Atlas Assurance Co. v. McCombs Corp.

• Decision Date: 17 August 1983
• Citation: 194 Cal.Rptr. 66,146 Cal.App.3d 135
• Court: California Court of Appeals Court of Appeals
• Parties: ATLAS ASSURANCE CO., LTD., a New York Corporation, Plaintiff and Respondent, v. McCOMBS CORPORATION, a California Corporation, Defendant and Appellant. McCOMBS CORPORATION, a California Corporation, California Shopping Centers, Inc., and Stockton Building, Ltd., Cross-Complainants and Appellants, v. ATLAS ASSURANCE CO., LTD., and Deans & Homer, Cross-Defendants and Respondents. Civ. 22055.

Page 66

194 Cal.Rptr. 66

146 Cal.App.3d 135

ATLAS ASSURANCE CO., LTD., a New York Corporation, Plaintiff and Respondent, v. McCOMBS CORPORATION, a California Corporation, Defendant and Appellant.

McCOMBS CORPORATION, a California Corporation, California Shopping Centers, Inc., and Stockton Building, Ltd., Cross-Complainants and Appellants, v. ATLAS ASSURANCE CO., LTD., and Deans & Homer, Cross-Defendants and Respondents.

Civ. 22055.

Court of Appeal, Third District, California.

Aug. 17, 1983.

Rehearing Denied Sept. 15, 1983.

Roger A. Saevig and Michael G. Dawe, Irvine, Anderson, McPharlin & Conners and Eric N. Winter, Los Angeles, for defendant and appellant, cross-complainants and appellants.

Barry & Associates, David Barry and Douglas W. Allan, Oakland, for plaintiff and respondent, cross-defendants and respondents.

CARR, Associate Justice.

In this action by an insurer, Atlas Assurance Co. (plaintiff) for declaratory relief against its insured, McCombs Corp., et al. (defendants), the trial court granted summary judgment for plaintiff, finding it had no duty to defend or indemnify defendants in the underlying lawsuit. The trial court also granted plaintiff's motion for judgment on the pleadings as to defendant's cross-complaint for breach of duty of good faith and fair dealing. Defendants appeal from the ensuing judgments. ¹

FACTS

Defendants owned and operated a self-service storage facility in Stockton. They employed William Hartman as a manager of this facility. Herbert and Elizabeth Wheeler were tenants of the facility. In July 1980, a collection of coins and other objects worth approximately $180,000 was stolen from the Wheeler's locker. At the time of the theft, defendants were insured by plaintiff under a "self-service storage operators policy", which included a promise to defend against any suit seeking damages On October 23, 1980, the Wheelers brought an action against defendants, alleging breach of contract and negligent employment of Hartman resulting in the theft of the Wheeler's property by Hartman. Upon notification of the Wheeler's suit, plaintiff wrote defendants that it felt there was no coverage for the theft by Hartman, but stating it would undertake the defense, reserving the right to have the question of coverage judicially determined. On March 16, 1981, Hartman pled nolo contendere to grand theft of the Wheeler's property. (Pen.Code, § 487, subd. 1.) On April 28, 1981, plaintiff informed defendants by letter of its belief the exclusion was applicable to the Wheeler's lawsuit and gave notice of its intent to withdraw from the defense. Defendants disagreed and demanded continued full coverage. Plaintiff then continued the defense subject to its original reservation of rights and filed this action for declaratory relief.

                payable under the terms [146 Cal.App.3d 142] of the policy. 2  Excluded under the policy was coverage for liability arising from any dishonest or criminal act of the insured or their employees or agents. 3
                

DISCUSSION

I

Defendants first contend the trial court erred in finding the exclusion at issue to be unambiguous ⁴ and urge the language of the exclusion is reasonably susceptible to an interpretation that coverage existed. Further, that the trial court erroneously failed to consider the declaration of McCombs wherein he stated his interpretation of the exclusion was that coverage was provided.

We conclude the trial court correctly found the exclusion unambiguously placed the Wheeler lawsuit outside the coverage of the policy.

146 Cal.App.3d 143>> The provisions of an insurance policy are generally construed under the same rules governing the interpretation of other contracts. (Gribaldo, Jacobs, Jones & Associates v. Agrippina Versicherunges A.G. (1970) 3 Cal.3d 434, 442, 91 Cal.Rptr. 6, 476 P.2d 406.) Doubts as to the meaning of the policy must be resolved against the insurer and any exception to the performance of the basic obligation must be clearly stated so as to apprise the insured of its effect. (Gray v. Zurich Insurance Co. (1966) 65 Cal.2d 263, 269, 54 Cal.Rptr. 104, 419 P.2d 168.) To determine if extrinsic evidence may be admitted to explain the meaning of a written instrument, the test for admissibility is "whether the offered evidence is relevant to prove a meaning to which the language of the instrument is reasonably susceptible." (Pacific Gas & E. Co. v. G.W. Thomas Drayage, etc. Co. (1968) 69 Cal.2d 33, 37, 69 Cal.Rptr. 561, 442 P.2d 641.) A two-step analysis is followed in applying this test. First, to prove the intention of the contracting parties, the court must place itself in the same situation as the parties at the time of making the agreement by provisionally accepting, without actually receiving, all credible evidence concerning the making of the agreement. Second, if the court determines in light of this evidence that the contract is reasonably susceptible to the offered interpretation, the court may admit the evidence to so interpret the contract. "On the other hand, if the court decides in light of this entrinsic evidence that the contract is not reasonably susceptible to the offered interpretation, then the evidence is irrelevant and inadmissible to interpret the contract." (Blumenfeld v. R.H. Macy & Co. (1979) 92 Cal.App.3d 38, 45, 154 Cal.Rptr. 652.)

