Transamerica Insurance v. Tab Transportation, Inc.

BAXTER, J.

I dissent. The majority recognizes that a “paramount objective of the Highway Carriers’ Act” (Pub. Util. Code, § 3501 et seq.) is “to assure the public that commercial highway carriers can answer in damages when their use of the California’s public highways results in injury to members of the public.” (Maj. opn., ante, at p. 404.) The majority further *406recognizes that “[t]he certificate of insurance that an insurance company files with the PUC serves as proof of a highway carrier’s adequate protection against liability.” (Id. at p. 403.)

A certificate of insurance, attesting that Tab Transportation, Inc. (Tab) had current, effective liability coverage for more than the minimum statutory limits, was on file with the Public Utilities Commission (PUC) at the time of the accident in December 1989 giving rise to the damage claims in this case. Nor was there ever any lapse in Tab’s liability coverage during the preceding eight years, notwithstanding the failure of Transamerica Insurance Company (Transamerica) to furnish the PUC with a “cancelation notice” for a one-year liability policy it had issued to Tab in 1980, which had expired, by its own terms, in early 1981. In short, the protection of the public was never compromised; Tab was fully insured under a new, current liability policy at the time of the accident, and was otherwise in full compliance with the law. The majority has nonetheless ignored these realities, and ignored the settled distinction between the “cancelation” and “expiration” of insurance policies, as those terms have long been used and understood. As will be shown, in its rush to rubber-stamp an administratively convenient construction of the pertinent statutory and regulatory provisions urged upon us by the PUC as amicus curiae, in a case with unique facts, the majority has made bad law and fashioned a result unjust to the parties concerned.

I

The PUC is the administrative agency charged with the responsibility of regulating public utilities within the State of California, including highway common carriers. (See Cal. Const., art. XII, §§ 3, 6; Pub. Util. Code, §§211, 213, 216, 701, 1062.) Tab, a commercial trucking company, is a highway common carrier subject to regulation by the PUC under the Highway Carriers’ Act. (Pub. Util. Code, §§3501, 3511.) The statutory scheme requires highway carriers such as Tab to maintain liability protection in certain specified minimum amounts (id., § 3631), and to furnish proof of such coverage to the PUC (id., § 3632), which is routinely accomplished through the filing of a “certificate of insurance” (id., § 3633).

In 1980, in full compliance with the insurance requirements of the Highway Carriers’ Act, Tab purchased from Transamerica a liability insurance policy for a one-year fixed policy period commencing on February 1, 1980. The policy, by its express terms, expired at the end of the stated policy period on February 1, 1981.

Before expiration of the Transamerica policy, and again, in full compliance with the minimum insurance requirements of the Highway Carriers’ *407Act, Tab chose to replace it with another liability policy issued by Federal Insurance Company, which new insurer in turn furnished proof of the substituted coverage by filing the requisite certificate of insurance with the PUC. In 1989, Tab purchased another one-million-dollar liability policy from Home Indemnity Company, to cover the period April 1, 1989, to April 1, 1990. As proof of that coverage, Home Indemnity Company in turn furnished proof of its liability policy issued to Tab by filing a certificate of insurance with the PUC.

In December 1989, over eight years after the Transamerica policy had expired, one of Tab’s trucks collided with an Amtrak passenger train at a railroad crossing in Stockton, killing the truck’s driver and two train crewmen and injuring several Amtrak passengers. Facing suit for claims of wrongful death, personal injuries and property damage, Tab demanded coverage under the Transamerica policy, seeking to add its policy limits to those of the other policies in effect at the time of the accident toward the funding of a settlement in which Tab admitted liability.

Transamerica refused to participate in the settlement, and instead sought a declaratory judgment that it was not liable for injury or damages arising out of the December 1989 accident because its one-year liability policy issued to Tab had expired by its own terms more than eight years earlier. Tab cross-complained, asserting entitlement to coverage under the policy on the ground that Transamerica had never furnished notice of “cancelation” of the policy to the PUC, and pointing out that the certificate of insurance Transamerica had filed with the PUC as proof of coverage stated the policy was “Effective 2-1-80 Until Canceled.” The trial court granted Tab’s motion for summary adjudication on this basis.

