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Dealership must possess car for false pretense coverage

The Missouri Court of Appeals Eastern District on March 10 upheld a circuit court ruling that an insurance company did not have to cover an auto dealership’s loss from a fraudulent purchase of a vehicle because the dealership did not come into physical or legal possession of the car.

The court found that Exotic Motors of St. Louis was not covered under false pretense coverage with Zurich American Insurance Company because the dealership had neither acquired the 2015 Mercedes-Benz SL63 AMG in question nor proved that the car exists.

Exotic Motors negotiated the purchase through emails and text messages with an individual it knew as Robert Weir. After Weir provided what was purported to be the vehicle’s license plate information and certificate of title, Exotic Motors wired $90,100 to Weir’s bank account and attempted to arrange vehicle transfer.

Weir could not be reached to finalize the details, however, and a criminal investigation revealed that Weir’s name was an alias. The investigation also determined he did not have the legal title to the vehicle and supplied the identification number and license plate of another vehicle belonging to an uninformed third party.

Zurich denied coverage because the policy stipulates that the insured must “acquire” the vehicle that was purchased under false pretenses. Exotic Motors filed suit for breach of contract and vexatious refusal to pay.

St. Louis County Circuit Court Judge Stanley J. Wallach found the word “acquire” to mean physically possessing the vehicle or its legal title. The court found that the word “acquired” is not ambiguous under the ordinary meaning of the word in Webster’s Third New International Dictionary: “to come into possession, control, or power of disposal of often by some uncertain or unspecified means.”

Wallach relied on the 1995 case Shaffer v. Federated Mutual Insurance Co., in which the Court of Appeals Southern District denied false pretense coverage under similar stipulations because a wholesaler never delivered the vehicles paid for by the insured dealership.

Appeals court Judges Kurt S. Odenwald and Philip M. Hess affirmed the judgment.

Judge Lisa P. Page dissented, stating the term “acquired” was not clearly defined in the policy and that the insurer has the obligation to remove ambiguity from contractual agreements.

The insured is therefore entitled to a resolution when there are objective, reasonable expectations of the included coverage, she said.

Zurich chose to use the term “acquire” rather than “physical or legal possession” without clearly defining the term in the policy. Page said the dictionary definition of the term demonstrates ambiguity when applied to the policy. She also said the negation, sale contract and transfer of funds constitutes evidence that the company acquired the car.

Anthony W. Hafner, an attorney for Zurich, said he believes the case was properly decided. He added that he disagrees with Page’s dissenting opinion because Exotic never gained physical nor legal possession of the vehicle, which was never proven to exist.

Takeaway lessons, according to Hafner: Insurance companies should more clearly define terms in their policies, and auto dealers should acquire more proof and information before purchasing cars online.

Thomas R. Kissell, who represented Exotic Motors, could not be reached for comment.