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02/17/95 TOWNSEND FORD v. AUTO-OWNERS INSURANCE

February 17, 1995

TOWNSEND FORD, INC.
v.
AUTO-OWNERS INSURANCE COMPANY; AUTO-OWNERS INSURANCE COMPANY V. TOWNSEND FORD, INC.



Appeals from Tuscaloosa Circuit Court. (CV-92-1251). Robert B. Harwood, Trial Judge. This Opinion Substituted by the Court for Withdrawn Opinion of March 25, 1994, Previously .

Rehearing Denied February 17, 1995

Maddox, Hornsby, C.j., and Shores, Houston, Ingram, and Cook, JJ., concur.

The opinion of the court was delivered by: Maddox

On Application for Rehearing

MADDOX, JUSTICE.

The opinion of March 25, 1994, is withdrawn and the following opinion is substituted therefor.

The insured brought this declaratory judgment action to determine whether the insurer has a duty to defend and indemnify the insured with regard to two actions brought against the insured by its customers alleging intentional fraudulent misrepresentation, fraudulent suppression of material facts, reckless misrepresentation, and breach of an express warranty in connection with the sale of a used motor vehicle.

The issue is whether the trial court properly interpreted the insurance policy. The insured, Townsend Ford, Inc., appeals from the trial court's ruling that the policy excluded coverage for the claims that its salespeople committed intentional fraudulent misrepresentation. The insurer, Auto-Owners Insurance Company, cross appeals from the trial court's ruling that the policy covered the claims alleging suppression of a material fact, reckless misrepresentation, and breach of an express warranty.

The plaintiffs in the two underlying actions had purchased "program" cars from Townsend Ford. Program cars are cars that Ford Motor Company sells to rental car agencies with an obligation to buy them back. After it buys back the cars, Ford sells them to franchise dealers for resale. The customers allege that salespeople employed by Townsend Ford represented either that these program cars had been driven only by Ford managers under the constant ownership of Ford Motor Company and were being sold as "demonstrators" or that the salespeople failed to disclose that these cars had been used previously as rental cars. Townsend Ford brought this declaratory judgment action to establish that its insurer, Auto-Owners, was obligated under its policy to cover and defend claims of intentional fraud, fraudulent suppression, and breach of warranty.

The "intentional act exclusion" provision of the policy reads as follows:

"2. Exclusions.

"This insurance does not apply to:

"a. 'Bodily injury' or 'property damage' expected or intended from the standpoint of the insured."

The trial court reasoned that this provision excluded coverage of the claims of intentional fraud filed against Townsend Ford.

Townsend Ford contends that the trial court did not correctly apply the "Separation of Insureds" provision ...


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