United States District Court,E.D. California.

LINCOLN GENERAL INSURANCE CO., Plaintiff,

v.

GATEWAY SECURITY SERVICES, INC., et al., Defendants.

No. 1:06-cv-01143 OWW SMS.

Sept. 30, 2008.

FINDINGS OF FACT AND CONCLUSIONS OF LAW

OLIVER W. WANGER, District Judge.

This case came before the court for trial on March 4, 2008 in Courtroom 3, the Hon. Oliver W. Wanger presiding, sitting without a jury by stipulation. This case was submitted on trial briefs, exhibits and stipulated facts. On March 4, 2008, the parties presented oral arguments. Pursuant to Fed.R.Civ.P. 51, the parties submitted proposed Findings of Fact and Conclusions of Law.

Plaintiff Lincoln General Insurance Co. (“LGIC” or “Lincoln General”) was represented by Andrew R. Shalauta, Esq. Defendants Gateway Security Services, Inc. dba Hughes Towing and Auto Wrecking (“Gateway”), Debrah Hughes, and Donald Hughes were represented by James H. Wilkins, Esq. Defendants Ramon Devine and Lucinda Devine were represented by Todd Reeves, Esq.

The following findings of fact and conclusions of law are entered pursuant to Fed.R.Civ.P. 52(a). To the extent that any finding of fact can be interpreted as a conclusion of law and vice versa, it shall be treated as such.

BACKGROUND

This is a declaratory relief action brought by Plaintiff Lincoln General Insurance Co. (“LGIC” or “Lincoln General”) concerning its duty to indemnify the claims alleged in an underlying state court personal injury action, Devine v. Hughes, Kings County Superior Court, Case No. 06C0015 (“Underlying Action”). The underlying action alleges that, on July 18, 2005, Mr. Ramon Devine (“Devine”) suffered injuries in a motor vehicle accident caused by Debrah Hughes during the course of her employment for Gateway Security Services, Inc. Also named as defendants in the underlying action are Debrah Hughes and Donald Hughes, co-owners and employees of Gateway, which does business as Hughes Towing.

At the time of the accident, Mrs. Hughes was commuting to work in her personal vehicle, a Cadillac. At the time, Gateway’s vehicles were insured by Lincoln General under a business auto insurance policy which extended coverage by way of endorsement to employees using autos not owned by Gateway in Gateway’s “business or personal affairs.” Lincoln General seeks a declaration that it has no duty to indemnify Gateway or Mrs. Hughes in the underlying action on the ground that the policy does not cover Mrs. Hughes’s use of her personal vehicle during her commute to and from work.

On August 28, 2006, Lincoln General filed this lawsuit alleging both a declaratory relief claim, with respect to its duty to defend and indemnify Gateway, and a rescission claim on grounds that Defendants made misrepresentations in the insurance applications. On January 17, 2008, Lincoln General stipulated to dismissal with prejudice of its claim for rescission, with each party to bear its own costs. At the same time, Lincoln General withdrew its claim that it had no duty to defend Gateway against the claims asserted in the underlying action. The sole issue remaining for determination is whether, under Lincoln General’s policy, it has any duty to indemnify Gateway or Mrs. Hughes for the claims asserted in the underlying action.

FINDINGS OF FACT

1. On January 26, 2006, Ramon Devine and Lucinda Devine (“Underlying Plaintiffs”) filed suit against Debrah Hughes, Donald Hughes, Gateway Security Services, Inc., dba Hughes Towing & Auto Wrecking, Corcoran Auto Dismantling, and Hughes Auto Wrecking and Towing, Inc., in the action entitled Devine et al. v. Hughes, et al., Kings County Superior Court, Case No. 06C0015 (“Underlying Action”).

2. The complaint in the Underlying Action alleges that Ramon Devine, on July 18, 2005, suffered injuries as the result of a motor vehicle accident caused by Defendant Debrah Hughes during the course of her employment with Gateway (“Underlying Action Complaint”).

3. Lincoln General issued Business Auto Coverage Policy No. LTP101263-02 effective May 11, 2005, to May 11, 2006, to named insured Gateway Security Services, Inc. dba Hughes Towing & Auto Wrecking (“Gateway”). This policy is referred to as the “Lincoln General Policy.” The written terms of this policy of insurance are not disputed, except as to the meaning and application of the Employees as Insureds endorsement.

4. The Underlying Action Complaint was tendered to Lincoln General under the Lincoln General Policy.

5. The parties agree that Lincoln General accepted defense for the named insured Gateway in the underlying action under reservation of rights. Lincoln General appointed defense counsel, Terry Cassidy (of Porter, Scott, Weiberg & Delehant), who defended the named insured and participated with the insured corporation owner’s personal auto carrier, GMAC Insurance Company, in providing Gateway with a defense under reservation of rights.

6. The Underlying Action was resolved by a stipulated judgment, wherein the underlying Plaintiffs and Defendants agreed to a judgment of $1.1 million, and the underlying Plaintiffs (Devines) agreed not to execute on the judgment until all of the claims and issues raised in this action have been finally adjudicated, through all available appeals.

7. Liability coverage was furnished to Gateway under Business Auto Coverage Form CA 0001 (edition 10/01), which provides a combined single liability limit of $1 million in connection with “Covered Autos” as designated on the policy declarations.

8. Liability coverage is furnished for “Covered Autos” under “Symbols 7, 8, and 9,” which provide coverage, respectively, for “Specifically Described Autos,” “Hired Autos,” and “Non-Owned Autos” while used in the named insured’s business.

9. The Lincoln General Policy provides insurance coverage, in part, as follows:

SECTION I-COVERED AUTOS

Item Two of the Declarations shows the “autos” that are covered “autos” for each of your coverages. The following numerical symbols describe the “autos” that may be covered “autos”. The symbols entered next to a coverage on the Declarations designate the only “autos” that are covered “autos”.

A. Description of Covered Auto Designation Symbols

* * *

[Symbol 9]     Nonowed “Autos” Only         Only those “autos” you do not own, lease, hire, rent or borrow that are used in connection with your business. This includes “autos” owned by your “employees”, partners (if you are a partnership), members (if you are a limited liability company), or members of their households but only while used in your business or your personal affairs.

SECTION II-LIABILITY COVERAGE

A. Coverage

We will pay all sums an “insured” legally must pay as damages because of “bodily injury” or “property damage” to which this insurance applies, caused by an “accident” and resulting from the ownership, maintenance or use of a covered “auto”.

* * *

SECTION V-DEFINITIONS

* * *

B. “Auto” means a land motor vehicle, “trailer” or semitrailer designed for travel on public roads but does not include “mobile equipment”.

* * *

F. “Employee” includes a “leased worker”. “Employee” does not include a “temporary worker”.

G. “Insured” means any person or organization qualifying as an insured in the Who Is An Insured provision of the applicable coverage. Except with respect to Limit of Insurance, the coverage afforded applies separately to each insured who is seeking coverage or against whom a claim or “suit” is brought.

* * *

J. “Loss” means direct and accidental loss or damage.

* * *

(Doc. 102, Exhibit D at LGI0020-29.)

10. The following endorsement is part of the policy and modifies the “Who Is An Insured” provision:

THIS ENDORSEMENT CHANGES THE POLICY. PLEASE READ IT CAREFULLY.

EMPLOYEES AS INSUREDS

This endorsement modifies insurance provided under the following:

BUSINESS AUTO COVERAGE FORM

MOTOR CARRIER COVERAGE FORM

TRUCKERS COVERAGE FORM

With respect to coverage provided by this endorsement, the provisions of the Coverage Form apply unless modified by the endorsement.

