National Union Fire Ins. Co. v. Lynette C.

• Decision Date: 25 March 1991
• Citation: 279 Cal.Rptr. 394,228 Cal.App.3d 1073
• Court: California Court of Appeals Court of Appeals
• Parties: NATIONAL UNION FIRE INSURANCE COMPANY, Plaintiff, Cross-Defendant and Respondent, v. LYNETTE C., Defendant, Cross-Complainant and Appellant. Civ. C008219.

Page 394

279 Cal.Rptr. 394

228 Cal.App.3d 1073

NATIONAL UNION FIRE INSURANCE COMPANY, Plaintiff, Cross-Defendant and Respondent, v. LYNETTE C., Defendant, Cross-Complainant and Appellant.

Civ. C008219.

Court of Appeal, Third District, California.

March 25, 1991.

As Modified on Denial of Rehearing

April 18, 1991.

Review Denied June 6, 1991.

Law office of Leonard & Lyde and Robert L. Davis, for defendant, cross-complainant and appellant.

Matheny, Poidmore & Sears, Michael A. Bishop, Law Office of Wahlberg & Carron and Donald Wahlberg, for plaintiff, cross-defendant and respondent.

DAVIS, Associate Justice.

In this insurance coverage dispute, Lynette C. (Lynette) appeals from a summary judgment in favor of National Union Fire Insurance Company (National). The only issue on appeal is whether the foster parents liability insurance policy issued by National affords coverage to Debra Lopes (Debra), Lynette's foster mother who negligently failed to protect Lynette from sexual molestation by Duane Lopes (Duane), Lynette's foster father. We conclude there is coverage for Debra, reverse the judgment and remand the matter.

In August 1980, when Lynette was ten years old, she was placed by Colusa County as a foster child with Debra and Duane. Beginning in October or November 1980, and continuing until Lynette was removed from the Lopeses' home in May 1983, Duane repeatedly sexually molested Lynette.

As a result of these molestations, Duane in November 1984 pleaded guilty to violating Penal Code section 288, subdivision (a) (lewd or lascivious acts upon a child under fourteen years of age).

In August 1987, following three years of mental health treatment arising from the molestations, Lynette sued Duane and Debra (hereafter, the Lopes action). As to Debra, Lynette alleged she was negligent in allowing Lynette's placement in the Lopeses' foster home because Debra knew, or should have known, that Duane had a propensity to sexually molest children, and Debra was negligent in not protecting Lynette from Duane's molestations.

In February 1988, National filed a complaint for declaratory relief, contending that neither Duane nor Debra was covered under the National insurance policy for the allegations in the Lopes action. ¹

Pursuant to stipulation, the Lopes action was tried before a judge as an uncontested matter in September 1988. Judgment was rendered against Duane and Debra, jointly and severally, in the amount of $1.25 million. The trial court found that Debra's failure to use reasonable care to prevent Lynette's molestation injuries "was, along with [Duane's] batteries, a concurring legal cause of harm" to Lynette. ²

In the present matter, both Lynette and National moved for summary judgment. Based on Exclusion (b) set forth in the National policy, the trial court determined Debra was not covered and granted summary judgment for National.

DISCUSSION

There are three provisions of the National insurance policy relevant here. The first is the basic coverage clause, which provides: "To pay on behalf of the Insured all sums which the Insured shall become legally obligated to pay as damages because of any act, error or omission of the Insured and arising out of the Insured's activities as a Foster Parent occurring while the foster child is in the care and custody of the Foster Parent. Such coverage hereunder shall include, but not be limited to, bodily injury, property damage or personal injury for which the Insured is held legally liable."

The other two relevant provisions are exclusion clauses. Exclusion (b) specifies that the policy does not apply "to any dishonest, fraudulent, criminal or malicious act, error or omission of an Insured." Exclusion (1) states the policy is inapplicable "to licentious, immoral, or sexual behavior intended to lead to or culminating in any sexual act. However, notwithstanding the foregoing, the Insured shall be protected under the terms of this policy as to any claim upon which suit may be brought against him, by reason of any alleged licentious, immoral or sexual behavior by an Insured unless a judgment or final adjudication thereof adverse to the Insured shall establish that acts of active or deliberate, licentious, immoral or sexual behavior committed by the Insured with actual licentious or immoral purpose and intent were material to the cause of action so adjudicated."

