Farhad Khaliq v. Progressive Security Ins. Co.

STATE OF LOUISIANA
COURT OF APPEAL, THIRD CIRCUIT

06-1207

FARHAD KHALIQ

VERSUS

PROGRESSIVE SECURITY INSURANCE COMPANY

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APPEAL FROM THE
ALEXANDRIA CITY COURT,
PARISH OF RAPIDES, NO. 102231
HONORABLE RICHARD E. STARLING, JR., CITY JUDGE

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JIMMIE C. PETERS
JUDGE

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Court composed of John D. Saunders, Jimmie C. Peters, and Michael G. Sullivan,
Judges.

AFFIRMED AS AMENDED.

Chris J. Roy, Jr.
Attorney at Law
Post Office Box 1592
Alexandria, LA 71309-1592
(318) 487-9537
COUNSEL FOR PLAINTIFF/APPELLEE:
Farhad Khaliq

Ian A. Macdonald
Attorney at Law
Post Office Drawer 3408
Lafayette, LA 70502-3408
(337) 262-9000
COUNSEL FOR DEFENDANT/APPELLANT:
Progressive Security Insurance Company

PETERS, J.

The defendant, Progressive Security Insurance Company, appeals the trial

court’s grant of a $18,296.72 judgment against it and in favor of the plaintiff, Farhad

Khaliq. For the following reasons, we affirm the trial court judgment but amend the

judgment by reducing it to $10,027.00 to reflect credit for a prior payment to Mr.

Khaliq.

DISCUSSION OF THE RECORD

The underlying facts giving rise to this litigation were stipulated to by the

litigants. This stipulation established that on August 25, 2004, Farhad Khaliq owned

a 2004 Mazda insured for collision coverage by Progressive Security Insurance

Company (Progressive). On that day, Adnan Khaliq (Adnan), Farhad Khaliq’s

nineteen-year-old son, was involved in a two-vehicle accident in Rapides Parish,

Louisiana while operating the Mazda. Adnan resided with his father on August 25,

2004, but at the time of the accident, he was operating the Mazda without his father’s

permission or knowledge. In fact, at no time in the past had Mr. Khaliq given his son

permission to drive the Mazda.

The litigants further stipulated that the amount of damage sustained by the

Mazda in the accident totaled $18,296.72, and that, sometime after the accident, Mr.

Khaliq settled with the State of Louisiana, the owner of the other vehicle involved in

the accident. In that settlement, he received $8,269.72 as payment for his property

damage. Mr. Khaliq then made demand on Progressive for the full amount of the

damage and, when Progressive refused to pay, he instituted this suit. Progressive

based its refusal to pay on a provision of its policy specifically naming Adnan as an

excluded driver.1 The trial court rejected this defense, concluding that because Adnan

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The policy provides:
You have named the following persons as excluded drivers under this policy.

was driving the Mazda without his father’s permission or knowledge at the time of

the accident, the exclusion did not apply. The trial court also concluded that

Progressive could not reduce its obligation to Mr. Khaliq by the amount he had

received from the other party involved in the accident and rendered judgment in Mr.

Khaliq’s favor, and against Progressive, in the amount of $18,296.72.

Progressive has appealed, asserting the following assignments of error:

1. The trial court erred as a matter of law in finding that a named
driver exclusion applies only when the excluded driver is
operating the insured vehicle with the owner’s permission and
consent.

2. The trial court erred as a matter of law in holding [that]
Progressive Security Insurance Company is not entitled to credit
the amount Farhad Khaliq received from the [State of Louisiana]
under the terms of its policy.

