Jauregui v. Mid-Century Ins. Co.

• Decision Date: 23 December 1991
• Docket Number: MID-CENTURY,No. C,C
• Citation: 1 Cal.App.4th 1544,3 Cal.Rptr.2d 21
• Parties: Evelia JAUREGUI, Plaintiff and Appellant, v.INSURANCE COMPANY, Defendant and Respondent. iv. C007050.
• Court: California Court of Appeals Court of Appeals

Page 21

3 Cal.Rptr.2d 21

1 Cal.App.4th 1544

Evelia JAUREGUI, Plaintiff and Appellant, v. MID-CENTURY INSURANCE COMPANY, Defendant and Respondent.

No. Civ. C007050.

Court of Appeal, Third District, California.

Dec. 23, 1991.

Review Denied April 3, 1992.

Brislain, Zink & Lenzi, Albert J. Lenzi, Jr., Chico, for plaintiff and appellant.

Kroloff, Belcher, Smart, Perry & Christopherson, Randy Lockwood, Stockton, for defendant and respondent.

RAYE, Associate Justice.

In this declaratory relief action, the trial court granted Mid-Century Insurance Company's motion for summary judgment finding a provision of the insured's automobile insurance policy limited coverage for a permissive user of the insured vehicle. Evelia Jauregui, the injured third party appeals. The pivotal issue presented is whether the policy language fixing damages to the limits of the financial responsibility law only if caused by a permissive driver is conspicuous and clear so as to preclude coverage under the contract of insurance. Finding as a matter of law the provision defeats the reasonable expectations of the insured and it is inconspicuous and vague, we reverse the judgment.

STATEMENT OF FACTS

The insured, Larry King, was provided an "E-Z Reader Car Policy." The cover page of the policy states: "Your E-Z Reader Car Policy offers protection tailored to your needs. It is written in non-technical easy-to-read style. [p] Please read this policy to make sure you understand the coverage it provides."

Part 1 of the E-Z Reader Policy described liability coverage. On the first page, an insured person is defined as:

"1. You or any family member.

"2. Any person using your insured car...."

On the first column of the second page is a list of Exclusions and on the second column are Limits of Liability. Both titles are set out in bold face type and separated from the surrounding policy language.

Following the section on Limits of Liability are three bold faced titles: "Out of State Coverage" "Conformity with Financial Responsibility Laws" and "Other Insurance." Mid-Century contends the sentence under "Other Insurance" limits liability coverage for permissive users as follows: "We will provide insurance for an insured person, other than you or a family member, up to the limits of the Financial Responsibility Law only." Although the policy provided bodily injury coverage up to $100,000 per person and $300,000 per occurrence for the insured, Mid-Century claims bodily injury damages caused by a permissive user was limited to $15,000 per person and $30,000 per occurrence.

King's half-brother, Dennis Roderic, was driving the insured vehicle on August 31, 1986, and apparently caused an accident, injuring Jauregui. She refused a trial settlement offer of $25,000. On June 8, 1987, Mid-Century informed Jauregui the policy limited liability coverage for permissive drivers and reduced its settlement offer to $15,000, the limits under the financial responsibility law. Jauregui again refused the offer and filed the underlying declaratory relief action. She appeals the judgment entered in favor of Mid-Century.

I.

"Where no dispute surrounds material facts, interpretation of an insurance policy presents solely a question of law." (Hauser v. State Farm Mut. Auto. Ins. Co. (1988) 205 Cal.App.3d 843, 846, 252 Cal.Rptr. 569.) Since there is no factual dispute presented here, the trial court's interpretation of the policy language is not binding on the appellate court. (Ibid.; Equitable Life Assurance Society v. Berry (1989) 212 Cal.App.3d 832, 840, 260 Cal.Rptr. 819.)

The reasonable expectations of the insured are considered in a multitude of contexts. The scope of our inquiry is quite limited, however, and the role of the insured's expectations is commensurately narrow. Before us is an appeal from a summary judgment based on the trial court's interpretation of the insurance policy. It is not a review of a factual finding of the insured's expectations or the parties' intent based on the admission of extrinsic evidence. If the insured's expectations of coverage had been relevant in the context of an ambiguous policy, the trial court would have erred in granting a summary judgment because there would be glaring triable issues of fact. That is not our case. Rather we engage exclusively in the academic review of policy language guided by well established rules of construction applied in the specialized arena of insurance coverage.

II.

