Rental Exclusion of “Bob-Tail” Insurance Policy
In Clarendon National Ins. v. Medina, the insurer, Clarendon National Ins. (“Clarendon”), issued an insurance policy to Guillermo Medina (“Guillermo”), which provided coverage for a Volvo trucking tractor. The tractor was owned by Maria Medina (“Maria”). Guillermo drove the tractor with Maria’s knowledge and permission in order to work as a truck driver. Guillermo, with Maria’s knowledge and permission, signed a Contractor Operating Agreement with Town Trucking, which related to the use of the tractor.
Guillermo obtained the Clarendon policy in order to insure the tractor. Maria paid Insurance Pro Agencies for the policy. The Clarendon policy was a form of insurance known within the trucking industry as “bob-tail” insurance, which Town Trucking required its drivers to purchase. The policy contained a provision stating that it did not apply to a covered auto while in the business of anyone to whom the auto was rented.
Guillermo drove the tractor and was involved in a highway accident, which resulted in the death of Michael Schulman. His estate filed suit against Guillermo, Maria, and Town Trucking. The parties reached a settlement under which Occidental Fire and Casualty paid $997,500 to the estate. The insurer, Clarendon, declined coverage.
The issue was whether there was additional coverage under the Clarendon policy. The answer rested on whether, at the time of the accident, the Volvo was “rented” by Guillermo to Town Trucking, or whether he was operating the tractor as an independent contractor. If the tractor was “rented,” then the rental exclusion applied. Clarendon had no liability under the policy because the parties did not dispute that Guillermo was driving on behalf of Town Trucking, rather than for personal reasons at the time of the accident.
The court held that the Contractor Operating Agreement, under which Guillermo operated his wife’s tractor on behalf of Town Trucking, constituted a lease pursuant both to applicable federal regulations and by operation of law. There was no evidence demonstrating that Town Trucking knew that Guillermo was not the legal owner of the tractor at the time the agreement was signed. Guillermo operated the tractor in Town’s Trucking business at the time of the accident, which resulted in the death of Michael Schulman. As a result, the court held that the rental exclusion of the bob-tail insurance policy applied. In addition, the insurer, Clarendon, had no obligation to provide coverage under the policy.
Clarendon National Ins. Co. v. Medina, 2010 WL 1050195 (N.D.Ill., 2010).
