Gribaldo, Jacobs, Jones & Associates v. Agrippina Versicherunges A.

• Decision Date: 06 November 1970
• Docket Number: S.F. 22732
• Parties: , 476 P.2d 406 GRIBALDO, JACOBS, JONES AND ASSOCIATES et al., Plaintiffs and Appellants, v. AGRIPPINA VERSICHERUNGES A.G. et al., Defendants and Respondents.
• Court: California Supreme Court

Page 6

91 Cal.Rptr. 6

3 Cal.3d 434, 476 P.2d 406

GRIBALDO, JACOBS, JONES AND ASSOCIATES et al., Plaintiffs and Appellants, v. AGRIPPINA VERSICHERUNGES A.G. et al., Defendants and Respondents.

S.F. 22732.

Supreme Court of California,

In Bank.

Nov. 6, 1970.

Spaeth, Blase & Farman, Spaeth, Blase, Valentine & Klein, Palo Alto, Lawrence A. Klein, San Francisco, and Guy Blase, Palo Alto, for plaintiffs and appellants.

Jones & Daniels and Robert E. Jones, Los Angeles, for defendants and respondents.

BURKE, Justice.

In this case, involving the interpretation of an errors and omissions indemnity insurance policy, a hearing was granted by this court after decision by the Court of Appeal, First Appellate District, for the purpose of giving further study to the problems presented. After such study we have concluded that the opinion of the Court of Appeal, prepared by Presiding Justice Molinari, correctly treats and disposes of the issues involved, and with certain further comments pertinent to contentions urged, it is adopted as and for the opinion of this court. Such opinion (with appropriate deletions and additions as indicated) is as follows: ¹

This is an appeal by plaintiffs from a declaratory judgment. Plaintiffs commenced this action seeking a judicial determination of their rights and duties under an errors and omissions indemnity insurance policy issued to plaintiff corporations by defendants. In essence, the declaration sought by plaintiffs was directed to the meaning of the deductible feature of the policy and its application to defense costs.

Statement of the Case

Defendants, foreign organizations engaged in the business of writing insurance in California through duly qualified brokers, issued to plaintiffs an architects or engineers professional indemnity insurance policy covering the period from April 13, 1964 to April 13, 1967.

The policy 'indemnifies the Assured (plaintiffs) against any claim or claims for breach of professional duty * * * which may be made against them during the period * * * by reason of any negligent act, error or omission, * * *' The policy further provides that defendants 'shall not be liable for any claim or claims unless the amount of claim exceeds the amount stated in the said Schedule as the deductible, * * *' The deductible stated in the schedule is $2,500.

The policy does not directly impose a duty on defendants to defend actions against plaintiffs. The matters of defense and defense costs are mentioned only in the 'conditions' to the policy as follows: ('1. The total liability of the Underwriters hereunder in respect of all claims made against the Assured in any one policy year * * * together with the costs and expenses incurred in the defense of any claim shall not exceed the sum stated in the Schedule.) 2. The Assured shall not admit liability for or settle any claim or incur any costs or expenses in connection therewith without the written consent of the Underwriters, who shall be entitled at any time to take over and conduct in the name of the Assured the defense of any claim. Nevertheless, the Assured shall not be required to contest any legal proceedings unless the Lawyer (to be mutually agreed upon by the Assured and the Underwriters) shall advise that such proceedings should be contested. 3. The Underwriters shall not settle any claim without the consent of the Assured. If, however, the Assured shall refuse to consent to any settlement recommended by Underwriters and shall elect to contest or continue any legal proceedings in connection with such claim, then the Underwriters' liability for the claim shall not exceed the amount for which the claim could have been so settled, together with the costs and expenses incurred with their consent. * * *'

The dispute below centered around defendants' position that their liability ( ) (to indemnify plaintiffs and reimburse defense costs is limited to situations where the actual claim paid by plaintiffs totals) more than the deductible amount of $2,500. It was plaintiffs' position that defendants had an actual duty to defend and that defendants were required to pay defense costs whenever the initial demand against plaintiffs exceeded the deductible, no matter what the outcome of the demand.

Findings of Fact and Conclusions of Law

Among other things the trial court found that the policy was neither ambiguous nor uncertain; that under the terms of the policy defendants were not required to defend plaintiffs against the claims or demands of third parties for alleged breach of professional duty within the purview of the policy; that defendants' obligation under the policy arises only if the liability of plaintiffs is fixed and is discharged in an amount exceeding the deductible $2,500; and that in accordance with the policy and Civil Code section 2778, ² subdivision 3, defendants are obligated to reimburse plaintiffs for costs and attorney fees incurred and paid by plaintiffs in the defense of claims embraced within the provisions of the policy, that is, those claims in excess of $2,500 actually paid by plaintiffs. ³ ( ) Judgment was entered accordingly.

