Opinion
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
San Francisco County Super. Ct. No. 404701
GEMELLO, J.
This appeal arises from a dispute between an insurer and its insured, a car dealership and garage. The issue is whether the insurer had a duty to defend and indemnify the insured for its liability arising from a car accident caused by an employee driving a rental car he rented from a related car rental business. The trial court granted summary judgment in favor of the insurer. We affirm on the basis that there is no coverage under the policy.
Background
German Motors Corporation, doing business as BMW of San Francisco, runs a BMW car dealership and repair shop at 1675 Howard Street in San Francisco. In about 1998, German Motors established a wholly owned subsidiary corporation, Cycles of SF, Inc. (Cycles), to begin a business renting motorcycles to the general public. In about 1999, the business expanded to car rentals and operated out of 1675 Howard Street as Fog City Car Rentals, a dba of Cycles. The rental cars were a fleet of Toyota Camrys that Cycles leased from Ellis Brooks Leasing, Inc. German Motors guaranteed that lease. German Motors provided the employees to run Fog City Car Rentals. German Motors in fact staffed, managed and administered the Fog City Car Rentals pursuant to a service agreement with Cycles. Moreover, at that time, the general manager of BMW of San Francisco, Michael Greening, was also general manager of Fog City Car Rentals.
German Motors dba BMW of San Francisco rented or loaned vehicles to its customers while the customers’ personal cars were being serviced or repaired at its garage. German Motors employees were permitted to rent Fog City Toyotas, if they were still available at the end of the business day, at a discounted daily rate and subject to a lower age restriction.
In November 2000, Henry Herrera was an employee of German Motors dba BMW of San Francisco, working as an apprentice in the body shop. On November 17, Herrera obtained a rental car from Fog City Car Rentals for his personal use. The car was one of the Toyotas that Cycles leased from Ellis Brooks. The rental agreement identified the rental company as Fog City Car Rentals, a division of Cycles of SF, Inc. The agreement identified the renter as Gloria Herrera, Henry’s mother, but was signed by Henry Herrera.
On November 19, 2000, the car Herrera rented was involved in a collision. Henry Herrera, who was driving the car, was killed. Ernesto Jauregui, a passenger in Herrera’s car, suffered major head trauma. At the time of the accident, Herrera was speeding; he was not wearing a seatbelt; he had a large, almost empty bottle of beer between his legs; his blood alcohol level was 0.19 percent; and he had cocaine in his system.
Jauregui and Henry Herrera’s parents, Gloria Herrera and Luis Herrera, filed separate lawsuits (the underlying actions) naming German Motors dba BMW of San Francisco and Cycles dba Fog City Car Rentals as defendants. As relevant to this appeal, plaintiffs alleged that German Motors negligently entrusted the vehicle to Herrera based on the facts that he was under the age of 25, he did not have a valid driver’s license, he did not provide accurate information on the rental agreement, Gloria Herrera had advised German Motors not to provide cars to Herrera or allow him to use her name while renting cars, and German Motors should have known that Herrera had an uncontrollable tendency to drive cars while under the influence of alcohol or other controlled substances. The Jauregui and Gloria Herrera complaints alleged that German Motors and Cycles operated as a joint venture.
Insurance Coverage
German Motors obtained three separate policies providing insurance coverage for its car rental, motorcycle rental, and dealership operations. Northland Insurance Company issued Automobile Rental Program Business/Commercial Auto Policies to “German Motors Corporation dba Fog City Car Rentals.” Northland’s Commercial Auto Coverage included liability coverage for accidents resulting from the ownership, maintenance or use of specifically identified automobiles used in connection with the rental car business. A Northland policy was in effect in November 2000.
Fidelity and Guaranty Insurance Company issued a Commercial Insurance Policy to “German Motors Corporation dba BMW of San Francisco” that was in effect in November 2000. This policy included “Garage Coverage,” which included liability coverage for garage operations. Under the heading “Garage Operations -- Covered Autos,” the policy provided: “We will pay all sums an ‘insured’ legally must pay as damages because of ‘bodily injury’ or ‘property damage’ to which this insurance applies, caused by an ‘accident’ and resulting from ‘garage operations’ involving the ownership, maintenance or use of covered ‘autos.’ ” A “covered auto” was defined as “any auto.” “Garage operations” were defined as “the ownership, maintenance or use of locations for garage business and that portion of the roads or other accesses that adjoin these locations. ‘Garage operations’ includes the ownership, maintenance or use of . . . covered ‘autos.’ ‘Garage operations’ also include all operations necessary or incidental to a garage business.”
