Elwood v. Aid Ins. Co.

• Citation: 880 F.2d 204
• Decision Date: 13 July 1989
• Docket Number: No. 88-5628,88-5628
• Parties: Michael ELWOOD; Deborah Elwood, On behalf of themselves and others similarly situated, Plaintiffs-Appellants, v. AID INSURANCE CO., aka: Allied Insurance Company and Does I Through 50 Inclusive, Defendant-Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

Page 204

880 F.2d 204

Michael ELWOOD; Deborah Elwood, On behalf of themselves and others similarly situated, Plaintiffs-Appellants, v. AID INSURANCE CO., aka: Allied Insurance Company and Does I Through 50 Inclusive, Defendant-Appellee.

No. 88-5628.

United States Court of Appeals Ninth Circuit.

Argued and Submitted Dec. 7, 1988.

Memorandum Filed April 21, 1989.

Decided July 13, 1989.

David D. Martin, Cohen & Martin, San Diego, Cal., for plaintiffs-appellants.

Mark D. Wuerfel and Judith MacQuarrie, Kinder & Wuerfel, San Francisco, Cal., for defendant-appellee.

Appeal from the United States District Court for the Southern District of California.

Before HALL, WIGGINS and THOMPSON, Circuit Judges.

ORDER

The Memorandum disposition filed on April 21, 1989 has been designated an opinion for publication by Judge Wiggins.

OPINION

WIGGINS, Circuit Judge:

Michael and Deborah Elwood appeal the district court's grant of summary judgment in favor of Allied Mutual Insurance Company (Allied). The district court concluded that the Elwoods were not entitled to benefits under the underinsured motorists coverage of their automobile insurance policy for injuries suffered in an automobile accident. We affirm.

BACKGROUND

The parties have stipulated to the relevant facts. The Elwoods were injured when an automobile driven by Larry Whisman struck their car from behind while the Elwoods were waiting at a traffic light. The Elwoods filed a claim with Allied for medical expenses and for damages to their car. Allied made medical payments of $25,000 and $6,800 to Michael and Deborah respectively in satisfaction of its obligation under the medical payments provision of the policy. Coverage for medical payments was limited to $25,000 per person or $50,000 per accident. The Elwoods were also compensated for the damage to their car.

Whisman was insured under a policy with Farmers Insurance Company that also had $25,000/$50,000 bodily injury liability limits. The Elwoods settled with Mr. Whisman and Farmer's Insurance for $59,180. Michael Elwood received $25,000 from Farmer's Insurance, plus a $9,180 note from Mr. Whisman, for a total settlement of $34,180. Deborah Elwood received $25,000 from Farmer's Insurance.

The Elwoods then made a demand for underinsured motorist benefits under their policy with Allied, because the sum they recovered from Whisman and his carrier did not fully compensate them for their injuries. ¹

The provisions of the policy relating to underinsured motorists coverage are contained in the declaration sheet and in a two-page endorsement entitled "Underinsured Motorist Coverage." The pertinent portion of the declaration sheet merely indicates that the limit of underinsured motorists coverage is $25,000 per person and $50,000 per accident. The endorsement defines "underinsured motor vehicle" as "a land motor vehicle or trailer of any type to which a bodily injury liability bond or policy applies at the time of the accident but its limit for bodily injury liability is less than the limit of liability for this coverage." A section entitled "Limit of Liability" is contained on page two and states in relevant part:

The limit of liability shown in the Schedule for this coverage is our maximum limit of liability for all damages resulting from any one accident. This is the most we will pay regardless of the number of:

1. Covered persons;

2. Claims made;

3. Vehicles or premiums shown in the Declarations; or

4. Vehicles involved in the accident.

However, the limit of liability shall be reduced by all sums paid because of the bodily injury by or on behalf of persons or organizations who may be legally responsible.

The Elwoods' demand was based on their belief that their underinsured motorists coverage of $25,000/$50,000 would be payable to the extent the underinsured's policy failed to reimburse the full amount of damages suffered by them.

Allied interprets the policy differently. It maintains that read in its entirety, the policy clearly indicates that underinsured motorists benefits are payable based on the difference between the $25,000/$50,000 limit and the amount paid by the underinsured.

Notwithstanding this fundamental disagreement over the extent of the underinsured motorist coverage, Allied denied the Elwoods' claim on the basis that Whisman's automobile was not an "underinsured motor vehicle" as defined in the endorsement because Whisman's $25,000/$50,000 bodily injury liability policy limits are equal to, rather than less than, the Elwoods' policy's $25,000/$50,000 underinsured motorist limits.

