California Court of Appeal Rejects Insurance Policy “Resident Exclusion” Denying Recovery to Car Accident Victim

In a case before the California Court of Appeal, the court addressed whether an injured passenger can recover from the driver at fault under a “resident exclusion” in the driver’s automobile insurance policy. The driver and passenger were unrelated but lived together, and the insurance company attempted to deny coverage to the injured passenger under the terms of the policy. The court addressed the public policy rationale behind insurance exclusions and evaluated the legality of this particular exclusion. 

The facts of this case center on a car accident in which Hung Chu, while driving his roommate, Tu Pham, turned left in front of a vehicle driven by Krystal Nguyen. Mr. Pham was injured in the accident and brought a lawsuit against Mr. Chu, seeking to recover $333,300.

Mercury Casualty Co. insured Mr. Chu and asked for a determination by the court that Mr. Chu’s policy did not require payment for the judgment. The basis was that the policy contained an exclusion for individuals who lived in the same household as the insured person. The exclusion was termed a “resident exclusion.” Mercury also asked the court to award it the attorney fees and costs associated with defending Mr. Chu against Mr. Pham’s lawsuit. The trial court upheld the insurance policy’s resident exclusion and determined that the insurance company did not need to cover the judgment obtained by Mr. Pham. Mr. Pham then appealed.

In their analysis, the appellate court examined the definition of “resident relative.” Mercury argued that expanding “resident relative” to include non-relatives is in accord with policy and constitutional arguments. The court rejected this argument and stated that the exclusion exists to prevent potential lawsuits between family members. This prevents lawsuits that might not be truly adversarial in nature. Since non-relatives do not have legal responsibilities with respect to each other, that risk does not exist.

The court stated that an insurer may exclude any insured if that person has an insurable interest. Permissive users, who do not own or control the insured vehicle when the contract is entered into, obtain an insurable interest when they perform an act from which liability under the insurance policy might arise. In this case, Mercury’s liability policy includes, under the definition of “an insured,” a non-relative, non-permissive user of the car, with no insurable interest in the car or its owner.  The court rejected Mercury’s contention that Mr. Pham is “an insured,” since it appears that Mercury named him so for the purpose of excluding him from coverage for bodily injury caused by the use of the insured vehicle by the named insured.

The court stated there is no public policy consideration or legal authority that justified denying Mr. Pham’s claim against the named insured. As roommates who cohabitate, there is no significance in their status.   The court stated that Mercury’s nonresident exclusion was invalid and overly broad. The court held that the policy provision that excluded Mr. Pham from insurance coverage was contrary to public policy. The judgment was reversed and remanded.

At Sharifi Firm, we provide experienced legal counsel to those who have been injured in a car accident. Contact us for a free consultation by calling (866) 422-7222.

More Blog Posts:

California Court of Appeals Reverses Judgment in Case of Insurer Bad Faith Following Car Accident, Southern California Injury Lawyer Blog, September 18, 2015

California Court of Appeals Rules on Liability of Motor Carrier for Negligence of Contract Driver, Southern California Injury Lawyer Blog, August 13, 2015

Contact Information