An express exclusion to the liability coverage for garage operations (Exclusion 7) applied to “Leased Autos”: “This insurance does not apply to . . . [a]ny covered ‘auto’ while leased or rented to others. But this exclusion does not apply to a covered ‘auto’ you rent to one of your customers while their ‘auto’ is left with you for service or repair.” When German Motors’ insurance broker applied for the Fidelity policy, he stated that German Motors rented cars to the public, but insurance coverage for that operation was placed elsewhere. The underwriter for the Fidelity policy called the broker to confirm this information before Fidelity issued the policy.
Declaratory Relief
German Motors, through its insurance broker, tendered defense of the underlying actions to Fidelity. In November 2001, Fidelity responded that it had no duty to defend German Motors in the actions.
In February 2002, while the underlying actions were still pending, Fidelity filed this declaratory relief action against German Motors dba BMW of San Francisco and Cycles dba Fog City Car Rentals. Fidelity sought a declaration that it had no duty to defend or indemnify German Motors or Cycles and that, if it had a duty to defend or indemnify, its policy was excess to Northland’s policies. German Motors and Cycles filed a cross-complaint against Fidelity and Northland. As to Fidelity, they asserted claims for breach of contract and insurance bad faith and sought a declaration that Fidelity had a duty to defend and indemnify them in the underlying actions. On November 1, 2002, the trial court stayed the coverage action pending resolution of the underlying actions.
Fidelity also named Northland as a defendant and sought a declaration that its policy was excess to Northland’s. In a cross-complaint, German Motors and Cycles named Northland as a defendant and sought a declaration that Northland had a duty to defend and indemnify them and a declaration of the priorities of coverage under the Fidelity and Northland policies. Northland in turn filed a cross-complaint for declaratory relief against Fidelity, German Motors and Cycles, seeking declarations that it had no duty to defend or indemnify German Motors or Cycles and that, if it had those duties, its policy was excess to Fidelity’s. The cross motions for summary judgment regarding the claims against Northland were resolved against Northland. Those claims are not relevant here.
In July 2003, the underlying actions settled. Northland paid the remainder of its $1 million policy limit and Fidelity paid its $5 million policy limit to fund the settlement. The Herreras received $250,000 and Jauregui received almost $6 million. The trial court lifted the stay in February 2004.
In November 2004, Fidelity and German Motors and Cycles filed cross motions for summary judgment. The trial court granted summary judgment in favor of Fidelity on three bases. The court ruled that the underlying dispute did not fall within the scope of coverage for garage operations. “The [Fidelity] policy only provided garage operations liability coverage for vehicles when used as part of the BMW dealership operation. There is no evidence proffered by German Motors Corporation dba BMW of San Francisco showing that the vehicle in the accident was ever used for the BMW dealership operation. Instead, the vehicle in question was leased by Ellis Brooks to Cycles of SF, Inc. dba Fog City Car Rentals and not to German Motors Corporation dba BMW of San Francisco.” The court also ruled that Exclusion 7 applied to German Motors’ claim. The Court concluded that the exclusion was not ambiguous and that “[t]here is no evidence disputing the fact that the vehicle was not rented to a service customer. The exclusion eliminates the potential for coverage under the policy.” The court ruled, “all extrinsic evidence presented to this Court including, but not necessarily limited to, the communications between representatives of German Motors Corporation dba BMW of San Francisco and representatives of Plaintiff F&G, demonstrates that the parties did not intend for the F&G policy to provide coverage for the rental vehicle in the accident that underlies the insurance coverage dispute. [¶] . . . [¶] [B]ecause there is no potential for a claim for breach of the implied covenant of good faith and fair dealing in the absence of any coverage, and because there is no coverage herein, there can be no claim in the context of this case for breach of the implied covenant of good faith and fair dealing as a matter of law.” The trial court denied the summary adjudication motion filed by German Motors and Cycles for the same reasons it granted Fidelity’s motion.
