Courts Will Give Effect to a "Designated Persons Endorsement" Contained in an Auto Policy Which Provides That a Non-Relative Resident of the Named Insured's Household Is Afforded Uninsured Motorist Benefits Only While That Person Is Occupying or Operating

Mercury Insurance Co. v. Pearson (2008) 169 Cal.App.4th 1064

BACKGROUND FACTS
David Pearson and his fiancé, Susan Hyung, were struck by a car driven by an uninsured motorist as they were crossing an intersection at a cross walk. Hyung died from her injuries and Pearson was badly injured. Prior to the accident, Pearson had purchased an auto policy from Mercury that afforded coverage to Hyung and himself. Hyung was the named insured on the policy and Pearson was listed as a “driver” and as an additional person insured under a “Designated Persons Endorsement.” That endorsement provided, in pertinent part:

The uninsured motorist coverage does not provide coverage for bodily injury sustained by a resident     of the same household as the Named Insured, who is not a relative, unless such person(s) is occupying a motor vehicle listed in the policy declarations.

It is agreed the designated person(s) is a resident of the same household as the Named Insured, is not a relative, and is only provided coverage when operating or occupying a motor vehicle listed in the policy declarations.

The endorsement also contained a warning in capital letters which stated “DO NOT SIGN THIS AGREEMENT UNTIL YOU READ AND UNDERSTAND IT.” Below this warning, Hyung was required to write in her own handwriting that she had read and understood the document. The endorsement was signed by Pearson as the “resident driver” and by Hyung as the named insured.

Hyung’s heirs made a claim under the uninsured motorist coverage provisions of the policy and Mercury paid its $100,000 per person limit on the claim. Pearson then made a claim for uninsured motorist benefits which Mercury denied on the ground that such benefits applied only to named insureds, or spouses or relatives of named insureds unless the accident occurred in a vehicle identified in the policy declarations.

Mercury then sued Pearson for declaratory relief and Pearson cross-complained for declaratory relief, reformation, breach of contract and bad faith. Mercury demurred to the cross-complaint and the demurrer was sustained without leave to amend. Mercury then filed a motion for judgment on the pleadings, which was granted. Pearson appealed.

THE COURT’S RULING
In affirming the decision of the trial court, the Court of Appeal noted that Pearson was an insured under the policy solely by virtue of the Designated Persons Endorsement. The court found that the endorsement was clear and explicit and that the uninsured motorist coverage would not apply to Pearson unless he was occupying a motor vehicle listed in the policy declarations. As such, the court determined that the trial court properly sustained Mercury’s demurrer and granted its motion for judgment on the pleadings. The court further found that the Designated Persons Endorsement signed by Pearson and Hyung negated any claim for reformation by Pearson.

THE EFFECT OF THE COURT’S RULING
Court’s will give effect to a policy endorsement that clearly and explicitly states that uninsured motorist coverage will not be provided for bodily injury sustained by a non-relative resident of the named insured’s household unless at the time of injury such person is occupying a motor vehicle listed in the declarations.