Lumbermens Mut. Cas. Co. v. Vaughn

• Citation: 244 Cal.Rptr. 567,199 Cal.App.3d 171
• Decision Date: 02 March 1988
• Docket Number: No. H001674,H001674
• Court: California Court of Appeals
• Parties: LUMBERMENS MUTUAL CASUALTY COMPANY, Plaintiff and Appellant, v. Heather, Leigh VAUGHN, a Minor, etc., et al., Defendants and Respondents.

Page 567

244 Cal.Rptr. 567

199 Cal.App.3d 171

LUMBERMENS MUTUAL CASUALTY COMPANY, Plaintiff and Appellant, v. Heather, Leigh VAUGHN, a Minor, etc., et al., Defendants and Respondents.

No. H001674.

Court of Appeal, Sixth District, California.

March 2, 1988.

Rankin, Oneal, Center, Luckhardt & Lund, San Jose, for plaintiff and appellant.

Craig G. McIntosh, Sacramento, Low, Ball & Lynch, David B. Lynch, John P. Walovich, San Francisco, for defendants and respondents.

BRAUER, Associate Justice.

Lumbermens Mutual Casualty Company (hereinafter designated the Carrier) brought an action for declaratory relief against its insured and other named defendants. In the action Carrier claimed that a homeowner's policy it had issued provided no coverage for an accident in which the insured's wife was killed. The court below rendered judgment on the pleadings in favor of the defendants and against the Carrier. We reverse with directions.

I. BACKGROUND

A. The Accident

In August of 1983 defendant Jeffrey Leep rented a garden tractor from defendant A-1 Rental Center (hereinafter designated Rental). Sandra Leep, Jeffrey's wife, was operating the tractor on the Leep premises on August 7, 1983. While she was thus engaged the tractor overturned and killed her.

B. The Rental Agreement

The reverse side of the rental agreement contained printed provisions designed to protect Rental from liability for accidents. For example, paragraph 5 read in pertinent part: "CUSTOMER shall immediately report any accident involving the rental equipment to COMPANY and deliver to COMPANY every process, pleading, notice, or paper of any kind whatsoever received by CUSTOMER relating to any claim, suit, or proceeding connected with any accident or event involving the equipment. CUSTOMER shall not aid or abet the assertion of any such claim, suit, or proceeding, and shall cooperate fully with COMPANY in investigating and defending same."

Paragraph 7 read thus: "COMPANY shall not be liable for loss, damage, or injury to property or the person of CUSTOMER or any other person arising out of the use or operation of the equipment rented. CUSTOMER shall assume all risk of such loss or damage, waive all claims therefore against COMPANY, and defend, indemnify, and hold COMPANY harmless from all claims arising out of such loss or damage."

Paragraph 8 provided: "CUSTOMER shall defend, indemnify, and hold COMPANY harmless from and against any and all losses, liabilities, damages, injuries, claims, demands, costs, and expenses arising out of, or connected with, the possession or use of the equipment during the rental term, including but not limited to, any and all claims of, or liabilities to, third parties, arising out of the operation, use, abandonment, conversion, secretion, concealment, or unauthorized sale of the equipment, or the confiscation of the equipment by any governmental authority for unlawful improper use of said equipment."

C. The Carrier's Policy

At the time of the accident Jeffrey Leep and his wife were the named insureds in a homeowner's insurance policy issued by Carrier. Like most such policies, it purported to provide broad coverage but contained a great number of exclusions.

As to personal liability coverage, the policy in pertinent part read thus: "If a claim is made or a suit is brought against any insured for damages because of bodily injury or property damage caused by an occurence to which this coverage applies, we will: [p] 1. pay up to our limit of liability for the damages for which the insured is legally liable; and [p] 2. provide a defense at our expense by counsel of our choice even if the allegations are groundless, false or fraudulent."

The policy specifically excluded from personal liability coverage any bodily injury or property damage arising out of the "ownership, maintenance, use, loading or unloading of motor vehicles or all other motorized land conveyances, including any trailers, owned or operated by or rented or loaned to any insured," or out of "entrustment by the insured of a motor vehicle or any other motorized land conveyance to any person." (Italics added.) But this "motorized land conveyance" exclusion had its limits, because the policy further provided that the exclusion did not apply to "a motorized land conveyance designed ... for the maintenance of an insured location which is: [p] (a) not designed for travel on public roads; and [p] (b) not subject to motor vehicle registration." The garden tractor involved in this case fit the last-quoted description.