Discussion
Summary judgment is appropriate “if all the papers submitted show that there is no triable issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” (Code Civ. Proc., § 437c, subd. (c).) The party moving for summary judgment bears the burden of showing there is no triable issue of material fact. (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 850.) In ruling on the motion, the court must draw all reasonable inferences from the evidence in the light most favorable to the opposing party. (Id. at p. 843.) An order granting or denying summary judgment is reviewed de novo. (Id. at p. 860.)
We begin with the familiar general principles that an insurer must defend its insured against claims that create a potential for indemnity under a policy. (Scottsdale Ins. Co. v. MV Transportation (2005) 36 Cal.4th 643, 654.) The duty to defend is broader than the duty to indemnify and may apply even where no damages are ultimately awarded. (Ibid.) The duty to defend is contractual: an insurer has not contracted to pay defense costs for claims that are not even potentially covered. (Id. at p. 655.) The interpretation of an insurance policy is reviewed de novo. (E.M.M.I. Inc. v. Zurich American Ins. Co. (2004) 32 Cal.4th 465, 470.) The fundamental rule of contract interpretation is to give effect to the mutual intention of the parties. (Ibid.) Such intent is to be inferred, if possible, from the plain language of the contract. (Ibid.) The language is to be interpreted in its ordinary and popular sense unless used by the parties in a technical sense. (Ibid.) Ambiguity is resolved by interpreting the provision in the sense the insurer believed the insured understood them at the time of formation, based on the objectively reasonable expectations of the insured. (Ibid.) If an ambiguity is not resolved in this manner, it is resolved in the insured’s favor. (Id. at p. 471.) Policy exclusions are strictly construed. (Ibid.) The insurer bears the burden of making policy exclusions conspicuous, plain and clear. (Ibid.)
German Motors and Cycles (Appellants) appeal the trial court order, arguing Fidelity had a duty to defend and indemnify them in the underlying actions. Appellants argue that the rental of the car to Herrera was an employment benefit incidental to German Motors’ garage operations and thus was covered by the main insuring language of the Garage Coverage part of the Fidelity policy. Appellants argue further that Exclusion 7 does not apply because a rental to a German Motors employee cannot be considered a rental “to others.”
We first consider whether there is coverage under the Fidelity policy for the acts of Cycles dba Fog City Car Rentals. We then consider whether there was coverage for the acts of German Motors in relation to the rental to Herrera.
In a focus letter sent before oral argument, we highlighted this issue by asking the parties to separately analyze coverage for Appellant Cycles of SF, Inc. dba Fog City Car Rentals and for Appellant German Motors Corporation dba BMW of San Francisco.
I. Coverage for the Conduct of Cycles dba Fog City Car Rentals
Cycles is a wholly owned subsidiary corporation of German Motors. Fog City Car Rentals is a fictitious business name, a “dba,” of Cycles, not of German Motors. Appellants largely obscure the issue of their separate corporate identities by discussing Fidelity’s obligations toward “the GMC Entities” (defined as German Motors and Cycles) without separately analyzing coverage under the policy for Cycles and for German Motors. Neither Cycles nor Fog City Car Rentals is a named insured on the Fidelity policy. The named insured on the policy is German Motors dba BMW of San Francisco. Because Cycles was not a named insured under the Fidelity policy, Fidelity had no duty to defend or indemnify the company.
In the petition for rehearing filed by German Motors alone, German Motors contends that it did not seek coverage for Cycles. This is incorrect. In the conclusion of the opening brief on appeal filed by German Motors and Cycles, Appellants ask this court to order the trial court to grant their motion for summary adjudication. That motion sought a declaration that Fidelity had a duty to defend and indemnify German Motors and Cycles in the underlying actions.
II. Coverage for the Acts of German Motors
Appellants argue that the Fidelity policy covers German Motors’ liability for its role in renting the car to Herrera because the rental car operation was an integral part of the BMW dealership and garage operation. The evidence does not support this characterization of the rental operation. Rather, the evidence supports Fidelity’s assertion that the rental car operation was a separate business from the dealership and was not covered by the Fidelity policy.
“Garage operations” is defined in the Fidelity policy to include the use of covered autos and a “covered auto” is defined as any auto.
