National Auto. & Casualty Ins. Co. v. Stewart

• Decision Date: 26 July 1990
• Docket Number: No. A042979,A042979
• Citation: 223 Cal.App.3d 452,272 Cal.Rptr. 625
• Court: California Court of Appeals Court of Appeals
• Parties: NATIONAL AUTOMOBILE AND CASUALTY INSURANCE CO., Plaintiff and Appellant, v. Thea STEWART, etc., et al., Defendants and Respondents.

Page 625

272 Cal.Rptr. 625

223 Cal.App.3d 452

NATIONAL AUTOMOBILE AND CASUALTY INSURANCE CO., Plaintiff and Appellant, v. Thea STEWART, etc., et al., Defendants and Respondents.

No. A042979.

Court of Appeal, First District, Division 1, California.

July 26, 1990.

Bruce D. Celebrezze, Frederick D. Baker and Scott Conley, Sedgwick, Detert, Moran & Arnold, San Francisco, for plaintiff and appellant.

Clayton R. Janssen and W. Timothy Needham, Janssen, Malloy, Marchi & Needham, Eureka, for Stewart.

William R. McClendon, III, Davis, McClendon, Poovey, Anderson & Morrison, Eureka, for Isenhart.

John F. Donovan, Legal Div. Dept. of Transp., San Francisco, for State of Cal.

RACANELLI, Presiding Justice.

This is an appeal by National Automobile and Casualty Insurance Company (National) from a judgment declaring that an automobile insurance policy issued to respondent Judith Isenhart provided coverage for, and a duty to defend against, a claim brought by co-respondent Thea Stewart for injuries sustained in an accident involving an automobile operated by Isenhart's 16-year-old son, Matt. The pivotal issue presented is whether the phrase and definition of "nonowned automobile" is clear and conspicuous so as to preclude coverage under the terms of the insuring agreement. We will hold that it is as a matter of law and, accordingly, reverse the judgment.

FACTS

The relevant facts are not in serious dispute.

In February 1983, in connection with her purchase of a 1983 Dodge station wagon, respondent Isenhart acquired the subject policy covering the Dodge with liability exposure limited to $100,000 per occurrence and naming only her as the insured operator. Isenhart testified that she had asked her insurance agent, Ed Carpenter, to procure a policy providing "full coverage."

Carpenter testified as to his customary explanation of what full coverage normally included in terms of bodily injury and property damage, uninsured motorist, medical, comprehensive and collision coverage. Carpenter would tell his insurance clients to read the issued policy and then to contact him if they had any questions.

At the time the policy was issued to Isenhart, Matt was 14 years old. Upon attaining age 16 in July 1984, Isenhart agreed to finance Matt's purchase of an auto provided that his father, Dr. George Isenhart (who did not live in the same household), obtained auto insurance for Matt. On July 25, 1984, Matt purchased a 1969 VW (Volkswagen) which did not have seat belts installed. George Isenhart obtained insurance coverage for the VW through Allstate Insurance Company with a policy limit of $15,000. Judith Isenhart never told her insurance agent that her son had a driver's license and a VW auto registered in his name. She also stated that she had no expectations whether her National policy covered her for claims arising from the auto owned by her son.

On September 3, 1984, respondent Thea Stewart, a passenger in the VW being driven by Matt, sustained serious injuries when the car rolled over. Thereafter, an action sounding in negligence was filed against the Isenharts and the State of California. Allstate tendered a defense for Matt and his mother and offered its policy limits. National declined to defend Isenhart and denied coverage on the basis that the insuring provisions and definitions expressly excluded an unnamed vehicle owned by a resident of the same household.

During the pendency of the underlying declaratory relief action filed by National, the Stewarts and Isenhart entered into a stipulated entry of judgment against Isenhart for $1.5 million in exchange for an assignment of her rights against National and the Stewarts' covenant not to execute on her assets. ¹

Following denial of both parties' motions for summary judgment, the matter proceeded to trial before the court without a jury. In its statement of decision, the court concluded that the definition of "non-owned automobile" was neither plain, clear nor conspicuous and defeated the insured's reasonable expectations of coverage for liability arising out of her use and maintenance of the auto owned by her son. The court also concluded that National owed Isenhart a duty to defend which it wrongfully breached. This appeal ensued.

DISCUSSION

I.