The policy also excluded from personal liability coverage "bodily injury to you and any insured within the meaning of part a. or b. of Definition 3, 'insured.' " According to Definition 3, " 'insured' means you and the following residents of your household: [p] a. your relatives; [p] b. any other person under the age of 21 who is in the care of any person named above." For the sake of simplicity we shall hereinafter designate this exclusion as the "family exclusion."

D. Leep's Action

In his capacities as an individual, as guardian ad litem for his minor daughter Heather Leigh Vaughn, and as administrator of his wife's estate, Leep sued for damages for the wrongful death of his wife (Santa Clara County Superior Court action number 539948). Among the named defendants were the manufacturer of the tractor, the distributor of the tractor, and Rental. Rental filed a cross-complaint against Leep for indemnity, based upon the express indemnity provisions contained in the rental agreement. Leep tendered his defense on the cross-complaint to Carrier. Carrier agreed to provide a defense, but reserved its right to seek an independent determination of its obligation to defend and indemnify Leep. Carrier then instituted the present action for declaratory relief (Santa Clara County Superior Court action number 559348).

E. Carrier's Action

Carrier's complaint named as defendants all of the parties to Leep's action, including Leep himself. But in pertinent part the complaint alleged an actual controversy only between Carrier and Leep. Specifically, the complaint alleged that Carrier "contends it has no obligation to insure defendant against damages caused by bodily injury to residents of defendant's household, nor against liability on the rental contract. Defendant JEFFREY B. LEEP disputes these contentions and contends that plaintiff is obligated to indemnify defendant for damages caused by bodily injury arising out of the subject incident." The complaint sought a judicial declaration "as to whether [Carrier] is obligated to indemnify defendant JEFFREY B. LEEP for damages caused by bodily injury to its insureds and for liability under the rental contract." To this complaint all of the named defendants filed general denials.

Carrier took discovery, and then moved for summary judgment. The basic thrust of the motion was simple: As a matter of law, the "family exclusion" in Carrier's policy forbade liability coverage, and therefore Carrier was not obligated to defend or indemnify Leep. This pristine thrust was muddied when Carrier admitted, in its moving papers, "that to a limited extent coverage is determined by the reasonable expectations of the insured." In response Leep and Rental focused on the gunk, and argued that Leep had reasonably expected to be defended and indemnified. In this posture the matter was submitted for decision to Judge A of the Santa Clara County Superior Court. In a minute order Judge A ruled: "Motion for Summary Judgment on behalf of plaintiff denied. Facts 10 and 11 are in dispute." Facts 10 and 11 both dealt with Leep's alleged expectations of his insurance coverage, and neither concerned any issue of ambiguity in the provisions of Carrier's policy.

On October 28, 1985 (the date apparently set for trial), the lawyers representing Carrier, Leep, and Rental all presented trial briefs to Judge B of the Santa Clara County Superior Court. The briefs were filed in open court, and Carrier's counsel revealed that two of the named defendants--the manufacturer and the distributor of the tractor--had been dismissed from the action with Carrier's consent. Thus the personae of this action dwindled to Carrier as plaintiff, Leep and Rental as defendants. Court and counsel engaged in colloquy, in the course of which defense counsel somehow persuaded Judge B that Judge A's earlier ruling necessarily meant that Carrier's policy was ambiguous in its terms, and therefore afforded coverage for the accident. Judge B's comments indicate his thinking: "Since Judge [A] could have decided in this case that the contract is clear and unambiguous, and that there is no coverage, but he did not, and he did specify as material disputes between the parties, the reasonable expectations, it follows that he decided that the contract is ambiguous. [p] Quite frankly, even had he not decided that and that question were presented to me as a matter of law, ... I would have decided it the same way, so I find that the only issue left before me is the issue of reasonable expectation." Further: "I find that the question of ambiguity is not before me. That that was necessarily decided by Judge [A] in his ruling on the motion for summary judgment. [p] Therefore, the issue before me is whether or not coverage in this case was provided to the insured based upon the reasonable expectation of the insured." But an order denying summary judgment is not a final judgment and is not res judicata. (De La Pena v. Wolfe (1986) 177 Cal.App.3d 481, 485, 223 Cal.Rptr. 325.) It is therefore not binding on the judge conducting the trial.

Then Leep's counsel moved for judgment on the pleadings, and Rental's counsel joined in the motion. After further discussion the matter was continued to the following day, October 29. On that date the court learned that Leep and Rental had entered into a stipulated judgment in the earlier lawsuit, i.e., action number 539948. Carrier's counsel described the...