TRANSAMERICA INSURANCE COMPANY, Plaintiff and Appellant, v. TAB TRANSPORTATION, INC., Defendant and Appellant, 12 Cal. 4th 389

Opinion KENNARD, J. A 1989 collision between an Amtrak train and a truck owned by a licensed highway carrier, Tab Transportation, Inc. (hereafter Tab), caused the deaths of three persons and injured several others, resulting in $6 million in legal claims for wrongful death, personal injury, and property damage against Tab. Tab sought recovery under three insurance policies issued by different insurers for different policy periods. Pertinent here is a $500,000 one-year liability policy issued by Transamerica Insurance Company (hereafter Transamerica).

Under the terms of the Transamerica policy, coverage commenced on February 1, 1980, and ended on February 1, 1981. Ordinarily, an insurance company incurs no liability for an accident that occurs after the policy period has ended. But this is not an ordinary case, as explained briefly below. Highway carriers licensed in California are subject to a regulatory scheme administered by the Public Utilities Commission (hereafter PUC), requiring them to obtain adequate liability insurance and to submit proof thereof to the PUC.

Underlying this requirement is the recognition of the need to protect the public “ ‘against ruinous carrier competition and such possible attendant evils as . . . inadequate insurance . . . .’ [Citation.]” (Samson v. Transamerica Ins. Co. (1981) 30 Cal.3d 220, 233 [178 Cal.Rptr. 343, 636 P.2d 32].) To ensure that the public is so protected at all times, the regulatory scheme requires—by means of a standard PUC form endorsement attached to the policy—that a liability policy issued to a highway carrier continue “in full force and effect until canceled,” by giving 30 days’ written notice to the PUC.

The effect of attaching the endorsement to the policy, as we held in Samson v. Transamerica Ins. Co., supra, 30 Cal.3d 220, 231, is to automatically incorporate the provisions of the endorsement into the policy. Here, incorporation of the provisions of the endorsement into the Transamerica policy converted it from a one-year term policy that covered the period from February 1, 1980, until February 1, 1981, to a policy that remained continuously in effect until canceled.

Because Transamerica failed to give the PUC the required notice of cancelation when there was no policy renewal by Tab, the policy was still in effect and thus provided coverage for Tab at the time of the 1989 accident. Transamerica, however, is entitled to reimbursement from Tab for any payments made under the policy.

The reason is this: The standard form endorsement just mentioned states that the highway carrier “agrees” to reimburse the insurer for any payment the insurer would not have been obligated to make under the provisions of the policy “except for the agreement contained in [the] endorsement.” Because, as explained earlier, Transamerica would not have been liable for the damages incurred in the 1989 accident under the policy it issued to Tab “except for the agreement contained in [the] endorsement” (that its policy remain in effect until canceled by written notification to the PUC), Transamerica has a right to indemnity from Tab.

I Tab is a commercial trucking company regulated by the PUC under the Highway Carriers’ Act. (Pub. Util. Code, §§3501, 3511.) The statutory scheme requires highway carriers such as Tab to maintain liability protection in specified amounts (§ 3631) and to provide the PUC with proof of such protection (§ 3632). Such proof may be established by filing a “certificate of insurance” with the PUC. (§ 3633.) In 1980, to comply with the insurance requirements of the Highway Carriers’ Act, Tab purchased from Transamerica a policy providing liability coverage for the period February 1, 1980, to February 1, 1981.

As proof of insurance, Transamerica filed the requisite certificate of insurance with the PUC.

The certificate, a standard PUC form, provided in relevant part: “Transamerica Insurance Company . . . has issued to Tab Transportation, Inc. ... the policy of Automobile Bodily Injury Liability and Property Damage Liability Insurance herein described which, by the attachment of the Public Utilities Commission of the State of California Endorsement TL 675-Series, has been amended to provide the liability protection authorized or required for motor carriers of property pursuant to General Order No. 100-Series and by the pertinent rules, orders and regulations of the Public Utilities Commission.” The certificate also stated that the policy was “Effective 2-1-80 Until Canceled.” Shortly before the February 1, 1981, expiration date of the Transamerica policy, Tab replaced it with a one-year term policy issued by Federal Insurance Company (hereafter Federal), which then filed the requisite certificate of insurance with the PUC.

