Insurance Law Client Alert: Court Applies “Primary Purpose Test” in Mobile Equipment Coverage Dispute

In American States Insurance Company v. Travelers Property Casualty Company (No. B243003, filed 1/27/14), a California appeals court applied a “primary purpose test” to hold that a catering truck was “mobile equipment” covered by the owner’s commercial general liability (CGL) policy for products claims arising out of a collision.

Royal Catering Company owned a fleet of food trucks, which were leased to others for selling food at construction and other sites. The trucks were purpose-built, with deep fryers, grills, steam tables and other kitchen equipment. The trucks had two seats. Leased trucks were returned to Royal each day, and Royal performed all maintenance. The Gomezes leased a truck from Royal, making 12 or 13 stops per day. Their food was mainly prepared in advance, and none was prepared while en route to a location.

American States provided auto insurance for Royal’s trucks, and Travelers provided Royal with CGL insurance. On the day of the accident, Mr. Gomez swerved and collided with another vehicle at an intersection, causing hot cooking oil to splash on Ms. Gomez, who was standing in the back of the truck.

The Gomezes sued Royal for products liability, alleging negligence and design defects. American States defended Royal under the auto policy, while Travelers declined coverage. American States paid $500,000 to settle all claims under the auto policy, with the settlement carving out any products claims that might be covered by Travelers. The products case went to binding arbitration and resulted in an award stating that “[t]he burning oil spilled out of the deep fryer container because [Royal] had supplied the subject truck with the improper fryer baskets, which blocked the latching mechanism from closing.” A judgment was entered and American States then sued Royal for contribution to the defense costs with Travelers cross-complaining for a declaration of noncoverage for the award and resulting judgment.

The basic dispute was whether the injury was barred by the auto exclusion in the Travelers CGL policy or was within the exception for mobile equipment. The Travelers policy excluded “‘Bodily injury’ … arising out of the ownership, maintenance, use or entrustment to others of any aircraft, ‘auto’ or watercraft owned or operated by or rented or loaned to any insured.” “Auto” was defined as a land motor vehicle designed for travel on public roads, including attached machinery or equipment, but not including “mobile equipment.”

“Mobile equipment” was defined as a variety of equipment such as bulldozers; farm machinery; forklifts; etc. There was no specific inclusion of food trucks, but the definition of “mobile equipment” contained a catchall provision for “[v]ehicles not described in a., b., c. or d. above maintained primarily for purposes other than the transportation of persons or cargo,” which the appeals court found dispositive:

“Under a plain reading of the Travelers Primary CGL Policy, the Gomezes’ food truck was ‘mobile equipment’ and not an ‘auto.’ The primary purpose of the Gomezes’ food truck was to serve as a mobile kitchen and not to transport persons or cargo. (See Employers Mutual Casualty Company v. Bonilla (5th Cir. 2010) 613 F.3d 512, 518 [‘The “inherent purpose” of a mobile catering truck certainly could be seen as including the use and maintenance of its kitchen facilities….’].) For the first two hours of the day, the Gomezes cooked food in their food truck while parked in the Royal parking lot. During the next eight hours, the Gomezes made 12 to 13 stops to cook, or at least heat, and sell food. During those stops, the food truck was not ‘transporting’ anything, but was immobile. The food truck had only two seats and only two seatbelts, and the truck was not equipped to transport persons other than a driver and a cook.”

The American States court cited Alpine Ins. Co. v. Planchon (1999) 72 Cal.App.4th 1316 to conclude that “[l]ike a fire truck, a secondary purpose of the Gomezes’ food truck was the transportation of persons—i.e., the driver and the cook. Like an ‘ordinary pumper’ a food truck may transport persons and cargo—i.e., food, but its ‘core functional identity emerge[s]’ . . . when it operates as a mobile kitchen at specified locations.”

The American States court acknowledged that the question is generally one of fact, but found summary judgment proper since “the purpose for which a vehicle is maintained may be so apparent that it can be characterized as a matter of law.” Accordingly, the court held that the primary purpose of the food truck was not to transport persons or cargo and, therefore, the CGL policy coverage for products liability applied to the loss.

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January 29, 2014