A. Fidelity is Not Limited to Exclusion 7 as a Basis for its Denial of Coverage and Defense.
As a preliminary matter, we reject Appellants’ argument that Fidelity is limited to relying on Exclusion 7 as the basis for its denial of coverage and a defense in this action.
We note that Appellants’ approach is contrary to our usual method of interpreting insurance contracts. We examine the coverage provisions of the policy before we consider policy exclusions. (Waller v. Truck Ins. Exchange, Inc. (1995) 11 Cal.4th 1, 16.) The insured bears the burden of bringing a claim within the basic scope of coverage under the policy before the burden shifts to the insurer to prove that the loss was excluded from coverage through a conspicuous, plain and clear exclusion in the policy. (Ibid.; E.M.M.I., Inc. v. Zurich American Ins. Co., supra, 32 Cal.4th at p. 471.)
Appellants rely on the legal principle that in summary judgment proceedings parties are bound by admissions they make during discovery. (D’Amico v. Board of Medical Examiners (1974) 11 Cal.3d 1, 21-22.) Appellants cite the following as “admissions” made by Fidelity representatives. In response to the interrogatory, “State whether the 2000 Toyota Camry was a covered auto under the subject Policy that was in existence on November 19, 2000,” Fidelity stated, “It was a covered auto subject to policy exclusions, meaning there would be no coverage for liabilities arising from rental operations of the vehicle, unless the vehicle was rented to a service customer, which it was not.” In response to the interrogatory, “If YOU contend that coverage did not extend to the vehicle described above on November 19, 2000, DESCRIBE the grounds or state the basis for that contention,” Fidelity stated, “No coverage existed for any liability arising from use of the vehicle as a rented or leased auto unless said rental was to a service customer. Exclusion No. 7.” At deposition, the person who authorized the filing of Fidelity’s declaratory relief action testified that she did so solely on the grounds that coverage for the loss was excluded by Exclusion 7 and that any coverage available under the policy would be excess to other policies.
These statements are not factual admissions subject to the D’Amico rule. They are representations about the legal theories Fidelity was advancing in support of its denial of coverage and defense. D’Amico expressly limited its holding to factual admissions as distinct from legal theories. The Supreme Court held that when a party makes an admission against interest and the admission is relevant to determining “whether or not there exist triable issues of fact (as opposed to legal issues) between the parties,” the admission is entitled to great deference over contrary allegations in affidavits. (D’Amico v. Board of Medical Examiners, supra, 11 Cal.3d at p. 22.) Cases cited by Appellants involve either factual admissions by a party opposing summary judgment (see, e.g., Visueta v. General Motors Corp. (1991) 234 Cal.App.3d 1609, 1613)or a factually void discovery response that served to shift the burden of proof on summary judgment to the other party (Union Bank v. Superior Court (1995) 31 Cal.App.4th 573, 580-581).
The more relevant legal authority is Waller v. Truck Ins. Exchange, Inc., supra, 11 Cal.4th 1. In Waller, the California Supreme Court held that an insurer does not waive a defense to coverage unless it intentionally relinquishes its right to rely on that defense, and the insurer is not estopped from relying on a defense unless the insured detrimentally relied on the insurer’s failure to assert the defense. (Waller, at pp. 32, 34.) Appellants do not point to any statement by Fidelity expressly waiving the argument that the car rental to Herrera did not come within the main insuring language of the Garage Coverage part of the Fidelity policy. Appellants do argue they detrimentally relied on Fidelity’s representations by limiting the scope of their discovery. Even so, Appellants could have sought a continuance of the summary judgment hearing to allow them to conduct further discovery in order to adequately respond to Fidelity’s new legal argument. (Code Civ. Proc., § 437c, subd. (h); Mediterranean Construction Co. v. State Farm Fire & Casualty Co. (1998) 66 Cal.App.4th 257, 264.) They did not do so. Appellants do not establish that the scope of discovery would have been different had Fidelity initially argued that the rental to Herrera was not necessary or incidental to garage operations and thus not within the scope of the main insuring language of the Garage Coverage in the policy. Fidelity maintained throughout the litigation that Fog City Car Rentals was a separate business from the BMW dealership and was not insured under its policy. Fidelity’s argument supports their position that the rental was excluded under Exclusion 7 and that it was not incidental to the garage operation. Similarly, in Waller the Supreme Court held that the insurer’s initial theory denying coverage adequately put the insured on notice as to the factual basis for the denial, even though the insurer’s legal theory changed over time. (Waller, at pp. 34-35.) We conclude that Fidelity is not precluded from arguing that the rental to Herrera did not come within the scope of Garage Coverage under its policy.