Transamerica appealed. The Court of Appeal reversed on the coverage issue, concluding the Transamerica policy had expired of its own terms on February 1, 1981, and that Transamerica therefore had no obligation to give 30 days’ written notice to the PUC of “cancelation” of the policy. We granted Tab’s petition for review challenging the Court of Appeal’s holding as contrary to the PUC’s regulatory scheme.

The majority agrees with Tab on the coverage issue and reverses the judgment of the Court of Appeal, but holds further that Tab must reimburse Transamerica for any payments made under the policy pursuant to the terms of the PUC endorsement TL 675-Series (hereafter the standard form endorsement), which, by operation of law, was appended to, and made part of, the policy in question. I cannot subscribe to that result. I agree with the *408holding of the Court of Appeal on the coverage issue, and would affirm the judgment of that court. Since the Court of Appeal determined the issue of coverage in favor of Transamerica, it did not reach or address the further issue of Transamerica’s right to reimbursement under the terms of the standard form endorsement. I would likewise refrain from reaching the reimbursement issue.

II

To begin with, I find the following portion of the opinion of the Court of Appeal in this case, authored by Justice Robert W. Merrill, and concurred in by then-Presiding Justice Clinton White and Justice Ming W. Chin, correctly reasoned, and accordingly would incorporate it into my analysis as set forth below.*

Highway carriers such as Tab are subject to regulation pursuant to Public Utilities Code section 3631 et seq. Section 3631 provides that, in granting permits to highway carriers, the PUC “shall. . . require the highway carrier to procure, and continue in effect during the life of the permit, adequate protection, as provided in [sjection 3632, against liability imposed by law upon the highway carrier for the payment of damages for personal bodily injuries . . . [and for] damage or destruction of property . . . .” The protection required by section 3631 must be evidenced by either “the deposit with the commission, covering each vehicle used or to be used under the permit applied for, [U (1) Of a policy of insurance, . . . [H (2) Of a bond of a surety company . . . or []Q (3) Of such evidence of qualification of the carrier as a self-insurer as may be authorized by the commission.” (Pub. Util. Code, § 3632.) A certificate of insurance issued by the insurance company issuing the policy may be filed, with the consent of the PUC, in lieu of the policy. (Pub. Util. Code, § 3633.) [At oral argument, counsel for the PUC, appearing as amicus curiae in this case, informed us that the filing of a “certificate of insurance,” as opposed to the actual policy itself, is the rule rather than the exception.] Transamerica filed such a certificate for the policy issued to Tab. The section at issue here, Public Utilities Code section 3634, provides in part that: “The policy of insurance or surety bond shall not be cancelable on less than 30 days’ written notice to the commission, except *409in the event of cessation of operations as a highway carrier as approved by the commission.”

Tab contends that, because Transamerica gave no notice to the PUC, the policy continued to provide coverage.1 Tab urges that Fireman’s Fund Ins. Co. v. Allstate Ins. Co. (1991) 234 Cal.App.3d 1154 [286 Cal.Rptr. 146] [(Fireman’s Fund)] requires this result.2 In Fireman’s Fund, the insured secured coverage from Fireman’s Fund for two policy periods, from July 1, 1983, through July 1, 1985. The insured [footnote omitted] cancelled the Fireman’s Fund policy and replaced it with another policy, effective November 1, 1984. Fireman’s Fund did not provide the PUC with written notice of cancellation. A dispute arose regarding coverage following an accident on May 29, 1985. The court found that because Fireman’s Fund had failed to notify the PUC of the policy’s cancellation, the policy provided coverage. (Id, at p.1166.)

Fireman’s Fund[, supra, 234 Cal.App.3d 1154,] addressed a notably different situation than that presented here. First, though the accident giving rise to the coverage dispute occurred six months after the policy was terminated, it occurred within the original policy period. More importantly, the issue addressed in Fireman’s Fund was whether the insurer was required to provide notice to the PUC of the policy’s cancellation, not its expiration.

