Miller v. Elite Ins. Co.

• Decision Date: 08 January 1980
• Citation: Miller v. Elite Ins. Co., 100 Cal.App.3d 739, 161 Cal.Rptr. 322 (Cal. App. 1980)
• Court: California Court of Appeals
• Parties: Gary MILLER, Plaintiff and Respondent, v. ELITE INSURANCE COMPANY, Defendant and Appellant. Civ. 42394.

Page 322

161 Cal.Rptr. 322

100 Cal.App.3d 739

Gary MILLER, Plaintiff and Respondent, v.ELITE INSURANCE COMPANY, Defendant and Appellant.

Civ. 42394.

Court of Appeal, First District, Division 2, California.

Jan. 8, 1980.

Rehearing Denied Feb. 7, 1980.

Hearing Denied Mar. 6, 1980.

Bronson, Bronson & McKinnon, Paul H. Cyril, David W. Gordon, San Francisco, for defendant and appellant.

Long & Levit, Ronald E. Mallen, Steven A. Lewis, San Francisco, for plaintiff and respondent.

MILLER, Associate Justice.

RespondentGary Miller(Miller) sued his motorcycle liability insurance carrier, appellantElite Insurance Company(Elite), for breach of the implied covenant of good faith and fair dealing in Elite's handling of a claim brought against respondent by Warren and Margaret Johnsrude(Johnsrude claim).The Johnsrude claim was for damages resulting from a fire which Miller accidently caused while using his motorcycle.The court below directed a verdict for Miller on the issue of compensatory damages and the jury awarded Miller $150,000 in punitive damages.

In 1972, respondent Miller lived in a house owned by the Johnsrudes.Respondent shared the house with two other persons, William LaBelle and Stephen Kalla.

On June 24, 1972, respondent was working on his motorcycle in the garage which was beneath the house.There was a gas water heater a short distance away from where he was working.Gasoline fumes from his motorcycle were ignited by the pilot light of the water heater and a fire erupted causing damage to the garage and to the dining room above in the approximate amount of $11,000.

At the time of the fire, respondent carried liability insurance on his motorcycle with Elite Insurance Company.The policy afforded respondent coverage for bodily injury, property damage and physical damage.Also covered were the cost of defense and indemnity for occurrences covered by the policy.The policy contained an exclusion clause which stated: "This policy does not apply under Part I(Liability): . . . (e) to injury to or destruction of property owned or transported by the insured, or property rented to or in charge of the insured."

The Johnsrudes carried fire insurance issued to them by National American Insurance Company(National).National paid the Johnsrude claim for damages caused by the fire.Miller informed National's agent of his policy with Elite and on December 21, 1972, National requested subrogation of the fire damage from Elite.

Miller's claim against Elite had been handled by the San Francisco Claims Manager, James Ryan, III.Ryan and his supervisor, Paul Woodson, received and reviewed motorcycle liability claims directed to Elite and developed company policy for settlement of such claims.

Shortly after receiving National's demand for subrogation, Ryan established a $2,000 reserve fund for the claim.Elite accepted the estimated amount of damages suffered by the Johnsrudes.Ryan, as Elite's representative, determined that there would be a 50% Chance that Miller would be held liable for the damage.In addition, Ryan estimated that since the policy limit was $5,000, the reserve was limited to that amount despite the fact that the claim was for approximately $11,000.A final factor for Elite in deciding on a yet further reduced amount of $2,000 for the reserve fund was Ryan's assessment of the very strong potential that Elite would deny coverage because of exclusion (e).The reserve was established on December 29, 1972, and Miller was not advised of Elite's coverage defense during the following nine months.

The insurance investigator hired by Elite questioned Miller in person twice and on the telephone several times.In these conversations Miller was reassured as to the policy limit of $5,000.Miller was not informed of a potential coverage problem.In March, 1973, National made a second demand for subrogation.In response, on May 12, 1973, Elite offered to compromise the claim for $3,000.Elite informed National that non-acceptance of the compromise figure would trigger denial of the claim because of exclusion (e).National responded with a demand to be held open for thirty days for a $5,000 compromise of the claim.Copy of this letter was sent to Miller by National.Miller assumed that the coverage claims were taken care of by the $5,000 limit of the Elite policy.

Ryan testified that Elite's position was as follows: (1) The Miller claim could be settled for $5,000; (2) Elite would pay no more than $3,000; (3) Miller could contribute the additional $2,000; (4) if no settlement were made, Elite would deny coverage and defense of the suit against Miller; (5) if there were no settlement and Elite were not to defend, Miller would have to defend a claim of $11,000 plus costs of approximately $2,000.