Plaintiff offered no extrinsic evidence on the meaning of the exclusionary clause. Defendants offered only the declaration of McCombs, who stated he had read the exclusion "and interpreted it to mean that the policy would not cover for theft of property entrusted by the Insured to its agents or employees." (Emphasis added.) The declaration does not indicate when Mr. McCombs first read the exclusion, nor does it indicate plaintiff said or did anything to foster such an interpretation. Standing alone, Mr. McComb's understanding of the exclusion does nothing to show the intention of the parties at the time the agreement was made. Accordingly, the interpretation of the exclusion does not turn on the credibility of extrinsic evidence and is solely a question of law on which we make an independent examination. (Gribaldo, Jacobs, Jones & Associates v. Agrippina Versicherunges A.G., supra, 3 Cal.3d at pp. 445-446, 91 Cal.Rptr. 6, 476 P.2d 406.)

The exclusion removed liability for any dishonest or criminal act "on the part of the Insured or other party of interest, his or their employees or agents or any person or persons to whom the property may be entrusted by the Insured." Defendants read the phrase " 'to whom the property may be entrusted by the Insured' " as modifying everything following the words "party of interest"; i.e. employees, agents and persons or persons. Under this reading, the exclusion applies only if the insured first entrusts the property to the employee or agent who then commits a dishonest act. This interpretation leads to inconsistent coverage based on who stole the property and the circumstances of the theft. The exclusion was clearly intended to apply consistently to the insured, his employees and any person to whom the property was entrusted by the insured. Moreover, defendant's interpretation would require the use of a conjunction before the words "his or their employees" so that all the words which follow could be read as one phrase rather than two. Reading the phrase "to whom the property may be entrusted" as modifying "employees" requires we assume the policy adopted an incorrect sentence construction. An ambiguity cannot be based on a strained and grammatically incorrect reading of the policy's terms. (McBride v. Farmers Insurance Group (1982) 130 Cal.App.3d 258, 261, 181 Cal.Rptr. 539.) The alternative interpretation must be one to which the policy is reasonably susceptible. Here the exclusion admits of only one interpretation: there is no coverage for any dishonest or criminal act on the part of the insured or other party of interest, on the part of his or their employees or agents, or on the part of any person or persons to whom the property may be entrusted by the insured.

The exclusion was unambiguous as a matter of law, and the trial court properly rejected McCombs' interpretation of the exclusion as irrelevant. (Blumenfeld v. R.H. Macy & Co., supra, 92 Cal.App.3d at p. 45, 154 Cal.Rptr. 652.) McCombs was simply mistaken in his subjective and apparently undisclosed belief. "Under the objective test of contract formation, a 'meeting of the minds' is unnecessary. A party is bound, even if he misunderstood the terms of a contract and actually had a different, undisclosed intention." (Id., at p. 46, 154 Cal.Rptr. 652.)

Our conclusion the exclusion was not ambiguous disposes of defendant's contention the trial court erred in finding Gray v. Zurich Insurance Co., supra, inapplicable to these facts. Gray was a watershed case on the insurer's duty to defend. Dr. Gray was sued for assault and his insurer refused to defend on the ground the policy excluded coverage for intentional torts. (Gray v. Zurich Insurance Co., supra, 65 Cal.2d at p. 267, 54 Cal.Rptr. 104, 419 P.2d 168.) In determining the insurer was obligated to defend Dr. Gray, the Court reasoned the provisions regarding the duty to defend were uncertain since the question of the intentional tort would not be resolved until the termination of the very action the insurer should have defended. (Id., at p. 272, 54 Cal.Rptr. 104, 419 P.2d 168.) Interpreting this uncertain promise in favor of the insured, it was reasonable for Dr. Gray to expect protection from the insurer until the underlying suit was resolved. (Ibid.)

The present exclusion unambiguously applied to a theft by an employee of the insured. Hartman's criminal conviction for theft resolved any uncertainty as to the duty to defend in the civil action against defendants. The ambiguity which existed in Gray was not present here and the trial court correctly found Gray inapplicable.

II

Defendants further contend the trial court erred in...