Public Utilities Code section 3634 states only that a policy is not cancel-able without notice to the PUC. In construing a statute, we look first to the words of the statute itself. (J. C. Penney Casualty Ins. Co. v. M. K. (1991) 52 Cal.3d 1009, 1020 [278 Cal.Rptr. 64, 804 P.2d 689].) The word “cancel” has a specific meaning in the insurance context. “ \ . . [W]ith respect to insurance, the word “cancellation” means “the termination either by the insured or the insurer or by both of insurance in accordance with the terms of the cancellation clause of a policy.” [Citation.]’ ” (Ohran v. National Automobile Ins. Co. (1947) 82 Cal.App.2d 636, 642-643 [187 P.2d 66], quoting Otterbein v. Babor & Comeau Co. (1936) 272 N.Y. 149 [5 N.E.2d 71, 107 A.L.R. 1510].) “In the ordinary sense of the terms, there is a difference between cancellation of a policy and its lapse by reason of the expiration of the term for which written. Cancellation implies a termination prior to the expiration *410of the term for which written.” (Farmers Ins. Exchange v. Vincent (1967) 248 Cal.App.2d 534, 541 [56 Cal.Rptr. 775].)

The Legislature certainly was aware of this usage in enacting the statute. “ ‘[T]he Legislature enacted section 7 of the Highway Carriers’ Act with full contemplation of the practice and use of cancellation clauses generally as between insurer and insured and that it intended therein to limit this right of cancellation according to the strict terms of the statute . . . .’ [Citation.]” ([Fireman’s Fund], supra, 234 Cal.App.3d at pp. 1163-1164.) Had the Legislature intended to require notice to the PUC in situations where the policy was terminated by means other than cancellation, it could easily have done so. (See Brown v. Kelly Broadcasting Co. (1989) 48 Cal.3d 711, 724 [257 Cal.Rptr. 708, 771 P.2d 406].)

In interpreting a similar provision requiring notice of policy cancellation, the Ninth Circuit [Court of Appeals] held that there was a difference between “non-renewal” and “expiration” of a policy, noting that those terms are technical and have precise meanings in the insurance context. In Aetna Cas. and Sur. Co. v. Merritt (9th Cir. 1992) 974 F.2d 1196, the court considered a policy endorsement which provided: “Pursuant to Section 11.54 of the Los Angeles Administrative Code, the policy to which this endorsement is attached shall not be subject to cancellation, reduction in coverage or non-renewal except after written notice to the City Attorney of the City of Los Angeles ....’’ (Id., at p. 1198.) In that case, the policy at issue had expired, but the insureds argued that it continued in effect because the insurer had failed to give notice to the city of the policy’s “non-renewal.” The court noted that “ ‘non-renewal’ is a technical term, meaning a notice by the insurer that it is unwilling to renew the policy. . . . The 1984 policy’s termination was not a non-renewal, but an expiration. Absence of a notice from [the insurer] to this effect did not extend it indefinitely and without payment of premiums.” (Id., at p. 1199.)

Likewise here, Public Utilities Code section 3634 does not require notice when a policy expires at the end of its term. The statute provides only that notice must be provided if the policy is cancelled. The policy at issue here expired at the end of the policy period, approximately eight years prior to the accident giving rise to the coverage dispute. In these circumstances, the insurer is not required by section 3634 to give notice to the PUC. [Footnote omitted.] [End of quotation from Court of Appeal opinion.]

Ill

In addition to the Court of Appeal’s analysis, I offer the following observations which, I believe, further undermine the rationale of the majority’s holding on the coverage issue.

*411The majority correctly observes that Public Utilities Code section 3635 authorizes the PUC to adopt rules and regulations necessary to enforce the insurance requirements for highway carriers. (Maj. opn., ante, at p. 398.) Pursuant to such authority, the PUC promulgated General Order No. 100, which sets forth various provisions that must be incorporated in every policy. One such provision states: “[Section] (6) A policy of insurance, or surety bond, evidencing such protection, shall not be cancelable on less than thirty (30) days’ written notice to the Public Utilities Commission, such notice to commence to run from the date notice is actually received at the office of the Commission.” (Italics added.) Another provides: “[Section] (8) Every insurance policy, surety bond or equivalent protection to the public shall contain a provision that such policy, surety bond or equivalent protection will remain in full force and effect until canceled in the manner provided by Section (6) of this General Order." (Italics added.)

