In a decision deemed unpublishable, the Fourth District Court of Appeal in Mid-Century Ins. Co. v. Vinci Investment Company, Inc., 2010 WL 673267 (2010) that a claim brought by a credit union against a car dealer with whom it did business asserting wrongdoing in the assignment of retail installment sales contracts for automobiles might be covered by the dealer’s insurance policy. The issue was framed by the Court of Appeal as follows:
In this scope of insurance coverage case, defendant Vinci Investment Company, Inc. (Vinci), which did business as Honda Santa Ana, appeals from a judgment in favor of plaintiff Mid-Century Insurance Company, wherein the court found Mid-Century had no duty to defend or indemnify Vinci in the underlying lawsuit brought by Santa Ana Federal Credit Un-ion (the credit union) against Vinci. The credit union’s lawsuit involved its purchase from Vinci of installment sale contracts for vehicles sold by Vinci to retail customers. On appeal Vinci contends the court erred by (1) ruling the insurance policy did not cover the credit union’s claims against Vinci and that Mid-Century had no duty to defend Vinci against those claims, and (2) granting summary adjudication and judgment on the pleadings in Mid-Century’s favor on Vinci’s bad faith claim in its cross-complaint against Mid-Century. We reverse the judgment on the scope of the insurance coverage because the truth in lending errors and omissions liability endorsement and the title errors and omissions liability endorsement potentially covered some of the credit union’s claims against Vinci. We also reverse the court’s summary resolution of Vinci’s bad faith claim against Mid-Century and therefore remand the case to the trial court for further proceedings.
After a lengthy discussion of TILA and the allegations of the Complaint, the Court of Appeal found a potential for coverage under the TILA and Title Errors Endorsements of the dealer’s policy. As to the former, the Court of Appeal explained:
The complaint also alleged the credit union would not have acquired “certain contracts” from Vinci had it known the “true facts,” including the concealed deferred down payments. The credit union, in reviewing which conditional sales contracts it wished to purchase, would surely have deemed it material to the credit risk it would assume upon purchase of the contract, to know that the buyer of the vehicle had not actually paid the entire down payment reflected on face of the contract. The credit union asserted in its interrogatory responses that some 180 out of 237 acquired conditional sale contracts contained a breach of Vinci’s warranty regarding the accuracy of the down payment reflected on the face of each conditional sale contract. ¶ . . . Because the truth in lending liability insurance clause potentially covered some of the credit union’s claims against Vinci, Mid-Century owed Vinci a defense. And, if Vinci can establish that it became legally obligated to pay damages to the credit union because (1) the credit union purchased contracts containing embedded state law truth in lending violations, with the consequent breach of warranty, or (2) that it suffered losses because vehicle buyers withheld finance charges because of such violations, indemnity would be owed. The court erred in ruling otherwise.
As to the Title Errors Endorsement, the Court of Appeal found a potential for coverage as well, explaining:
Vinci asserts that the credit union’s complaint and “its discovery responses made clear that its claims ‘involved’ allegedly negligent acts, errors and/or omissions by Vinci in failing to correctly or properly specify, on title papers, [the credit union] as the ‘legal owner’ or mortgagee of ‘Motor Vehicles’ sold by Vinci.” Vinci is correct. The credit union had alleged in its complaint, inter alia, that Vinci breached its agreement with the credit union by: “failing to complete all forms and documents, and failing to pay all fees necessary to properly perfect the CREDIT UN-ION’S security interest in vehicles that are collateral for contracts purchased from [Vinci]”; by “failing to process and to provide the CREDIT UNION with information regarding the status of the DMV title work [Vinci] is required to process under the Agree-ment which has prevented the CREDIT UNION from enforcing its rights against the collateral on contracts that are in default”; and by “assigning to the CREDIT UNION contracts in which the CREDIT UNION’S security interest does not constitute a valid first lien on the collateral and the necessary DMV paper work has not been filed or recorded according to law to preserve the priority of each lien.” ¶ The credit union’s discovery responses also made clear it was asserting claims against Vinci for failing to properly name the credit union as the “legal owner” of the vehicles that were the subject of a conditional sale contract assigned to the credit union. At the coverage trial, the parties stipulated that “[i]n addition to a copy of the complaint against it, Vinci provided Mid-Century with two sets of interrogatory responses served on Vinci by the Credit Union. These sets of interrogatory responses were served on Vinci on March 18, 2005 and September 2, 2005, respectively. Vinci provided the March 18, 2005 interrogatory responses to Mid-Century as an enclosure to its August 8, 2005 tender letter. Vinci provided the September 2, 2005 interrogatory responses under cover of Vinci’s September 28, 2005 letter to Mid-Century.” Turning to the credit union’s March 18, 2005 interrogatory responses provided to Mid-Century, Vinci had asked the credit union to state the facts supporting its contentions that Vinci failed “to complete all forms and documents” and all facts sup-porting its contention that Vinci had failed “ ‘to pay all fees necessary to properly perfect Plaintiff’s security interest in vehicles that are collateral for con-tracts purchased from [Vinci].’ “ The credit union’s March 18, 2005 response to these questions, provided to Mid-Century with Vinci’s tender, stated: “[The credit union] produced documents on October 15, 2004 including a spreadsheet titled ‘SA Honda Litigation.’ Refer to the worksheet titled ‘DMV/KSR Title Issues,’ column titled ‘DMV Status.’ This worksheet lists all the loans for which [the credit un-ion] was not properly transferred title [or paid the fees].” ¶ The spreadsheet referred to in this interrogatory response was received in evidence as exhibit 33 during the coverage trial. The column titled “DMV Status” lists names of certain lienholders other than the credit union associated with vehicles subject to conditional sale contracts assigned to the credit un-ion. Manifestly, there was a potential for coverage on these title claims under the title errors endorsement, and, accordingly, Vinci was owed a defense. And if Vinci can establish that it became legally obligated to pay damages to the credit union because title was not properly perfected, indemnity would similarly be owed.
The decision is lengthy, and can not be cited as precedent pursuant to Rule of Court 8.1115, but it’s worth a read.