The Elwoods brought suit in state court alleging breach of contract, tortious breach of contract, fraud, and breach of statutory duty. Allied removed the case to federal court, the parties stipulated to dismissal of all claims except the claim for breach of contract, and the parties filed cross-motions for summary judgment. The court granted Allied's motion and denied the Elwoods' motion, concluding that the policy was not ambiguous and that construed in its entirety the policy precluded the Elwoods from collecting underinsured motorists benefits. This timely appeal followed, and we have jurisdiction under 28 U.S.C. Sec. 1291 (1982).

STANDARD OF REVIEW

The Court reviews a grant of summary judgment de novo and affirms the judgment if there are no genuine issues of material fact and the district court correctly applied the substantive law. Ashton v. Cory, 780 F.2d 816, 818 (9th Cir.1986). Because the parties submitted this case on stipulated facts, the Court's review is limited to a de novo examination of questions of law. Flexi-Van Leasing, Inc. v. Aetna Casualty & Surety Co., 822 F.2d 854, 855 (9th Cir.1987); Jackson Water Works, Inc. v. Public Utilities Comm'n of Cal., 793 F.2d 1090, 1092 (9th Cir.1986), cert. denied, 479 U.S. 1102, 107 S.Ct. 1334, 94 L.Ed.2d 184 (1987). The district court's interpretation and application of state law is not entitled to special deference and is reviewed de novo. Id.; Matter of McLinn, 739 F.2d 1395, 1397 (9th Cir.1984) (en banc).

ANALYSIS

I. Declaration Sheet

Initially, the Elwoods appear to contend that the $25,000/$50,000 limit for underinsured motorist coverage described on the declaration sheet should be interpreted literally. As discussed above, they believed the $25,000/$50,000 coverage meant that they could recover up to that amount to the extent the underinsured failed to reimburse the total damages suffered by them.

Each provision of an insurance contract must be considered with reference to every other clause on which it has a bearing. Jarrett v. Allstate Ins. Co., 209 Cal.App.2d 804, 809, 26 Cal.Rptr. 231, 234 (1962). The $25,000/$50,000 underinsured motorists coverage provision contained in the declaration sheet must be read in conjunction with the exclusions and limits of liability reflected in the endorsement. These provisions unambiguously show that the underinsurance coverage is reduced by bodily injury liability payments, rather than serving as excess insurance. ²

II. Ambiguity; Applicability of Coverage

The Elwoods' main contention on appeal is that the policy is ambiguous and that their reasonable expectation of the coverage of the policy should govern. The Elwoods maintain that the policy is ambiguous because there is a conflict in the policy regarding the maximum amount payable. The Elwoods contend that the indication on the declaration sheet that the underinsured motorist coverage is $25,000/$50,000 and the statement in the Limit of Liability section that the amount stated on the declaration sheet is the most Allied will pay, conflicts with the provision in the Limit of Liability section that "the limit of liability shall be reduced by all sums paid because of the bodily injury by or on behalf of persons or organizations who may be legally responsible." The Elwoods argue that under this latter provision the maximum coverage is actually $10,000 because underinsurance coverage is not triggered until the tortfeasor's coverage reaches the minimum amount of insurance required in California, $15,000/$30,000, ³ and the $15,000 will always be deducted from the $25,000. Because there is a conflict in the policy concerning the maximum amount payable, they contend the policy is ambiguous and that their reasonable expectations of the maximum amount payable should govern.

Allied contends that the alleged ambiguity concerning the amount of benefits payable is irrelevant because the underinsured motorist coverage was never even triggered. According to Allied, the underinsured motorist coverage was never triggered because the Elwoods' car was not struck by an "underinsured motor vehicle" as defined under the policy. Allied contends that this case involves a controversy over whether any benefits are payable, not how much. Allied also rejects the notion that the policy provisions are conflicting or ambiguous, and contends that the Elwoods' reasonable expectations are irrelevant. We agree with both of Allied's arguments.

A. Applicability of Coverage

The Elwoods' ambiguity argument is irrelevant because the underinsured motor coverage was never triggered. Whisman's policy limits were equal to rather than less than the Elwoods' policy's underinsured motorist limits. The Elwoods, however, contend that Allied may not rely on the definition of an underinsured motor vehicle to deny coverage because the definition was actually an exclusion that was not conspicuous, plain, and clear. Even if the definition is properly characterized as an exclusion, the Elwoods' argument must be rejected.

An exclusionary clause must pass muster under two independent tests: "(1) The exclusion must be conspicuous and (2) the language of the exclusion must be plain and clear." Ponder v. Blue Cross of S. Cal., 145 Cal.App.3d 709, 719, 193 Cal.Rptr. 632, 637 (1983) (emphasis in original) (footnote omitted). The conspicuous test requires that the exclusion "be positioned in a place and printed...