The following is added to the Section II-Liability Coverage, Paragraph A.1. Who Is An Insured Provision:

Any “employee” of yours is an “insured” while using a covered “auto” you don’t own, hire or borrow in your business or your personal affairs.

(Id. at LGI0044.)

11. The Cadillac involved in the accident is not owned by the named insured nor is it a scheduled vehicle on the Lincoln General Policy.

12. On January 18, 2006, Debrah Hughes gave an Examination Under Oath (“EUO”) before a certified shorthand reporter regarding the accident that took place on July 18, 2005, appearing with her attorney, Klint James McKay.

13. Mrs. Hughes was commuting on her normal route from home to work at Gateway at the time of the underlying accident.

14. Mrs. Hughes was driving her personal vehicle to work at the time of the accident.

15. The Gateway Defendants have never scheduled any personal vehicles used by Mrs. Hughes to conduct Gateway’s outside business errands.

16. The registered owner of the Cadillac involved in the accident is Debrah Hughes or Donald Hughes, and not the named insured corporation.

17. Just before the accident, Mrs. Hughes made a brief stop at the Food King grocery store parking lot in order to take a personal call from her daughter on a cell phone.

18. Mrs. Hughes did not make any other stops between her home and the Food King parking lot.

19. Mrs. Hughes intended to drive straight to work after completing the personal call, and to not make any other stops.

20. This was Mrs. Hughes’s initial commute to work on the day of the accident.

21. The subject accident occurred as Mrs. Hughes continued on her driving commute to work after the personal call with her daughter.

22. Debrah Hughes did not make any other stops between her home and the Food King parking lot and had not intended to make any other stops before arriving at work.

23. Although Debrah Hughes was not running an errand for Gateway at the time of the accident, as was her routine during normal business hours, she was available to do so.

24. Following the accident, Mrs. Hughes drove straight to work.

25. Mrs. Hughes has no specific set hours of work but is generally at work five days a week from 11 a.m. to 4 p.m.

26. Mrs. Hughes testified that at various times, as part of her work duties, she drove her own personal car to make bank deposits, go to the Post Office, buy cleaning supplies for the business, and to get lunch for employees.

27. Five vehicles and one trailer were listed under the Lincoln General Policy at the time of the accident.

28. A service vehicle, a 1989 Toyota pick-up truck, is listed on the Schedule of Vehicles which is part of the Lincoln General Policy.

29. The Toyota pick-up serves as Gateway’s service vehicle.

30. Gateway has always maintained a service vehicle to run outside business errands.

31. The Cadillac involved in the accident was never reported to Gateway’s insurance agent, Robert Storelee.

32. The Cadillac involved in the accident was never reported to Lincoln General.

33. Mrs. Hughes has always been entitled to use the service vehicle pick-up, instead of her own personal automobile, to conduct business errands.

34. Gateway was aware that it could change vehicles and drivers on the Lincoln General Policy at any time.

35. The service vehicle pick-up truck was available to the employees to run outside business errands.

36. Bryan Burnes was responsible for obtaining insurance for Gateway.

37. Bryan Burnes, Donald Hughes and Debrah Hughes never reviewed any marketing materials for the Lincoln General Policy.

38. Gateway’s person most knowledgeable regarding Gateway’s insurance policies, Bryan Burnes, does not recall whether or not he had ever reviewed the terms of the Lincoln General Policy.

39. Donald Hughes is the Vice President and manager of Gateway. Mr. Hughes has been the sole manager for the past twenty years.

40. Gateway does not have any written guidelines, manuals or other writings which discuss the reimbursement for employees’ use of their personal vehicles.

41. Gateway does not have any written guidelines, manuals or other writings which require Mrs. Hughes to use her personal vehicle for Gateway’s business errands.

42. Gateway does not maintain any written employment agreements.

43. Mrs. Hughes and Gateway do not have any writing that sets forth the terms and conditions of her employment.

44. Mrs. Hughes performs personal banking transactions while performing bank transactions on behalf of Gateway.

45. Gateway does not maintain any written documentation which distinguishes between the time spent by Mrs. Hughes on personal banking transactions and business transactions for Gateway.

46. Donald Hughes does not know how often Mrs. Hughes makes bank deposits on behalf of Gateway.

47. Bryan Burnes, Gateway’s person most knowledgeable concerning employees’ use of personal vehicles, does not know how often Mrs. Hughes makes bank deposits for Gateway.

48. Gateway and Mrs. Hughes do not maintain any written record of how often Mrs. Hughes delivers parts, goes to the Post Office, shops for office supplies, gets lunch, or makes bank deposits, on behalf of Gateway.

49. Mrs. Hughes purchases office supplies for Gateway, and personal supplies, during the same transaction using the same Gateway credit card.

50. Mrs. Hughes performs personal errands at the Post Office while she delivers mail on behalf of Gateway.

51. Gateway and Mrs. Hughes do not maintain any written record of how much time is spent on personal errands during business errands for Gateway.

52. Gateway provides both Mrs. and Mr. Hughes with company credit cards.

53. Gateway does not provide any written guidelines, manuals or other writings restricting the use of company credit cards for personal and business transactions.

54. Gateway does not restrict Mrs. Hughes from using company credit cards for personal transactions.

55. Gateway does not provide any limits on how much Mrs. Hughes can spend on gas for personal use with the company credit card.

56. Mrs. Hughes uses the company credit card to pay for gas for her personal vehicle for personal use and business use.

57. Mrs. Hughes is allowed by Gateway to purchase personal and business items with the company credit cards.

58. Gateway and Mrs. Hughes do not maintain any sort of writing specifying what items are purchased for business or personal use on company credit cards.

59. Mr. and Mrs. Hughes do not reimburse Gateway for items purchased on the company credit cards which are for personal use.

60. Mrs. Hughes cannot distinguish in any credit card statement produced by Gateway in this action, what items pertain to personal items or business items.

61. Gateway provides Mrs. Hughes with a company cell phone.

62. Mrs. Hughes uses her cell phone for business and calls and is permitted by Gateway to do so.

63. There is no limit on how often Mrs. Hughes can use phone provided by Gateway for personal calls.

64. Mrs. Hughes has never reimbursed Gateway for personal calls.

65. Mrs. Hughes does not maintain any record of how often her cell phone for business or personal use.

66. Mr. Hughes also uses his company call phone for business and personal use. Mr. Hughes does not reimburse the company for the personal use of his cell phone. There is no limit on how often Mr. Hughes can use his cell phone for personal calls.

67. Gateway provides Mr. Burnes with a cell phone. Mr. Burnes uses his cell phone for business and personal use and has never reimbursed Gateway for personal calls.

68. Gateway also provides company cell phones to nonemployees, such as Marla Hughes, Candice Burnes, and Bryan Burnes, Jr. (Bryan Burnes’ son). None of the non-employees have ever reimbursed Gateway for their personal calls.

69. Gateway does not maintain any written guidelines, manuals or other writings which discuss employees’ use of the company cell phone.

70. Mrs. Hughes does not reimburse Gateway for maintenance associated with the use of her personal vehicles.

71. Gateway and Mrs. Hughes do not maintain any written record or log demonstrating how much is spent on the maintenance of the Hughes’ personal vehicles.

72. The Lincoln General Policy does not contain a definition of “business or personal affairs.”

73. The Gateway Defendants never asked Lincoln General whether Debrah Hughes’ use of her personal vehicle to get to and from work would or would not constitute activities in connection with the “personal affairs” of Gateway.

74. Gateway first became an insured with Lincoln General in the Spring of 2003.

75. With the assistance from R.A. Storelee Insurance Agency, and on or about April, 2003, Gateway submitted an application for towing insurance to Lincoln General, dated April 9, 2003.

