Equitable Life Assurance Society v. Berry

• Decision Date: 28 July 1989
• Docket Number: No. H002972,H002972
• Citation: 212 Cal.App.3d 832,260 Cal.Rptr. 819
• Court: California Court of Appeals Court of Appeals
• Parties: EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES, Cross-Complainant and Respondent, v. Robert L. BERRY, Cross-Defendant and Appellant.

Page 819

260 Cal.Rptr. 819

212 Cal.App.3d 832

EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES, Cross-Complainant and Respondent, v. Robert L. BERRY, Cross-Defendant and Appellant.

No. H002972.

Court of Appeal, Sixth District, California.

July 28, 1989.

Review Denied Oct. 11, 1989.

Lawrence K. Handelman, Kenneth E. Bacon, Palo Alto, for cross-defendant and appellant.

Michael J. Brady, Mark G. Bonino, Robert P. Andris, Ropers, Majeski, Bentley, Wagner & Kane, Redwood City, for cross-complainant and respondent.

BRAUER, Associate Justice, Assigned. ^*

This is an appeal from a declaratory judgment that plaintiff Berry, a former employee of Fairchild Camera and Instruments Corporation who became totally disabled as a result of "manic-depressive illness," 1) was not covered under a group disability policy issued to Fairchild bydefendant The Equitable Life Assurance Society of the United States (Equitable) and 2) has received all benefits due under a group medical/dental policy funded by Fairchild but administered by its agent Equitable.

The group long term disability policy states:

"DISABILITIES NOT COVERED: Long Term Disability Benefits are not provided for: Mental or nervous disorders, alcoholism or use of hallucinogenic drugs, except while confined to an institution specializing in the care of such disorders."

The group medical/dental plan states:

"The Plan only pays 50% of physician's charges for mental and/or nervous treatment while not confined in a hospital to a maximum benefit of $500 in any one calendar year. Mental or nervous treatment means treatment for a neurosis, psycho-neurosis, psychopathy, psychosis, or mental or nervous disease or disorder of any kind."

Since January 1983, Berry has been totally disabled from his occupation with a diagnosis of "manic-depressive illness." On July 5, 1983, he submitted claims to Equitable under both policies. They were rejected on the basis of the quoted exclusions, except that $500 per year has been regularly paid.

Plaintiff brought suit on September 14, 1984. On June 20, 1985, he filed a second amended complaint which challenged the rejection under both policies and set forth nine causes of action: breach of the duty of good faith and fair dealing, breach of fiduciary duty, fraud, violation of Insurance Code section 790.03, intentional interference with a protected property interest, intentional infliction of emotional distress, negligent infliction of emotional distress, promissory estoppel and breach of contract. Equitable filed a cross-complaint seeking a declaration that the claims were properly denied.

Concurrent motions for summary judgment were then heard and resulted in a determination that the following facts were undisputed: 1) The group disability policy excludes benefits for disabilities arising from mental or nervous disorders, except while confined to an institution specializing in the care of such disorders; 2) At all relevant times plaintiff was totally disabled from his occupation as a result of manic-depressive illness; 3) He has not been hospitalized for the condition of manic-depressive illness at any time except during a waiting period not subject to coverage; 4) The group medical policy limits benefits to a maximum of $500 a year for mental and/or nervous treatment while not confined in a hospital; 5) Manic-depressive illness is a physiological disease of biological depression having an organic etiology, and 6) Manic-depressive illness is not a functional mental disorder.

Prior to trial, Equitable moved to sever the cross-complaint for declaratory relief so as to try the issue of coverage before that of the carrier's alleged bad faith. The motion was granted; and on November 6, 1987, the matter proceeded to a two-day court trial culminating in a decision that plaintiff had received the maximum benefits owed him under the group medical policy and that his claim for group disability benefits was properly denied. The court found 1) the condition of manic-depressive illness is a disability specifically excluded under the policies; the language of the "mental disorder" provisions of the policies is clear and unambiguous, and is not reasonably susceptible of an interpretation that would provide coverage of Berry's condition; 2) the contracts at issue are not adhesive; 3) Berry did not comply with the hospital confinement provisions contained in the two policies; and 4) Equitable has not breached any duty owing to Berry.

On this appeal, Berry challenges each of those findings and in addition claims error in the order of bifurcation and asserts that Equitable is estopped to deny coverage.

I. BIFURCATION

In the trial court, plaintiff opposed bifurcation primarily on the ground that it would not promote judicial efficiency. He conceded that the interpretation of a contract is essentially a judicial function. Before us, however, he complains that the order of bifurcation deprived him of his right to a jury trial. ¹

The jury question aside, this was a classical case for severance under Code of Civil Procedure section 598: The declaratory relief cross-complaint was scheduled to take two days to try, the bad faith action would have consumed several weeks, a declaratory judgment in favor of defendant would end the lawsuit.

