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Mercury Casualty Co. v. Chu

California Court of Appeals, Fourth District, Third Division

September 24, 2014

MERCURY CASUALTY COMPANY, Plaintiff and Appellant,
v.
HUNG CHU et al., Defendants and Respondents.

Appeal from a judgment of the Superior Court of Orange County, No. 30-2012-00556310 Luis A. Rodriguez and William D. Claster, Judges.

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COUNSEL

O’Connor, Schmeltzer & O’Connor, Lee P. O’Connor and Timothy J. O’Connor for Plaintiff and Appellant.

Angelo & Di Monda, Joseph Di Monda and Christopher E. Angelo for Defendant and Appellant Tu Pham.

Law Offices of Anh QD Nguyen, Jeffrey T. Lauridsen and Anh QD Nguyen for Defendant and Appellant Hung Chu.

OPINION

O’LEARY, P. J.

Mercury Casualty Company (Mercury) filed an action seeking declaratory relief regarding its insurance obligation towards students Hung Chu (Chu) and his roommate Tu Pham (Pham). Mercury issued an automobile policy to Chu insuring his 1995 Honda Accord. Chu was driving, and Pham was a passenger, when Chu collided with a vehicle driven by Krystal Nguyen Hoang (Hoang). Pham filed a personal injury action against Chu and Hoang and obtained a $333, 300 judgment against Chu. Mercury sought a judicial determination confirming Mercury’s decision Chu’s policy excluded coverage for Pham’s judgment under the “resident exclusion.” Mercury also sought an order requiring Chu to reimburse Mercury the fees and costs it incurred in defending him against Pham’s lawsuit.

Chu filed a cross-complaint against Mercury for breach of contract, bad faith, and general negligence. Mercury prevailed in its motion for summary adjudication on the issue of whether the policy provided coverage for Pham’s judgment. The court determined Mercury had no duty to indemnify Chu with respect to the judgment. It granted Mercury’s motion for judgment on the pleadings (JOP) on Chu’s cross-complaint but determined Mercury could not seek reimbursement of its attorney fees and costs in defending Chu because such damages were not sought in the JOP. Both parties filed appeals.

Chu and Pham appeal the court’s determination Mercury’s policy excludes coverage for Pham’s personal injury lawsuit against Chu. Mercury appeals the court’s ruling Chu was not required to reimburse Mercury for the defense

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fees and costs. We reverse the judgment, concluding the policy provision excluding Pham from coverage is an overbroad expansion of the statutorily permitted exclusion and is also contrary to public policy. The rulings on the summary adjudication motion and JOP are reversed and the matter remanded. Based on this ruling, we need not address the issue raised in Mercury’s cross-appeal regarding its entitlement to defense costs and fees.

I

A. Underlying Facts: The Accident

In October 2008 Chu’s vehicle collided with Hoang’s vehicle at the intersection of Chapman Avenue and Gilbert Street in Garden Grove, California. Chu was driving his 1995 Honda Accord westbound on Chapman Avenue in the left turn lane and made a left turn directly in front of Hoang. Pham, who was a passenger in Chu’s vehicle, was injured.

B. Mercury’s Policy

Mercury issued an automobile insurance policy for Chu’s 1995 Honda Accord for the period from September 12, 2008, to March 12, 2009. The policy identified Chu’s address as 9262 Lampson Avenue, Garden Grove, CA 92841 (hereafter the Lampson residence). The bodily injury limits were $15, 000 per person and $30, 000 per accident.

Relevant to this case, the liability coverage provision listed in Part I of the policy provided in relevant part:

“Coverage A—Bodily Injury Liability; Coverage B—Property Damage Liability: To pay on behalf of the insured all sums, except punitive or exemplary damages, which the insured shall become legally obligated to pay as damages because of:

“A. bodily injury sustained by any person other than an insured;

“B. property damage[.]” (Italics omitted.)

Part I of the policy also defined persons insured as follows: “Persons Insured: The following are insured under Part I:

“(a) With respect to the owned automobile:

“(1) the named insured and any relative,

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“(2) persons listed as drivers in the policy declarations,

“(3) any other person using an owned automobile, provided it is used with the permission of the named insured...,

“(4) residents other than described in (a)(l) or (a)(2), above.”

On the next page, Part I of the policy also contains several definitions, including the term “resident.” It provides, “Resident means an individual who inhabits the same dwelling as the named insured.” The terms “inhabits” and “dwelling” are not defined.

Mercury’s policy also contained several pages of exclusions. Relevant to this case, subdivision (g), provided, “[This policy does not apply under Part I]... to liability for bodily injury to an insured or liability for bodily injury to an insured whenever the ultimate benefits of that indemnification accrue directly or indirectly to an insured, including, in both instances, those persons who would have otherwise been included within this policy’s definition of an insured but who are excluded from coverage while using a motor vehicle” (italics added; hereafter referred to as Exclusion (g)).

Under Exclusion (g), Mercury need not provide coverage for bodily injury to anyone included in the policy’s definition of “an insured.” Because Part I defines “an insured” as including all “residents” who inhabit the same dwelling as the named insured, Mercury need not provide coverage for bodily injury to anyone inhabiting the same dwelling as Chu. Mercury calls this a “resident exclusion.”

C. Mercury’s Coverage Investigation

Mercury conducted a coverage investigation and in December 2008 interviewed Chu on the telephone. Chu reported he and Pham were friends and lived together at the Lampson residence, owned by Chu’s relatives. Chu stated he had lived there for one year before the accident and Pham moved into the house several months prior, in August 2008. Chu acknowledged the statements made during the telephone interview were made under penalty of perjury.

That same day, Mercury interviewed Pham, who confirmed he was friends with Chu and they lived together at the Lampson residence. Pham stated he had lived there since September 2008. Pham confirmed he did not live at any other addresses and used the Lampson residence as his mailing address. Pham acknowledged the statements made during the telephone interview were made under penalty of perjury.

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On January 27, 2009, Mercury sent a letter to Pham stating he qualified as “an insured” under the policy issued to Chu because he resided with Chu at the same address. Mercury cited Exclusion (g) of Chu’s policy and provided him with a copy of the entire policy. Mercury informed Pham it ...


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