76. As a result of Gateway’s April 9, 2003 application, Lincoln General issued Gateway a liability policy for the towing and auto wrecking business, Policy No. LTP101263 with an effective policy period of May 11, 2003, through May 11, 2004.

77. With the assistance from R.A. Storelee Insurance Agency, Gateway obtained a renewal liability policy from Lincoln General, for the policy periods May 11, 2004, to May 11, 2005, (Policy No. LTP101263-01) and May 11, 2005, to May 11, 2006, (Policy No. LTP101263-02) hereinafter referred to as “Renewal Policies.”

78. At no time prior to the July 18, 2005, motor vehicle accident did anyone from Lincoln General explain to Gateway that Debrah Hughes’ use of her personal vehicle to get to and from work would not constitute activities in connection with the “personal affairs” of Gateway. The subject was never discussed.

79. After being served with the underlying lawsuit, and tendering Gateway’s defense to Lincoln General, Gateway, through its counsel, received a letter dated March 28, 2006, from Lincoln General’s coverage counsel, Clark Burnham, that states:

It is very clear from the two statements that we have of Mrs. Hughes that she was not acting within the course and scope of her employment at the time of the accident and therefore the Lincoln General policy should not be called upon to indemnify the plaintiffs. The allegations of the complaint, however, clearly trigger the policy, for if the jury were to disbelieve the actual facts as set forth in Mrs. Hughes’ statement and find that she was within the course and scope of her employment, she would be deemed an insured under the Lincoln General policy.

80. As president of Gateway, in addition to running errands for the business, Debrah Hughes was the licensed dismantler and vehicle verifier for Gateway.

81. The person most knowledgeable regarding underwriting at Lincoln General was not aware of any practice of Lincoln General to provide written explanation of the term “business or personal affairs” to potential policyholders.

82. The Insurance Professionals have marketing, underwriting, binding and issuing policy authority from Lincoln General.

83. Bryan Burnes never read the Lincoln General Policy prior to purchasing it or the Renewal Policies.

84. Debrah Hughes never read the Lincoln General Policy prior to purchasing it or the Renewal Policies.

85. Donald Hughes never read the Lincoln General Policy prior to purchasing it or the Renewal Policies.

86. Lincoln General does not possess documents which discuss the phrase “business or personal affairs” as used in the Lincoln General Policy and Renewal Policies.

87. Gateway submitted no evidence that its officers or agents intended to pay for an endorsement in the Lincoln General policy to cover employees while commuting to or from work.

88. Gateway submitted no evidence that its officers or agents intended to pay or ever paid for an endorsement in the Lincoln General policy to cover Debrah Hughes while commuting to or from work.

89. Donald and Debrah Hughes never understood that “personal affairs,” as used in the Lincoln General Policy, included Debrah’s use of her personal vehicle to commute to and from work. (Doc. 102, Ex. J at 72-75; Ex. K at 105-08.)

90. Donald and Debrah Hughes never understood that “personal affairs,” as used in the Lincoln General Policy, included Debrah’s use of her personal vehicle to commute to and from work even if she also ran outside business errands for Gateway. (Doc. 102, Ex. J at 72-75; Ex. K at 105-08.)

91. Gateway never understood that “personal affairs,” as used in the policy, included Debrah’s use of her personal vehicle to commute to and from work.

92. Debrah Hughes did not perform any work duties, including any errands on behalf of Gateway, that required her to drive outside of the office on the day of the accident nor was she planning to do so.

93. Debrah Hughes did not receive compensation for travel to and from work.

94. An insured service vehicle is and was available on July 18, 2005 for employees, including Debrah Hughes, to use to conduct errands for Gateway.

95. Debrah Hughes is not required to use her personal vehicle to conduct errands for Gateway, nor was she requested to do so.

96. Debrah Hughes used her own vehicle to run errands for Gateway because she found it more comfortable and convenient.

97. Gateway does not reimburse or otherwise pay expenses to Debrah Hughes for the use of her personal vehicle to run errands for Gateway.

98. Donald and Debrah Hughes had no knowledge of the Employees As Insureds endorsement prior to this lawsuit. (Doc. 102, Ex. J at 72-73; Ex. K at 105.)

99. Donald and Debrah Hughes were not aware of the “business or personal affairs” language in the Lincoln General Policy prior to this lawsuit. (Doc. 102, Ex. J at 73-74; Ex. K at 105.)

100. Neither Donald Hughes, Debrah Hughes or Bryan Burnes discussed between or among themselves insurance coverage for the use of personal vehicles in relation to obtaining the Lincoln General Policy prior to purchasing it. (Doc. 102, Ex. J at 72; Ex. K at 106-08; Ex. L at 65.)

101. Neither Donald Hughes, Debrah Hughes or Bryan Burnes discussed between or amongst themselves insurance coverage for commuting in personal vehicles under the Lincoln General Policy prior to purchasing it. (Doc. 102, Ex. J at 72; Ex. K at 106-08; Ex. L at 65.)

102. Neither Donald Hughes, Debrah Hughes or Bryan Burnes discussed insurance coverage for commuting in personal vehicles with insurance agent Robert Storelee. (Doc. 102, Ex. J at 75; Ex. K at 108; Ex. L at 64-65.)

103. Neither Donald Hughes, Debrah Hughes or Bryan Burnes expected Gateway’s business auto policy would cover accidents that occur while commuting to and from work in personal vehicles.

CONCLUSIONS OF LAW

A. Principles of Insurance Contract Interpretation Under California Law

1. “[T]he mutual intention of the parties at the time the contract is formed governs [contract] interpretation.”  MacKinnon v. Truck Ins. Exch., 31 Cal.4th 635, 647-48, 3 Cal.Rptr.3d 228, 73 P.3d 1205 (2003) (citing Cal. Civ.Code, § 1636).

2. If possible, the mutual intent of the parties is to be “inferred … solely from the written provisions of the contract.”  MacKinnon, 31 Cal.4th at 647, 3 Cal.Rptr.3d 228, 73 P.3d 1205 (citing Cal. Civ.Code, § 1639). If an examination of contractual language reveals a “clear and explicit” meaning, this meaning controls. Id. at 647-48, 3 Cal.Rptr.3d 228, 73 P.3d 1205.

3. A court must interpret contractual language in its “ordinary and popular sense,” unless terms are “used by the parties in a technical sense or a special meaning is given to them by usage.”Id. (citing Cal. Civ.Code, §§ 1638 and 1644). A court must “attempt to put itself in the position of a layperson and understand how he or she might reasonably interpret the [ ] language .”  Id. at 649, 3 Cal.Rptr.3d 228, 73 P.3d 1205.

4. An insurance policy provision will be considered ambiguous, and therefore without a “clear and explicit meaning,” when it is “capable of two or more constructions, both of which are reasonable .”  Id. at 648, 3 Cal.Rptr.3d 228, 73 P.3d 1205. But, “language in a contract must be interpreted as a whole, and in the circumstances of the case, and cannot be found to be ambiguous in the abstract.”Id.; Waller v. Truck Ins. Exch., Inc., 11 Cal.4th 1, 18, 44 Cal.Rptr.2d 370, 900 P.2d 619 (1995).

5. The lack of a policy definition does not necessarily render a term ambiguous. Foster-Gardner, Inc. v. National Union Fire Ins. Co., 18 Cal.4th 857, 868, 77 Cal.Rptr.2d 107, 959 P.2d 265 (1998).

