Low, Ball & Lynch’s

WEEKLY LAW RESUME

May 27, 2004 Issue      By: Raymond Coates

Coverage - Permissive Users - Reduced Limits

Haynes v. Farmers Insurance Exchange

California Supreme Court

(May 17, 2026)

Some automobile policies provide reduced limits to permissive users.  This Supreme Court case addressed the issue of whether a provision in a Farmers Insurance Exchange policy that reduced limits for permissive users was legally sufficient to be enforced.

William M. Gallahair was insured by Farmers.  He had an "E-Z Reader" car policy.  Limits were provided of $250,000 per person and $500,000 per occurrence for bodily injury and $100,000 for property damage.  On the policy's ninth page under "Limits of Liability," nothing was stated about reduced limits for permissive users.  On the tenth page, under "Other Insurance," it was stated that coverage for permissive users was provided up to the limits of financial responsibility law only.  On the 24th page was an endorsement which provided a number of policy provisions, one of which stated the "Other Insurance" provision was deleted, and the new provision provided coverage for permissive users in the sum of $15,000 per person, $30,000 per occurrence and $5,000 for property damage.

Gallahair permitted Christopher Charles Morrow to borrow and drive his vehicle.  Joshua Lee Haynes was injured while riding as Morrow's passenger.  Haynes sued Morrow and Gallahair, and Farmers defended.  Farmers asserted coverage was limited to $15,000/$30,000/$5,000.  Haynes filed a separate declaratory relief action attacking the policy's limitation endorsement.  The trial court granted Farmers' motion for summary judgment.  The Court of Appeal reversed.  Farmers petitioned the Supreme Court for review, which was granted.

The Supreme Court, in a 6 to 1 decision, affirmed the decision of the Court of Appeal, finding the policy limit limitation to be insufficiently conspicuous, plain and clear.  The Court first noted that the language in the "Other Insurance" clause was not conspicuous, plain or clear and could not be enforced.  The Court stated there was nothing to alert a reader that permissive user coverage was limited.

As to the endorsement, the Court found the limitation not to be conspicuous.  The Court noted that the permissive user limits were not placed on the declaration page.  There was nothing on the declaration page to reference the limitation.  Further, the language was not bolded, italicized, enlarged or underlined to call to the attention of the insured the limitation.  The endorsement appeared on the 24th page of the policy.  It was part of other provisions which amended the policy.  The Court found that burying this limitation among its other provisions rendered it inconspicuous and potentially confusing to the average lay reader.

Further, the language of the provision was not plain and clear.  The term "permissive user," although used in the endorsement, was nowhere defined.  Further, the Court found the language to be confusing.  Finally, it was inserted in the "Other Insurance" section which the Court again found to be confusing.

The Court conceded Farmers had no duty to provide coverage to the same extent as it did to its named insured.  Farmers was merely required to provide a policy up to the amount of the financial responsibility limits.  The Court felt that an insured could reasonably expect that the same coverage would have been extended to permissive users.  With that expectation, Farmers was required to cast coverage restrictions in plan and clear language and to conspicuously display them.  The Court concluded that it had not, and as a result, the limitation was invalid.

COMMENT

Policy drafters should read this opinion for its language on the drafting of such provisions.  While the Court does not provide the precise wording or placement of such a limitation, it gives enough clues as to how to draft such a provision that policy drafters should follow those instructions.

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