Sequoia Ins. Co. v. Royal Ins. Co. of America
| Decision Date | 23 July 1992 |
| Docket Number | No. 90-16820,90-16820 |
| Citation | 971 F.2d 1385 |
| Parties | SEQUOIA INSURANCE COMPANY, Plaintiff-Appellee, v. ROYAL INSURANCE COMPANY OF AMERICA, Defendant-Appellant. |
| Court | U.S. Court of Appeals — Ninth Circuit |
William A. Bogdan, Lynch, Loofbourrow, Helmenstine, Gilardi & Grummer, San Francisco, Cal., for defendant-appellant.
Samuel F. Barnum, Barnum, Balthazar & DeLara, San Francisco, Cal., for plaintiff-appellee.
Appeal from the United States District Court for the Northern District of California.
Before: TANG, BOOCHEVER, and PREGERSON, Circuit Judges.
This appeal involves a dispute between a primary insurer and an excess insurer, arising out of an automobile accident and a consequent wrongful death action. Royal Insurance Company appeals the entry of summary judgment in favor of Sequoia Insurance Company in Sequoia's action to recover the portion of the wrongful death judgment it paid in excess of policy limits. As is common in insurance disputes, the threshold issue with which we are presented is policy coverage. Beyond that, this case also presents a novel question under California law: whether in an action brought by a primary insurer, an excess insurer may raise defensively or by way of a declaratory judgment counterclaim the primary insurer's alleged bad faith breach of the duty to settle. Finally, we must determine whether the primary insurer failed to keep the excess insurer adequately informed of the underlying litigation, and if so, whether summary judgment for the primary insurer was nonetheless proper.
The auto accident which led to this insurance dispute occurred in April 1981. Frank Ramirez was a passenger in a Dodge Ram Charger truck owned by Pleasant Prairie Farms and driven by Ronald Brock. Brock was test driving the truck after doing some mechanical work on it. Another vehicle allegedly pulled out in front of the Ram Charger at a cross street. Brock, who was driving in excess of the speed limit, swerved to avoid the other vehicle, skidded across the intersection, and collided with a palm tree. Ramirez was killed instantly.
Pleasant Prairie Farms insured its truck under a policy issued by Sequoia Insurance Company. Brock held an insurance policy on his 24-foot Winnebago recreational vehicle (RV) issued by Royal Insurance Company. Ramirez' survivors brought a wrongful death action against Pleasant Prairie Farms and Brock, among others. See Ramirez v. Brock, No. 279230-7 (Cal.Super.Ct.1985). Sequoia defended its insured, Pleasant Prairie Farms. After unsuccessful settlement negotiations, in which Sequoia rejected repeated offers from the Ramirez plaintiffs to settle within its $500,000 policy limits, the case went to trial. A jury awarded the plaintiffs $700,000. Sequoia paid the judgment in full.
We review the district court's grant of summary judgment de novo, examining the record and making all factual inferences in favor of Royal, as the nonmoving party, to determine whether a genuine issue of material fact exists or whether Sequoia, as the moving party, is entitled to judgment as a matter of law. See State Farm Mut. Auto. Ins. Co. v. Khoe, 884 F.2d 401, 404 (9th Cir.1989). This is a diversity case arising in California, and California law applies. Allstate Ins. Co. v. Smith, 929 F.2d 447, 449 (9th Cir.1991).
Royal's policy provided primary insurance on Brock's Winnebago RV. The threshold dispute in this case is whether it also provided insurance on an excess basis for Brock's operation of certain vehicles he did not own under the policy's "Individual Named Insured" endorsement. The parties agree that this endorsement provides coverage only if a four-wheel RV like Brock's Winnebago comes within the policy's definition of "four wheel private passenger automobile." The district court concluded that an RV does come within this definition, and that therefore Royal's policy provided excess coverage for Brock's operation of the truck involved in the accident. We agree.
The pertinent portions of the policy provide:
BASIC AUTOMOBILE DECLARATIONS
* * * * * *
Description of owned automobile or trailer Winnebago 24 ft.
