Gilbreath Through Hassl v. St. Paul Fire and Marine Ins. Co., 17021-PR

• Decision Date: 29 May 1984
• Docket Number: No. 17021-PR,17021-PR
• Citation: 141 Ariz. 92,685 P.2d 729
• Parties: Michelle GILBREATH, a minor, Through her natural mother and next friend, Diana HASSL, formerly Diana Vayda; Diana Hassl, Plaintiffs-Appellees, v. ST. PAUL FIRE AND MARINE INSURANCE COMPANY, a corporation, Defendant-Appellant.
• Court: Arizona Supreme Court

Page 729

685 P.2d 729

141 Ariz. 92

Michelle GILBREATH, a minor, Through her natural mother and next friend, Diana HASSL, formerly Diana Vayda; Diana Hassl, Plaintiffs-Appellees, v.ST. PAUL FIRE AND MARINE INSURANCE COMPANY, a corporation, Defendant-Appellant.

No. 17021-PR.

Supreme Court of Arizona, In Banc.

May 29, 1984.

Tucker & Shoush by Kenneth L. Tucker and Jon C. Dake, Phoenix, for plaintiffs-appellees.

Jones, Skelton & Hochuli by William R. Jones, Jr., Don C. Stevens, II, Edward G. Hochuli, Phoenix, for defendant-appellant.

FELDMAN, Justice.

Michelle Gilbreath and her mother, Diana Hassl(Plaintiffs), petition this court for review.The court of appeals determined that the insurance policy issued by St. Paul Fire & Marine Insurance Company(St. Paul), defendant below, to Paul and Helen Overdorff, d/b/a Young Years Child Care, provided no coverage for injuries sustained by either plaintiff.Gilbreath v. St. Paul Fire & Marine Ins. Co., 141 Ariz. 113, 685 P.2d 750(App.1984).We have jurisdiction pursuant to Ariz. Const., art. 6, § 5(3) and Ariz.R. of Civ.App.P. 23, 17A A.R.S.

FACTS

A detailed version of the facts, including the relevant terms of the insurance policy, are set out in the opinion of the court of appeals.We provide a brief summary.On September 1, 1976 St. Paul issued a package of insurance to the Overdorffs, including "comprehensive liability coverage."The written binder which preceded the policy had provided for $300,000 liability limits for bodily injury but specifically excluded general liability coverage for "children in their [the insureds'] care, custody and control."The binder, of course, was temporary insurance and expired when the actual policy was issued.SeeStatewide Insurance Co. v. Dewar, 141 Ariz.(1984)[No. 16680-PR filed 5/29/84.]The same exclusion was embodied in endorsement number 2 to the policy; it states "[i]t is understood and agreed that no coverage is provided for bodily injury to persons who are in [the] care, custody or control of the Insured."Both the binder and endorsement provisions were specially typed and prominently displayed in the respective documents.They appear to be part of the negotiated transaction between insured and insurer.They are followed by the fine print of some 30 pages of the various insuring agreements which comprise the standardized portion of the remainder of the policy.

In December 1976, while attending Young Years Child Care, Michelle Gilbreath was sexually assaulted by Pedro Giron, an employee of the Overdorffs.Ms. Hassl, individually and as representative for Michelle, brought suit against the Overdorffs and Giron.The Overdorffs called on St. Paul to defend.St. Paul refused based on endorsement number 2.The Overdorffs then stipulated to a judgment in favor of plaintiffs.SeeDamron v. Sledge, 105 Ariz. 151, 460 P.2d 997(1969).Plaintiffs then brought a declaratory action against St. Paul seeking a declaration of coverage under the policy.Both parties moved for summary judgment.The trial court entered summary judgment in favor of plaintiffs.St. Paul appealed.By majority opinion the court of appeals reversed and instructed the trial court to enter summary judgment in favor of St. Paul.Plaintiffs then petitioned this court for review.We accepted jurisdiction of this case as one of a series dealing with interpretation of insurance contracts.

AMBIGUITY

Plaintiffs assert that the relevant policy exclusion for children in the care of the "insured" is ambiguous.It cites two sections of the policy which create the ambiguity.The argument concerns the definition of an insured in the body of the policy.The definition does not include employees of the named insured (the Overdorffs) with respect to general liability coverage.On the other hand, employees are insureds with respect to automobile coverage.Plaintiffs argue, therefore, that if St. Paul meant to exclude the Overdorffs' vicarious liability for the acts of their employees with respect to the general liability coverage it could have done so in the same manner that it included employees as insureds under the automobile coverage.¹

Plaintiff contends, in other words, that the typewritten exclusion for children in the care of the "insured" is ambiguous when compared to the standardized provisions concerning insureds and their employees.Plaintiffs argue that the exclusion should therefore be interpreted as effective only to exclude coverage for the Overdorffs' direct liability for their own negligence, and does not clearly exclude coverage for the Overdorffs' vicarious liability for acts of employees which injure children in the care of employees, such as Giron.Support for this argument is based on Holter v. National Union Fire Ins. Co., 1 Wash.App. 46, 459 P.2d 61(1969), which construed almost identical provisions.