B. German Motors’ Factual Representations
To support the argument that the Fog City car rental operation was integral, necessary or incidental to the BMW dealership and garage, Appellants make the following factual representations, which they claim are undisputed or not reasonably subject to dispute: (1) Appellants offered the car rental service primarily as a benefit to its garage customers; (2) the rental operation clearly was intended to support German Motors’ garage operations because Cycles made no profit and its operations had to be subsidized by German Motors; (3) German Motors employees were allowed to rent cars from the Fog City Toyota fleet only if the cars had not been rented to German Motors service customers; (4) employees were charged only enough to cover the cost of the rental; and (5) the amount charged to employees helped German Motors’ cash flow and thus was incidental to German Motors’ continued ability to offer such rentals to its service customers.
Appellants do not support these factual representations with citations to the appellate record. Consequently, they have forfeited their legal argument premised on the facts. (Guthrey v. State of California (1998) 63 Cal.App.4th 1108, 1115.) Our own review of the record discloses that these facts were either unsupported by the evidence or were not set forth in the parties’ Separate Statements of Facts submitted with the cross motions for summary judgment.
1. Whether Fog City Toyotas Were Rented to Service Customers While Their Cars Were Being Serviced or Repaired by BMW of San Francisco
In the trial court, the parties agreed that German Motors rented or loaned cars to service customers while their personal cars were being serviced by BMW of San Francisco. They disputed whether those rental or loaner cars came from the fleet of Toyotas leased from Ellis Brooks or from a different fleet.
In its Statement of Undisputed Material Facts, Fidelity asserted that “German Motors Corporation d/b/a BMW of San Francisco did, on occasion, rent or loan a vehicle to customers who left their vehicle for service or repair. The Toyota fleet, utilized by Fog City Car Rentals for rentals to the public, was not used for this program.” (Emphasis added.) As supporting evidence, Fidelity cited deposition testimony of Henry Schmitt, president and major shareholder of German Motors:
Q. Did BMW of San Francisco ever loan or rent vehicles to customers who left their car for service or warranty work?
A. Correct.
Q. And those were vehicles that were different than the Toyota fleet, correct?
A. Correct.
Appellants disputed this fact in their response to Fidelity’s statement of undisputed facts, stating that cars from the Fog City Toyota fleet were rented not only to the public but also to service customers. As supporting evidence, Appellants cited a declaration by Michael Greening, Executive Vice President of German Motors dba BMW of San Francisco, dated after the cross motions for summary judgment were filed. Greening averred the Fog City Toyota fleet was “used for rentals to customers of the BMW of San Francisco body shop and service department and to members of the public.” Greening’s declaration does not state that cars from the Toyota fleet were rented to service customers as rental or loaner vehicles while their cars were being serviced or repaired by BMW of San Francisco. The omission is significant because the declaration, like a written discovery admission, was a studied response to Fidelity’s statement of undisputed facts, presumably prepared under the direction and supervision of counsel. (See Scalf v. D.B. Log Homes, Inc., supra, 128 Cal.App.4th at p. 1522.)
Generally, “[a]dmissions or concessions made during the course of discovery govern and control over contrary declarations lodged at a hearing on a motion for summary judgment.” (Visueta v. General Motors Corp., supra, 234 Cal.App.3d at p. 1613, citing D’Amico v. Board of Medical Examiners, supra, 11 Cal.3d at pp. 20-22.)
In their statement of undisputed facts in support of their cross-motion, Appellants stated, “In connection with the Fog City operation, GMC provided service customers, having work performed on their own vehicles, access to the rental vehicles . . . leased from Ellis Brooks . . . .” In support, Appellants cite Schmitt’s deposition testimony that the car driven by Herrera in November 2000 was one Fog City Car Rentals had leased from Ellis Brooks and used in its business to rent to the public, and that the purpose of leasing that vehicle from Ellis Brooks “was for use as a rental vehicle to hold out for rental purposes to make a profit from the public.” Appellants next cite Greening’s deposition testimony that in 1998 BMW of San Francisco had some loaner vehicles that it would allow customers to use when they brought their cars in for service or warranty work. Finally, Appellants cite Greening’s deposition testimony about hiring and training a German Motors employee to run the Fog City rental car operation. None of the cited evidence supports the statement that cars from the Fog City Toyota fleet were rented to service customers while their personal cars were being serviced or repaired by BMW of San Francisco.
