Reserve Insurance Co. v. Pisciotta

Decision Date18 February 1982
Docket NumberS.F. 24323
Citation180 Cal.Rptr. 628,640 P.2d 764,30 Cal.3d 800
CourtCalifornia Supreme Court
Parties, 640 P.2d 764 RESERVE INSURANCE COMPANY, Plaintiff, Cross-defendant and Appellant, v. John PISCIOTTA, Defendant, Cross-complainant and Appellant, Tyler Philip Campbell et al., Defendants and Respondents, CNA Insurance Group, Cross-defendant and Appellant, Ernie C. Busch, Cross-complainant and Appellant.

William W. Schofield, John A. Reding and Crosby, Heafey, Roach & May, Oakland, for plaintiff, cross-defendant and appellant.

O. J. Ramsey, Ramsey, Morrison & Keddy, Sacramento, and Arne Werchick, San Francisco, for defendant, cross-complainant and appellant.

Porter, Scott, Weiberg & Delehant, Rick V. Battershell and A. Irving Scott, Sacramento, for cross-defendant and appellant.

Bronson, Bronson & McKinnon, Grant P. Dubois and David W. Gordon, San Francisco, for cross-complainant and appellant.

Diepenbrock, Wulff, Plant & Hannegan and John S. Gilmore, Sacramento, for defendants and respondents.

MOSK, Justice.

This is an appeal from a declaratory judgment action filed by Reserve Insurance Company, which sought a determination that a "family member" exclusion in its policy applies to the stepson of the insured. The case raises a number of inter-related issues concerning the potential liabilities of the insured, his broker, Reserve, and an excess insurer for the damages resulting from injuries to the stepson.

Tyler Campbell is the son of Dita Pisciotta and her former husband. After Dita remarried, she and Tyler took up residence with her new husband, John Pisciotta. From that time forward, Pisciotta treated Tyler and his brother as if they were his natural children: he provided funds for their support and shared responsibility for their upbringing. On June 26, 1976, Tyler was a passenger in a speedboat owned and driven by John Pisciotta, and was seriously injured when the boat collided with another.

Until May 11, 1976, Pisciotta's boat was covered by two watercraft liability policies, both obtained through his insurance broker, Ernie Busch. United States Fidelity & Guaranty Company (USF&G) provided primary coverage with a single limit of $300,000 per occurrence; the USF&G policy contained no family member exclusion. CNA Insurance Group (CNA) provided "excess" or "umbrella" coverage to supplement the USF&G policy.

The CNA policy was mainly designed to cover liability incurred by Pisciotta in excess of the limits of the "underlying insurance." At the time it was written, the "underlying insurance" was the USF&G policy. The CNA policy also contained a clause which required the insured to maintain underlying coverage "not more restrictive" than the USF&G policy. If Pisciotta breached this maintenance clause, CNA obligated itself to cover him only "to the same extent had the insured complied with this section."

May 11 was the expiration date for the primary policy. Pisciotta and Busch discussed the possibility of obtaining replacement coverage, but Pisciotta elected to allow the USF&G policy to lapse because he planned to sell his boat. The CNA policy remained in effect. When Pisciotta later decided to take a weekend boating trip with his wife and two stepsons, he arranged at the last minute for Busch to obtain replacement primary coverage. Busch complied the policy becoming effective on June 26, the very day of Tyler's injury.

The replacement policy which Busch procured was issued by Reserve Insurance Company (Reserve) and differed in two significant respects from the original primary policy: first, it contained a family member exclusion; second, it provided split limit coverage instead of the single limit coverage of the USF&G policy. The Reserve policy limits were $100,000 per occurrence for the injury to one person and $300,000 per occurrence for injuries to more than one person.

Following the accident, Tyler--through a guardian ad litem--filed a complaint for damages against his stepfather and the driver of the other boat. Reserve then filed a declaratory judgment action seeking a ruling that the family member exclusion in its policy applied to Tyler so that Reserve would not be required to indemnify Pisciotta for his liability resulting from Tyler's injuries. Pisciotta responded with a cross-complaint seeking alternative declarations as follows: if the exclusion did not apply and Reserve was consequently required to provide $100,000 of primary coverage, either CNA or Busch was responsible for any liability of Pisciotta from $100,000 up to $300,000; if the exclusion did apply, Busch was responsible for any liability up to $300,000 because of his negligence in procuring a replacement policy containing the family exclusion. CNA did not dispute that it provided coverage for any liability in excess of $300,000.

The trial court found the exclusion to be ambiguous when applied to Tyler. It therefore interpreted the exclusion in Pisciotta's favor, concluding that Reserve was required to provide coverage up to its policy limit of $100,000.

