In a coverage dispute between the liability carrier and auto carrier, the court determined that the liability policy had a duty to defend and indemnify. Am. States Ins. Co. v. Travelers Prop. Cas. Co. of Am., 2014 Cal. App. LEXIS 74 (Cal. Ct. App. Jan. 27, 2014).
Royal Catering Company leased its fleet of food trucks to operators who drove from site to site selling food. One of the lessees was Mr. and Mrs. Gomez. On the day of the accident, Mr. Gomez was driving while Mrs. Gomez stood at the rear of the truck. Mr. Gomez swerved to avoid an approaching truck, but a collision occurred. Mrs. Gomez was burned when hot oil spilled on her from the deep fryer in the back of the truck.
The Gomezes sued Royal for products liability, among other theories. Royal tendered the defense to its auto carrier, American States, who defended under a reservation of rights. Royal and American States tendered to Travelers under Royal's CGL policy. Travelers declined to provide a defense or to participate in the settlement. American States paid $500,000 to the Gomezes to settle all claims against Royal under the auto policy.
Royal, the Gomezes, and American States then went to arbitration concerning Royal's liability on a products liability theory, i.e., that Royal provided a defective deep fryer basket. Royal stipulated to liability, but challenged the amount of damages and apportionment of fault. The arbitrator assigned liability proportions for Ms. Gomez's injury as follows: the other driver 20%; Royal 40%; Mr. Gomez 25%; Ms. Gomez 15%. Based upon the arbitrator's award, a judgment was entered against Royal for $2.4 million.
American States then sued Travelers for a declaration that Travelers had a duty to defend Royal under the liability policy. The trial court granted summary judgment to Travelers. It held that the Gomezes' food truck was an "auto" and not "mobile equipment," which was an exception to the auto exclusion in the liability policy. "Mobile equipment" was defined in the Traveler's policy to include "vehicles maintained primarily for purposes other than the transportation of persons or cargo." The trial court found that the truck was used to move food, which was "cargo" transported by the truck.
The court of appeals reversed. The primary purpose of the food truck was to serve as a mobile kitchen and not to transport persons or cargo. Under a plain reading of the Travelers policy, the Gomezes' food truck was "mobile equipment" and not an "auto."
The court also agreed that Travelers, not American States, provided coverage for product claims. The "completed operations" exclusion in American States' policy precluded coverage. The claimed bodily injury arising out of Royal's work - leasing the food truck to the Gomezes - which work included equipment (the deep fryer basket) furnished in connection with Royal's work, and was "deemed completed" when the work was put to its intended use - i.e., when the Gomezes leased and operated the food truck equipped with the deep fryer and basket.