Opinion ID: 789016
Heading Depth: 3
Heading Rank: 2

Heading: Extension of Barrera to Excess Liability Insurers in the Rental Car Context

Text: 30 Appellants argue that Barrera applies to all automobile liability insurers, including excess insurers. Therefore, appellants assert that Philadelphia may not avoid liability for their damages by rescinding Burke's policy on the ground that he misrepresented his status as a licensed driver. 3 Appellants argue that the Barrera court did not limit its holding to primary insurers; rather, it referred to the duty of the automobile liability insurer or the carrier in general. See, e.g., 71 Cal.2d at 681, 79 Cal.Rptr. 106, 456 P.2d 674(Failure of the automobile liability insurer reasonably to investigate the insurability of the insured within a reasonable time after issuance of the policy ... results in the loss of the carrier's right to rescind....) (emphasis added). 31 Further, appellants argue that the two rationales of the Barrera decision support its extension to excess liability insurers. First, with respect to the quasi-public nature of the insurance industry, appellants assert that the public's reasonable expectation that insurers will perform their basic commitment to provide insurance, see id. at 669, 79 Cal.Rptr. 106, 456 P.2d 674, is just as applicable to excess insurers as it is to primary insurers. Second, appellants contend that the public policy underlying the Financial Responsibility Law, to compensate members of the public who are injured by an insured, see id. at 671-72, 79 Cal.Rptr. 106, 456 P.2d 674, 4 is broad enough to extend to excess liability insurers, as long as excess coverage is needed to compensate for their injuries. 32 Philadelphia argues that Barrera only applies to primary liability insurers, and therefore the district court properly voided Burke's policy on the basis of his misrepresentation and correctly concluded that Philadelphia has no liability for damages arising out of the accident. Philadelphia contends that the reasoning of the Barrera decision does not support its application to excess liability insurers because the Financial Responsibility Law requires that primary insurance policies provide minimum levels of coverage, and excess liability policies need not meet these requirements. See Cal. Veh.Code §§ 16054, 16056; Cal. Ins.Code § 11580.1(a). Further, Philadelphia notes that excess insurance policies may contain exclusions that are broader than those allowed for primary policies. See Hertz Corp. v. Home Ins. Co., 14 Cal.App.4th 1071, 1077, 1079 & n. 8, 18 Cal.Rptr.2d 267 (1993) (stating that an excess policy may contain an exclusion for drunk driving whereas a primary policy is prohibited from containing such an exclusion). Philadelphia argues that the public policy underlying the Financial Responsibility Law, and therefore underlying the Barrera decision, is to ensure that those injured in car accidents are covered by policies that provide minimum levels of coverage; 5 thus, issuers of excess liability policies should not be subject to the duty to investigate established in Barrera. 33 Although no California appellate court has addressed whether the duty to investigate recognized in Barrera applies to excess insurers, subsequent decisions of the California Court of Appeal have confirmed that Barrera is still good law as applied to automobile liability insurers in general. For instance, in United Servs. Auto. Ass'n v. Pegos, 107 Cal.App.4th 392, 131 Cal.Rptr.2d 866 (2003), the California Court of Appeal held that the duty recognized in Barrera applies when an insured adds a new car to an existing insurance policy. The court stated: 34 For over 30 years, the law of this state has required insurers to conduct a reasonable investigation of the insurability of insureds before they may rescind automobile insurance policies based on an insured's misrepresentation in an application when innocent third parties have been injured by the insured's actions. The same rule applies to the addition of a new car to the policy. 35 Id. at 401, 131 Cal.Rptr.2d 866; see also Fireman's Fund Am. Ins. Co. v. Escobedo, 80 Cal.App.3d 610, 621, 145 Cal.Rptr. 785 (1978) (holding that the duty to investigate insurability under Barrera applies to assigned risk liability insurers and the duty may not be delegated); cf. Am. Cont'l Ins. Co. v. C & Z Timber Co., 195 Cal.App.3d 1271, 1279, 241 Cal.Rptr. 466 (1987) (holding that the duty imposed in Barrera was compelled by statutory public policy considerations emanating from the automobile Financial Responsibility Law and does not apply to aircraft insurers); Fireman's Fund Ins. Co. v. Superior Court, 75 Cal.App.3d 627, 633, 142 Cal.Rptr. 249 (1977) (same). 36 Finally, Philadelphia argues that even if the duty to investigate applies to excess insurers, Budget satisfied this duty as a matter of law by complying with Cal. Veh.Code §§ 14604, 14608(b), which require rental car agents to inspect the driver's license of the renter and compare the signature on the license with the signature written in the agent's presence. Appellants counter that Budget's statutory obligations as a rental car owner conducting a rental transaction are entirely distinct from Philadelphia's duty to conduct a reasonable investigation as an insurer. Appellants argue that Philadelphia breached this duty as a matter of law, or in the alternative, that whether Philadelphia met its duty is a question of fact. See Barrera, 71 Cal.2d at 682, 79 Cal.Rptr. 106, 456 P.2d 674. 37 In sum, whether Barrera applies to excess liability insurers in the rental car context could determine the outcome of this appeal, and is a question of significant public policy importance that has not been resolved by the California appellate courts. Accordingly, we respectfully request that the California Supreme Court decide the certified question.