Ackerman v. Foster, 97CA0289

• Decision Date: 14 May 1998
• Docket Number: No. 97CA0289,97CA0289
• Citation: 974 P.2d 1
• Parties: 98 CJ C.A.R. 2390 Glen R. ACKERMAN, Plaintiff-Appellee, v. Natly O. FOSTER, Defendant, and concerning Mid-Century Insurance Company, Garnishee-Appellant. . III
• Court: Colorado Court of Appeals

Page 1

974 P.2d 1

98 CJ C.A.R. 2390

Glen R. ACKERMAN, Plaintiff-Appellee, v. Natly O. FOSTER, Defendant and concerning Mid-Century Insurance Company, Garnishee-Appellant.

No. 97CA0289.

Colorado Court of Appeals Div. III.

May 14, 1998.

As Modified on Denial of Rehearing

July 2, 1998.

Certiorari Denied April 12, 1999.

Sarney & Pierson, P.C., Saul R. Sarney, Anne Pierson, Denver, Colorado, for Plaintiff-Appellee.

Levy & Lambdin, P.C., Suzanne Lambdin, Martha C. Ferris, Englewood, Colorado, for Garnishee-Appellant.

Opinion by Judge BRIGGS.

Plaintiff, Glen R. Ackerman, obtained a judgment against defendant, Natly O. Foster, for personal injuries sustained in a traffic accident and then served a writ of garnishment on Mid-Century Insurance Co. (Mid-Century). After an answer and traverse had been filed and a hearing held, the court determined that defendant was included within the coverage of an automobile insurance policy Mid-Century had issued to her father. Mid-Century appeals the district court's order in favor of defendant for the use of plaintiff. We reverse.

The policy Mid-Century had issued to defendant's father provided coverage for a "family member" who was "a resident of your household." At the hearing on the garnishment, it was undisputed that defendant had been driving a borrowed vehicle, which was uninsured, and that she was a "family member." Thus, the sole issue to be resolved was whether, at the time of the accident, defendant was a "resident" of her father's "household."

The facts underlying the resolution of that issue were also undisputed. Defendant was 19 years old in November 1990, when the accident occurred in Aurora, Colorado. She had enlisted in the Army Reserve in August 1989 while living with her parents in California. In February 1990, she had left home to begin active-duty training in Colorado. She kept personal items at her father's house in California, paid taxes in California, and had a California driver's license. However, her father had not included her as an insured on the policy, which he purchased two months after she had left home for Colorado; she had been on active duty away from her father's house for almost a year before the accident; and she had more than a year remaining of active-duty training.

The plaintiff and Mid-Century independently came to the conclusion that the policy should be construed under California law. Applying that law, the district court found that "resident of your household" was ambiguous and that the ambiguity could not be resolved by reference to the facts existing at the time the policy was executed or at the time of the accident. The court therefore construed the policy against Mid-Century and thus interpreted the policy term, "resident of your household," to include defendant.

Mid-Century contends the trial court erred in construing the policy against it and, as a result, in concluding that defendant was a resident of her father's household at the time of the accident. The trial court's conclusion was consistent with one of the divergent approaches reflected in California decisions. We nevertheless reach a contrary conclusion using a different approach.

I.

Although citing different law, the parties on appeal again both assert that the insurance policy should be construed pursuant to California law. Nevertheless, at least absent a contractual stipulation, we have an independent responsibility to determine the applicable law. See Matter of Butler, Inc., 2 F.3d 154, 155 (5th Cir.1993)("Both parties incorrectly assume that Butler's motion is governed by Fed.R.Civ.P. 59."); Lobeck v. City of Riviera Beach, 976 F.Supp. 1460, 1464 (S.D.Fla.1997)("As an initial matter, the parties appear incorrectly to assume that Florida law controls the settlement question."); see also Bar 70 Enterprises, Inc. v. Tosco Corp., 703 P.2d 1297 (Colo.1985); Gold Rush Investments, Inc. v. Johnson Construction Co., 807 P.2d 1169 (Colo.App.1990).

The supreme court in Wood Bros. Homes., Inc. v. Walker Adjustment Bureau, 198 Colo. 444, 601 P.2d 1369 (1979), adopted the general approach of the Restatement (Second) Conflict of Laws for contract actions. It then applied the approach set forth in the specific section of the Restatement applicable to the type of contract before it.

Restatement (Second) Conflict of Laws § 193 (1971) addresses the question of the law to apply in determining the validity of and rights created by a casualty insurance contract, which includes automobile liability insurance policies. These contracts are generally to be determined by the local law of the state that the parties understood was to be the principal location of the insured risk during the term of the policy. See Keefner v. United States Fire Insurance Co., 1991 WL 2233 (D.Colo.1991)(unpublished)(applying Colorado law and adopting approach of Restatement (Second) Conflict of Laws § 193 (1971)); cf. Budd v. American Excess Insurance Co., 928 F.2d 344 (10th Cir.1991).