6. It is appropriate to consider extrinsic evidence for the purpose of determining whether an ambiguity exists, Pac. Gas & Elec. Co. v. G.W. Thomas Drayage & Rigging Co., Inc., 69 Cal.2d 33, 39-41, 69 Cal.Rptr. 561, 442 P.2d 641 (1968), or to show that the parties attached a special meaning to certain terms, ACL Tech., Inc. v. Northbrook Prop. & Cas. Ins. Co., 17 Cal.App.4th 1773, 1793-94, 22 Cal.Rptr.2d 206 (1993).

7. If a provision has no “clear and explicit meaning,” ambiguity is “resolved by interpreting the ambiguous provisions in the sense the insurer believed the insured understood them at the time of formation.”  E.M.M.I. Inc. v. Zurich Am. Ins. Co., 32 Cal.4th 465, 470, 9 Cal.Rptr.3d 701, 84 P.3d 385 (2004). A court may consider extrinsic evidence to aid in the interpretation of an ambiguous provision. Kavruck v. Blue Cross of Cal., 108 Cal.App.4th 773, 782, 134 Cal.Rptr.2d 152 (2003).

8. If application of the first two rules still does not eliminate the ambiguity, “ambiguous language is construed against the party who caused the uncertainty to exist.”  E.M.M.I., 32 Cal.4th at 470, 9 Cal.Rptr.3d 701, 84 P.3d 385. This third “contra-insurer rule” as applied to an insurance policy “protects not the subjective beliefs of the insurer but, rather, the objectively reasonable expectations of the insured.”  Id. at 470-71, 9 Cal.Rptr.3d 701, 84 P.3d 385. At this stage, “[a]ny ambiguous terms are resolved in the insureds’ favor, consistent with the insureds’ reasonable expectations.”  Id. at 471, 9 Cal.Rptr.3d 701, 84 P.3d 385.

B. Prior Adjudications.

9. On October 27, 2007, Lincoln General’s Motion for Summary Judgment on its declaratory relief claim was denied. It was determined that the disputed provision of the Lincoln General policy-“the business or personal affairs” of Gateway-is ambiguous as it is susceptible to two or more reasonable constructions.

10. “The proper question is whether the provision or word is ambiguous in the context of this policy and the circumstances of this case. The provision will shift between clarity and ambiguity with changes in the event at hand.”  E.M.M.I., 32 Cal.4th at 470, 9 Cal.Rptr.3d 701, 84 P.3d 385.

11. Given that Mrs. Hughes is an owner and President of Gateway who performed business errands for the corporation as a part of her work duties, Defendants’ proposed construction that “personal affairs” of Gateway could include Mrs. Hughes’s use of her personal vehicle to commute to and from work was plausible. However, this has not been supported by the evidence at trial.

12. A court is required to give meaning to every term in the policy, Union Oil Co. v. International Ins. Co., 37 Cal.App.4th 930, 935, 44 Cal.Rptr.2d 4 (1995), and the phrase “personal affairs” was not defined in the policy. Although not dispositive, the lack of definition in a policy is evidence of ambiguity. Bay Cities Paving & Grading, Inc. v. Lawyers’ Mut. Ins. Co., 5 Cal.4th 854, 866-67, 21 Cal.Rptr.2d 691, 855 P.2d 1263 (1993).

13. The fact that this policy contains references to individual persons when the only named insured is a corporation further evidences that the provision lacks a “clear and explicit” meaning. The Order on Summary Judgment found: “The concept of ‘personal affairs’ of an entity is anomalous because an entity, although a “person” in the eyes of the law, does not engage in ‘personal activities’. This creates ambiguity.”(Doc. 75 at 33.) The phrase ‘personal affairs’ must have some meaning, as it cannot mean the same thing as ‘business affairs’ under the rules of contract interpretation.

14. While the provision at issue was found ambiguous at the summary judgment stage, the evidence regarding the expectations of the parties was insufficient and a question of fact remained. The court did not proceed to the second stage of contract interpretation and the objectively reasonable expectations of the insured were not evaluated.

C. Objectively Reasonable Expectations of Coverage.

15. An insurance policy is given a meaning consistent with the objectively reasonable expectations of coverage at the time the insurance was purchased. It is interpreted “in the sense that satisfies the insured’s objectively reasonable expectations.”  Buss v. Superior Court, 16 Cal.4th 35, 45, 65 Cal.Rptr.2d 366, 939 P.2d 766 (1997).

16. In assessing whether coverage is consistent with the objectively reasonable expectations of an insured, the court interprets the language in context, with regard to its intended function in the policy. Bank of the West v. Superior Court, 2 Cal.4th 1254, 1265, 10 Cal.Rptr.2d 538, 833 P.2d 545 (1992). This requires consideration of the policy as a whole, the circumstances of the case in which the claim arises, and common sense. Id.

17. The evidence shows that Gateway purchased this business auto policy from Lincoln General and scheduled five vehicles and one trailer. Gateway did not schedule Mrs. Hughes’s personal vehicle, a Cadillac. Gateway maintained a service vehicle, a Toyota pick-up, that was scheduled under the policy and used in the everyday activities of the business. In response to a question in the insurance application, Gateway answered “no” when asked whether employees regularly used their vehicles in Gateway’s business.

18. Mrs. Hughes was employed in the office of Gateway even though she was an officer. Mrs. Hughes had no set hours at work, but generally was at work from 11 a.m. to 4 p.m. Monday through Friday. Mrs. Hughes routinely performed errands on behalf of Gateway in her Cadillac, including picking up parts, going to the post office, purchasing supplies and other errands.

19. While Gateway contends it was expected by the corporation that Mrs. Hughes would use her personal vehicle for these errands, the evidence is contrary. Mr. Hughes, Gateway’s manager for years, testified in his deposition that Mrs. Hughes used her personal vehicle for reasons of comfort. Bryan Burnes, Gateway’s person most knowledgable, testified that Mrs. Hughes used her Cadillac by choice. Both Mr. Hughes and Mr. Burnes testified that the service vehicle was always available to Mrs. Hughes to use but that she did not choose to use it.

20. In these circumstances, it is not objectively reasonable for an insured to expect insurance coverage for her commute to and from work in her personal vehicle, five days a week Monday through Friday. Gateway argues Mrs. Hughes was expected to use her personal vehicle to perform work-related tasks during the workday and implies that the reason Mrs. Hughes drove her car to work was to have it available for such tasks. This ignores the fact that Mrs. Hughes had access to the service vehicle at all times and was not required or expected to use her own car. Any exposure she had to accident risks during her commute was not due to any business directive or expectation of Gateway but due to her own convenience and to provide a method of transportation to work.

21. Where the policy procured is a business auto policy and a corporate officer uses her personal vehicle at times for business purposes, it is not objectively reasonable to expect free insurance coverage during work hours on work days, here 11-4 p.m., including her commute to and from work, without scheduling the vehicle under the policy to assure coverage. Gateway knew that it had business auto coverage. Mrs. Hughes and Gateway knew the extent of the personal auto insurance coverage she maintained and whether it covered business use. Because all covered vehicles under the business auto policy were scheduled and Gateway knew how to schedule autos for which coverage was expected and intended, there is no reasonable explanation for the failure to insure the Cadillac.

22. Had Gateway or Mrs. Hughes desired coverage under the business auto policy for Mrs. Hughes’s use of her personal car, the Individual Named Insured endorsement would have been available to cover such use. Although neither party addresses it, this endorsement is used to cover private passenger autos under a commercial auto policy where the owner needs non-business coverage and is a sole proprietor or owner of a closely-held corporation. For the latter, the owner of the auto must be listed as a named insured in addition to the corporation. This allows the owner to obtain the equivalent of personal auto policy coverage under the commercial auto form (CA 99 17).