And the jury issue is a red herring. As we will explain in a subsequent section, the interpretation of a written instrument is essentially a judicial function. Where the trial court concludes, after considering extrinsic evidence, that a writing is not reasonably susceptible of a construction urged, there is no issue to be submitted to a jury. Thus, even if bifurcation had not been ordered, the trial court would have been required to hear the evidence bearing on the meaning of the instrument out of the presence of the jury, and the conclusion that court arrived at would have terminated the case. Only if the court had made a contrary finding on the question of ambiguity would it have submitted the credibility of any conflicting evidence to the jury. Thus, as we will have occasion to repeat, the determinative issue in this case is the court's finding that the policy does not lend itself to the construction urged by the plaintiff.

II. CONTRACT OF ADHESION

This is also a nonissue. The group disability and medical/dental policies were negotiated between Fairchild and Equitable, two entities of comparable economic strength, with Fairchild writing the specifications. In a similar context, where a policy was negotiated between a carrier and an association of hospitals, Garcia v. Truck Ins. Exchange (1984) 36 Cal.3d 426, 438, 204 Cal.Rptr. 435, 682 P.2d 1100 held that the contract was not adhesive even though the plaintiff, a physician and third-party beneficiary, did not have similar financial strength. Berry, on the other hand, cites Madden v. Kaiser Foundation Hospitals (1976) 17 Cal.3d 699, 131 Cal.Rptr. 882, 552 P.2d 1178 and Jones v. Crown Life Ins. Co. (1978) 86 Cal.App.3d 630, 150 Cal.Rptr. 375 where the courts focused on the bargaining power of the individual employee rather than on that of the contracting employer vis-a-vis that of the insurance company.

But it really doesn't matter whether these insurance policies are labeled adhesive or not because the canons of construction governing insurance contracts are well established and have independent vitality even though the applicable principles undoubtedly grew out of contracts of adhesion.

Thus, exclusions in a policy are strictly construed against the insurer and liberally interpreted in favor of the insured. (Delgado v. Heritage Life Ins. Co. (1984) 157 Cal.App.3d 262, 271, 203 Cal.Rptr. 672; Healy Tibbitts Constr. Co. v. Employers' Surplus Lines Ins. Co. (1977) 72 Cal.App.3d 741, 749, 140 Cal.Rptr. 375.) And, of course, all ambiguities are resolved against the carrier. (Jones v. Crown Life Ins. Co., supra, 86 Cal.App.3d 630, 639, 150 Cal.Rptr. 375; McLaughlin v. Connecticut General Life Ins. Co. (1983) 565 F.Supp. 434.) But if the meaning of the contract is clear, it will be given effect. Madden v. Kaiser Foundation Hospitals, supra, 17 Cal.3d 699, 710, 131 Cal.Rptr. 882, 552 P.2d 1178; Meyers v. Guarantee Sav. and Loan Assn. (1978) 79 Cal.App.3d 307, 312, 144 Cal.Rptr. 616; Yeng Sue Chow v. Levi Strauss & Co. (1975) 49 Cal.App.3d 315, 324, 122 Cal.Rptr. 816.) So here again, the basic issue is whether the trial court was correct in its conclusion that the contract was unambiguous. If it was, the decision is invulnerable even if the contract is adhesive. If it was not, plaintiff does not need the adhesion concept for a predicate of error.

III. THE MEANING OF THE CONTRACT

1. Plaintiff's contentions

The relevant exclusions have been previously quoted. The disability policy states that benefits for mental disorders are not payable except while the patient is confined to a hospital. The medical policy pays physicians' charges for mental treatment to a maximum of $500 a year while the patient is not confined to a hospital. Mental or nervous treatment is defined in the medical policy as treatment for mental or nervous disease or disorder of any kind.

Plaintiff introduced expert evidence that manic-depressive illness was an organic rather than a functional disease caused by a chemical imbalance. Actually he did not need to do so as those facts were conclusively adjudicated pretrial in the summary judgment proceedings. (Code Civ.Proc., § 437c; Abadjian v. Superior Court (1985) 168 Cal.App.3d 363, 370, 214 Cal.Rptr. 234; Cal-Vada Aircraft Inc. v. Superior Court (1986) 179 Cal.App.3d 435, 446, 224 Cal.Rptr. 809.) His expert referred to Berry's disability as a physical rather than a mental illness.

Plaintiff contended that the policies were ambiguous and lent themselves to the construction that the exclusion applied only to disabilities having a functional etiology.

2. The Procedure for Ascertaining the Meaning

Jefferson details the proper procedure where...