Ayres v. Prudential Ins. Co. of America, 77-1761

• Decision Date: 23 May 1979
• Docket Number: No. 77-1761,77-1761
• Citation: 602 F.2d 1309
• Parties: Dolores AYRES, Plaintiff-Appellee, v. The PRUDENTIAL INSURANCE COMPANY OF AMERICA, Defendant-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1309

602 F.2d 1309

Dolores AYRES, Plaintiff-Appellee, v. The PRUDENTIAL INSURANCE COMPANY OF AMERICA, Defendant-Appellant.

No. 77-1761.

United States Court of Appeals, Ninth Circuit.

May 23, 1979.

Rehearing Denied Sept. 12, 1979.

Donald B. York, Adams, Duque & Hazeltine, James S. Cline, Los Angeles, Cal., for defendant-appellant.

Martin J. Schnitzer, Los Angeles, Cal., for plaintiff-appellee.

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

Before HUFSTEDLER and TRASK, Circuit Judges, and McNICHOLS, ^* District Judge.

McNICHOLS, District Judge.

This is an appeal from a summary judgment granted by the district court in favor of appellee. The district court exercised jurisdiction pursuant to 28 U.S.C. § 1332. We have jurisdiction of this appeal under 28 U.S.C. § 1291.

Prudential Insurance Company of America ("Prudential"), appellant here and the defendant below, issued Group Insurance Policy No. G-91550 to Getty Oil Company ("Getty") covering Getty's employees with life insurance and accidental death insurance. The group policy insured Getty employee Dan Ayres, now deceased, by way of two certificates of insurance. The certificates named Dan Ayres' wife, Dolores Ayres, appellee here and plaintiff below, as Dan Ayres' beneficiary.

Dan Ayres died in the crash of a private airplane he was piloting. Prudential paid $36,500.00 to Dolores Ayres under the regular life insurance portion of his certificate of insurance, but refused to pay under the portion which provided coverage for accidental death. Prudential contends that the following limiting provisions, found in the accidental death portions of the policy and certificates, exclude Dan Ayres from accidental death coverage:

"Not Covered: Any loss which results

(1) from suicide or attempted suicide, whether the Employee is sane or insane, or

(2) directly or indirectly from bodily or mental infirmity or disease or medical or surgical treatment thereof, or

(3) from any infection, other than a pyogenic infection occurring through and at the time of an accidental cut or wound, or

(4) from war or any act of war ('war' means declared or undeclared war and includes resistance to armed aggression), or

(5) From travel or other movement by means of, or descent from or with, any kind of moving aircraft aboard which the Employee has any duties relating in any way to such aircraft or to its crew or aboard which he is giving or receiving training for any such duties ('aircraft' includes rocket craft or any other vehicle, conveyance, or device designed for travel or other movement in or beyond the earth's atmosphere). " (Emphasis supplied.)

Prudential refused payment for accidental death due to its belief that the language of paragraph (5) of the exclusion, Supra, operated to suspend coverage any time the insured undertook a duty relating to the operation of an aircraft aboard which he was traveling. Therefore, Prudential refused to pay accidental benefits for Dan Ayres' death because he was piloting the airplane in which he died.

Appellee sued Prudential on the theory that the word "Employee," in conjunction with the word "duties," meant that the exclusion acted only when the insured operated an aircraft in conjunction with a duty of employment for Getty.

The parties filed cross-motions for summary judgment. The district court granted appellee's motion upon the theory that the limitation clause was ambiguous in that it could be reasonably read either as Prudential argued or as appellee argued, and therefore it must be construed against the insurance company. Prudential has appealed this judgment against it.

The law of the forum state governs cases brought to federal district courts by 28 U.S.C. § 1332 diversity jurisdiction. Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938). The interpretation of the insurance contract at issue in this case is thus controlled by California law.

Under California law, the intent and reasonable expectations of the parties govern the construction of insurance contracts. Atlantic National Insurance Company v. Armstrong, 65 Cal.2d 100, 52 Cal.Rptr. 569, 577, 416 P.2d 801, 809 (1966). What the parties intended is, in fact, the primary focus for a court when construing contracts of insurance. General Casualty Co. of America v. Azteca Films, Inc., 278 F.2d 161 (9th Cir.), Cert. denied, 364 U.S. 863, 81 S.Ct. 103, 5 L.Ed.2d 85 (1960).

In the Azteca Films case, this Court was asked to construe limiting language in a contract of insurance, applying California law. The contract in question insured the defendant against liability for damage or destruction of third persons' property. The policy contained an exclusion for claims and expenses arising out of use of the property after the insured relinquished "possession" of it.

