, HRS Chapter 431:10C. Although Fermahin, in her opening and reply briefs submitted to this court, sought a broad ruling that all owned vehicle exclusions are violative of the Hawaii no-fault statute as a matter of public policy, counsel for Fermahin at oral argument narrowed the ruling initially sought from this court, stating: I am not trying to get this court to rule that owned vehicle exclusions are violative of public policy in every situation. Let's focus on the facts of this case. We have an insured who did not own this car and did not know that it was uninsured. That's our facts. Our facts are not that it was her owned car. Our facts are that it was Heiser's. So I don't want to, I don't want to ask for too broad of a policy ruling. All I want this court to observe is that the general purpose behind these statutes.... (Citation to case omitted.) Fermahin is not just insured when she's in her car. She's insured when she's in any other car. I don't want to take the position that you should strike down all owned vehicle exclusions involving relatives.... That the 1970's case that we're asking you to extend, the Kau case,[ [2] ] the Kau case involved an insured who was the owner of an uninsured vehicle. In other words, the more extreme circumstance. In other words, there was no Heiser in the Kau case. Still this court said it was violative of public policy. I don't want a ruling in no-fault as far as Kau. I just want this court to recognize that my client was insured, did not own a car that was uninsured, and did not know the car she was in, even though she knew he was on her policy, was uninsured. Fermahin's concession that not all owned vehicle exclusions are violative of public policy under Hawaii's no-fault law is consistent with our recent ruling in Methven-Abreu v. Hawaiian Insurance & Guaranty Co., Ltd., ___ Haw. ___, 834 P.2d 279 (1992). In Methven-Abreu, we held that the exclusion contained in Abreu's husband's automobile policy, which precluded no-fault benefits to an insured family member who was injured while a passenger in her own uninsured vehicle, [3] was consistent with the language and legislative intent of Hawaii's no-fault law. Although Methven-Abreu involved the predecessor no-fault statute, HRS Chapter 294, [4] the relevant sections of the statute in Methven-Abreu are virtually identical to those sections which are pertinent to this case. The Hawaii no-fault law provides that an insured injured in an automobile accident in Hawaii arising out of the operation, maintenance, or use of a motor vehicle, has a right to no-fault benefits. HRS § 431:10C-303(a) (1987 Spec.Pamphlet). [5] However, we noted in Methven-Abreu that [t]his right ... is not absolute. An insurer's obligation to pay no-fault benefits under HRS § 294-4 [6] is qualified by HRS § 294-5(c), which provides in pertinent part that `[n]o payment of no-fault benefits may be made to the occupants of a motor vehicle other than the insured motor vehicle.' Methven-Abreu, at ___-___, 834 P.2d at 283 (footnote in original). Likewise, HRS § 431:10C-305(d)(1) (1987 Spec.Pamphlet) provides in relevant part: (d) The following persons are not eligible to receive payment of no-fault benefits: (1) Occupants of a motor vehicle other than the insured motor vehicle; . . . . Provided, that this subsection does not preclude recovery in other capacities under a no-fault policy covering a vehicle which the person did not occupy at the time of the accident.[ [7] ] In Methven-Abreu, we determined that the clear and unambiguous language of HRS § 294-5(c) (recodified under HRS § 431:10C-305(d)(1)) permitted the insurer to preclude no-fault benefits in accord with the insurance policy's exclusion. We explained that to hold otherwise would 1) render HRS § 294-5(c) superfluous, void or insignificant, Methven-Abreu, at ___, 834 P.2d at 284; 2) create little incentive for multi-vehicle households to insure each of their vehicles if an insurance policy on one vehicle would provide no-fault benefits to them if they were injured while occupying any of their other uninsured vehicles[,] id. at ___, 834 P.2d at 284; and 3) frustrate one of the legislature's original and continuing objectives, that is, to reduce motor vehicle insurance costs to the public, id. (footnote omitted), because insurance companies would undoubtedly raise their premiums if faced with such broad and unidentified risks. Fermahin's argument that the owned vehicle exclusion is violative of public policy as to her because she was insured under the policy and did not own Heiser's vehicle is without merit. HRS § 431:10C-305(d), like its predecessor, HRS § 294-5(c), operates as a vehicle exclusion. State Farm's use of the terms owned by you in the policy's owned vehicle exclusion means that, if Fermahin or Heiser were to receive bodily injury while occupying an uninsured motor vehicle owned by either of them, they would be precluded from recovering no-fault benefits. On