Western Casualty & Surety Co. v. Harris Petroleum Co.

• Decision Date: 07 August 1963
• Docket Number: Civ. No. 62-1223.
• Citation: 220 F. Supp. 952
• Court: U.S. District Court — Southern District of California
• Parties: The WESTERN CASUALTY AND SURETY CO., a corporation, Plaintiff, v. HARRIS PETROLEUM COMPANY, Inc., a corporation, Seaside Oil Company, a corporation, Benjamin Harris, Jr., John V. Campo, Virgil E. Sackman, and Elizabeth Sackman, Defendants.

220 F. Supp. 952

The WESTERN CASUALTY AND SURETY CO., a corporation, Plaintiff, v. HARRIS PETROLEUM COMPANY, Inc., a corporation, Seaside Oil Company, a corporation, Benjamin Harris, Jr., John V. Campo, Virgil E. Sackman, and Elizabeth Sackman, Defendants.

Civ. No. 62-1223.

United States District Court S. D. California, Central Division.

August 7, 1963.

Frank Wickhem, Los Angeles, Cal., for plaintiff.

Booth, Mitchel, Strange & William, by George C. Mitchel, Los Angeles, Cal., for defendant Seaside Oil Co.

Oliver, Good & Sloan, by Richard L. Oliver, Los Angeles, Cal., for defendants John V. Campo, Virgil E. Sackman and Elizabeth Sackman.

CARR, District Judge.

This is an action for declaratory relief pursuant to U.S.C., Title 28, §§ 2201 and 2202, to determine the liability of plaintiff insurance company under a policy issued to defendant Harris Petroleum Co., Inc. The plaintiff insurance company issued a comprehensive liability-type policy including automobile liability insurance for "owned automobiles" to the Harris Petroleum Company, Inc., for the 1960-61 policy year. A detailed list of exposures, referred to by the parties as the "work sheet," was made by the insurance company but was not attached to the 1960-61 policy. The 1956 Pontiac station wagon in question here was included in this list of exposures.

Immediately prior to the expiration of the 1960-61 policy, the plaintiff insurance company issued another comprehensive liability-type policy, including automobile liability insurance for "owned automobiles," to Harris Petroleum. A detailed list of exposures, or so-called work sheet, was also made by the insurance company but was not attached to the 1961-62 policy. Furthermore, the 1956 Pontiac station wagon was not included in the list of exposures. Prior to the issuance of the 1961-62 policy, correspondence was carried on between the agents of the plaintiff insurance company and Harris Petroleum in which Harris Petroleum indicated that it desired to reduce its insurance premiums and the insurance company advised that to do so Harris Petroleum would have to eliminate some of its exposures. The insurance company forwarded the 1961-62 policy to the insured in a letter of January 20, 1961, and in such letter stated: "We are not carrying, either, you will notice, Ben Jr.'s automobile 1956 Pontiac * * *." This correspondence is part of the "extrinsic" evidence that defendant Seaside Oil Company urges the court to exclude under the parole evidence rule.

The 1961-62 insurance policy under consideration by this court is a comprehensive liability-type policy in which coverage automatically attaches for all "owned automobiles" of the insured Harris Petroleum Co., Inc. The policy expressly provides that the premium charged at the inception of the policy period is only a provisional premium and that upon the termination of the policy or at the end of the annual period of the policy the actual earned premium will be computed by the insurance company and, in the event that the earned premium exceeds the provisional premium, the insured will be liable for the difference. The policy further provides that the insurance company will be permitted to make an inspection and audit of the insured's records and property both during and after the policy year in order to determine the exposures covered by the policy so that the actual earned premium can be calculated.

The question to be determined here is whether the 1956 Pontiac station wagon was covered by the 1961-62 policy. This station wagon was involved in a fatal automobile accident during the policy year, 1961-62, and the plaintiff contends that the policy did not cover this vehicle because both the plaintiff insurance company and Harris Petroleum intended it to be omitted from coverage. Defendant Seaside Oil urges that, since the Pontiac in question was in fact owned by Harris Petroleum at the date of the accident, it is within the term "owned automobiles" as defined in the policy. Defendant Seaside Oil urges that parole evidence should not be admitted in regard to whether the vehicle in question was covered since, if it was owned by Harris Petroleum at the time of the accident, it is covered by the written contract of insurance and parole evidence should not be allowed to vary or extend or alter the clear "owned automobiles" coverage provision of the policy. Defendant Seaside Oil, in the alternative argues, that, even if the parole evidence is allowed concerning the correspondence and communications between plaintiff's agent and the Harris Petroleum Co., Inc., preceding the issuance of the 1961-62 policy, it was the intent of the parties that all "owned" automobiles were to be covered. The plaintiff insurance company's amended complaint admits that Harris Petroleum at all times actually was the true owner of the 1956 Pontiac station wagon in question.

At the outset it must be determined what law applies:

"An insurance policy is a contract, and a Federal Court in a diversity of citizenship case will look to the conflict of laws rule of the forum on the subject of contracts. Klaxon Company v. Stentor Electric Manufacturing Co., 313 U.S. 487, 496, 61 S.Ct. 1020, 85 L.Ed. 1477; Griffin v. McCoach, 313 U.S. 498, 503, 61 S.Ct. 1023, 85 L.Ed. 1481." Prudential Insurance Company v. Heyn (S.D. Cal., 1956), 139 F.Supp. 602, 608.

The applicable California law is clearly stated in 9 Civil Code, § 1646:

"LAW OF PLACE. A contract is to be interpreted according to the law and usage of the place where it is to be performed; or, if it does not indicate a place of performance, according to the law and usage of the place where it is made."

The insurance contract in question was made in the state of Washington. Here there was no provision in the insurance contract as to the applicable law, and in such a situation the contract is generally deemed performable where made or where the circumstances indicate that the parties expected or intended it to be performed. It is noted that most of the property of the insured as well as the principal place of business of the insured were located in the state of Washington. At any rate, the parties conceded that the law of Washington is applicable. Thus the parole evidence rule applicable in the state of Washington is controlling in the instant case.

The general rule is that in the federal courts the parole evidence rule is a rule of substantive law and the law of the state of the forum is to be applied. Black v. Richfield Oil Corporation (S.D. Cal., 1941), 41 F.Supp. 988, 993, aff., 146 F.2d 801, 804 (C.C.A. 9th, 1944), cert. den., 325 U.S. 867, 65 S.Ct. 1404, 89 L.Ed. 1986. In California, it has been held that the parole evidence rule is a rule of substantive law and the general conflicts of law rule in the interpretation of contracts is applicable in determining its usage. Hutchinson v. Hutchinson (1941), 48 Cal.App.2d 12, 119 P.2d 214. According to the law of Washington, there are two types of ambiguities in contracts: patent ambiguities and latent ambiguities. A patent ambiguity is such as exists or appears on the face of the writing itself, while a latent ambiguity arises when the writing upon its face appears clear and explicit but there is some collateral matter which makes the meaning uncertain. Fagan v. Walters (1921), 115 Wash. 454, 197 P. 635, 637. In Leavenworth State Bank v. Cashmere Apple Co. (1922), 118 Wash. 356, 204 P. 5, 7, the Supreme Court of Washington announced...