In Mid-Century Ins. Co. v. Haynes (1990) 218 Cal.App.3d 737, 267 Cal.Rptr. 248 the court upheld the insurer's construction of the challenged limitation for permissive users. The similar, if not identical, "E-Z Reader Car Policy" included the same disputed language "under the caption 'Other Insurance' that: 'We will provide insurance for an insured person, other than you or a family member, up to the limits of the Financial Responsibility Law only.' " (Id. at p. 739, 267 Cal.Rptr. 248.)

The court summarily dismissed the injured's claim the policy language was inconspicuous and ambiguous. The court stated: "Haynes claims that this statement should have been 'put in the "Liability" section where a reasonable person would look for it.' However, as noted above, the sentence is in the 'Liability' section of the policy. Additionally, the language is susceptible of but a single interpretation: that coverage for persons other than the named insured and family members is limited as set forth in the Financial Responsibility Law." (Id. at p. 740, 267 Cal.Rptr. 248.) Guided by fundamental principles governing construction of insurance contracts, we independently review the purported provision limiting coverage and, contrary to the holding in Haynes, find the limiting language inconspicuous and unclear.

Jauregui contends the permissive driver limitation is unenforceable because it was hidden in an inconspicuous section of the policy. We agree. The court in Haynes was satisfied the limitation of coverage was conspicuous since it was placed within the broad section on liability. The court ignored, however, how easily a layperson would be misled by this E-Z Reader Policy.

First, an insured is defined on the first page of the policy, including permissive drivers under subparagraph 2: "Any person using your insured car." Second, the limiting language does not appear in either of the two sections where an insured would be likely to look. The permissive user limitation is not under the sub-section entitled "Exclusions," nor does it appear under the sub-section entitled "Limits on Liability." Rather the exclusionary language follows the sub-section on "Other Insurance," although the permissive user limitation has nothing to do with insurance from any other source.

As the court in Ponder v. Blue Cross of Southern California (1983) 145 Cal.App.3d 709, 193 Cal.Rptr. 632, aptly concluded: "Without further notice, an average insured could scarcely anticipate a subparagraph labeled this way would contain an exclusion.... [p] This does not mean policy holders need never read beyond the boldfaced subheadings on the paragraphs which exclude coverage. But we do suggest it is difficult to characterize as 'conspicuous' an exclusion which is located under a subheading whose ordinary meaning does not encompass the condition purportedly excluded." (Id. at p. 723, 193 Cal.Rptr. 632.)

Strictly construing the exclusionary language against the insurer (id. at p. 718, 193 Cal.Rptr. 632), and reading this contract as a reasonable policy holder would read it (National Auto. & Casualty Ins. Co. v. Stewart (1990) 223 Cal.App.3d 452, 457, 272 Cal.Rptr. 625), we cannot find the limitation adequately conspicuous. The definition of the insured, appearing at the outset of the Liability Section, gives every indication that a permissive driver stands in the same position as the insured and receives the same coverage. The average policy holder would reach the same conclusion by continuing to read the policy. The coverage limitation for permissive drivers is not contained within one of the subheadings that might alert the reader to a partial exclusion. Rather it appears within a subsection whose ordinary language would not encompass the limitation and is surrounded by language that has nothing to do with exclusions or limitations on coverage.

We find the insurer does not meet its stringent obligation to alert a policy holder to limitations on anticipated coverage by hiding the disfavored language in an inconspicuous portion of the policy. Unlike the court in Haynes, we are not satisfied that a policy purportedly designed for comprehensibility and clarity succeeds in limiting coverage as long as the language appears somewhere within the appropriate section. Here we find the average lay reader, attempting to locate coverage provided for permissive drivers, would have a difficult time locating the limiting language and is not required to conduct such an arduous search for camouflaged exclusions. The insurer has not satisfied its burden to display exclusionary language conspicuously.

III.

Conspicuous placement of exclusionary language is only one of two rigid drafting rules required of insurers to exclude or limit coverage. The language itself must be plain and clear. (Ponder v. Blue Cross of Southern California, supra, 145 Cal.App.3d 709, 723, 193 Cal.Rptr. 632.) "This means more than the traditional requirement that contract terms be 'unambiguous.' Precision is not enough. Understandability is also required. To be effective in this context, the exclusion must be couched in words which are part of the working vocabulary of average lay persons." (Ibid.; National Auto. & Casualty Ins. Co. v. Stewart, supra, 223 Cal.App.3d at p. 458, 272 Cal.Rptr. 625.)

Jauregui contends the general reference "to the limits of the Financial Responsibility Law" was not understandable to the average policy holder. She argues a lay person is not expected to know what body of statutory law...