OPINION

It is not disputed that, but for the exclusion endorsement in the Progressive

policy, Adnan would have been insured under its terms and Progressive would have

been responsible to compensate Mr. Khaliq for the damage sustained.2 However, the

endorsement specifically excludes Adnan as an insured driver. Louisiana Revised

Statutes 32:900(L)(1) provides the authority for the automobile insurer and the

Name of excluded Driver(s):
BASREN KHALIQ Date of Birth: 06/20/63
ADNAN F. KHALIQ Date of Birth: 03/22/85
No coverage is provided for any claim arising from an accident or loss involving a
motorized vehicle being operated by an excluded person. THIS INCLUDES ANY
CLAIM FOR DAMAGES MADE AGAINST YOU, A RELATIVE, OR ANY
OTHER PERSON OR ORGANIZATION THAT IS VICARIOUSLY LIABLE FOR
AN ACCIDENT ARISING OUT OF THE OPERATION OF A MOTORIZED
VEHICLE BY THE EXCLUDED DRIVER.
2
The Progressive policy contains the standard language that an insured person under its terms
includes “[Mr. Khaliq] or a relative with respect to an accident arising out of the ownership,
maintenance, or use of a covered vehicle.” It further provides that Progressive “will pay for loss to
. . . covered vehicle for which Collision Coverage has been purchased . . . when it overturns or is
in a collision with another object, subject to the Limits of Liability.”

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insured to contract to exclude a resident of the insured’s household from coverage

under the policy; “[t]he purpose of this law [is] to give the insured the option of

paying a reduced premium in exchange for insurance that affords no coverage while

a vehicle is being operated by the excluded driver.” Bryant v United Servs. Auto.

Ass’n, 03-3491, 04-28, pp. 14-15 (La. 9/9/04), 881 So.2d 1214, 1223.

The trial court found this exclusion to be inapplicable to the accident of August

25, 2004, based on the fact that Adnan was operating the Mazda without his father’s

permission or knowledge. In reaching this conclusion, the trial court relied on the

supreme court’s decision in Bryant, 881 So.2d 1214, wherein the supreme court

considered the application of La.R.S. 32:866 (the “no pay, no play” statute) to

situations where an insured’s vehicle became involved in an accident while being

operated by an excluded driver. The Bryant decision involved two conflicting

decisions from different appellate circuits.3 In each case, the owner of the damaged

vehicle brought suit against the drivers of the other vehicles, and their liability

insurers, to recover the property damage sustained in the accident. The defendant

drivers of the other vehicles and their liability insurers sought to invoke the bar on

recovering the first $10,000.00 of property damage as provided in La.R.S.

32:866(A)(1), arguing that the vehicle was not insured as required by the Louisiana

Motor Vehicle Safety Responsibility Law because, at the time of the accident, the

insured’s policy excluded the driver from coverage.

3
The two court of appeal cases are Bryant v. United Services Automobile Ass’n, 37,926
(La.App. 2 Cir. 12/10/03), 862 So.2d 446, and McCray v. Jenkins, 03-539 (La.App. 5 Cir. 12/9/03),
864 So.2d 675. In Bryant, 862 So.2d 446, the second circuit held that the plaintiff was entitled to
recover property damages without any deduction under the “no pay, no play” law, even though the
vehicle was being driven by an excluded driver. In McCray, 864 So.2d 675, the fifth circuit held that
the plaintiff was subject to the deduction under the “no pay, no play” law, reasoning that the plaintiff
did not have liability coverage for her vehicle when she allowed an excluded driver to drive it. The
supreme court consolidated these two cases for argument before it.

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In resolving the conflict between the circuits, the supreme court concluded that,

where the excluded driver operates a vehicle with the permission of the insured, “the

provisions of the ‘no pay, no play’ law apply to partially bar the named insured’s own

recovery in light of the fact that the named insured thwarted the law by receiving a

reduced premium and then permitting his or her car to be operated by an excluded

driver.” Id. at 1223. In one of the two consolidated cases, this was the factual

situation.4 However, in the other consolidated case, the supreme court concluded that

“the record [was] unclear as to whether [the excluded driver] had permission to

operate [the insured’s] vehicle at the time of the accident.”5 Id. at 1224. Given this

unresolved factual issue, the supreme court remanded the matter to the trial court for

it to determine whether the insured had permitted the excluded driver to drive the

vehicle.