In 1989, Tab purchased a $1 million liability policy from Home Indemnity Company (hereafter Home) to cover the period April 1, 1989, to April 1, 1990. As proof of coverage, Home filed a certificate of insurance with the PUC. Although Tab had replaced the Transamerica policy with the Federal policy, which in turn was replaced by the Home policy, neither Transamerica nor Tab ever notified the PUC of the cancelation of the Transamerica policy.

On December 19,1989, one of Tab’s tractor-trailer trucks collided with an Amtrak passenger train at a railroad crossing in Stockton, killing the Tab driver and two Amtrak crewmen, and injuring several Amtrak passengers. When sued for $6 million for wrongful death and personal injuries, and for property damage to the train and the tracks, Tab demanded coverage under each of the three insurance policies just mentioned.

Two of the three insurers, Federal and Home, each contributed the policy limits (a total of $1.6 million) to a global settlement in which Tab admitted liability, leaving the question of damages to be determined at trial. The third insurance company, Transamerica, did not participate in the settlement. In May 1992, Transamerica filed this action for a declaratory judgment that it was not liable for damages arising from the 1989 train collision under the policy it had issued to Tab in February 1980. According to Transamerica, that policy had expired of its own terms on February 1, 1981.

In the alternative, Transamerica asserted that if liable on the policy, it was entitled under PUC regulations to be reimbursed by Tab for any payments made under the policy. Tab cross-complained, asserting entitlement to coverage under the policy. Tab pointed out that the “certificate of insurance” that Transamerica had filed with the PUC expressly stated its policy was “Effective 2-1-80 Until Canceled.” Tab argued that the policy continued in effect because of Transamerica’s failure to give the PUC the requisite 30 days’ written notice of cancelation. The trial court granted Tab’s motion for

summary adjudication on this basis. The case proceeded to trial on the remaining issue of whether Transamerica was entitled to reimbursement by Tab. Transamerica offered into evidence the PUC’s Endorsement TL 675-Series (hereafter at times referred to as the standard form endorsement).

The endorsement reads: “To Be Attached to and Made a Part of All Policies Insuring Motor Vehicles Subject to Regulation by the Public Utilities Commission of The State of California.” The endorsement contains certain provisions that the PUC requires in highway carrier liability policies, including one providing for the highway carrier to reimburse the insurer for any payment made as the result of obligations arising under the endorsement. Based on this latter provision, the trial court ruled that Transamerica was entitled to reimbursement from Tab for payment of damages resulting from the 1989 train accident.

Both parties appealed. Transamerica challenged the trial court’s

summary adjudication in favor of Tab on the issue of coverage. Tab cross-appealed on the issue of Transamerica’s right to reimbursement. The Court of Appeal reversed on the coverage issue. It concluded that the Transamerica policy had expired of its own terms on February 1, 1981, and that Transamerica therefore had no obligation to give 30 days’ written notice to the PUC of its intent to cancel the policy. Because it determined the issue of coverage in favor of Transamerica, the Court of Appeal did not address Transamerica’s right to reimbursement.

We granted Tab’s petition for review, which challenged the Court of Appeal’s holding as contrary to the PUC’s regulatory scheme. n The Highway Carriers’ Act (§ 3501 et seq., hereafter the Act), which has been in effect since 1935, regulates the operation of commercial truckers on California’s public highways. Its

preamble states: “The use of the public highways for the transportation of property for compensation is a business affected with a public interest. It is the purpose of this

chapter to preserve for the public the full benefit and use of public highways consistent with the needs of commerce without unnecessary congestion or wear and tear upon such highways; to secure to the people just and reasonable rates for transportation by carriers operating upon such highways; and to secure full and unrestricted flow of traffic by motor carriers over such highways which will adequately meet reasonable public demands by providing for the regulation of rates of all transportation agencies so that adequate and dependable service by all necessary transportation agencies shall be maintained and the full use of the highways preserved to the public.” (§ 3502, italics added.) The Act is “designed to protect the public from a broad range of potential problems incidental to the transportation of property.” (Samson v.