The trial court ruled, “There is no evidence proffered by German Motors Corporation dba BMW of San Francisco showing that the vehicle in the accident was ever used for the BMW dealership operation. Instead, the vehicle in question was leased by Ellis Brooks to Cycles of SF, Inc. dba Fog City Car Rentals and not to German Motors Corporation dba BMW of San Francisco.” Appellants do not specifically dispute this finding.
Appellants have not cited and we have not found record evidence that BMW of San Francisco rented Fog City Toyotas to service customers while their personal cars were being serviced or repaired.
2. Whether Fog City Car Rental Primarily Served Dealership Customers, Made no Profit and Was Subsidized by German Motors, and Whether Employee Rentals Helped German Motors’ Cash Flow
Appellants argue that Fog City Car Rentals primarily served BMW of San Francisco customers, that it made no profit, that it was subsidized by German Motors, and that employee rentals helped German Motors’ cash flow. None of these facts appear in Appellants’ statement of undisputed facts or in their response to Fidelity’s statement of undisputed facts. The established rule is that if a fact is not set forth in the separate statements required under the summary judgment procedure, it does not exist for purposes of deciding the motion unless the court exercises its discretion to consider it. (San Diego Watercrafts, Inc. v. Wells Fargo Bank (2002) 102 Cal.App.4th 308, 313, 316.) “[I]t is irrelevant that such fact might be buried in the mound of paperwork filed with the trial court; the court does not have the burden to conduct a search for facts that counsel failed to bring out.” (Lewis v. County of Sacramento (2001) 93 Cal.App.4th 107, 116.) Hence, we do not consider these factual allegations.
3. Whether Employee Rental Fees Only Covered Costs
Appellants cite competent evidence that the rental rate charged to German Motors employees only covered the costs of renting the vehicle.
4. Summary of Evidence
Resolving all conflicts in the evidence in Appellants’ favor, the summary judgment papers establish that service customers of BMW of San Francisco occasionally rented cars from Fog City Car Rentals’ fleet of Toyotas. However, when service customers rented cars while their personal cars were being serviced by BMW of San Francisco, they were given different cars, not cars from the Toyota fleet. Employees were allowed to rent Toyotas from Fog City Car Rentals at a discounted rate covering the Appellants’ costs. There is no evidence that Fog City Car Rentals primarily served BMW of San Francisco service customers, that Fog City Car Rentals did not make a profit, that German Motors subsidized the rental car operation, or that employee rentals helped German Motors’ cash flow.
Appellants’ argument that Fog City Car Rentals (and specifically the rental to Herrera) was integral, necessary or incidental to the BMW dealership operation must be assessed in this limited factual showing.
C. The Undisputed Material Facts Establish There was No Coverage Under the Main Insuring Clause of the Policy
Appellants argue that the rental to Herrera was covered under the policy because it was necessary or incidental to the garage operations of the named insured, German Motors dba BMW of San Francisco.
Appellants rely on case law from other jurisdictions that broadly construes “garage operations” under similar policies. We find the cases factually distinguishable: either the car involved in the accident was used in the garage operation, or the accident resulted from activities on the premises of the garage, or the accident was caused by an employee acting within the scope of his employment. Here, the car involved in the accident was a Toyota rented to members of the public by Fog City; the accident occurred far from the premises of BMW of San Francisco; and Herrera was not acting within the scope of his employment when he drove the car.
