Cooper Companies v. Transcontinental Ins. Co.

• Decision Date: 24 January 1995
• Docket Number: No. A064522,A064522
• Citation: 37 Cal.Rptr.2d 508,31 Cal.App.4th 1094
• Court: California Court of Appeals Court of Appeals
• Parties: The COOPER COMPANIES, INC., Plaintiff and Appellant, v. The TRANSCONTINENTAL INSURANCE COMPANY, Defendant and Respondent.

Page 508

37 Cal.Rptr.2d 508

31 Cal.App.4th 1094

The COOPER COMPANIES, INC., Plaintiff and Appellant, v. The TRANSCONTINENTAL INSURANCE COMPANY, Defendant and Respondent.

No. A064522.

Court of Appeal, First District, Division 2, California.

Jan. 24, 1995.

Review Denied April 13, 1995.

David B. Goodwin, Heller, Ehrman, White & McAuliffe, San Francisco, for appellant The Cooper Companies, Inc.

David H. Waters, Larson & Burnham, Oakland, for respondent the Transcontinental Co.

Hancock, Rothert & Bunshoft, James P. Barber, amici curiae.

HAERLE, Associate Justice.

I. INTRODUCTION

This is an appeal from a declaratory judgment entered in favor of the insurer, respondent Transcontinental Insurance Co. (Transcontinental), and against the insured, appellant The Cooper Companies. The trial court held that two liability insurance policies issued to Cooper Laboratories (Cooper Labs), and its wholly-owned subsidiary, CooperVision (later renamed The Cooper Companies; hereinafter sometimes Cooper) by Transcontinental from July 1, 1982, to August 1, 1985 (policy period) did not provide coverage ¹ to Cooper and two of its subsidiaries, which were acquired after the expiration of the policy period, for bodily injury claims arising during the policy period alleged to have been caused by breast implants manufactured and distributed by the two subsidiaries. We affirm the judgment.

II. FACTUAL AND PROCEDURAL BACKGROUND

Cooper Labs was a Palo Alto based company that, in the early 1980s, manufactured and sold various medical and dental drugs, devices and diagnostics. During that period, it also pursued a policy of acquiring and divesting itself of businesses that developed and/or marketed other such products, as well as ophthalmic and orthopedic devices, birth control devices and surgical lasers. In March of 1980, it consolidated some of its product lines into a new subsidiary, CooperVision, Inc., which in 1987 was renamed The Cooper Companies, Inc. Cooper Labs "spun off" CooperVision to its shareholders in 1983, after which the latter became, and was operated as, an independent entity. Cooper Labs continued its "spin off" and sale strategy and eventually dissolved in 1985. Thereafter, CooperVision adopted its parent company's strategy of buying and selling various businesses manufacturing and marketing medical and dental devices and products.

Effective July 1, 1982, and continuing for a little over three years thereafter, until August 1, 1985, Transcontinental issued to Cooper Labs and CooperVision the two occurrence liability insurance policies at issue here (sometimes hereafter jointly referred to as the policies). ² The first policy is entitled Special Excess Liability Policy--Excess Products and Completed Operations Only (products policy); it provides $50,000 coverage per occurrence over a $1,000,000 retained limit with total payment limited to $50,000 during each policy year. The second policy is entitled Commercial Umbrella Liability Policy (umbrella policy), which provides $10 million of products liability coverage per policy year, under two separate insuring agreements: (a) Coverage A, which provides "following form" excess coverage on top of the products policy; and (b) Coverage B, which provides umbrella coverage in excess of a $10,000 retention for claims that fall within the umbrella policy's own insuring agreement, but are not covered by the products policy.

Because Cooper Labs desired to minimize any potential gaps in coverage that could arise in light of its strategy of buying and selling companies, as originally drafted both policies contained a named insured endorsement that was, at least in one respect, unusual; it stated that "[t]he named insured, of the declarations shall read: Cooper Laboratories, Inc., and any organization, association or business entity now existing or hereafter a[c]quired, in which Cooper Laboratories, Inc. owns an interest of fifty percent (50%) or more over which Cooper Laboratories, Inc. ex[ ]ercises active management and control. Such organization, association or entity as described herein shall include subsidiary or organizations standing in like relationship to such organization, association or entity, and shall include any employee club or association which is sponsored or approved by the management of Cooper Laboratories, Inc." The unusual feature of this endorsement, at least as compared to industry practice as established in the court below, was the broadening of the named insured coverage by the inclusion of the words "or hereafter acquired" without the inclusion of any further temporal limitation.