A jury found that both Busch and Pisciotta were negligent in obtaining a replacement policy with coverage of only $100,000 per person injured; Busch was found to be 75 percent at fault, Pisciotta 25 percent at fault. Busch was accordingly declared responsible for $150,000 of the resultant gap in coverage between $100,000 and $300,000. The jury, however, found that Busch was not negligent in obtaining a replacement policy containing a family exclusion. Inexplicably, the trial court ruled that CNA would have to indemnify Pisciotta for his 25 percent of responsibility for the $200,000 gap in coverage. All parties appealed from the judgment.

I LIABILITY OF RESERVE

The pertinent provisions of the Reserve policy are as follows: "The Company will pay on behalf of an insured all damages which the insured becomes legally obligated to pay because of bodily injury or property damage arising out of the ownership, maintenance or use of [Pisciotta's boat] .... This section does not apply: ... to bodily injury to the insured or to any member of the family of the insured residing in the same household as the insured." 1

At the outset, we must decide whether the language of the exclusion is sufficiently definite to exclude Tyler as a member of Pisciotta's "family." Because we conclude that it is not, the exclusion is inapplicable.

We begin with established principles applicable to the interpretation of insurance policies. Words used in an insurance policy are to be interpreted according to the plain meaning which a layman would ordinarily attach to them. Courts will not adopt a strained or absurd interpretation in order to create an ambiguity where none exists. (Civ.Code, § 1638; Pacific Employers Ins. Co. v. Maryland Casualty Co. (1966) 65 Cal.2d 318, 323, 54 Cal.Rptr. 385, 419 P.2d 641, disapproved on another point in Herzog v. National American Ins. Co. (1970) 2 Cal.3d 192, 199, 84 Cal.Rptr. 705, 465 P.2d 841; see also California State Auto. Assn. Inter-Ins. Bureau v. Hoffman (1978) 77 Cal.App.3d 768, 775, 143 Cal.Rptr. 835; Farmers Ins. Exch. v. Harmon (1974) 42 Cal.App.3d 805, 809, 117 Cal.Rptr. 117.)

On the other hand, "any ambiguity or uncertainty in an insurance policy is to be resolved against the insurer and ... if semantically permissible, the contract will be given such construction as will fairly achieve its object of providing indemnity for the loss to which the insurance relates." (Harris v. Glens Falls Ins. Co. (1972) 6 Cal.3d 699, 701, 100 Cal.Rptr. 133, 493 P.2d 861; see also Gray v. Zurich Insurance Co. (1966) 65 Cal.2d 263, 269, 54 Cal.Rptr. 104, 419 P.2d 168; Continental Cas. Co. v. Phoenix Constr. Co. (1956) 46 Cal.2d 423, 437, 296 P.2d 801.) The purpose of this canon of construction is to protect the insured's reasonable expectation of coverage in a situation in which the insurer-draftsman controls the language of the policy. (Century Bank v. St. Paul Fire & Marine Ins. Co. (1971) 4 Cal.3d 319, 321, 93 Cal.Rptr. 569, 482 P.2d 193; Gray v. Zurich Insurance Co., supra, 65 Cal.2d at pp. 269-270, 54 Cal.Rptr. 104, 419 P.2d 168; Atlantic Nat. Ins. Co. v. Armstrong (1966) 65 Cal.2d 100, 112, 52 Cal.Rptr. 569, 416 P.2d 801.) Its effect differs, depending on whether the language to be construed is found in a clause providing coverage or in one limiting coverage. "Whereas coverage clauses are interpreted broadly so as to afford the greatest possible protection to the insured [citations], exclusionary clauses are interpreted narrowly against the insurer. [Citations.]" (State Farm Mut. Auto. Ins. Co. v. Partridge (1973) 10 Cal.3d 94, 101-102, 109 Cal.Rptr. 811, 514 P.2d 123; accord, Tencza v. Aetna Casualty & Surety Company (1974) 21 Ariz.App. 552, 521 P.2d 1010, 1012-1013.) "An insurer cannot escape its basic duty to insure by means of an exclusionary clause that is unclear. As we have declared time and again, 'any exception to the performance of the basic underlying obligation must be so stated as clearly to apprise the insured of its effect' [citation]; thus, 'the burden rests upon the insurer to phrase exceptions and exclusions in clear and unmistakable language.' [Citation.]" (State Farm Mut. Auto. Ins. Co. v. Jacober (1973) 10 Cal.3d 193, 201-202, 110 Cal.Rptr. 1, 514 P.2d 953.)

The interpretation of the word "family" as used in the Reserve policy turns on whether that word is ambiguous with reference to a stepson of the insured. If ambiguous, settled principles dictate that the term be construed against Reserve and in favor of coverage.

There are no California cases directly on point. Moore S. Corp. v. Industrial Acc. Comm. (1921) 185 Cal. 200, 196 P. 257, cited by Reserve, is inapposite. Moore interpreted a workers' compensation law which provided benefits to members of the "family or household" of injured employees; it held that the daughter of a woman cohabiting with the injured employee was entitled to...

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