Transamerica Ins. Co., supra, 30 Cal.3d 220, 233.) Of paramount concern in the regulation of highway carriers is “ ‘protection of the public against ruinous carrier competition and such possible attendant evils as improperly maintained equipment, inadequate insurance, and poor service.’ ” (Ibid., quoting Keller v.

Thornton Canning Co. (1967) 66 Cal.2d 963, 967 [59 Cal.Rptr. 836, 429 P.2d 156].) The Act requires all licensed highway carriers to carry “adequate protection” against liability. (§3631.) This may be achieved by means of an insurance policy, a surety bond, or evidence acceptable to the PUC of the carrier’s qualification as a self-insurer. (§ 3632.) Any insurance policy must be issued by “a company licensed to write such insurance in the state,” or by certain “nonadmitted insurers,” and the policy must “meet the rules promulgated therefor by the [PUC].” (Id., subd. (1).)

Section 3633 allows proof of such insurance to be filed with the PUC in the form of “a certificate of insurance issued by the company issuing the policy.”

Section 3634 requires that “protection against liability shall be continued in effect during the active life of the permit,” and that “[t]he policy of insurance or surety bond shall not be cancelable on less than 30 days’ written notice to the commission, except in the event of cessation of operations as a highway carrier as approved by the commission.” (Italics added.)

Section 3635 authorizes the PUC to adopt rules and regulations necessary to enforce the insurance requirements for highway carriers. Under this authority, the PUC promulgated General Order No. 100, which sets forth various provisions that must be included in every policy. Pertinent here are these two: “

(6) A policy of insurance, or surety bond, evidencing such protection, shall not be cancelable on less than thirty (30) days’ written notice to the Public Utilities Commission, such notice to commence to run from the date notice is actually received at the office of the Commission. . . . ['ID

(8) Every insurance policy, surety bond or equivalent protection to the public shall contain a provision that such policy, surety bond or equivalent protection will remain in full force and effect until canceled in the manner provided by Section (6) of this General Order.” (Italics added.) General Order No. 100 is incorporated into the PUC’s standard form endorsement, which, as we have pointed out earlier, is attached to every policy of insurance purchased by a highway carrier. In the

section that follows we discuss the significance of such attachment, an issue we addressed previously in Samson v. Transamerica Ins. Co., supra, 30 Cal.3d 220. III Samson v. Transamerica Ins. Co., supra, 30 Cal.3d 220, involved an insurance policy purchased by a highway carrier to satisfy PUC requirements of liability coverage.

We explained that such a policy differs from other liability insurance policies: “Where insurance coverage is required by law, the statutory provisions are incorporated into the insurance contract. ‘The obligations of such a policy are measured and defined by the pertinent statute, and the two together form the insurance contract. . . . [T]he insurance carrier is done no injustice when its rights are determined thereunder. [ID Any provisions of such a policy which are in conflict with the pertinent statutes are nullified and superseded to that extent, particularly where the policy itself[] expressly so provides.’ (6c Appleman, Insurance Law and Practice (Buckley ed. 1979) § 4463, pp. 615-617, fns. omitted [citation].)” (Id. at p. 231.) Then, turning to the PUC’s standard form endorsement, we pointed out in Samson that “the insurance policy, in the endorsement, referred specifically to the regulations of the P.U.C. and stated that it was designed to comply with the requirements of the ‘General Order No. 100-Series.’ ” (Samson v.

Transamerica Ins. Co., supra, 30 Cal.3d at p. 231.) This, we said, meant that “the requirements of the Public Utilities Code and of General Order No. 100-H were made part of the insurance contract by its own provisions as well as by the general rule of construction concerning insurance mandated by statute.” (Ibid.) Therefore, we concluded,

interpretation of the insurance policy must be by “reference both to its express terms, and to the relevant statutory and P.U.C. provisions.” (Ibid.) As in Samson v. Transamerica Ins. Co., supra, 30 Cal.3d 220, the liability policy at issue here was bought by a highway carrier (Tab) to satisfy PUC regulations. Because this policy is one “required by law,” under Samson the policy must be read in light of its original provisions as well as those added to the policy by the PUC’s standard form endorsement attached to the policy.

