INSURANCE: Coverage for theft by person claiming superior title: BEST V. WEST AMERICAN INS. CO. (COA 9/26/2008)

INSURANCE:  Coverage for theft by person claiming superior title
DATE RENDERED: 9/26/2008

Best and the Lazzarinis entered into a contract to purchase two vehicles.  Diana Lazzarini used self help to take possession of the two vehicles from Best who was not aware that Diana had taken the vehicles.  Approximately two months later, Best informed his insurance company, West American, that the vehicles were missing.  Best claimed that they had been stolen.  He tried to have the police investigate the allegedly stolen vehicles but was told it was a civil matter. After conducting an investigation into the alleged “theft” of the vehicles, West American denied Best’s insurance claims on the basis that the vehicles had been properly repossessed by their true owner and, accordingly, there could not have been a “theft within the common meaning of insurance coverage.” Best subsequently filed his complaint in the circuit court, alleging that West American had improperly denied his insurance claims for the alleged theft of the vehicles.

Although the issue at hand is one of first impression in Kentucky, the Georgia Court of Appeals has held that an insured may not recover under an insurance policy for theft of a vehicle when the vehicle that was in the insured’s possession has been repossessed by someone with a bona fide claim of right to the vehicle, because a theft has not occurred.

Under Kentucky law, for a “theft” to occur, there must be a taking of property belonging to another with the intent to deprive that person of such property. See KRS 514.030(1)(a). “

The adoption of KRS 186A.010 et. seq. changed Kentucky from an equitable title state to a certificate of title state wherein the legal titleholder is considered the owner of a vehicle in the absence of a valid conditional sales or lease agreement.”  Potts v. Draper, 864 S.W.2d 896, 900 (Ky. 1993). Kentucky Revised Statute 186.010(7)(a) “defines a vehicle ‘owner’ as (1) ‘a person who holds the legal title of a vehicle or [(2)] a person who pursuant to a bona fide sale has received physical possession of the vehicle. . . .’” Revenue Cabinet v. O’Daniel, 153 S.W.3d 815, 819 (Ky. 2005).

Kentucky Revised Chapter 186 has been held to apply to ownership of a motor vehicle for the purpose of insurance coverage.

In this case, enough evidence has been presented to question whether the person claiming a superior right to ownership can lawfully repossess the vehicles at issue or whether Best is the victim of theft by the Lazzarinis, who apparently now reside in California.

Pursuant to Jones v. Bituminous Cas. Corp., 821 S.W.2d 798, 802-03 (Ky. 1991), an insurer may not deny coverage because the insured failed to provide prompt notice of loss unless the insurer can prove that it is reasonably probable that it suffered substantial prejudice from the delay in notice.

This is West American’s burden and West American’s having failed to cite to this Court any evidence fulfilling this duty, summary judgment is not warranted on this claim.

Digested by Michael Stevens