Here, defendant's father and the other named insureds all resided in California. Although defendant had moved to Colorado, her father had not included her on the policy or mentioned her when the policy was discussed and issued. Hence, we agree California law should apply.

The parties have further concluded that questions of the interpretation and application of a contract are questions of law. Though the issue is not always easy to resolve, see generally 3 A. Corbin, Contracts § 542 (1960), the circumstances of this case involve essentially undisputed facts. We therefore agree that, under California law, we must make an independent review of the policy, construe it, and resolve the ultimate issue of coverage as matters of law. See Utley v. Allstate Insurance Co., 19 Cal.App.4th 815, 24 Cal.Rptr.2d 1 (1993)(on appeal, a court makes a de novo review of the policy to determine coverage); see also National Auto. & Casualty Insurance Co. v. Underwood, 9 Cal.App.4th 31, 11 Cal.Rptr.2d 316 (1992); but see Bluehawk v. Continental Insurance Co., 50 Cal.App.4th 1126, 58 Cal.Rptr.2d 147 (1996)(upholding the trial court's "finding" as to extent of coverage because it was supported by substantial evidence).

Under California law, while insurance contracts have special features, they are still contracts to which the ordinary rules of contractual interpretation apply. Among those rules is that a contract term is ambiguous if its meaning is susceptible of more than one reasonable construction. See National Auto. & Casualty Insurance Co. v. Underwood, supra.

While the rule is clear, determining whether the standard policy terms "resident" and "household" are ambiguous has seemed an elusive task. Some courts, using one analytical approach, have treated these terms as unambiguous. See Utley v. Allstate Insurance Co., supra; Safeco Insurance Co. v. Gibson, 211 Cal.App.3d 176, 259 Cal.Rptr. 206 (1989). Others, using an alternative approach, have treated the terms as ambiguous, requiring that they be construed against the insurer. See National Auto. & Casualty Insurance Co. v. Underwood, supra; Cal-Farm Insurance Co. v. Boisseranc, 151 Cal.App.2d 775, 312 P.2d 401 (1957).

Our task is to determine the proper approach for addressing the question of ambiguity; to construe the terms "resident" and "household" using that approach; and, finally, to apply the policy's coverage clause, with the terms so defined, to the undisputed facts.

II.

The divergent approaches in California to resolving a question of ambiguity reflect a similar divergence in other states, including Colorado. The difference in the approaches is subtle but critical.

The first approach recognizes that a term's meaning does not vary according to the facts surrounding a particular accident. No matter how great the difficulty in application, it is a matter of applying a fixed meaning to varying facts. See Jacobs v. Fire Insurance Exchange, 227 Cal.App.3d 584, 278 Cal.Rptr. 52 (1991).

The alternative approach treats a term as ambiguous based on the belief that its meaning "varies according to the circumstances and facts of the case." The "circumstances and facts" referred to are those surrounding the accident and injuries in question. See Utley v. Allstate Insurance Co., supra; Cal-Farm Insurance Co. v. Boisseranc, supra.

In our view, only the first approach reflects a proper understanding of the concept of ambiguity. To explain our conclusion, it is necessary first to summarize what we view as the correct analytical steps toward determining whether an insurance policy provides coverage for a particular accident, including the resolution of any question of ambiguity. The difference in the two approaches can then be considered within that analytical framework.

A.

At its core, what we view as the proper approach to resolving a question of ambiguity, under California or Colorado law, treats the construction and application of a policy term as two, distinct analytical stages. Each can be briefly summarized.

1.

The first stage, construing the term, can consist of several steps. Initially, a court must determine if the parties attached any particular meaning to the term, or one of the parties attached such a meaning, of which the other party had reason to know. If so, that meaning will prevail even over the term's plain and ordinary meaning. See La Jolla Beach & Tennis Club, Inc. v. Industrial Indemnity Co., 9 Cal.4th 27, 36 Cal.Rptr.2d 100, 884 P.2d 1048 (1994); see generally 3 A. Corbin, supra, §§ 542 & 554.

A question concerning the meaning of a term in an insurance policy is seldom resolved in this step. Most policies contain standardized terms written by employees of the insurer who never meet the insured. Further, the agent selling the policy seldom discusses particular terms or their meanings with an insured at the time of purchase. Hence, a court must proceed with its construction of the policy term by looking to the general context in which the agreement was made....