As initially written, the Transamerica policy was to remain in effect for one year only, from February 1,1980, until February 1,1981. But, as we have pointed out earlier, the policy was amended by the standard PUC endorsement, which provides for inclusion in the policy of the PUC’s General Order No. 100, together with other pertinent rules, orders and regulations promulgated by the PUC.

Incorporation of General Order No. 100, section (8) into the provisions of the Transamerica policy added to the provisions the requirement of the general order that “such policy . . . will remain in full force and effect until canceled . . . .” This language, of course, is in direct conflict with the language in the policy as originally written stating that the policy was to expire in February 1981, a year after its purchase. Under Samson v. Transamerica Ins. Co., supra, 30 Cal.3d 220, 231, we must resolve this conflict in favor of the provisions of the regulatory scheme.

Therefore, in this case incorporation into the policy of the PUC’s General Order No. 100 language requiring the policy to remain in “full force and effect until canceled” converted the policy from a one-year term policy to a policy that was to remain in effect “until canceled.” To cancel a highway carrier insurance policy,

section 3634 requires 30 days’ written notice to the PUC. As previously mentioned, this identical notice requirement also appears in the PUC’s General Order No. 100, which, as set forth above, makes the requirement of 30 days’ written notice a part of the insurance policy in this case. It is undisputed here that there was no compliance with the notice requirements of

section 3634 and General Order No. 100. Because of such noncompliance, the Transamerica policy was still in effect at the time of the 1989 accident, thus providing coverage for Tab. Transamerica contends that noncompliance with the notice provisions pertaining to policy cancelation had no effect in this case.

It argues that the policy issued to Tab had “expired” on February 1, 1981, at the end of the one-year policy term (well before the 1989 train accident involved here), thus relieving Transamerica of any obligation to notify the PUC that the policy had been “canceled.” Transamerica states that policy expiration by lapse of a policy of insurance at the end of the policy term differs from policy cancelation, which occurs when an insurer terminates an ongoing policy, and that the 30 days’ notice requirement comes into play only when a policy is canceled.

This was the distinction drawn by the Court of Appeal, which, in holding in favor of Transamerica, quoted this language from Farmers Ins. Exchange v. Vincent (1967) 248 Cal.App.2d 534, 541 [56 Cal.Rptr. 775]: “In the ordinary sense of the terms, there is a difference between cancellation of a policy and its lapse by reason of the expiration of the term for which written. Cancellation implies a termination prior to the expiration of the term for which written.” The general distinction between expiration and cancelation of an insurance policy is of no assistance to Transamerica in this case.

Here, because the Transamerica policy was amended by the PUC’s standard form endorsement to remain “in full force and effect until canceled,” it could never lapse by reason of expiration of the policy term; instead, as the result of the endorsement, the policy was to provide coverage “until canceled.” Transamerica could have canceled its policy at any time simply by giving the requisite 30 days’ notice to the PUC.

Indeed, at oral argument, in response to questions by this court, counsel for Transamerica as well as counsel for amicus curiae, Continental Insurance, acknowledged that insurers routinely comply with the PUC’s cancelation notice requirement, and that the failure to do so in this case was an isolated incident.

Transamerica draws our attention to the term “expiration” in General Order No. 100, section (9): “Upon cancellation, expiration or suspension of an insurance policy ... the operative authority of any highway carrier . . . shall stand suspended immediately upon the effective date of such cancellation, expiration or suspension.” Because this language refers to cancelation as well as expiration of a policy, Transamerica argues that the PUC itself acknowledges a distinction between cancelation and expiration. We are not persuaded.

Section (9) of General Order No. 100 makes a highway carrier’s operating authority dependent on its maintaining insurance coverage. It is in that context that the language quoted mentions “cancellation, expiration or suspension.” These are simply the grounds for suspending “the operative authority of any highway carrier.” Whereas section (9) deals with the consequences of the termination of insurance, section (8) of General Order No. 100 sets forth the manner in which the termination occurs.

