EMMI INC. v. Zurich American Ins. Co.

• Decision Date: 23 February 2004
• Docket Number: No. S109609.,S109609.
• Citation: 9 Cal.Rptr.3d 701,84 P.3d 385,32 Cal.4th 465
• Court: California Supreme Court
• Parties: E.M.M.I. INC., Plaintiff and Appellant, v. ZURICH AMERICAN INSURANCE COMPANY, Defendant and Respondent.

9 Cal.Rptr.3d 701

32 Cal.4th 465

84 P.3d 385

E.M.M.I. INC., Plaintiff and Appellant, v. ZURICH AMERICAN INSURANCE COMPANY, Defendant and Respondent.

No. S109609.

Supreme Court of California.

February 23, 2004.

Rehearing Denied April 28, 2004.¹

Quisenberry & Kabateck, Kabateck & Kropff, Kabateck & Garris, John N. Quisenberry, Brian S. Kabateck, James B. Kropff, Heather M. Mason, Los Angeles, Suzanne L. Havens Beckman and Jerilyn Jacobs for Plaintiff and Appellant.

Cummins & White and Annabelle M. Harris, Newport Beach, for Vartan Karlubian and Cummins & White as Amici Curiae on behalf of Plaintiff and Appellant.

Bishop, Barry, Howe, Haney & Ryder, Mark Koop, Jonathan Gross and Jay

E. Framson for Defendant and Respondent.

Deborah J. La Fetra for Pacific Legal Foundation as Amicus Curiae on behalf of Defendant and Respondent.

MORENO, J.

We are called upon in this case to interpret the scope of an exception to a provision excluding coverage in a "jeweler's block" insurance policy. The provision at issue exempted from coverage jewelry stolen from a vehicle unless the insured was "actually in or upon such vehicle at the time of the theft." The question presented is whether the exception to that exclusion applies when the insured is not in the vehicle but is in close proximity to the vehicle and is attending to it when the theft occurs. We conclude the vehicle theft exclusion, as a whole, is ambiguous and fails to plainly and clearly alert insureds that there is no coverage if a theft occurs when the insured has stepped out of the vehicle but remains in close proximity and is attending to it. We therefore hold that coverage is not precluded as a matter of law and reverse the judgment of the Court of Appeal.

I. FACTUAL AND PROCEDURAL BACKGROUND

The facts in this case are simple and essentially undisputed. On February 17, 2000, Brian Callahan, a jewelry salesman, left his home with two "hard cloth garment bags" containing jewelry (some of which belonged to E.M.M.I. Inc., a manufacturer and marketer of jewelry) in the trunk of his vehicle. Shortly after driving away from his home, he heard a clanking noise emanating from the rear of the vehicle. Callahan stopped on the side of the road to investigate the source of the noise, got out of the car and closed the car door but left the engine running. He walked to the rear of the vehicle and, as he crouched down to visually inspect the exhaust pipes, he felt someone pass quickly by him. When he looked up, he saw an individual get into his car and drive away. Callahan was no more than approximately two feet from the car during the entire time he was outside the vehicle until the time of the theft. The police subsequently found the vehicle, but the jewelry was missing.

E.M.M.I. was insured under a jeweler's block insurance policy issued by Zurich American Insurance Company (Zurich). The policy insured E.M.M.I. against "risks of direct physical `loss' to the covered [jewelry] except those causes of `loss' listed in the Exclusions." Under "Exclusions" the policy provided that Zurich would "not pay for `loss' caused or resulting from ... [t]heft from any vehicle unless, you, an employee, or other person whose only duty is to attend to the vehicle are actually in or upon such vehicle at the time of the theft." (Italics added.) Callahan was specifically designated to carry E.M.M.I.'s jewelry.

E.M.M.I. submitted a claim to Zurich under the policy. Zurich's field adjuster was instructed to ascertain whether Callahan had been physically touching the car when the theft occurred, and therefore had been "in or upon" the car. Because E.M.M.I. was unable to show that Callahan had been physically touching the vehicle when the theft occurred, Zurich denied the claim.

On July 20, 2000, E.M.M.I. filed a lawsuit against Zurich for breach of contract, breach of the implied covenant of good faith and fair dealing, and unfair business practices. E.M.M.I. also sued its insurance agent, Vartan Karlubian, for professional negligence.

The parties, E.M.M.I., Zurich, and Karlubian, subsequently filed cross motions for summary judgment and summary adjudication. The superior court granted Zurich's motion for summary judgment and denied E.M.M.I.'s and Karlubian's motions. The court found that "where the insured was outside the car, crouched down, inspecting the underneath exhaust pipes, before the sequence of events of theft commenced, there unequivocally is no coverage under terms requiring the insured to be in or upon the vehicle at the time of theft."²

The Court of Appeal affirmed the resulting judgment. It ruled that "[a]lthough [the salesman] was in close proximity to the car, he was not actually in or upon it." We granted review.