23. An insured cannot reasonably expect coverage for a daily commute under a business auto policy when, as here, it did not require and denied that the employee regularly used her personal auto in the business. This is an entirely inconsistent line of reasoning. A daily commute, five days a week, is a “regular use” in the business.

24. Such a coverage expectation is even less reasonable where the corporate officer has procured a personal automobile insurance policy, as did Mrs. Hughes in this case.

25. The evidence establishes that nobody in any management position at Gateway, a closely held corporation, read the policy or discussed its terms with anyone, either before or after its issuance. Mrs. Hughes, Mr. Hughes and Bryan Burnes all testified they had not read the policy. Each further testified that he or she had never seen the endorsement at issue or any of its language, including the “business or personal affairs” language.

26. None of these three individuals discussed the “business or personal affairs” language at the time of contracting with Gateway’s insurance agent, Robert Storelee, or thereafter. None of the three discussed coverage for commuting to work with Mr. Storelee in relation to obtaining the policy. The testimony establishes that none of them discussed coverage for commuting with each other or amongst themselves.

27. It is counterintuitive that Gateway or Mrs. Hughes expected business auto coverage for commuting but never communicated the need or intent to obtain such coverage to their insurance agent, Mr. Storelee, or the person responsible for obtaining insurance for Gateway, Mr. Burnes. For an expectation of coverage to be objectively reasonable, it cannot be based solely on the uncommunicated and undisclosed beliefs or intent of one person, where no other evidence exists to corroborate such assertions.

28. While the coverage determination does not depend on the subjective beliefs of the insured, they are nonetheless informative. An insured cannot reasonably expect coverage for personal commuting under a business auto policy where an individual has not read the policy, was unaware of the endorsement language at issue, and, according to the evidence, never discussed, requested or contemplated auto insurance coverage for commuting in a personal vehicle. See  Cooper Cos., Inc. v. Transcontinental Ins. Co., 31 Cal.App.4th 1094, 1109, 37 Cal.Rptr.2d 508 (1995) (“neither [the insured] nor any other insured could have held an objectively reasonable expectation that it was purchasing such coverage in the absence of specific negotiations to acquire it” and finding the Court’s interpretation “does not violate any expectation of coverage, whether reasonable or not, that Cooper actually held at the time the insurance was purchased.”); see  Wint v. Fidelity & Cas. Co. of N.Y., 9 Cal.3d 257, 265, 107 Cal.Rptr. 175, 507 P.2d 1383 (1973) (“Here, [the insured] had never seen the policy and probably did not even know of its existence, and hence cannot claim that it reasonably led him to expect to be defended.”)

29. This finding is further supported by the manner in which premiums were assessed under the policy. See  Cooper, 31 Cal.App.4th at 1108, 37 Cal.Rptr.2d 508 (examining premium structure in denying coverage because of inconsistency with reasonable expectations of insured after provision found ambiguous). The premium paid for the basic business auto liability coverage, which included in the schedule five vehicles and one trailer, was $6257. (Doc. 102, Ex. D at LGI0018.) The premium paid for the “Employees as Insureds” endorsement, which contains the “business or personal affairs” language, is listed as $365. Id. While neither party addressed the specific structuring of the premiums, it is in evidence and it is unlikely that an endorsement for business auto coverage for use of an unscheduled “non-owned” personal auto was $365.

30. Under any reasonable expectation of the insured, based on the insurance policy as drafted, there is no coverage for Mrs. Hughes’s personal Cadillac.

CONCLUSION

Defendant shall submit a form of judgment consistent with these Findings of Fact and Conclusions of Law within 5 days following date of service of these Findings of Fact and Conclusions of Law.

SO ORDERED

United States District Court,E.D. California.

GREAT WEST CASUALTY COMPANY, Plaintiff,

v.

GENERAL FIRE & CASUALTY COMPANY, Defendant.

No. 1:06-cv-01326 OWW SMS.

Sept. 30, 2008.

ORDER GRANTING DEFENDANT’S MOTION FOR SUMMARY JUDGMENT (DOC. 15), DENYING DEFENDANT’S MOTION FOR SUMMARY JUDGMENT PURSUANT TO CALIFORNIA INSURANCE CODE § 11580.9(b) (DOC. 38), AND DENYING PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT (DOC. 14)

OLIVER W. WANGER, District Judge.

I. INTRODUCTION

This case concerns an insurance coverage dispute between two insurers, Plaintiff Great West Casualty Company (“Great West”) and Defendant General Fire & Casualty Company (“GFC”), over their respective share of defense costs and indemnity payments in defending and settling claims against a mutual insured, Juan J. Mendez Cobian (“Mendez”), in an underlying state court action for wrongful death and injuries, Villalobos, et al., v. Juan Jose Mendez Cobian, et al., Fresno County Superior Court, Case No. 05CEG03445 MBS (“Underlying Action”). The underlying action involved a motor vehicle accident in which Mendez drove a Freightliner truck tractor he owned that was pulling a commercial trailer owned by OHK Transport, LLC (“OHK”) to pick up cargo at a cotton-ginning facility. The trailer was provided to Mendez under a written subhaul agreement between OHK and Mendez. OHK provides transportation services to companies that need to transport cargo and/or commodities, including Western Milling Company, LLC (“Western Milling”). On the day of the accident Mendez was driving to pick up a load of cargo for Western Milling as provided for in the subhaul agreement between Mendez and OHK. Mendez was alleged to have struck a vehicle driven by Maria Aviles and carrying three of her children as passengers, causing the death of Maria Aviles and injuries to her three children. Aviles’s survivors and the three minors brought the underlying action, naming as defendants Mendez, OHK and Western Milling.

On the day of the accident, Mendez was the named insured under a policy of commercial auto liability insurance issued by Great West. At the same time GFC had in effect a policy of liability insurance under which OHK and Western Milling, among others, were named insureds. The trailer Mendez was hauling was specifically scheduled under the GFC policy. As the operator of this trailer, Mendez also became an additional insured under the GFC policy.

Before the court for decision are three motions for summary judgment: first. Defendant’s motion for summary judgment pursuant to California Insurance Code section 11580.9(b), and second, the parties’ cross-motions for summary judgment. Defendant GFC seeks summary judgment that under California Insurance Code section 11580.9(b) it is conclusively presumed that GFC’s coverage is excess to Great West’s coverage because OHK rented or leased a motor vehicle without operator to Mendez. Plaintiff Great West moves for summary judgment on its claims for declaratory relief and equitable contribution. It seeks a declaration that the coverage limits of the GFC policy as to Mendez are $15 million, inclusive of defense costs, and seeks judgment in its favor on its equitable contribution claim and a determination that Great West is entitled to reimbursement of the approximate $1 million in defense and indemnity costs it incurred and paid on behalf of Mendez in defending and settling claims against him in the underlying action. GFC moves for summary judgment on the grounds that Mendez was an undeclared driver under the GFC policy and that the policy contains a $50,000 sub-limit for undeclared drivers. GFC seeks a declaration that, as applied to Mendez, the GFC policy provides coverage in the amount of $50,000.

II. FACTUAL BACKGROUND

A. The Parties.

Plaintiff Great West Casualty Company is incorporated in the State of Nebraska and its principal place of business is in Nebraska. It is licensed to conduct casualty insurance business in the State of California. Defendant General Fire & Casualty Company is incorporated in the State of Idaho and its principal place of business is in Idaho. It is licensed to do insurance business in the State of California.