the other hand, if Fermahin or Heiser were to sustain injuries while occupying a vehicle owned by a stranger to the policy, that is, a third party not insured under the policy, the exclusion would be inapplicable; under the terms of the policy, they would qualify for no-fault coverage, provided no other policy exclusions applied. [8] By affording no-fault coverage to Fermahin for injuries she might sustain while occupying a stranger's uninsured vehicle, State Farm actually provided greater coverage than required by the Hawaii no-fault statute. See HRS § 431:10C-120(a) (1987 Spec. Pamphlet) ([n]o insurer shall issue or offer to issue any policy which the insurer represents is a no-fault policy unless such insurer meets the requirements of this article). Fermahin also contends that her lack of knowledge that Heiser's vehicle was uninsured is a significant distinction which should allow coverage under the policy. Such a contention is untenable. We agree with the well-settled principle that [w]here two persons enter into a joint transaction for the benefit of both, notice of a fact to one of them is also notice to both so far as that transaction is concerned. 58 Am.Jur.2d Notice § 4, at 573-74 (1989) (footnote omitted). Here, Fermahin and Heiser jointly contracted with State Farm for automobile insurance under a single policy and elected to declare only Fermahin's Honda Accord. We emphasize that Heiser was not a stranger to the policy; he was Fermahin's named co-insured. Consequently, Heiser's knowledge of the status of his uninsured vehicle is imputed to Fermahin. See generally Kapahua v. Hawaiian Insurance and Guaranty Company, 50 Haw. 644, 447 P.2d 669 (1968) (an insured is charged with knowledge of the expiration date of his or her auto insurance policy). [9] Therefore, we hold that Fermahin's lack of actual knowledge that Heiser's vehicle was uninsured is immaterial to her right to recover no-fault benefits. We further hold that it was Fermahin's duty, for her own benefit, to ascertain the status of insurance coverage on her co-insured's vehicle, as if it were her own vehicle. We adopt the trial judge's analysis that the application of the exclusion under the circumstances of this case is consistent with the public policy of Hawaii's no-fault law, that is, to prevent the insured from having the benefit of insurance on [an] unlimited number of cars by paying the premium on one. Insurers are entitled to be fairly compensated for risks they contract to assume and `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.' First Insurance Co. of Hawaii v. State, 66 Haw. 413, 423, 665 P.2d 648, 655 (1983) (quoting 6B J. Appleman, Insurance Law & Practice § 4255 at 40 (Buckley 1979)) (other citations omitted). Furthermore, we reject Fermahin's position that the proviso section of HRS § 431:10C-305(d) [10] squarely encompasses the accident victim in this case, whose 1987 Honda Accord LX Policy complied with the No-Fault Law and provided coverage for `a vehicle which the person did not occupy at the time of the accident,' the 1987 Honda Accord LX. (Footnote omitted.) There is no dispute that Fermahin had a valid no-fault policy insuring her Honda Accord at the time of the accident. However, we cannot accept her interpretation of the proviso. If Heiser had been a stranger to the policy in issue, instead of a named co-insured, there would be no question that Fermahin would be entitled to no-fault coverage in her capacity as the sole insured under her no-fault policy. But under the circumstances of this case, Fermahin is precluded from recovering no-fault benefits by the clear and unambiguous terms of the policy's owned vehicle exclusion. Finally, in attempting to convince us that the exclusion at issue should be rendered void as against public policy, Fermahin analogizes the present case to our rejection of an owned vehicle exclusion in Kau v. State Farm Mutual Automoble Ins. Co., 58 Haw. 49, 564 P.2d 443 (1977). Kau dealt with an exclusion in an uninsured motorist policy, and [w]e determined that the owned vehicle exclusion in Kau denied plaintiff full protection of the uninsured motorist statute. We also determined that [a] literal reading of the [uninsured motorist] statute leaves no room for the exclusion which appellant attempted to write into its policy[,] and concluded that the exclusion was void because it was repugnant to the [uninsured motorist] statute. Methven-Abreu, ___ Haw. at ___, 834 P.2d at 285. However, we are dealing with the no-fault statute in this case, HRS § 431:10C-305(d), which operates as a vehicle exclusion as did its predecessor, HRS § 294-5(c). See Methven-Abreu, supra . Therefore, under the circumstances of this particular case, we decline to extend Kau. Based on the foregoing, we conclude that the owned vehicle exclusion contained in the policy is valid because it is consistent with HRS § 431:10C-305(d) and the legislative intent of Hawaii's no-fault law.