Truth In Lending Errors and Omissions Liability Endorsement Held To Potentially Cover Credit Union Claims

In the unpublished case of Mid-Century Insurance Co. v. Vinci Investment Company, Inc., No. G040815 (February 25), Division Three of the Fourth Appellate District reversed a trial court’s summary judgment in favor of Mid-Century, finding that there was a potential for coverage and therefore Vinci was entitled to a defense.  Vinci, doing business as Honda Santa Ana, sold installment sales contacts for vehicles it sold retail customers to the Santa Ana Federal Credit Union.  The credit union subsequently sued Vinci for alleged wrongdoing in connection with such sales.  Mid-Century declined Vinci’s tender of its defense.  The trial court ruled that Mid-Century’s CGL policy did not cover the claims as a matter of law and therefore granted summary judgment on both the defense duty and Vinci’s bad faith claim.

The Court of Appeal, reversing, agreed with Vinci.  Mid-Century argued that the credit union’s breach of contract and interference with contract claims did not seek truth in lending damages covered under its truth in lending errors and omissions endorsement.  It contended that the breach of contract claim prayed for sums due under the loans and/or deficiencies after repossession and resale.  In turn, it posited that the interference claim prayed for recovery of outstanding loan balances after repossession and resale.  Neither, Mid-Century concluded, evoked indemnity for any truth in lending damages paid by the credit union to any of the actual purchasers of the automobiles in question.  The appellate court found these arguments “ostrich-like.”  The credit union had alleged that Vinci breached its agreement with it by assigning to it contracts not in compliance with law, as to which buyers had defenses and counter-claims to payment of their contractual obligations, and in which the down payments shown on the contracts were not correct.  Mid-Century had promised to cover Vinci’s liability for “damages resulting solely from an ‘occurrence’ involving any negligent (italics added)” violation of federal or state truth in lending law. The credit union’s complaint did assert such violations.   The Court found the damages alleged by the credit union therefore did involve Vinci’s possibly negligent violation of a truth in lending statute.

February 25, 2010   Posted in: Blog