B. The Accident.

On December 17, 2004, Juan J. Mendez Cobian was involved in a motor vehicle accident while driving a truck tractor that was hauling a trailer to pick up cargo for Western Milling. (Doc. 19, Joint Statement of Stipulated Facts In Support Of Reciprocal Motions for Summary Judgment (“JSSF”) # 5.) Mendez is an individual doing business as Mendez Trucking. (JSSF # 1.) He owned the 1996 Freightliner truck tractor that was hauling a trailer owned by OHK (“tractor-trailer”). (JSSF # 4.) At the time of the accident, Mendez was operating the tractor-trailer pursuant to a subhaul agreement between Mendez and OHK entered into on February 25, 2004. (JSSF4 & 5.) While driving Mendez collided with an automobile driven by Maria Aviles in Cantua Creek, Fresno County, resulting in the death of Aviles and serious bodily injury to her three children who were passengers in her car. (Doc. 14 at 2.)

On November 3, 2005, the survivors and minors brought an action against Mendez, OHK, and Western Milling for wrongful death and injuries arising out of the December 17, 2004 accident. See Jose Jesus Aviles Villalobos, et al., v. Juan Jose Mendez Coblan, et al., Fresno County Superior Court, action No. 05CECG03445 MBS. (JSSF # 6.) In February 2007, an agreement was reached for settlement of all the claims arising out of the accident for the total sum of $2 million. (JSSF # 16.) Under the settlement agreement, Great West paid the plaintiffs $1 million on behalf of Mendez. (JSSF # 17.) Also under the terms of the settlement, GFC paid the plaintiffs $1 million on behalf of OHK and Western Milling. (JSSF # 18.) The present action was preserved under an agreement between Mendez, OHK, Western Milling, Great West and GFC, who have otherwise released and discharged each other from all claims arising out of the accident. (JSSF # 19.)

C. The Subhaul Agreement.

Mendez and OHK entered into a written subhaul agreement on February 25, 2004. Plaintiff notes that under the agreement, “OHK was to provide to Mendez one of its licensed over-the-road commercial trailers (it apparently owned well over 100 such trailers), and to give Mendez daily instructions as to where and when to deliver cargo or commodities to destinations throughout Central California.”(Doc. 14 at 2.) Under the agreement, Mendez was designated an independent contractor. Mendez was also required to indemnify OHK for all losses arising from operations under the agreement.

D. The Great West Insurance Policy.

Great West issued a policy of commercial lines liability insurance, policy No. GWP 19641A, to Mendez, an individual doing business as Mendez Trucking. (JSSF # 7.) The Great West policy provides coverage to Mendez as a named insured with indemnity limits of $1 million per occurrence plus additional coverage for defense costs related to a covered claim. (Doc. 14 at 3.) The truck tractor Mendez owns is listed as a scheduled vehicle under the policy. (JSSF # 8.) The terms of the Great West policy are not in dispute.

Great West defended Mendez in the underlying action, expending $79,675.44. (JSSF13-14.) In partial satisfaction of the terms of the settlement. Great West paid $1 million to plaintiffs on behalf of Mendez as its named insured. (JSSF # 17.)

E. The GFC Insurance Policy.

GFC issued a multi-coverage commercial insurance policy, policy No. RM00961-03, which included commercial automobile coverage, to ten named insured business entities including OHK and Western Milling. (JSSF # 9.) OHK is a California limited liability company, as is Western Milling. (JSSF2-3.) The OHK trailer operated by Mendez at the time of the accident is scheduled as an insured vehicle under the GFC policy. (JSSF # 10.) As an operator of the OHK trailer with permission, Mendez is an additional insured under the GFC policy. (JSSF # 11; Doc. 14 at 7.)

The maximum liability coverage limits of the GFC policy are $15 million per occurrence. (Doc. 16 at 6.) The coverage limit with respect to Mendez, who was not listed in the “Declared Operators or Drivers” section of the policy, is in dispute and is the subject of this action. (JSSF11-12.)

GFC defended OHK and Western Milling in the underlying action, expending $142,644.11 in the process. (JSSF # 15.) It also paid $1 million to the plaintiffs on behalf of OHK and Western Milling in partial satisfaction of the settlement. (JSSF # 18.) GFC did not participate in the defense of Mendez in the underlying action. (JSSF # 13.) It has offered to pay $50,000 in combined defense and indemnity coverage to Great West, which it claims is the limit on Mendez’s coverage under the GFC policy. (Doc. 24 at 2.)

The GFC policy provides wide-ranging coverage, including property loss, business interruption, and legal liability. It covers over 250 vehicles, over 100 named insureds and additional insureds, and various items of real and personal property.

1. Extension of Coverage to Permissive Users: Additional Insureds Under the GFC Policy

The GFC policy at issue, policy No. RM00961-03, was in effect from October 10, 2004 to October 10, 2005. (Doc. 19, Ex. D at GFC 1 .) The Policy Declarations and Schedules make up the first 62 pages of the policy materials and the policy booklet makes up the rest of the total 120 pages. On the first page of the policy, the “Blanket Legal Liability and Defense Limit” is listed as $15 million in bold-faced type. On the second page, OHK is listed as a named insured. Coverage is extended to named insureds on page 63 of the policy materials, which is also the first page of the policy booklet, under the section “INSURED,” which appears to be in approximately 14 point font. (Doc. 19, Ex. D at GFC 63.). The next section listed, in the same font, is “ADDITIONAL INSURED” (also approximately 14 point font), and in section A under that heading, coverage is extended to “any person operating your vehicles or watercraft with your permission….” (Doc. 19, Ex. D at GFC 63.) Mendez was driving the OHK trailer at the time of the accident with OHK’s express permission, as he was acting within the scope of the subhaul agreement. The vehicles scheduled in the GFC policy are listed on pages 22 to 27 and include the OHK trailer pulled by Mendez at the time of the accident. (Doc. 19, Ex. D at GFC 22-27.) As such, section A under “ADDITIONAL INSUREDS” extends coverage to Mendez as a permissive user of a scheduled vehicle under the GFC policy. This is undisputed.

2. Liability Insuring Agreement

On page 32 of the policy booklet is the section entitled “LEGAL LIABILITY AND DEFENSE SECTION” (in approximate 14 point font) which contains the following liability insuring agreement language:

A. INSURING AGREEMENT

Subject to all the terms and conditions of this policy, we will pay your legal liability and defense costs up to the blanket legal liability and defense limit, or up to the legal liability and defense sub-limit for Covered Legal Liability and Defense Causes of Loss or from Sub-limited Legal Liability and Defense Causes of Loss-Consequential Loss or Damage that first occurs during the policy period.

(Doc. 19, Ex. D at GFC 94.)

The typeface replicated here is exactly as it appears in the policy with respect to bolding, capitalization and italics but not font size.

3. Legal Liability and Defense Sub-Limit Section

The sub-limit referred to in the preceding insuring agreement language, which GFC argues applies to Mendez, is found on the same page, further down in section E, which is titled “LEGAL LIABILITY AND DEFENSE WITHIN POLICY LIMITS.”(Doc. 19, Ex. D at GFC 94.) As number 2 listed within section E, the “LEGAL LIABILITY AND DEFENSE SUB-LIMIT” reads:

2. LEGAL LIABILITY AND DEFENSE SUB-LIMIT: Certain causes of loss, consequential loss or damages are sub-limited and have a lower limit than the blanket legal liability and defense limit.These lower limits are stated in the Policy Declarations and Schedules and are defined in Sub-limited Legal Liability and Defense Causes of Loss-Consequential Loss or Damage.Losses paid under this coverage part will reduce the available blanket legal liability and defense limit and do not represent additional limits of coverage. (Doc. 19, Ex. D at GFC 94.)

The typeface replicated here is exactly as it appears in the policy with respect to bolding, capitalization and italics but not font size.