The majority of the court of appeals concluded that Holter was inconsistent with other Washington cases.The Washington Supreme Court, however, has subsequently found the reasoning of Holter persuasive.That court has construed policy definitions of insured almost identical to the definitions in the policy at issue in the case at bench and has held that the "care, custody and control" exclusion was not applicable where the property damaged was in the care, custody and control of an employee, as distinguished from in the direct care, custody and control of the insured.Phil Schroeder, Inc. v. Royal Globe Ins. Co., 99 Wash.2d 65, 72, 659 P.2d 509, 513(1983).

Such an interpretation would persuade us more if, as in Holter and Schroeder, the only document before us were the standard, printed definitions and exclusions of the various insuring agreements.We agree, however, with the majority opinion in the court of appeals that "the question is whether the policy, agreement and endorsements are clear when read together."141 Ariz. at 117, 685 P.2d at 754.Of particular importance in answering this question is the typewritten provision added to, and prominent in, both the binder and policy endorsement number 2.So far as the record shows this special provision provides the only insight into the intent of the parties and the insured's reasonable expectations of coverage.Darner Motor Sales v Universal Underwriters, Inc., 140 Ariz. 383, 682 P.2d 388(1984);Isaak v. Massachusetts Indemnity Life Insurance Company, 127 Ariz. 581, 623 P.2d 11(1981).The dissent in the court of appeals states that

It is difficult to conceive that the insured paid a premium for bodily injury coverage with the result that there would be no coverage for injuries to employees and any child attending the day care center.I disagree with the conclusion that this was the intent of the parties or the intent of the Department of Economic Security which was the certificate holder and apparently placed children in this facility.

That point is well taken.It is equally difficult to conceive that the insurer would agree to insure Overdorff's vicarious liability for "acts of employees" but not their direct liability for their own acts.While it may appear curious that the proprietors of a day care center contracted for insurance which excluded the risks most likely to occur, the words used in endorsement number 2 indicate that is exactly what was done here.Such a result becomes much less curious when one considers that an insurer could be quite reluctant to indemnify the proprietor of a child care center against the frightening panorama of liability inherent in assuming the duty of care and supervision over a large number of preschool children.Considering these factors, and the plain wording of the special endorsement, it appears that the only risks the parties expressed on agreement to insure against were those common to general business premises liability policies.Gilbreath v. St. Paul Fire & Marine Ins. Co., 141 Ariz. at 113, 117, 685 P.2d at 750, 754.²They specifically excluded those extraordinary risks peculiar to the child care business in which the insured was engaged.

Viewed from this vantage it is difficult to conceive that the express provisions of the binder and endorsement number 2 mean that St. Paul undertook the risk of insuring against harm to children under the care of the Overdorffs' employees in child care business.It seems clear from this record that by the negotiated terms of the policy, the parties expressed an intent not to provide insurance coverage to protect the insured from exposure to such risks.The non-standard terms explicitly agreed to in endorsement number 2 indicate that the dominant purpose of the transaction had nothing to do with the protection of the children under the care of the Overdorffs.The expressed purpose of the transaction is not undercut by the standardized provisions elsewhere in the policy.Cf.Darner Motor Sales, 140 Ariz. at 393, 682 P.2d at 398(quotingRestatement (Second) of Contracts§ 211, comment (f)).

PUBLIC POLICY

Plaintiffs argue that a certificate issued by St. Paul to the state Department of Economic Services had some relation to provisions for basic coverage.The legislature can act to have comprehensive coverage included in every policy by operation of law and has done so in the field of automobile liability insurance.Jenkins v. Mayflower Ins. Ex., 93 Ariz. 287, 380 P.2d 145(1963).A "Certificate of Insurance" was issued to DES.At the top of the certificate the following statement is clearly printed:

This certificate is issued as a matter of information only and confers no rights upon the certificate holder.This certificate does not amend, extend or alter the coverage afforded by the policies listed below.

The one-page certificate, issued on 8-23-77, includes the following annotation: "(It is understood and agreed that no coverage is provided for Bodily Injury to persons who are in care, custody, or control of the insured.)"A copy of the binder, sent to DES on 1-13-77, included the policy number and...