In explaining why it drew a distinction between a vehicle operated by an

excluded driver with permission of the insured and one operated by an excluded

driver without such permission, the supreme court stated:

It would serve no valid purpose, however, to apply the provisions of the
“no pay, no play” law to a situation in which the excluded driver
operated the vehicle without the permission of the named insured. In
such a situation, the named insured has not thwarted the law by
receiving a reduced premium in exchange for excluding a driver and
then permitting that excluded driver to operate the vehicle in
contravention of the Motor Vehicle Safety Responsibility Law.
Additionally, it would be absurd to contend that a named insured should
not be allowed to recover a portion of his or her damages pursuant to the
provisions of La.R.S. 32:866 in a situation where the vehicle was stolen
and then involved in an accident, perhaps an accident that was not
caused by the fault of the thief.

4
The insured, Virginia McCray, was actually a guest passenger in the vehicle at the time of
the accident. She had given her husband, Stacy McCray, permission to drive the vehicle despite the
fact that he was an excluded driver under the policy.
5
Marolyn Bryant owned the insured vehicle, but was not in the vehicle at the time of the
accident. It was being operated by her seventeen-year-old son, Justin Bryant.

4

Id. at 1223.

Progressive argues that the holding in Bryant is distinguishable from the matter

now before this court and should be limited to the “no pay, no play” situation because

Bryant considered the compulsory liability insurance requirements of La.R.S. 32:900,

not the optional collision insurance under which Mr. Khaliq seeks to recover. While

we agree that there are factual distinctions between Bryant and the matter before us,

these are distinctions without a difference. While referencing the “no pay, no play”

law, the supreme court based its decision on the driver exclusion aspects of the

litigation. As in Bryant, Mr. Khaliq received a reduced insurance premium by

excluding his son as an insured driver. The evidence is undisputed that Mr. Khaliq

did not take advantage of this premium reduction and, at the same time, allow his son

to drive the insured vehicle. His son took the vehicle without Mr. Khaliq’s

permission or knowledge, and, as implied by the supreme court, that situation is no

different from a thief taking and wrecking the vehicle. In fact, it has long been

recognized that an insured may recover for property damage under the collision

coverage when the damage is sustained while the insured vehicle is in the possession

of an unauthorized person. Moore v. The Stuyvesant Ins. Co. of N. Y., 98 So.2d 911

(La.App. Orl. Cir.1957).6 Therefore, we find no error in the trial court’s ruling

concerning insurance coverage.

Following the trial on the issue of damages, the trial court rendered judgment

against Progressive and in favor of Mr. Khaliq for the full amount of damages, or

$18,296.72. Progressive argues that the trial court’s judgment should be amended to

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Moore, 98 So.2d 911, involved a vehicle in possession of a thief. However, the court
couched its decision in terms of an “unauthorized person.” Id. at 912.

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give Progressive credit for the $8,269.72 that Mr. Khaliq previously recovered from

the State of Louisiana for damages to the Mazda. We agree.

The Progressive policy contains the following language with respect to

payments from other sources:

When an insured person has been paid by us under this policy and also
recovers from another person, entity, or organization, the amount
recovered will be held by the insured person in trust for us and
reimbursed to us to the extent of our payment, after the insured person
has been fully compensated for his or her damages.

Thus, if Progressive were to pay the damages in full, Mr. Khaliq would become the

trustee of that portion over and above the amount representing full compensation.

Here, Mr. Khaliq recovered $8,269.72 from the State of Louisiana for the damages

to the Mazda and, pursuant to the policy language, is entitled to recover only that

amount which will cause him to be fully compensated for his loss. Therefore, the trial

court erred in not giving Progressive credit for the amount paid by the State of

Louisiana, and the judgment must be amended to reflect a credit of $8,269.72.

DISPOSITION

For the foregoing reasons, we affirm the trial court’s judgment finding that the

insurance policy issued to Farhad Khaliq by Progressive Security Insurance Company

provided collision coverage for the accident of August 25, 2004. We amend the

damage award to $10,027.00. We assess all costs of this appeal to Progressive

Security Insurance Company.

AFFIRMED AS AMENDED.

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