Sections (6) and (8) of General Order No. 100 are incorporated into the PUC’s standard form endorsement, which endorsement, by operation of law, becomes appended to, and incorporated as part of, every policy of insurance issued to a highway carrier. I do not dispute that the provisions of the standard form endorsement become part of the contract of insurance between the parties. (See Samson v. Transamerica Ins. Co. (1981) 30 Cal.3d 220, 231 [178 Cal.Rptr. 343 , 636 P.2d 32].)

However, both sections (6) and (8) of General Order No. 100, as incorporated into the standard form endorsement, speak only to cancelation of a policy on 30 days’ notice to the PUC. Nowhere is expiration of policies mentioned in General Order No. 100, or in any other language found in the endorsement itself. How then, should this court interpret the plain and express language that is contained in the relevant regulatory provisions? I would interpret such language consistently with the statutory authority found in Public Utilities Code section 3634, which likewise clearly and expressly envisions a regulatory scheme requiring 30 days’ notice to the PUC upon cancelation, not expiration, of a common carrier’s liability insurance coverage.

The majority, although acknowledging that “[incorporation of General Order No. 100, section (8) into the provisions of the Transamerica policy added to the provisions the requirement of the general order that ‘such policy . . . will remain in full force and effect until canceled . . . .’” (italics added), nonetheless concludes that “[t]his language, of course, is in direct conflict with the language in the policy as originally written stating that the policy was to expire in February 1981, a year after its purchase.” (Maj. opn., ante, at p. 400.)

*412Properly interpreted, there is no “direct conflict.” The provisions of Public Utilities Code section 3634, the provisions of sections (6) and (8) of General Order No. 100, the language of the standard form endorsement which incorporates them, and the wording of the PUC’s own standard form “certificate of insurance”—all plainly, and expressly, refer to and address only the situation where a policy of insurance is being canceled, requiring 30 days’ notice to the PUC of such cancelation. Nothing more need or should be read into the otherwise clear language of these provisions.

Moreover, this straightforward construction of the plain wording of the provisions makes sense, for cancelation of a policy during its term is an event terminating coverage of which the PUC would not otherwise be aware unless afforded notice. The expiration date of a fixed-term policy, on the other hand, is known to all at the time of inception of the policy; the PUC has notice of when the policy will expire at the time proof of insurance is tendered to it. The PUC complains, however, that its standard form “certificate of insurance” contains no place in which to insert the expiration date of a policy. This hardly furnishes a sound reason for this court to resurrect a contract of insurance which expired by its own express terms eight years earlier. The standard form “certificate of insurance” was drafted by the PUC to serve its administrative convenience; it does not become part of the contract of insurance. If the form is inadequate, I respectfully suggest the PUC redraft the standardized form to reflect the expiration dates of policies. The public policy to be furthered here is uninterrupted liability insurance coverage, which is routinely achieved through renewal, or substitution of new, successive fixed-term policies. The PUC’s suggestion that an expired fixed-term policy must be deemed to remain in effect until “notice of cancelation” is tendered to the agency, notwithstanding that a new, adequate policy of liability coverage has been substituted in its stead, is simply not necessary to further this public policy.

Should this court nonetheless conclude, as does the majority, that the Legislature and the PUC really meant “cancelation or expiration” when they used the term “cancelation” in Public Utilities Code section 3634, and General Order No. 100, respectively? Although such a construction might serve the administrative convenience of the PUC, once again, no public policy or rule of construction compels such an interpretation. To the contrary, another provision of General Order No. 100—section (9)—provides that; “Upon cancellation, expiration or suspension of an insurance policy ... the operative authority of any highway carrier . . . shall stand suspended immediately upon the effective date of such cancellation, expiration or suspension.” (Italics added.) Clearly, the drafters of the PUC regulations *413at issue here knew how to refer to expiration of insurance policies when they intended to do so.

