INSURANCE – Owner of vehicle upon transfer for liability insurance purposes
DATE:  3/23/2006

Gainsco, H&H Auto and David Holder appeal Barren Circuit Court’s entry of Summary Judgment for Gentry, Booth and Ky Farm Bureau. COA affirmed the TC’s ruling, and the Supreme Court granted review.

The case involves the sale of an auto on 4/15/00 by H&H Auto to Joe Booth. The auto in question had been purchased just 9 days prior from Philip Duke Motors in Alabama, although Duke was unable to immediately transfer the auto’s certificate of title. Holder, president of H&H Auto, personally negotiated the sale to Booth, but was unable to immediately assign title to Booth. Booth nevertheless took possession of the auto on 4/15/00 without title. Booth’s son lost control of the vehicle and caused an accident on 4/20/00 that resulted in his passenger Gentry sustaining permanent, disabling injuries. Gentry initiated suit against Booth, KFB, H&H Auto, Holder and Gainsco (Holder’s insurer). Gentry filed a MSJ asserting that H&H Auto was the owner of the auto on the accident date for purposes of insurance coverage, which the TC granted. Gainsco was therefore deemed to have primary coverage while KFB (Booth’s insurer) was held secondarily liable. This appeal followed.

In a 4-3 decision, the Supreme Court upheld the COA’s ruling that affirmed the entry of Summary Judgment. Justice Johnstone wrote the majority opinion, and identified the sole issue on appeal as whether H&H Auto was the owner of the auto for insurance purposes at the time of the accident. The opinion discusses KRS 186.010(7)(c) and the requirements placed on a licensed auto dealer in order to effectively transfer ownership of the auto in those instances where the title is not immediately transferred to the buyer at the time of purchase. Those requirements as set forth in KRS 186A.220 are two-fold: 1) the dealer must obtain the purchaser’s consent to file the certificate of title on his behalf; and 2) he must verify that the purchaser has obtained insurance on the auto before relinquishing possession. The majority felt that H&H Auto failed to satisfy the second prong since Holder did not request any form of proof of insurance from Booth on 4/15/00 (a Saturday) even though he did verbally verify coverage with Booth’s insurance agent on 4/17/00, the next business day. Of importance was the fact that the title documents were not signed by Booth until 4/24/00. Also of importance is the fact that KFB conceded that Booth had valid insurance coverage on 4/15/00 and 4/20/00. The majority side-stepped this fact by ruling that this alone is not enough in that the statute also requires the dealer to obtain proof of insurance. The court then proceeded to reject Holder’s argument that his course of prior dealing with Booth (by having sold him vehicles in the past, most recently within a year of the subject sale) satisfies the "proof" requirement by way of his knowledge that Booth was insured with KFB in the recent past, noting that the statute requires verification beyond mere assumption or prior knowledge. Justices Lambert, Roach and Winterheimer joined Johnstone in the majority.

Justice Graves issued the dissenting opinion during which he discusses the legislative intent behind KRS 186A.220, which is to prevent uninsured vehicles on the roadways. He felt that the majority too narrowly reviewed the proof of insurance requirement, and questioned what effect a discussion about insurance coverage at the time of sale (that the majority repeatedly noted Holder had failed to do) would have on the ultimate question of ownership at the time of the accident. He felt that almost any form of proof carries an assumption, the exception being proof obtained directly from the buyer’s insurance representative. He emphasizes the difficulty dealers would face if required to obtain this form of absolute proof, especially on weekends, and felt that the statute did not require it. Graves points out that even if there was a technical deficiency at the time of sale, Holder had nevertheless cured it by obtaining verbal proof of insurance from Booth’s agent on 4/17/00 – 3 days before the accident. In this regard, he declares that the harm the statute seeks to prevent – uninsured motorists – did not exist in this particular case since KFB had admitted coverage existed on all relevant dates at issue. He concludes by conceding that a prior course of dealing is certainly not a preferable means to obtain proof of insurance, but nevertheless felt that there was evidence sufficient in favor of Holder to at least survive a MSJ. Justices Cooper and Scott joined in the dissent.

Commentary: The majority’s decision appears to place a burden of strict compliance on the dealer to obtain proof of insurance pursuant to KRS 186A.220, presumably on the basis that the dealer is in the best position to prevent the harm of uninsured vehicles hitting the roadways. However, the majority doesn’t go far enough by offering some guidance on what actions constitute verification of "proof" of insurance. Is verbal assurance from the buyer enough? What about obtaining a copy of the most current insurance card? Of course, as Graves notes this carries with it an assumption that the policy has not lapsed or been canceled since the date the card was printed. The majority flatly rejected Holder’s argument that knowledge of coverage by Booth less than a year prior was satisfactory, so would an insurance card printed up to 6 months before the sale nevertheless be okay? Or was the majority’s ruling simply a way of providing as much insurance coverage as possible to a claimant who apparently sustained significant damages and would have otherwise been limited to Booth’s policy limits (though never identified, it’s safe to assume that they were a fraction of the dealer’s liability limits). Certainly, Holder’s failure to even hint at the topic of insurance coverage during the transaction with Booth gave the majority an opportunity to issue its ruling without having to adjudge what action(s) a dealer must take in order to satisfy the proof of insurance requirement.

The court’s minority instead focuses on the big picture by weighing the benefits of requiring strict compliance against the costs placed on the dealer in doing so. Their opinion is that the latter outweighs the former, and suggests that the logistics of obtaining actual proof of insurance at the time of sale would adversely impact commerce in light of the volume of sales that occur outside the regular business hours of insurance companies and agencies. The dissenting opinion seems to suggest that the ultimate determination on liability of the dealer is not the sufficiency of proof obtained at the time of sale, but instead is whether the buyer did in fact have valid insurance coverage at the time of loss. If the dealer has a reasonable basis for assuming coverage exists at the time of sale, and the assumption turns out to be correct (as in the present case), then the court’s minority would seemingly relieve the dealer of liability since the vehicle is not uninsured and the situation contemplated by the statute is therefore avoided. However, this approach ignores the fact that the statute speaks to who is deemed the legal "owner" of the vehicle and not whether the vehicle is insured at the time of loss.

While this decision does not resolve all potential issues that may arise when a dealer transfers possession of a vehicle to a buyer without the accompanying title, it certainly suggests that the dealer must make some affirmative inquiry into the buyer’s insurance status before the buyer drives the vehicle off the lot. Needless to say, it would be wise for the dealer to have some documentation in his file supporting the existence of insurance such as a copy of the buyer’s current insurance card or a letter from his insurer or agent or maybe a written ledger entry confirming verbal proof received from the insurer or agent. One thing that is clear — obtaining proof after the date of sale but before the date of loss will not be held sufficient in light of the majority’s decision.

See, KRS 186 .010(7)(a); KRS 186A.220 .

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