II. DISCUSSION

Jeweler's block insurance, conceived at the turn of the last century, provides coverage under a single policy for the "various risks inherent" in the jewelry business. (Annot., Construction and Effect of "Jeweler's Block" Policies on Provisions Contained Therein (1994) 22 A.L.R.5th 579, 1994 WL 906511; 1 Couch on Insurance (3d ed.1997) § 1:57.) It "is different from most other traditional forms of property insurance which are considered `named-peril' insurance policies. Under named-peril policies, an insurer agrees to indemnify its insured for losses resulting from certain risks of loss or damage which are specifically enumerated within the provisions of the policy. In contrast, under a jewelers' block policy all risks of loss or damage to jewelry may be insured, subject to certain exceptions." (Star Diamond, Inc. v. Underwriters at Lloyd's, London (E.D.Va.1997) 965 F.Supp. 763, 765 (Star Diamond).) Thus, the coverage language in this type of insurance policy is quite broad, generally insuring against all losses not expressly excluded. In the present case, the policy excluded from coverage theft from a vehicle unless the insured or a designated employee was "actually in or upon" the vehicle at the time of the theft. As the Minnesota Supreme Court has observed, "The [exclusion] was obviously intended to cover any situation where a loss occurred when the property was not protected by the presence of someone in or upon the car...." (Ruvelson, Inc. v. St. Paul Fire & Marine Ins. Co. (1951) 235 Minn. 243, 251, 50 N.W.2d 629, 634 (Ruvelson).)

A. Rules Governing Interpretation of Insurance Policies

As a question of law, the interpretation of an insurance policy is reviewed de novo under well-settled rules of contract interpretation. (Waller v. Truck Ins. Exchange, Inc. (1995) 11 Cal.4th 1, 18, 44 Cal.Rptr.2d 370, 900 P.2d 619 (Waller).) "The fundamental rules of contract interpretation are based on the premise that the interpretation of a contract must give effect to the `mutual intention' of the parties. `Under statutory rules of contract interpretation, the mutual intention of the parties at the time the contract is formed governs interpretation. (Civ.Code, § 1636.) Such intent is to be inferred, if possible, solely from the written provisions of the contract. (Id., § 1639.) The "clear and explicit" meaning of these provisions, interpreted in their "ordinary and popular sense," unless "used by the parties in a technical sense or a special meaning is given to them by usage" (id., § 1644), controls judicial interpretation. (Id., § 1638.)'" (Ibid.)

A policy provision is ambiguous when it is susceptible to two or more reasonable constructions. (Waller, supra, 11 Cal.4th at p. 18,44 Cal.Rptr.2d 370,900 P.2d 619.) Language in an insurance policy is "interpreted as a whole, and in the circumstances of the case, and cannot be found to be ambiguous in the abstract." (Ibid.) "The proper question is whether the [provision or] word is ambiguous in the context of this policy and the circumstances of this case. [Citation.] `The provision will shift between clarity and ambiguity with changes in the event at hand.' [Citation.]" (Bay Cities Paving & Grading, Inc. v. Lawyers' Mutual Ins. Co. (1993) 5 Cal.4th 854, 868, 21 Cal.Rptr.2d 691, 855 P.2d 1263.) Ambiguity "`"is resolved by interpreting the ambiguous provisions in the sense the [insurer] believed the [insured] understood them at the time of formation. [Citation.] If application of this rule does not eliminate the ambiguity, ambiguous language is construed against the party who caused the uncertainty to exist. [Citation.]" "This rule, as applied to a promise of coverage in an insurance policy, protects not the subjective beliefs of the insurer but, rather, `the objectively reasonable expectations of the insured.'"' [Citation.] `Any ambiguous terms are resolved in the insureds' favor, consistent with the insureds' reasonable expectations.'" (Safeco Ins. Co. v. Robert S. (2001) 26 Cal.4th 758, 763, 110 Cal.Rptr.2d 844, 28 P.3d 889.)

Furthermore, policy exclusions are strictly construed (see e.g., Waller, supra, 11 Cal.4th at p. 16, 44 Cal.Rptr.2d 370, 900 P.2d 619; MacKinnon v. Truck Ins. Exchange (2003) 31 Cal.4th 635, 648, 3 Cal.Rptr.3d 228, 73 P.3d 1205), while exceptions to exclusions are broadly construed in favor of the insured (Aydin Corp. v. First State Ins. Co. (1998) 18 Cal.4th 1183, 1192, 77 Cal.Rptr.2d 537, 959 P.2d 1213; National Union Fire Ins. Co. v. Lynette C. (1991) 228 Cal.App.3d 1073, 279 Cal.Rptr. 394.). "`[A]n insurer cannot escape its basic duty to insure by means of an exclusionary clause that is unclear. As we have declared time and again "any exception to the performance of the basic underlying obligation must be so stated as clearly to apprise the insured of its effect." [Citation.] Thus, "the burden rests upon the insurer to phrase exceptions and exclusions in clear and unmistakable language." [Citation.] The exclusionary clause "must be conspicuous, plain and clear."' [Citation.] This rule applies with particular force when the coverage portion of the insurance policy would lead an insured to reasonably expect coverage for the claim purportedly excluded." (MacKinnon, supra,...