The lower limits discussed in the section above are referenced on page 30 of the Policy and Declarations Schedule, which then does not list the lower limits but refers the reader back to pages 43 and 44 of the policy booklet for “definition and limitation” for “Vehicle Liability-Undeclared Drivers.” (Doc. 19, Ex. D at GFC 30 .) The section detailing the lower limits for permissive users of scheduled vehicles under the policy are then found at page 43 of the policy booklet, which is also page 105 in the packet of policy materials:

33. VEHICLE LIABILITY-UNDECLARED DRIVERS means all liability and defense claims arising out of the operation or use of your vehicles by undeclared operators or drivers (other than employees). The maximum liability limits available to the undeclared operators or drivers (other than employees) for the accident is as follows according to the type of vehicles involved:

a. Automobiles, pick-ups, motorcycles, and trucks not subject to Federal Department of Transportation motor carrier regulations; are limited to the statutorily required minimum coverage amount as defined by the automobile financial responsibility laws of the state where the accident occurs;

b. Trucks subject to Federal Department of Transportation motor carrier regulations are limited to the statutorily required minimum coverage amount as defined in Part 387 of the Federal Department of Transportation motor carrier regulations;

c. Snowmobiles, all terrain vehicles (ATV), golf carts, forklifts, trailers, and other mobile equipment such as construction or farm machinery that is not permanently installed, attached or in service to a building or dwelling are limited to $50,000 per accident.

These vehicle liability-undeclared drivers coverage limitations apply regardless of whether you have selected a higher liability limit than the limitations listed above.

Vehicles mean automobiles, motorcycles, trucks, trailers, forklifts, snowmobiles, all terrain vehicles (ATV), and golf carts. Vehicles also include other mobile equipment such as construction or farm machinery that is not permanently installed, attached or in service to a building or dwelling.

(Doc. 19, Ex. D at GFC 105.)

The typeface replicated here is exactly as it appears in the policy with respect to bolding, capitalization and italics but not font size.

III. STANDARD OF REVIEW

Summary judgment is warranted only “if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact.”Fed. R. Civ. Pro. 56(c); California v. Campbell, 138 F.3d 772, 780 (9th Cir.1998). Therefore, to defeat a motion for summary judgment, the non-moving party must show (1) that a genuine factual issue exists and (2) that this factual issue is material. Id. A genuine issue of fact exists when the non-moving party produces evidence on which a reasonable trier of fact could find in its favor viewing the record as a whole in light of the evidentiary burden the law places on that party. See  Triton Energy Corp. v. Square D Co., 68 F.3d 1216, 1221 (9th Cir.1995); see also  Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252-56, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). The evidence must be viewed in a light most favorable to the nonmoving party. Indiana Lumbermens Mut. Ins. Co. v. West Oregon Wood Products, Inc., 268 F.3d 639, 644 (9th Cir.2001), amended by2001 WL 1490998 (9th Cir.2001). Facts are “material” if they “might affect the outcome of the suit under the governing law.”  Campbell, 138 F.3d at 782 (quoting Liberty Lobby, Inc., 477 U.S. at 248).

The moving party bears the initial burden of demonstrating the absence of a genuine issue of fact. Devereaux v. Abbey, 263 F.3d 1070, 1076 (9th Cir.2001). If the moving party fails to meet this burden, “the nonmoving party has no obligation to produce anything, even if the nonmoving party would have the ultimate burden of persuasion at trial.”  Nissan Fire & Marine Ins. Co., Ltd. v. Fritz Cos., Inc., 210 F.3d 1099, 1102-03 (9th Cir.2000). However, if the nonmoving party has the burden of proof at trial, the moving party must only show “that there is an absence of evidence to support the nonmoving party’s case.”  Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Once the moving party has met its burden of proof, the non-moving party must produce evidence on which a reasonable trier of fact could find in its favor viewing the record as a whole in light of the evidentiary burden the law places on that party. Triton Energy Corp., 68 F.3d at 1221. The nonmoving party cannot simply rest on its allegations without any significant probative evidence tending to support the complaint. Devereaux, 263 F.3d at 1076.

[T]he plain language of Rule 56(c) mandates the entry of summary judgment, after adequate time for discovery and upon motion, against a party who fails to make a showing sufficient to establish the existence of an element essential to the party’s case, and on which that party will bear the burden of proof at trial. In such a situation, there can be “no genuine issue as to any material fact,” since a complete failure of proof concerning an essential element of the nonmoving party’s case necessarily renders all other facts immaterial.

Celotex Corp., 477 U.S. at 322-23.

“In order to show that a genuine issue of material fact exists, the nonmoving party must introduce some ‘significant probative evidence tending to support the complaint.’ “ Rivera v. AMTRAK, 331 F.3d 1074, 1078 (9th Cir.2003) (quoting Liberty Lobby, Inc., 477 U.S. at 249). If the moving party can meet his burden of production, the non-moving party “must produce evidence in response….[H]e cannot defeat summary judgment with allegations in the complaint, or with unsupported conjecture or conclusory statements.”   Hernandez v. Spacelabs Med., Inc., 343 F.3d 1107, 1112 (9th Cir.2003). “Conclusory allegations unsupported by factual data cannot defeat summary judgment.” Rivera, 331 F.3d at 1078 (citing Arpin v. Santa Clara Valley Transp. Agency, 261 F.3d 912, 922 (9th Cir.2001)).

IV. DISCUSSION

A. GFC’S MOTION FOR SUMMARY JUDGMENT PURSUANT TO CALIFORNIA INSURANCE CODE § 11580.9(b)

Defendant GFC moves for summary judgment on grounds that, under California Insurance Code section 11580.9(b), GFC’s coverage is excess to Great West’s coverage because OHK rented or leased a motor vehicle without operator to Mendez and section 11580.9(b) conclusively presumes that a policy covering such a renter or lessor is excess over any other insurance applicable to the same loss. (Doc. 38.) Plaintiff Great West opposes, contending that section 11580.9(b) is inapplicable because OHK neither leased nor rented its trailer to Mendez or, at minimum, a triable issue of fact remains as to whether a lease or rental existed.

Since the accident, section 11580.9(b) has been amended. At the time of the accident on December 17, 2004, the prior version of section 11580.9(b) provided:

Where two or more policies apply to the same loss, and one policy affords coverage to a named insured in the business of renting or leasing motor vehicles without operators, it shall be conclusively presumed that the insurance afforded by that policy to a person other than the named insured or his or her agent or employee, shall be excess over and not concurrent with, any other valid and collectible insurance applicable to the same loss covering the person as a named insured as an additional insured under a policy with limits at least equal to the financial responsibility requirements specified in Section 16056 of the Vehicle Code. The presumption provided by this subdivision shall apply only if, at the time of the loss, the involved motor vehicle either:

(1) Qualifies as a “commercial vehicle” as that term is used in the Section 260 of the Vehicle Code;

(2) Has been leased for a term of six months or longer. (Emphasis added.)

In August 2006, the California Legislature amended section 11580.9(b), effective January 1, 2007, to read:

Where two or more policies apply to the same loss, and one policy affords coverage to a named insured who in the course of his or her business rents or leases motor vehicles without operators, it shall be conclusively presumed that the insurance afforded by that policy to a person other than the named insured or his or her agent or employee, shall be excess over and not concurrent with, any other valid and collectible insurance applicable to the same loss covering the person as a named insured or as an additional insured … (Emphasis added.)