Lynette contends that the exception set forth in the second sentence of Exclusion (1), read in light of the basic coverage clause, provides coverage to Debra. ³

The interpretation of an insurance policy, like any contract, is a question of law. (Ray v. Farmers Ins. Exchange (1988) 200 Cal.App.3d 1411, 1415-1416, 246 Cal.Rptr. 593.) When that interpretation does not depend upon the credibility of extrinsic evidence--and that is the case here--an appellate court may independently determine the policy's meaning regardless of what the trial court may have concluded. (Ibid.; see Parsons v. Bristol Development Co. (1965) 62 Cal.2d 861, 865, 44 Cal.Rptr. 767, 402 P.2d 839.) Any ambiguities in the policy are construed in favor of the insured. (Silberg v. California Life Ins. Co. (1974) 11 Cal.3d 452, 464, 113 Cal.Rptr. 711, 521 P.2d 1103.) Coverage provisions are construed broadly in favor of the insured, while exclusion provisions are construed strictly against the insurer. (State Farm Mut. Auto. Ins. Co. v. Partridge (1973) 10 Cal.3d 94, 101-102, 109 Cal.Rptr. 811, 514 P.2d 123.) However, strict construction does not mean strained construction; under the guise of strict construction, we may not rewrite a policy to bind the insurer to a risk that it did not contemplate and for which it has not been paid. (Safeco Ins. Co. v. Gilstrap (1983) 141 Cal.App.3d 524, 533, 190 Cal.Rptr. 425.) The words used in an insurance policy are construed in their ordinary and popular sense. (Arenson v. Nat. Automobile & Cas. Ins. Co. (1955) 45 Cal.2d 81, 83, 286 P.2d 816; Delgado v. Heritage Life Ins. Co. (1984) 157 Cal.App.3d 262, 272, 203 Cal.Rptr. 672.) Finally, the policy is construed as a whole, each clause helping to interpret the other. (McBride v. Farmers Ins. Group (1982) 130 Cal.App.3d 258, 260-261, 181 Cal.Rptr. 539.)

Exclusion (1) is the focus of this case. Again, that exclusion states the policy does not apply "to licentious, immoral, or sexual behavior intended to lead to or culminating in any sexual act. However, notwithstanding the foregoing, the Insured shall be protected under the terms of this policy as to any claim upon which suit may be brought against him, by reason of any alleged licentious, immoral or sexual behavior by an Insured unless a judgment or final adjudication thereof adverse to the Insured shall establish that acts of active or deliberate, licentious, immoral or sexual behavior committed by the Insured with actual licentious or immoral purpose and intent were material to the cause of action so adjudicated."

Relying principally upon the distinction between "the Insured" and "an Insured" in the Exclusion (1) exception, Lynette argues the exception applies to the situation presented here: where one foster parent, like Duane ("an Insured"), molests a foster child, while the other foster parent, like Debra ("the Insured"), is at most simply negligent in failing to prevent the molestation. In fact, Lynette argues this is the only possible application of Exclusion (1)'s exception. According to Lynette, in light of Exclusion (b)'s exclusion for criminal acts, the exception to Exclusion (1) is conceivably applicable in only two situations: the first is where there is a non-criminal sexual act; the second is the situation presented by this case. Lynette argues that since there is no sexual act involving a child upon which a legal claim may be brought that is not criminal, the second situation is the only conceivable application and therefore Debra is covered. Moreover, argues Lynette, the exception to Exclusion (1), which preserves protection to one insured from claims based upon the sexual behavior of another insured, is a specific provision which overrides the general provision of Exclusion (b) excluding criminal acts. According to Lynette, if her interpretation is not accepted, the Exclusion (1) exception is rendered meaningless, contrary to settled principles of insurance policy interpretation.

Lynette further argues that if her interpretation is not the only possible one, at a minimum it is a reasonable interpretation of an ambiguous provision that must be construed in favor of coverage for the insured, Debra.

One can conceive of a non-criminal situation to which the Exclusion (1) exception could apply--for example, one foster parent's non-criminal sexual harassment of another adult related to foster parent activity for which the other foster parent would be vicariously liable. (See American States Ins. Co. v. Borbor by Borbor (9th Cir.1987) 826 F.2d 888.) But the very stretch required in finding that applicability argues strongly in favor of Lynette's reasonable interpretation position.

Moreover, Lynette is correct that "the Insured" refers to a particular insured and that "an Insured" refers to any insured under the policy. Decisional and statutory law recognize this point. (Allstate Ins. Co. v. Condon (1988) 198 Cal.App.3d 148, 152-154, 243 Cal.Rptr. 623; Allstate Ins. Co. v. Gilbert (9th Cir.1988) 852 F.2d 449, 453-454; American States Ins. Co. v. Borbor by Borbor, supra, 826 F.2d at p. 894; Arenson v. Nat. Automobile & Cas. Ins. Co., supra, 45 Cal.2d 81, 83-84, 286 P.2d 816; Ins.Code, § 11580.1, subd. (c)(8).) Undoubtedly, Exclusion (1)'s exception, in isolation, can reasonably be read to protect one insured against claims based on a second insured's sexual conduct so long as the first insured has not engaged directly in that conduct. When that exception is read in light of the basic coverage clause and Exclusion (b), there may be an ambiguity created but under settled principles of...