The majority brushes this fact aside, suggesting that the terms used in section (9) of General Order No. 100 (“cancellation, expiration or suspension”) “are simply the grounds for suspending ‘the operative authority of any highway carrier,’ ” and hence deal only with the “consequences” of the termination of insurance, not the “manner” in which the termination occurs. (Maj. opn., ante, at p. 401, italics omitted.) I fail to see the distinction. The majority’s response begs the very question of regulatory interpretation we face in this case. Under the majority holding, there can be no expiration of a highway carrier’s liability insurance policy without 30 days’ advance notice of “cancelation” of such policy to the PUC. The terms have been rendered interchangeable under the majority’s rationale.

More specifically, under the majority’s holding, all fixed-term policies falling within the regulatory authority of the PUC are now “continuous” insurance policies, with the fixed-term provisions in the contracts of insurance themselves nullified where the insurer—through inadvertence, mistake, neglect, or any other reason—fails to give the PUC 30 days’ notice of “cancelation” of the policy upon its expiration. In the guise of purportedly furthering the public policy behind the Highway Carriers’ Act, the majority has effectively authorized the PUC to turn fundamental concepts of insurance law—where policies subject to PUC regulation are concerned—on their head. And, as this case demonstrates, under the majority’s holding such can be the result even years after an insurer’s administrative oversight in failing to tender the required notice, notwithstanding that a regulated carrier is otherwise fully insured, and in good faith compliance with the letter and spirit of the Highway Carriers’ Act’s insurance requirements. Neither sound public policy nor justice is served by such a result.

IV

As I have explained, under my analysis, and that of the opinion of the Court of Appeal below, the issue of “reimbursement” under the provisions of the PUC’s standard form endorsement becomes moot.

I would note, however, that the majority’s interpretation of, and reliance upon, the reimbursement provisions of the standard form PUC endorsement, given the unique facts of this case, have hardly achieved an equitable result. Transamerica, the party presumably responsible for transgressing the PUC’s regulations by failing to give “notice of cancelation” of the expiration of its fixed-term policy furnished to Tab eight years earlier, is to be reimbursed by *414Tab for any costs of indemnification under the policy. Tab, in turn, which complied with the law, maintained uninterrupted liability coverage with limits exceeding the statutory minimum requirements at the time of the accident, and continued to pay insurance premiums right along, is now to be straddled with the cost of funding that portion of its own settlement (as if it had been self-insured) to the extent Transamerica’s policy limits have been found on the risk and Tab must reimburse Transamerica for any payouts under the policy.

I fail to see how the interests of the public, the parties to this litigation, the regulated common carrier industry, or the insurance industry, have been served by the disposition reached by the majority today. I would affirm the judgment of the Court of Appeal below, directing the trial court to enter judgment on the complaint and cross-complaint in favor of Transamerica and against Tab on the issue of coverage.

Lucas, C. J., and Arabian, J., concurred.

The petition of appellant Transamerica Insurance Company for a rehearing was denied February 22, 1996. Arabian, J., and Baxter, J., were of the opinion that the petition should be granted.

Brackets together, in this manner [], are used to indicate deletions from the opinion of the Court of Appeal; brackets enclosing material (other than the reporter’s parallel citations) are, unless otherwise indicated, used to denote insertions or additions. Footnotes in the Court of Appeal opinion that have been retained are sequentially numbered. (See Arriaga v. County of Alameda (1995) 9 Cal.4th 1055, 1059 [40 Cal.Rptr.2d 116, 892 P.2d 150]; People v. May (1988) 44 Cal.3d 309, 315 [243 Cal.Rptr. 369, 748 P.2d 307]; Estate of McDill (1975) 14 Cal.3d 831, 834 [122 Cal.Rptr. 754, 537 P.2d 874].)

Tab also urges that Transamerica is estopped from arguing that it was not required to give notice to the PUC because Transamerica’s certificate of insurance filed with the PUC stated that the policy was effective “2-1-80 Until Canceled.” A certificate of insurance, however, is not a contract of insurance. (See Cal. Insurance Law & Practice (1994) Liability Insurance in General, § 41.12[2], p. 41-31.)

The trial court stated that it granted summary adjudication to Tab on this issue in reliance on Fireman’s Fund[, supra, 234 Cal.App.3d 1154].