The Agreement of Indemnity

Before proceeding to discuss the interpretation of the subject insurance policy we observe that 'An indemnity provision of a contract is to be construed under the same rules governing other contracts with a view of determining the actual intent of the parties.' (J. A. Payton v. Kuhn-Murphy, Inc., 253 Cal.App.2d 278, 281 (61 Cal.Rptr. 575); Buchalter v. Levin, 252 Cal.App.2d 367, 375 (60 Cal.Rptr. 369).) In indemnity contracts, moreover, the provisions of section 2778 ⁴ prescribing the rules for interpreting indemnity agreements, are as much a part of such instrument as those set out therein, unless a contrary intention appears. (Thode v. McAmis, 96 Cal.App.2d 833, 836--837 (216 P.2d 548); Weaver v. Grunbaum, 31 Cal.App.2d 42, 49--50 (87 P.2d 406).)

Plaintiffs place strong reliance upon the case of Gray v. Zurich Ins. Co., 65 Cal.2d 263 (54 Cal.Rptr. 104, 419 P.2d 168), and particularly on the principle they extract therefrom that 'In interpreting an insurance policy we apply the general principle that doubts as to meaning must be resolved against the insurer and that any exception to the performance of the basic underlying obligation must be so stated as clearly to apprise the insured of its effect.' (P. 269, 54 Cal.Rptr. p. 107, 419 P.2d p. 471.) We take cognizance of this rule but also observe that it must be applied in conjunction with the rules applicable to the interpretation of contract. ⁵

The Question of Ambiguity

Plaintiffs contend that the insurance policy is ambiguous and uncertain. Accordingly, they offered extrinsic evidence for the purpose of establishing that it was the intent of the parties that the policy afford plaintiffs the right to recover defense costs and expenses regardless of the amount paid by plaintiffs as the result of a claim of a third party. This evidence was admitted subject to defendants' motion to strike, which was timely interposed. ⁶ The trial court took the motion under submission and in its written memorandum of decision stated that it was unnecessary for the court to rule on the motion on the basis that there was nothing in the evidence offered by plaintiffs which showed an intent of the parties contrary to that expressed in the policy as interpreted pursuant to section 2778.

In Delta Dynamics, Inc. v. Arioto, 69 Cal.2d 525, 528 (72 Cal.Rptr. 785, 446 P.2d 785), the Supreme Court, relying on Pacific Gas & Elec. Co. v. G. W. Thomas Drayage, etc., Co., 69 Cal.2d 33, 39--40 (69 Cal.Rptr. 561, 442 P.2d 641), states the applicable principle thusly: "The test of admissibility of extrinsic evidence to explain the meaning of a written instrument is not whether it appears to the court to be plain and unambiguous on its face, but whether the offered evidence is relevant to prove a meaning to which the language of the instrument is reasonably susceptible.' To determine whether offered evidence is relevant to prove such a meaning the court must consider all credible evidence offered to prove the intention of the parties. 'If the court decides, after considering this evidence, that the language of a contract, in the light of all the circumstances, is 'fairly susceptible of either one of the two interpretations contended for * * *.' (citations), extrinsic evidence to prove either of such meanings is admissible.' (Citation.)'

In applying the foregoing test, the preliminary consideration of all credible evidence offered to prove the intention of the parties requires that the trial court consider evidence which includes testimony as to the circumstances surrounding the making of the agreement including the object, nature and subject matter of the writing so that the court can place itself in the same situation in which the parties found themselves at the time of contracting. (Pacific Gas & Elec. Co. v. G. W. Thomas Drayage, etc., Co., Supra, at p. 40, 69 Cal.Rptr. 561, 442 P.2d 641.)

Adverting to the extrinsic evidence offered by plaintiffs and preliminarily considered by the trial court in the instant case, we observe the following testimony. Donald Brown, plaintiffs' insurance broker, testified that he discussed with Ralph Jackson, a surplus line underwriter for Appleton & Cox of California, Inc., ( ) (the brokerage firm which procured the policy from defendants) how the deductible operated in relationship to the defense costs; that when he told Jackson, following the receipt of a policy form and prior to the issuance of the policy, that he could not 'interpret' the exact action that would be taken if claims did occur, Jackson advised him that there would be a $2,500 deductible applicable to a claim under the policy and that legal fees would be taken care of under the policy without a deductible. Brown also testified that he later got a different interpretation from Jackson when he asked Jackson to...