Insurance And Which Car Is Insured?

Here is a situation for someone in Grand Prairie, Arlington, Fort Worth, Dallas, Irving, or anywhere else in the DFW area to think about. If a car has insurance and it gets sold, is the insurance on the car still valid?
This case was decided by the Houston Court of Appeals, First District, in 1986. The style of the case is Douglas W. Black v. BLC Insurance Company.
Black was appealing from a summary judgment that BLC had no duty to defend against his claim because BLC had no liability to him under its insurance policy.
On May 6, 1983, BLC issued an auto policy to Thomas Webster covering his 1972 Dodge. Webster sold the car to Robert Linville on September 9, 1983. A week later, Linville sold the car to Warren Sanchez. Sanchez took possession on September 17, 1983, paying $270 and promising to pay the balance by September 30, 1983. Linville gave Sanchez a bill of sale to evidence the transaction. On October 23, 1983, Sanchez, while driving the 1972 Dodge, was killed in a collision with a car driven by Black. Black, who was injured, sued Sanchez’ estate for damages.
BLC sought a declaratory judgment that it had no duty to defend or indemnify Sanchez’ estate under its insurance policy issued to Webster, because Webster had sold the insured auto before the accident. The court ruled in favor of BLC.
Black contended that the court erred because Webster’s policy was not cancelled and still covered the 1972 Dodge on October 23, the date of the accident.
The pertinent portions of the policy provide:
DEFINITIONS Throughout this policy, “you” and “your” refer to:
1. The “named insured” shown in the Declarations, and 2. The spouse if a resident of the same household.
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“Your covered auto” means:
1. Any vehicle shown in the Declarations;
2. Any of the following types of vehicles on the date you became the owner:
a. a private passenger auto; or b. a pickup, panel truck or van, not customarily used in any business or occupation other than farming or ranching.
This provision applies only if you:
a. acquire the vehicle during the policy period; and b. notify us within 30 days after you become the owner.
If the vehicle you acquire replaces one shown in the Declarations, it will have the same coverage as the vehicle it replaced. You must notify us of a replacement vehicle within 30 days only if you wish to add or continue Coverage for Damage to Your Auto.
If the vehicle you acquire is in addition to any shown in the Declarations, it will have the broadest coverage we now provide for any vehicle shown in the Declarations.
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PART A — LIABILITY COVERAGE INSURING AGREEMENT We will pay damages for bodily injury or property damage for which any covered person becomes legally responsible because of an auto accident.
“Covered person” as used in this Part means:
1. You or any family member for the ownership, maintenance or use of any auto or trailer.
2. Any person using your covered auto.
3. For your covered auto, any person or organization but only with respect to legal responsibility for acts or omissions of a person for whom coverage is afforded under this Part.
4. For any auto or trailer, other than your covered auto, any person or organization but only with respect to legal responsibility for acts or omissions of you or any family member for whom coverage is afforded under this Part. This provision applies only if the person or organization does not own or hire the auto or trailer.
Black contended that “your covered auto” in the policy means “any vehicle shown in the Declaration,” and the declaration named the 1972 Dodge; therefore, the car remained insured under Webster’s policy, despite the two changes of ownership. Black charges that the trial court’s judgment has improperly added to the policy a requirement that the named insured, Webster, own the “covered auto.”
In explaining its ruling, this court said that Webster’s ownership of the car was a prerequisite to coverage under this policy. The policy language is clear. A “covered person” is any person using “your covered auto.” “Your covered auto” is defined in the policy as “any vehicle shown in the declarations. The word “your” is defined as referring to:
the “named insured” shown in the declarations ….
The use of the word “your” in this policy means that Webster had to own, possess, or at least control the use of the car in order for coverage to exist.
Other courts have reached the same result even though, as in the present case, the named insured remained the record owner on the certificate of title and despite laws providing that unrecorded sales are void.
In a concluding paragraph the court said:
“A finding of coverage under these facts would deprive an insurance company of the right to choose its customers and delegate that power to the insured when choosing a buyer. It would expose the insurer to a greater risk than it assumed by covering permissive users. This is because the insured will generally loan his car cautiously, in order to get it back whole. The insured will not be so careful, however, when selling. Then he will likely sell to the highest bidder, no matter how unskilled or uninsurable the person may be. That is a risk that neither party bargained for, and it is not one plainly included within the policy’s language. The trial judge’s decision was supported both by the policy language and by sound public policy.