In Farmers Alliance Mut. Ins. Co. v. Ho (2002) 68 P.3d 546, 547, the car involved in the accident was left by a customer for service or repair; the garage owner used the car for personal reasons after hours, became intoxicated and caused an accident. In Am. Hardware Mut. v. Darv’s Motor Sports (1988) 427 N.W.2d 715, 717-718, the dirt bike involved in the accident was owned by the garage and used to promote sales of similar bikes; the accident occurred when the driver was riding the bike for personal reasons, which she was encouraged to do so she could develop expertise and effectively demonstrate its use and promote its sale. In Providence Washington Ins. Co. v. Glens Falls Ins. Co. (1971) 114 N.J. Super. 350, 352, the car involved in the accident was left for spot painting; the garage owner used it for a personal errand and caused the accident. In Rivas v. Killins (1961) 346 S.W.2d 698, 699, 700, the car involved in the accident was owned by the used auto agency and loaned indefinitely to a prospective purchaser; the accident occurred while the borrower was driving for personal reasons. In Northland Ins. Co. v. Boise’s Best Autos & Repairs (1997) 132 Idaho 228, 229, 233-234, the truck involved in the accident was owned by the insured garage; the accident occurred while the truck was being used to deliver advertising materials to a related business, a pawn shop that provided the garage with all of its vehicles for sale.
In Linderman v. American Home Assurance Co. (1982) 414 So.2d 1124, 1125, the accident occurred when an employee was balancing the wheels on his personal car and the car sped out of the garage and struck a passing car. In Jackson v. Lajaunie (1972) 270 So.2d 859, 861, the accident occurred when the service station owner fired a pistol at a customer as a practical joke, thinking the pistol was loaded with blank ammunition.
In General Accident Ins. Co. v. Safeco Ins. Cos. (1994) 314 S.C. 63, 66, the accident occurred when an employee of the garage was driving a rental car while attending a conference, which was a requirement of his employment.
There is no triable issue of fact whether the rental to Herrera was necessary or incidental to BMW’s garage operations. We perceive three connections between the rental to Herrera and BMW’s garage operations. First and fundamentally, German Motors played a role in running both the business that rented the car to Herrera (by staffing, managing and administering Fog City Car Rentals pursuant to a service agreement with Cycles, its wholly owned subsidiary) and the garage operation (by directly doing business as BMW of San Francisco). This connection alone is insufficient to extend coverage to the rental to Herrera because German Motors expressly waived coverage over the rental car operation in the Fidelity policy, representing that it had purchased insurance for that operation elsewhere. German Motors’ expectations of coverage under the Fidelity policy could not reasonably include a car rental by Fog City. (E.M.M.I. Inc. v. Zurich American Ins. Co., supra, 32 Cal.4th at p. 470.)
Extrinsic evidence is relevant to resolve patent or latent ambiguities in contract language. (Dore v. Arnold Worldwide, Inc. (2006) 39 Cal.4th 384, 391.) In the context of construing Exclusion 7, the parties cite extrinsic evidence about the intended scope of coverage under the Fidelity policy. Appellants argue the extrinsic evidence is conflicting, thus precluding resolution of this case on summary judgment. They rely on an alleged dispute regarding the scope of Stanley Morrical’s agency as German Motors’ insurance broker. As a matter of law, the broker had the authority to make binding representations on German Motors’ behalf when it applied for the insurance policy. (Century Surety Co. v. Crosby Ins., Inc. (2004) 124 Cal.App.4th 116, 123.) Thus, there is no material factual dispute in the extrinsic evidence, which confirms that the Fidelity policy did not encompass German Motors’ rental car business.
The second connection is that BMW service customers sometimes rented cars from Fog City. The fact that the separate businesses of German Motors had overlapping customer bases adds virtually nothing to the fact that German Motors played a role in both businesses, the connection we have concluded is insufficient to render the rental incidental to BMW’s garage operations. Appellants have not produced evidence that BMW provided its service customers rental cars from the Fog City fleet while the customers’ personal cars were being serviced or repaired by the garage.
