Tire Sale Company Is Barred from Coverage due to the Used Tire Exclusion

 

March 6, 2017

The Sacramento County Superior Court determined that when exclusions are sufficiently clear, the insurer has no duty to notify the insured of the exclusions contained in the policy and despite the insured claiming they did not know about the exclusion in place, the exclusion was enforceable and barred coverage in a case involving a car accident that resulted in fatalities. The case is Praetorian Insurance Co. v. A R Business Group, Inc. No. 213CV02639MCEEFB (E.D. Cal., January 13, 2017).

 

The insurer, Praetorian, issued the insured, US Tire and Wheel, a standard business auto policy with several endorsements, one being an exclusion for “'Bodily injury' or 'property damage', arising out of a defect in, or failure of, one or more tires which were not new when sold or installed by the insured or had been recapped, retreated, or regrooved by the insured, its agent, employees, or independent contractors.” The insured subsequently put four used tires on a Ford Explorer that was involved in a tragic accident caused by the used tires. This case hinged on the enforceability of the Used Tire Exclusion, and the applicability of that Exclusion to the action brought to court.

 

The insured argued that if they knew about the exclusion they would not have purchased the policy because 50% of their business was constituted by used tire sales. They also argue that the Exclusion is unenforceable because they never had actual notice of the Exclusion. The insurer argued that while policies contain language that states “an exclusion 'is insufficient to bind a party to unusual or unfair language unless it is brought to the attention of the party and explained.” The law, though, does not require actual notice and instead the argument is analyzed based on whether or not there is sufficient conspicuousness and clarity. In the case at hand, the Exclusion was contained on its own page, was clearly labeled in all caps and bolded. It was also named in an all-caps and bolded list of forms. The court determined that this was sufficiently conspicuous for the analysis. The court also determined that the Exclusion was a part of the policy when it was received and signed, and since the inclusion of the Exclusion was conspicuous, the fact that it was included in clear language makes the Exclusion enforceable.

 

Because the California court found the Exclusion enforceable, there was no possibility that an action arising out of used tires being installed on a vehicle be covered under the insurance policy, so the insurer had no duty to defend in the action at hand.

 

Editor's Note: Insureds need to pay very close attention to the endorsements and exclusions that are listed in the policy. These exclusions can cut the costs of premiums, but can also exclude coverage in situations where an insured might assume coverage would be provided.