What Is A “Covered Auto”

Weatherford lawyers and those in Springtown, Aledo, Azle, Mineral Wells, Millsap, Brock, Willow Park, Hudson Oaks, and even out in Grafford need to be sure what a “covered auto” is under an insurance policy.
The Austin Court of Appeals dealt specifically with this issue in a 1997 opinion. The style of the case is, State Farm Mutual Automobile Insurance Company v. Joel Kelly. The issue in this case is whether or not a car that was previously stolen is a “covered auto” under the policy at issue.
Here is some background:
In October 1993, in response to a newspaper advertisement, Mr. Kelly paid $17,000 to Darrell Edmond Rogers, a/k/a Donald Davis, to purchase a vehicle that Rogers claimed to be a 1991 Nissan 300ZX. Mr. Kelly received a certificate of title to a 1991 Nissan 300ZX. On the same day, Mr. Kelly called and asked State Farm to replace the 1990 Mazda on his personal auto insurance policy with the 1991 Nissan. Less than a month later a Department of Public Safety officer visited Mr. Kelly at his place of business and confiscated the 1991 Nissan, informing him that the car was a stolen vehicle. The “VIN” plates of a reconditioned 1991 Nissan 300ZX had been placed on a 1993 model which had been stolen from a Houston car dealership. Mr. Kelly immediately called State Farm, canceled coverage on the 1991 Nissan and reinstated coverage on the 1990 Mazda.
On February 11, 1994, a Travis County Justice of the Peace ordered the confiscated 1993 Nissan returned to its rightful owner. Mr. Kelly filed a claim with State Farm under the policy provision, “Coverage for Damage to Your Auto,” for the $17,000 he paid for the stolen vehicle. State Farm denied the claim. Mr. Kelly subsequently sued State Farm for the loss. The trial court rendered final judgment in favor of Mr. Kelly and ordered State Farm to reimburse him for the amount paid for the car, plus interest and attorneys’ fees. The court made several conclusions of law, including the following: (1) Mr. Kelly’s auto insurance policy with State Farm is not ambiguous; (2) Mr. Kelly was a bona fide purchaser of a stolen car; (3) seizure of the car by the police was an accidental loss to Mr. Kelly; (4) the policy did not exclude this type of accidental loss from coverage; and (5) the policy covers all accidental losses not specifically excluded. State Farm then filed this appeal.
In discussing this case, the court pointed out that under Mr. Kelly’s insurance policy, State Farm agrees to “pay for direct and accidental loss” to the insured’s “covered auto.” The policy defines covered auto to include a private passenger automobile acquired during the policy period if the insured notifies State Farm within 30 days after becoming the owner. To be covered, therefore, Mr. Kelly’s Nissan must have been a “covered auto” and its repossession must have been an “accidental loss” not specifically excluded by the policy. State Farm claimed the court erred in finding the car was a “covered auto” under the terms of the policy. The court said this was a matter for the court to determine as a matter of law.
State Farm asserted that its policy definition of “covered auto” specifically imposes an ownership requirement for coverage. Because Mr. Kelly never received a legal certificate of title to his car, State Farm contended he was never an owner and his car was never a covered auto under the policy.
The court then discussed what it means under Texas law to have an insurable interest and pointed out that the Texas Supreme Court has ruled that actual ownership is not required.
The purpose of the insurable interest requirement is to discourage the use of insurance for illegitimate purposes according to books written on this subject. That purpose is served here. The record before the court contained no allegations that Mr. Kelly knew or should have known that the vehicle he purchased was stolen. He paid valuable consideration for the car and would have derived a benefit from its purchaser for value, Mr. Kelly had an insurable interest in the Nissan as matter of law, even though he was never the legal owner. Because he notified State Farm within the thirty-day period required by the policy, the trial court correctly concluded the Nissan was covered under Mr. Kelly’s policy.
This appeals court upheld the trial courts’ ruling in favor of Joel Kelly.
These policy interpretation questions can be confusing and serve as examples why an experienced Insurance Law Attorney needs to be involved in these claims to help make sure the insured person’s interests are protected.