In section (8), the PUC makes it clear that the only way to terminate a highway carrier policy is “in the manner provided by Section (6),” that is, by giving 30 days’ written notice of cancelation to the PUC. IV We now consider Transamerica’s contention that an insurer’s noncompliance with the cancelation notice requirements pertaining to a liability policy issued to a highway carrier should expose the insurer to liability under the policy only if the highway carrier is not otherwise protected by liability insurance. A similar argument was rejected in Fireman’s Fund Ins. Co. v. Allstate Ins.

Co. (1991) 234 Cal.App.3d 1154 [286 Cal.Rptr. 146]. At issue in Fireman’s Fund was coverage under a Fireman’s Fund policy for serious bodily injuries suffered by two women on May 29, 1985, when their car collided with a tractor-trailer rig that had crossed a freeway center divider. The rig’s owner, a licensed highway carrier, had purchased the $1 million liability insurance policy from Fireman’s Fund to provide coverage for two consecutive one-year terms.

On August 27, 1984, shortly into the second policy period, Fireman’s Fund filed a certificate of insurance with the PUC certifying that the policy would be in effect from its commencement date of July 1, 1984, until canceled. Although the highway carrier notified Fireman’s Fund of replacing, effective November 1, 1984, the Fireman’s Fund policy with a $1 million primary policy issued by Central National Insurance Company, no one ever notified the PUC of cancelation of the Fireman’s Fund policy.

The Court of Appeal noted that the PUC had no record of a certificate of insurance filed by Central National Insurance Company. The court pointed out, however, that the PUC did receive “notice of alternate or replacement insurance coverage for [the highway carrier] issued by the Insurance Company of the State of Pennsylvania.” (Fireman’s Fund Ins. Co. v. Allstate Ins.

Co., supra, 234 Cal.App.3d at p. 1159.) Because of Fireman’s Fund’s failure to cancel its policy by providing the PUC with 30 days’ written notice of cancelation, the Court of Appeal held that the Fireman’s Fund policy was still in effect at the time of the May 29, 1985, accident providing coverage for the rig’s owner. (Fireman’s Fund Ins. Co. v. Allstate Ins. Co., supra, 234 Cal.App.3d at p. 1162.) The court reasoned that

section 3634’s requirement of notice to the PUC was mandatory, and that therefore “Fireman’s failure to provide the PUC with notice of cancellation resulted in continued, uninterrupted coverage” under the Fireman’s Fund policy even though the highway carrier had purchased replacement insurance. (Fireman’s Fund Ins. Co. v. Allstate Ins.

Co., supra, 234 Cal.App.3d at p. 1162.) As the court explained: “[0]ur reading of the statute and regulations compels the conclusion notice of cancellation is needed for effective regulation of highway carriers—whether to guarantee the public records contain accurate, reliable, and up-to-date information on the carrier’s insurance or bond, or to enable the PUC to suspend operating permits for carriers that are uninsured.” (Id. at p. 1165.) We agree with the Court of Appeal in Fireman’s Fund Ins. Co. v. Allstate Ins.

Co., supra, 234 Cal.App.3d 1154, that the regulatory scheme governing highway carriers imposes the “notice of cancelation” requirement on an insurer irrespective of the insured’s purchase of replacement insurance. An insurer that files with the PUC a “certificate of insurance” as proof that a highway carrier has insurance, as was done here, remains liable on its policy until that policy is canceled by giving the requisite 30 days’ written notice to the PUC. This

interpretation of the statutory notice requirement is most consistent with the Act’s regulatory scheme for highway carriers, as we shall explain. The certificate of insurance that an insurance company files with the PUC serves as proof of a highway carrier’s adequate protection against liability.

In this case, a long-term PUC employee testified at trial that the PUC looks to the certificate as proof of a highway carrier’s compliance with the financial responsibility obligations imposed by the statutory scheme: When a certificate for a policy of insurance is on file, the PUC assumes that the policy is still in effect, thus providing coverage for the highway carrier.

In addition to providing an efficient means for the PUC to administer the Act’s financial responsibility requirements imposed on highway carriers, the certificate of insurance on file with the PUC serves as assurance that the public is protected in the event of an accident involving a particular highway earner. These important considerations far outweigh the slight burden imposed by statute on an insurer of providing the PUC with 30 days’ written notice of cancelation of a liability policy issued to a highway carrier.