Plaintiff insurance company argued that "possession" meant only actual possession so that the limiting language covered a broad area. The insured argued, however, that "possession" included constructive possession and the exclusion did not operate until the insured parted with both actual and constructive possession. The district court perceived an ambiguity arising from the use of the word "possession," and therefore construed the contract strictly against the insurance company. The insurance company appealed that judgment.

While searching out the intent and reasonable expectations of the parties, this Court recognized the first question to be

whether the clause under examination because of the word "possession" is ambiguous. If it is, the familiar rules of strict construction against an insurer will become applicable. But any ambiguity must be real before the court is justified in invoking the rule. It is ambiguity and not awkwardness of language which opens the door for construction.

Id. at 165.

Ambiguity is not necessarily to be found in the fact that a word or phrase isolated from its context is susceptible of more than one meaning. As expressed by the Seventh Circuit in Hill v. Standard Mut. Casualty Co., 110 F.2d 1001, 1004:

"To find that a word or phrase isolated from its context is susceptible to more than one meaning, or that a word or phrase in its context is susceptible to one reasonable and one unreasonable meaning, does not spell ambiguity."

All rules of construction are subordinate to the leading principle that the intention of the parties, to be collected from the entire instrument, must prevail, unless inconsistent with some rule of law. Chesapeake & Ohio Canal Co. v. Hill, 15 Wall. 94, 82 U.S. 94, 21 L.Ed. 64. The test to be applied by the court in determining whether there is ambiguity is not what the insurer intended its words to mean, but what a reasonably prudent person applying for insurance would have understood them to mean. Trousdell v. Equitable Life Assur. Soc. of United States, 55 Cal.App.2d 74, 130 P.2d 173, 990; New York Life Ins. Co. v. Hiatt, 9 Cir., 140 F.2d 752, 168 A.L.R. 551. In other words, the criterion is ambiguity from the standpoint of a layman, not from that of a lawyer. Where it is possible to adopt a construction which is favorable to the insured without doing violence to the policy wording that construction will be preferred. This anticipates a reasonable interpretation of the language and can apply only so far as the fair application of the ordinary meaning of language permits. But this rule of strict construction against the insurer cannot apply unless there is some reasonable basis for doubt. Couch on Insurance 2d states:

" 'Usual and ordinary meaning' has been stated variously to be that meaning which the particular language conveys to the popular mind, to most people, to the average, ordinary, normal man, to a reasonable man, to persons with usual and ordinary understanding, to a businessman, or to a layman." Couch on Insurance 2d § 15:18, (citing among other cases the California case of Hobson v. Mutual Benefit Health & Accident Assoc., 99 Cal.App.2d 330, 221 P.2d 761.)

Id. at 167-168.

Later the same year, this Court reiterated the interpretative rule of California Law:

The term "duty" is likewise subject to different meanings in different contexts. What controls is not the interpretation of individual words which are not defined in the policy itself, but the interpretation which the ordinary man would give to the phrase as a whole taken in the context of the whole policy and the average man's knowledge of the way insurance is set up.

Prudential Insurance Company of America v. Barnes, 285 F.2d 299, 301 (9th Cir. 1960).

Finally, it must always be borne in mind that the end purpose of all such rules of construction is the discovery of the reasonable expectations and intentions of the parties. General Casualty Co. of America v. Azteca Films, Inc., 278 F.2d at 167; Herzog v. National American Insurance Company, 2 Cal.3d 192, 84 Cal.Rptr. 705, 465 P.2d 841, 843 (1970). When this inquiry focuses upon the interpretation of words or phrases, "it is the duty of the appellate court . . . to make its own independent determination of the meaning of the language used in the instrument under consideration." Bareno v. Employers Life Insurance Co. of Wausau, 7 Cal.3d 875, 103 Cal.Rptr. 865, 868, 500 P.2d 889, 892 (1972).

The task of this Court, therefore, is to ascertain the meaning of the contested phrase "Employee has any duties" against the background of a layman's understanding of the entire policy and the average man's knowledge of the way insurance is set up.

This Court has reviewed copies of the policy and the certificates issued thereunder. One certificate, certifying insurance in the amount of $1,500.00, is for non-contribution life and accidental death and disability insurance. The other certificate, certifying coverage for $35,000.00, is regular life and accident insurance. Because both are substantially identical in the relevant particulars, we will analyze only the latter policy.

The regular life...