* * * * * *
BASIC AUTOMOTIVE LIABILITY AND PHYSICAL DAMAGE POLICY
* * * * * *
VI. Definitions
[W]hen used in this policy (including endorsements forming a part hereof):
"automobile" means a land motor vehicle, trailer, or semi-trailer designed for travel on public roads....
* * * * * *
VII. Additional Definitions
* * * * * *
"private passenger automobile" means a private passenger or station wagon type automobile and any automobile the purpose of use of which is stated in the declarations as pleasure and business.
* * * * * *
"pleasure and business" means personal, pleasure, family and business use.
* * * * * *
MOTOR COACH AMENDATORY ENDORSEMENT
* * * * * *
2. For purposes of this policy a "motor coach" shall be defined as a self-propelled land motor vehicle equipped as living quarters (including cooking, dining, plumbing or refrigeration facilities) and used principally for recreational purposes.
3. Whenever the term "automobile" appears in this policy, it shall be deemed to include the term "motor coach."
* * * * * *
INDIVIDUAL NAMED INSURED
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3. Additional Definitions
* * * * * *
"other automobile" means an automobile or a utility trailer not owned by or furnished for the regular use of either the individual named insured or any relative; but "other automobile" does not include a temporary substitute automobile;
* * * * * *
4. Family Automobile Coverage
If during the policy period the individual named insured owns a four * * * * * *
wheel private passenger automobile, farm automobile or utility automobile which is an owned automobile covered by the policy and which is maintained or used principally for purposes other than the automobile business, the insurance afforded applies subject to the foregoing provisions of this endorsement and to the following additional provisions:
B. With respect to other automobiles, the insurance afforded also applies subject to the following additional provisions:
(1) each of the following is an insured under the Coverages for bodily injury liability and property damage liability to the extent set forth below:
(a) the individual named insured,
* * * * * *
(3) this insurance with respect to other automobiles shall be excess insurance over any other valid and collectible insurance available to the insured.
* * * * * *
Complaint, Ex. A (emphasis added).
Sequoia contends that under the terms of the "Family Automobile Coverage" provision of the Individual Named Insured endorsement, Royal's policy furnished excess insurance over the limits of Sequoia's policy for Brock's operation of the Pleasant Prairie Farms truck. The truck which Brock was driving at the time of the accident was not owned or furnished for his regular use, and was not a temporary substitute automobile. It therefore qualifies under the policy as an "other automobile." For the insured's operation of "other automobiles" to be covered, however, a further condition must be met: the insured must own a four-wheel private passenger automobile which is covered by the policy. The only vehicle covered by the policy is Brock's four-wheel, 24-foot Winnebago RV, which the policy refers to as a "motor coach." Royal contends that the condition precedent to coverage is not met because a "motor coach" is not a "private passenger automobile."
In interpreting an insurance policy, we are guided by its plain language as it would be understood by a layperson. See Horace Mann Ins. Co. v. Analisa N., 214 Cal.App.3d 850, 263 Cal.Rptr. 61, 63 (1989). We find the policy's plain language dispositive here. The policy provides that the term "automobile," wherever used, includes the term "motor coach." It further defines "a private passenger automobile" as "any automobile [for which] the purpose of use ... is ... pleasure and business." "Pleasure and business" are defined in turn as "personal, pleasure, family and business use." Complaint, Ex. A (emphasis added). Because it is an automobile, if a motor coach is used for these purposes, the coverage applies.
The policy defines "motor coach" as a "vehicle equipped as living quarters ... and used principally for recreational purposes." Id. Royal argues that "personal, pleasure, family and business use" has a meaning under the policy different from "equipped as living quarters and used principally for recreational purposes," and therefore "motor coach" is a vehicle classification different from "private passenger automobile." We disagree. We find nothing inconsistent between an automobile whose principal use is recreational and one whose use is for pleasure. In fact, recreational use is generally tantamount to use for pleasure.
Even if there is some question as to the similarity in meaning of these terms, such doubts are resolved by Noah...
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