In 1987, almost two years after both policies had expired, and also two years after the original insured, Cooper Labs, had dissolved, Cooper acquired two companies, Natural Y Surgical Specialties, Inc. (Natural Y) and Aesthetech Corporation (Aesthetech), both of which manufactured and sold breast implants. Cooper divested itself of these companies in 1988 but, in the process, retained their liabilities. ³ Prior to the 1988 sale, neither of these briefly-held subsidiaries of Cooper had experienced much exposure to breast implant claims. This situation started to change in 1990 and, by 1993, over 1400 lawsuits were on file against Cooper or one or both of the two subsidiaries. One of these lawsuits resulted in a $4.5 million jury verdict in New York state court, shortly after which Cooper tendered to Transcontinental the defense of the breast implant claims against it or either subsidiary arising during the policy period. Transcontinental denied coverage and this declaratory relief action ensued.

The parties commendably stipulated to much that expedited the trial and this appeal. First of all, they stipulated to bifurcate the trial into two phases, phase I to address the issue of whether the policies, with their "after acquired" language, provided coverage to Cooper or either subsidiary, and phase II to address other coverage issues. The parties agreed that there would be no need to proceed to phase II if Transcontinental prevailed in phase I. The parties also stipulated to many basic background facts and assumptions, including that some or all of the bodily injury alleged in the breast implant suits occurred during the policy period and that Cooper has exhausted its retention requirements under the policies.

The case was tried over three trial days to the court, sitting without a jury. On October 5, 1993, the court issued a statement of tentative decision which, with minor modifications, became final in December of that year. The trial court concluded that the "hereafter acquired" language in the named insured endorsement was ambiguous, but that an insured who purchased the policies would have an objectively reasonable expectation only for coverage of companies acquired during the policy period. The court therefore held as a matter of law that the policies do not provide coverage for Natural Y and Aesthetech or for Cooper's liability for the tortious conduct of these two subsidiaries. ⁴

III. DISCUSSION

A. Standard of Review

Based upon differing views of the evidence presented to the trial court, the parties urge disparate standards of review to govern this appeal. After reviewing the record, we agree with appellant that the trial court's interpretation of the insurance policies in this case is subject to de novo review.

The interpretation of an insurance contract, as with that of any written instrument, is primarily a judicial function. (Devin v. United Services Auto. Assn. (1992) 6 Cal.App.4th 1149, 1157-1158, fn. 5, 8 Cal.Rptr.2d 263.) Unless the interpretation of the instrument turns upon the credibility of conflicting extrinsic evidence, a reviewing court makes an independent determination of the policy's meaning. (Parsons v. Bristol Development Co. (1965) 62 Cal.2d 861, 865, 44 Cal.Rptr. 767, 402 P.2d 839; Masonite Corp. v. Great American Surplus Lines Ins. Co. (1990) 224 Cal.App.3d 912, 916, 274 Cal.Rptr. 206.)

In the present case, the relevant extrinsic evidence is not in dispute. First, while the testimony of the parties' experts regarding the scope of the disputed policy language differed, the meaning of the policy is a question of law about which expert opinion testimony is inappropriate. (See Suarez v. Life Ins. Co. of North America (1988) 206 Cal.App.3d 1396, 1406-1407, 254 Cal.Rptr. 377 [upholding trial court ruling excluding opinion testimony regarding reasonable interpretation of policy language]; Devin v. United Services Auto. Assn., supra, 6 Cal.App.4th at pp. 1157-1158, fn. 5, 8 Cal.Rptr.2d 263 [expert testimony that complaint alleged facts triggering coverage improper and not a bar to granting nonsuit].) The conflicting expert testimony has no effect on our duty to independently interpret the policy language. (Cf. Suarez v. Life Ins. Co. of North America, supra, 206 Cal.App.3d at p. 1407, 254 Cal.Rptr. 377 [independently interpreting policy language and affirming summary judgment, notwithstanding expert testimony supporting contrary interpretation].) Second, as recognized by Cooper, the trial court did not make a finding of fact regarding the origin of the language comprising the named insured endorsement, the only potentially material issue about which conflicting extrinsic evidence was received. As will become apparent, however, this issue is not germane to our resolution of the appeal.

B. Interpreting the Policies

The threshold issue in this appeal is the meaning of the "hereafter acquired" language in the named insured endorsements. ⁵ Cooper contends that the absence of specific temporal limitations on this language mandates the conclusion that coverage was intended to extend in perpetuity to companies acquired after the policy period. Transcontinental, on the other hand, argues that coverage is limited to companies acquired during the policy period. The trial court ruled in favor of Transcontinental concluding as a matter of law that an...