V Transamerica argues it is entitled to reimbursement by Tab for Transamerica’s payment of damages arising out of the 1989 train accident. We agree.

The same standard form endorsement that we have discussed in detail above also states that “the insured agrees to reimburse the Company for . . . any payment that the Company would not have been obligated to make under the provisions of the policy except for the agreement contained in this endorsement.” (Italics added.) As set forth earlier, among the obligations an insurer undertakes by providing liability insurance to a highway carrier is the regulatory requirement that the policy remain in effect until canceled by giving 30 days’ written notice of cancelation to the PUC.

Here, “except for” the obligation of continuous coverage arising under the standard form endorsement, the policy that Transamerica issued to Tab in 1980 would, by its own terms, have expired in 1981, and Transamerica would thus not have incurred liability for damages resulting from the 1989 accident involving Tab’s truck.

Accordingly, Transamerica’s payment toward Tab’s damages flowing from the 1989 collision is a payment that Transamerica, under the language of the PUC’s standard form endorsement, “would not have been obligated to make under the provisions of the policy except for the agreement contained in [the standard form] endorsement.” Therefore, Transamerica is entitled to reimbursement from Tab for any payment made under the policy.

The PUC’s regulatory requirement that insurance policies for highway carriers remain “in full force and effect” until canceled serves the paramount objective of the Act: to assure the public that commercial highway carriers can answer in damages when their use of California’s public highways results in injury to members of the public. To prevent a highway carrier from reaping an undeserved windfall, the regulatory scheme allows the insurer to seek reimbursement from the highway carrier, which, under the regulatory scheme, bears the ultimate responsibility for maintaining adequate liability coverage.

We recognize that an insurance company’s right of reimbursement will be of little avail if the insured highway carrier is insolvent. In that situation, principles of fairness dictate that, as between an insurer that fails to comply with the Act’s requirement of providing the PUC 30 days’ written notice of a policy’s cancelation and a member of the public injured by an inadequately insured highway carrier that becomes insolvent, the risk of loss should, in light of the public protection concerns underlying the regulatory scheme governing highway carriers, fall on the insurer.

Conclusion The judgment of the Court of Appeal is reversed with directions to affirm the trial court judgment. Mosk, J., George, J., and Werdegar, J., concurred. Further statutory references are to this code. By letter dated August 9, 1990, the PUC advised Transamerica that its certificate of insurance for the 1980 policy was still on file and would remain in force until Transamerica canceled the certificate by completing and filing PUC form TL 568. Transamerica did not respond to this letter.

By regulation, as set out in General Order No. 100-1, the PUC requires highway carriers to show adequate protection against liability in an amount not less than $600,000 per accident consisting of the following: not less than $250,000 for bodily injuries to, or death of, one person with a total protection against liability for bodily injuries or death in a single accident of not less than $500,000; and not less than $100,000 for damage or destruction of property in a single accident.

Even though Transamerica, as part of its claim for reimbursement, introduced evidence at trial that the standard form endorsement had amended the policy, it now asserts that we cannot consider the endorsement for purposes of deciding the coverage issue because the document was not considered by the trial court in granting

summary adjudication on that issue. Not so. “ ‘[A] ruling or decision, itself correct in law, will not be disturbed on appeal merely because given for a wrong reason. If right upon any theory of law applicable to the case, it must be sustained regardless of the considerations which may have moved the trial court to its conclusion.’ ” (D’Amico v. Board of Medical Examiners (1974) 11 Cal.3d 1, 19 [112 Cal.Rptr. 786, 520 P.2d 10], quoting Davey v.

Southern Pacific Co. (1897) 116 Cal. 325, 329 [48 P. 117].) An exception to this rule—that a party should not be expected to defend disputed factual issues on appeal (Panopulos v. Maderis (1956) 47 Cal.2d 337, 341 [303 P.2d 738])—does not assist Transamerica, because Transamerica does not dispute the fact that the standard form endorsement amended its policy. In requiring that the provisions of the standard form endorsement be made a part of every highway carrier liability policy, the PUC is acting in full accord with the Legislature’s broad grant of regulatory authority. (§§ 3632, subd. (1), 3635.)