The third connection is that German Motors, in its role as manager of Fog City Car Rentals, allowed German Motors employees such as Herrera to rent cars at a discounted daily rate and subject to a lower age requirement. We conclude that this fact alone does not make the rental to Herrera incidental to BMW’s garage operations because although Appellants characterize the rental discount as an employment benefit for BMW of San Francisco employees, there is no evidence that BMW provided the discount. The discount may well have been absorbed by Cycles, the corporation doing business as Fog City Car Rentals. Cycles (acting through its managing company, German Motors) may well have had its own reasons for extending a discount to employees of BMW of San Francisco. Because the two companies shared premises, good relations with BMW employees directly benefited Fog City Car Rentals. BMW employees were an immediately accessible pool of potential customers for cars that had not been rented by the end of the business day. Even if the discounted rate only covered Fog City Car Rentals’ costs, the rentals might have aided the company’s cash flow, as Appellants have suggested with respect to the garage. The existence of the employee discount appears to be the fruit of the proximity with which the two companies did business and the overlapping management of the companies. But, as we have already explained, the overlap between the companies cannot be a basis for extending coverage under the Fidelity policy where German Motors made a deliberate choice to create a subsidiary corporation to conduct one of the businesses, purchased separate insurance policies with different policy limits for the two companies, and expressly disavowed any intention to purchase rental car insurance from Fidelity.
For the same reasons, we reject Appellants’ argument that Fidelity owed a duty to defend and indemnify German Motors for its liability for negligent entrustment. This argument is premised on the fact that German Motors entrusted a car to Herrera. Cycles dba Fog City Car Rental, not German Motors, entrusted the car to Herrera. Appellants have not demonstrated that German Motors can be held liable for Cycles’ action.
Because we conclude the losses in the underlying actions did not come within the scope of coverage under the Garage Coverage part of the Fidelity policy, we need not consider whether Exclusion 7 applies or whether it is enforceable. Appellants’ argument that a rental to “others” does not clearly exclude rentals to the insured’s own employees is based on the premise that the insured made the rental. As discussed, the rental was made by Cycles dba Fog City Car Rentals, not German Motors dba BMW of San Francisco, who is the insured under Fidelity’s policy.
D. Insurance Code Section 11580.1 Is Inapplicable
Appellants argue that Exclusion 7 is unenforceable because it violates Insurance Code section 11580.1, which requires all automobile liability insurance policies to extend coverage to permissive users of the vehicle, with exceptions not applicable here. At oral argument, Appellants expanded their argument to include the proposition that denying coverage for Herrera’s use of the vehicle under the language of the main insuring clause of the policy would also violate the statute. This expanded argument first raised at oral argument will generally not be considered. (See REO Broadcasting Consultants v. Martin (1999) 69 Cal.App.4th 489, 500 [argument first raised in reply brief is forfeited].)
We observe that Insurance Code section 11580.1 mandates that automobile liability insurance policies provide coverage “to the same extent that insurance is afforded to the named insured[] to any other person using the motor vehicle, provided the use is by the named insured or with his or her permission, express or implied, and within the scope of that permission . . . .” (Ins. Code, § 11580.1, subd. (b)(4), italics added.) We have concluded that the Fidelity policy did not afford coverage to German Motors, the named insured, for the use of Fog City Car Rentals. Even if we were to assume that German Motors gave Herrera permission to use the car, the permissive user statute does not mandate coverage for Herrera’s use of the vehicle.
E. Fidelity Had No Duty to Defend
There was no coverage under the Fidelity policy for the losses in the underlying actions. It follows that Fidelity did not have a duty to defend Appellants in the underlying actions. If, as here, neither the complaint nor the known extrinsic facts indicate any basis for potential coverage, the duty to defend does not arise in the first instance. (Scottsdale Ins. Co. v. MV Transportation, supra, 36 Cal.4th at p. 655.)
Disposition
The judgment is affirmed.
We concur. JONES, P.J., NEEDHAM, J.
In German Motors’ petition for rehearing, it argues that Schmitt’s deposition testimony should be given less weight than Greening’s declaration because Schmitt was responding to an ambiguous question. We disagree that the question was ambiguous. Moreover, Fidelity’s statement of undisputed facts clearly stated, in reliance on Schmitt’s testimony, that the Toyotas leased to Fog City Car Rentals were not used as rentals or loaner cars to BMW of San Francisco customers while their cars were being serviced. In response, German Motors did not submit a declaration explaining that Schmitt responded to an ambiguous question or that Schmitt did not have personal knowledge. (See Niederer v. Ferreira (1987) 189 Cal.App.3d 1485, 1503-1504; Scalf v. D.B. Log Homes, Inc. (2005) 128 Cal.App.4th 1510, 1523.) Greening’s declaration does not directly contradict Schmitt’s admission or explain it.