The rules for construction and review of an insurance policy are well established:

" "The policy should be read as a layman would read it...." (Crane v. State Farm Fire & Cas. Co., supra, 5 Cal.3d 112, 115 [95 Cal.Rptr. 513, 485 P.2d 1129].) "The insurer bears a heavy burden to draft exclusionary clauses in clear language comprehensible to lay persons." (Stewart v. Estate of Bohnert, supra, 101 Cal.App.3d 978, 988 .) The words must be such that "an ordinary layman can understand." (Thompson v. Occidental Life Ins. Co. (1973) 9 Cal.3d 904, 912 [109 Cal.Rptr. 473, 513 P.2d 353].) And an "insurer ... is bound to use language clear to the ordinary mind." (Migliore v. Sheet Metal Workers Welfare Plan (1971) 18 Cal.App.3d 201, 204 .) (See also, e.g., Gefrich v. State Farm Mut. Auto. Ins. Co. (1980) 109 Cal.App.3d 500, 503 [reduction in coverage must be "in plain and understandable language"]; S & H Ins. Co. v. California State Auto. Assn. Inter-Ins. Bureau (1983) 139 Cal.App.3d 509, 515 [policy limitation approved expressly because it was "phrased in clear and understandable language."].)"

(Ponder v. Blue Cross of Southern California (1983) 145 Cal.App.3d 709, 723-724, 193 Cal.Rptr. 632.) Moreover, "[a]n exclusion in an adhesion contract of insurance must be expressed in words which are 'plain and clear' [and] ... part of the working vocabulary of average lay persons." (Id., at p. 723, 193 Cal.Rptr. 632; see also State Farm Mut. Auto. Ins. Co. v. Jacober (1973) 10 Cal.3d 193, 202, 110 Cal.Rptr. 1, 514 P.2d 953.)

Thus, our task is to determine whether a material uncertainty exists in the terms of the policy relating to coverage requiring resolution of such ambiguity in favor of the insured. (National Auto. & Cas. Ins. Co. v. Contreras (1987) 193 Cal.App.3d 831, 836-837, 238 Cal.Rptr. 627.)

II.

The National policy provides for indemnity coverage for damages legally incurred "arising out of the ownership, maintenance or use of an owned automobile or a non-owned automobile...." Under the heading of "Definitions" on page three, a non-owned automobile is highlighted in bold type and defined to mean "an automobile not owned by or furnished or available for the regular use of either the named insured or any resident of the same household, and includes, while used therewith, a home trailer not owned by the named insured or a utility trailer, but 'non-owned automobile' does not include a temporary substitute automobile."

Thus, while the coverage clause may not alert the lay reader to the fact that the term "non-owned automobile" has a special definition found later in the policy, the insured is nonetheless responsible for reading the policy and knowing its contents (see Cal-Farm Ins. Co. v. TAC Exterminators, Inc. (1985) 172 Cal.App.3d 564, 579, 218 Cal.Rptr. 407) particularly where, as here, the basic insuring language purports to include nonowned automobiles generally.

Testimony was adduced that the policy language was based on an old Insurance Services Office form since replaced. A professor of linguistics called by respondents testified criticizing the structural format and grammatical context of the insuring clause and definitional limitations.

National steadfastly insists that the subject language is plain and clear and that the trial court erred in considering expert testimony as to the meaning and comprehension of the policy language. We agree.

The interpretation of the terms of the written policy, in the absence of a relevant factual dispute, is typically a question of law. The opinion of a linguist or other expert as to the meaning of the policy is irrelevant to the court's task of interpreting the policy as read and understood by a reasonable lay person (see Suarez v. Life Ins. Co. of North America (1988) 206 Cal.App.3d 1396, 1407, 254 Cal.Rptr. 377; see also Hartford Accident & Indemnity Co. v. Sequoia Ins. Co. (1989) 211 Cal.App.3d 1285, 260 Cal.Rptr. 190).

National cites a number of decisions involving insurance policies containing substantially similar limiting language in which it was found that the nonowned automobile definitions were plain, clear, and enforceable. However, none of the cited cases (reported in the margin) dealt with the precise issue presented but serve to illustrate the common forms of coverage limitation concerning use of a vehicle owned by a household resident. ²

In California State Auto. Assn. Inter-Ins. Bureau v. Gong (1984) 162 Cal.App.3d 518, 208 Cal.Rptr. 649, the insured's minor son was the driver of a car owned by his adult son. The policy did not provide coverage for vehicles owned by residents of the insured's household. In a suit brought by the injured passenger, the issue was whether Insurance Code section 11580.1 (prohibiting exclusion of permissive users) was violated by this policy provision. In concluding no violation occurred, the court commented that the substantially identical policy provisions made manifest in "clear, plain and conspicuous terms" that no coverage was provided. (Id., at p. 523, 208 Cal.Rptr. 649.)

In short, while the subject language is not a model of clarity, a common-sense reading makes the meaning readily apparent: coverage of a "non-owned" automobile means coverage for an automobile not owned by (or available for the regular use of) either the named insured or a resident of the same household. Had Isenhart read the policy terms, she would have known and understood that no coverage was afforded for the automobile owned by her son Matt, a resident of the same household.

III.

National also argues that, contrary to the finding below, ³ the definition of nonowned automobile is conspicuous.

Relying on S & H Ins. Co. v. California State Auto. Assn....