Elite did not inform Miller of its position.Elite did not accept National's demand for a $5,000 compromise of the claim National brought suit against Miller for the $11,000 in damages and Miller subsequently contacted Elite to ask whether he had to engage an attorney privately, whether the second National demand letter had been received by Elite and why he had been told that he would not be sued for damages.Finally, in October, 1973, Ryan told Miller that the Elite policy did not cover Miller's claim.Ryan did not ask to see the complaint in the National suit against Miller.

Miller then retained private counsel to defend his interests and, under a negotiated agreement, Miller agreed to pay $3,000 to National, plus attorney's fees.National would then seek to recover the balance of the claim from Elite and Miller would retain any punitive damages that might be awarded.

Miller brought an action against Elite in March, 1977, and the trial court directed a verdict against Elite on the compensatory damages.The question of punitive damages was submitted to the jury which awarded $150,000 to Miller.

Appellant's contentions are numerous but basically group themselves into three areas: (1) the directed verdict for Miller for compensatory damages was improper, (2) the punitive damage award was improper and (3) Miller's counsel improperly argued in final argument to the jury.

Appellant's first contention on appeal is that there was no coverage for the fire damage to the Johnsrude property under respondent Miller's policy with Elite because of the exclusion clause (e).Appellant argues that Miller was a tenant, thus a renter of the damaged property and that the property was also in his charge or control.

As to the first of the two exclusionary factors, it is well established that a tenancy need not be created by a lease but may be created by occupancy by consent.(Ellingson v. Walsh, O'Connor & Barneson(1940)15 Cal.2d 673, 675, 104 P.2d 507.)One who has no lease but pays on a month-to-month basis becomes a tenant.(Cal.Civ.Code § 1944.)

Miller originally shared the Johnsrude house on a temporary basis to last only so long as the roommates remained amicable.The rent was paid by Kalla with his personal check and the two roommates contributed a share of the expenses to Kalla.There was no written rental agreement or lease signed by any of the roommates, but they were occupying the premises with the owner's consent.Thus arguably Miller was a tenant although there is no indication that he rather than Kalla would have been independently liable for the rent as it accrued.

The other exclusionary factor, "property in charge of the insured", gives rise to problems of interpretation.(D. Melnick, California Automobile Insurance Law Guide(CEB 1973) § 5.3.)Clauses of this type have been much litigated and held to be both ambiguous and unambiguous.(Home Indemnity Co. v. Davis(1978)79 Cal.App.3d 863, 871, 145 Cal.Rptr. 158.)There are no definitive cases which inform this court of the California position on the effect of the "property in charge of the insured" phrase.Appellant cites cases from other jurisdictions in support of his argument.Primary reliance is placed on Wright Construction Co. v. St. Lawrence Fluorspar, Inc., 254 A.2d 252(Del.Super.1969).This case can be distinguished because the defendant in Wright had leased a front-end shovel from the plaintiff and the defendant cross-complained against the insurer.The defendant in Wright was the operator of the rented front-end shovel and had exclusive control over its operation.In the present case, the property in question was real property over which Miller did not have exclusive control.He was arguably a tenant but he was not in exclusive control of the premises despite the fact that he was alone in the garage beneath the house when the accident occurred.At no time did Miller have exclusive use and control of the Johnsrude property.

Exclusionary clauses or exceptions are to be interpreted by their plain meaning and will not be stretched to cover areas not intended by the clause.(Aas v. Avemco Insurance Co.(1976)55 Cal.App.3d 312, 321, 127 Cal.Rptr. 192.)But, any ambiguity is to be interpreted against the insurer and reasonable doubts as to uncertain language should be resolved against the insurer.(Crane v. State Farm Fire & Cas. Co.(1971)5 Cal.3d 112, 115, 95 Cal.Rptr. 513, 485 P.2d 1129.)The policy should be read as a layman would read it, interpreting the terms in an ordinary and popular sense as a person of average intelligence and experience would understand them.(Aas v. Avemco Insurance Co., supra, 55 Cal.App.3d at p. 321, 127 Cal.Rptr. 192.)Any exclusionary clause must be conspicuous, clear and plain and construed strictly against the insurer and liberally in favor of the insured.(Crane v. State Farm Fire & Cas. Co., supra, 5 Cal.3d at p. 115, 95 Cal.Rptr. 513, 485 P.2d 1129.)Where a strict, literal interpretation of a clause would unreasonably restrict the coverage of the policy, such an interpretation cannot be foisted onto a layman nor can it be defended in terms of the risks which the layman sought to insure against.(...