Calif. Court Finds Mercury Not Responsible in Car Insurance Case

A California appeals court has ruled that Mercury Casualty Co. is not liable for damages suffered by an uninsured motorist who was struck by a drunken driver while heading home after buying a car that had been covered by the seller’s policy.

In a case that hinged on the timing of when ownership of the car was officially transferred—and when coverage of the vehicle ceased—the state’s 6th Court of Appeals found that Mercury is not obligated to pay because the policy had already been terminated.

The ruling, handed down Dec. 27, may be of interest to residents of the Golden State who are considering buying a vehicle but are unsure whether they need to buy car insurance online or in person before they drive away. The decision affirms an earlier state Supreme Court ruling in the case, which followed the sale of a 2001 BMW on April 14, 2008.

Daniel Thiel gave Eric and Patricia Benford $14,900 in cash and a check for $1,400 for the car. The Benfords reportedly told Thiel that they would pay off the loan on the vehicle and mail him the certificate of title once his check cleared, which it did on April 21, three days after being deposited.

Eric Benford notified the state Department of Motor Vehicles (DMV) of the sale on April 15 by submitting an online notice of transfer and release of liability form.

The previous evening, however, Thiel was driving the BMW home when he was struck by an intoxicated, uninsured motorist, suffering injuries to his head, chest and leg that required two surgeries and ongoing physical therapy.

Thiel was uninsured at the time of the accident, while the Benfords had a liability policy through Mercury that included uninsured motorist coverage. Thiel filed a claim with the coverage provider, but Mercury denied it on the grounds that filing the online DMV notice had relieved the Benfords of “any insurable interest in the vehicle,” according to the court.

Thiel filed a lawsuit against Mercury a year later, accusing the company of, among other things, breach of contract and insurance bad faith. The action cited provisions of the state motor vehicle code specifying that, in order to have made a “bona fide sale” and avoid liability for accidents involving a vehicle that has been delivered to the buyer, a seller must also either endorse and turn over the certificate of ownership or deliver the transfer and release of liability documentation to the DMV.

Thiel maintained that the Benfords had not been released from liability because they had not given him the title to the BMW and had not filed a transfer form with the DMV before the accident happened.

Lawyers for Mercury conceded that the title had not been turned over, but contended that the sale had nonetheless taken place and liability been removed, citing a separate section of the vehicle code that requires only that a vehicle seller notify the DMV of a sale within five calendar days.

The appellate panel upheld the Supreme Court ruling, finding that a bona fide sale is determined by the nature of the agreement between the two parties and that transfer of ownership “is not ineffective merely because the DMV has not yet received the ‘appropriate documents.’”

By filing the transfer form within five days of the sale, the Benfords were released from any liability for events that took place not after the document was filed, but after the sale, the justices reasoned.

“Accordingly, Mercury was not obligated to cover plaintiff as a permissive user under the auto policy the Benfords had purchased for that car,” the opinion states.

About Gregor McGavin
Gregor McGavin is an award-winning journalist who has reported across the country for such publications as The Associated Press, the Arizona Republic, the Pittsburgh Tribune-Review and the Press-Enterprise.

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