Prior to the amendment, there was a split of authority in California appellate courts as to how to determine whether an insured is “engaged in the business of renting or leasing motor vehicles without operators” under section 11580.9(b). As the Ninth Circuit noted in certifying the question to the California Supreme Court on the interpretation of section 11580.9(b), California’s second appellate district looked at the insured’s primary business purpose to determine whether or not it is “engaged in the business of” leasing motor vehicles while the first and fifth appellate districts examined the specific transaction at issue. Sentry Select Insurance Co. v. Fidelity & Guaranty, 455 F.3d 956, 957 (9th Cir.2006).

Citing Progressive Casualty Insurance Co. v. Peerless Insurance Co., 2007 WL763229 (E.D.Cal.2007), GFC contends that amended section 11580.9(b) applies retroactively to the loss at issue because the amendment was a clarification of the statute’s prior wording. “A statute that merely clarifies, rather than changes, existing law is properly applied to transactions predating its amendment.”  Carter v. Calif. Dept. Of Veterans Affairs, 38 Cal.4th 914, 922, 44 Cal.Rptr.3d 223, 135 P.3d 637 (2006). But a statute may not apply retroactively if “it substantially changes the legal consequences of past actions, or upsets expectations based in prior law.”  Carter, 38 Cal.4th at 922, 44 Cal.Rptr.3d 223, 135 P.3d 637.

In concluding that “the Legislature recognized a split in judicial interpretation, not a substantive law change, and clarified the correct interpretation” through its amendment of section 11580.9(b), the Progressive court pointed to legislative history indicating an intent to clarify the language of the code section. Specifically, the Assembly Committee on Insurance report stated the amendment was “necessary to avoid uncertainty and unnecessary litigation in these cases, and to restore legislative intent after several conflicting court decisions.”Assembly Committee on Insurance, Analysis of Assembly Bill No.1909 (2005-2006 Reg. Sess.), as introduced January 26, 2006. Further, the Assembly Committee on Insurance issued a summary statement on the amendment, explaining that it “[c]larifies that a policy covering an insured who in the course of his of her business rents or leases motor vehicles for either commercial purposes or for at least a six-month term is considered excess to other insurance policies covering the same loss.”Id.

The Progressive court analyzed the legislative history and found that the California Legislature intended to clarify section 11580.9(b) through its amendment, not to change existing law. Amended section 11580.9(b) applies retroactively because it is a clarification that does not “substantially [change] the legal consequences of past actions, or [upset] expectations based in prior law.”  Carter, 38 Cal.4th at 922, 44 Cal.Rptr.3d 223, 135 P.3d 637.

Applicability of Section 11580.9(b)

GFC argues section 11580.9(b) establishes its policy as excess because the arrangement between Mendez and OHK is properly characterized as a “rent” or “lease” within the meaning of the section. It is undisputed that the trailer supplied by OHK is a “motor vehicle without operators” as provided in section 11580.9(b). It is also undisputed that the trailer is a commercial vehicle within the meaning of California Vehicle Code § 260, was used in Mendez’s business, and was leased for six months or more.

Neither the term “rent” or “lease” is defined in section 11508.9. Under California law, the terms must be interpreted using their “plain and common sense meaning.”  Maclsaac v.  Waste Management Collection and Recycling, Inc., 134 Cal.App.4th 1076, 1083, 36 Cal.Rptr.3d 650 (2005). GFC offers the following definitions of the terms from Webster’s New World College Dictionary, 4th Edition (2005):

Lease: A contract by which one party (landlord, or lessor) gives to another (tenant, or lessee) the use and possession of lands, buildings, property, etc. for a specified time and for fixed payments.

Rent: To get the temporary use of (a car, tool, furniture, etc.) by paying a fee.

GFC contends the undisputed facts demonstrate that OHK is in the business of renting or leasing its trailers within the meaning of section 11580.9(b). It argues that under the subhaul agreement between OHK and Mendez, Mendez as subhauler contracted to pull OHK-owned trailers using his own tractor. As such, Mendez contracted to act as the operator of the tractor-trailer and was given temporary possession of the OHK trailer for the duration of the subhaul relationship. GFC further maintains that, under the terms of the subhaul agreement, Mendez paid 25 percent of the amount he received for a particular haul to OHK as a form of “rent” for the use of the trailer.

Plaintiff Great West counters that the facts demonstrate that the Mendez-OHK arrangement does not qualify as a lease or rental, or at minimum, the facts are in dispute. Plaintiff also offers a statutory definition of “hiring” which is analogous to leasing or renting personal property from California Civil Code § 1925:

Hiring is a contract by which one gives to another the temporary possession and use of property, other than money, for reward, and the latter agrees to return the same to the former at a future time.

In Entremont v. Whitsell, 13 Cal.2d 290, 89 P.2d 392 (1939), the California Supreme Court interpreted the meaning of section 1925: “The chief characteristic of a renting or a leasing is the giving up of possession to the hirer, so that the hirer and not the owner uses and controls the rented property.”See also  Rice Brothers, Inc. v. Glens Falls Indemnity Co., 121 Cal.App.2d 206, 263 P.2d 39 (1953).

Great West argues that even if Mendez had possession of the OHK trailer, which it argues was limited, Mendez was not vested with control of the trailer. First, Great West points out that the subhaul agreement does not address the providing of OHK’s trailer to Mendez but does address that Mendez will provide his own tractor. The agreement does not describe the arrangement in terms of a hiring, rental or lease. On the issue of control, Great West asserts that while Mendez was assigned a specific trailer from the OHK fleet, he was required to use other trailers at OHK’s discretion when the assigned trailer was out of service for repair or other reasons. Further, Mendez was only allowed to use the OHK trailer for transportation of product at OHK’s direction and OHK exclusively dictated pickup and delivery points of these shipments. Mendez was prohibited from using the OHK trailer to haul any other loads and was required to operate the tractor that pulled the OHK trailer himself. Mendez was not allowed to affix any signage to the OHK trailer. When he was on vacation or otherwise unavailable to haul for OHK, Mendez was expected to relinquish his assigned trailer to OHK for that period. Finally, after the accident, OHK retook possession of the trailer without notice to Mendez and without requesting or obtaining his consent.

Great West further argues that Mendez did not pay rent or otherwise compensate OHK for use of the trailer. It argues that Mendez was required to forfeit 25 percent of the payment for each haul for use of the required OHK trailer, which was arranged as an offset in the subhaul agreement. Thus, Great West argues Mendez never made any payment to OHK but merely received his compensation structured as 75 percent of the amount listed in an attachment to the subhaul agreement. This is sophistry. Mendez paid 25 percent of his hauling fees to OHK to use its trailer

GFC disputes Great West’s application of Entremont, arguing that the limitations OHK imposed on Mendez’s use of the trailer do not alter the nature of the arrangement as a lease or rental. Specifically, GFC argues that Great West’s position requires the lessor be “given full flexibility as to the use of the rented property.”(Doc. 47 at 4.) GFC asserts that “[i]t is a matter of common knowledge that [lessors] of property, whether it be real property or cars, often place parameters as to the [lessee’s] use of the property.”  (Id. at 5, 89 P.2d 392.)

This argument fails to address the Entremont court’s explanation that “giving up of possession to the hirer” requires “that the hirer not the owner uses and controls the rented property.”  13 Cal.2d at 295, 89 P.2d 392(emphasis added.) Great West lists a number of facts that tend to show that OHK was heavily involved in controlling the use of the OHK trailers. GFC does not dispute these facts or provide additional facts that would demonstrate that it was Mendez who exercised control over the OHK trailer. Moreover, GFC cites no caselaw that would support its position that OHK’s direction of Mendez’s use of the trailer is simply a common parameter placed on the lessee’s use of the property that does not constitute “control” of the property by the owner in the manner described in Entremont.

Because the nature of Mendez’s use of OHK’s trailer is factually and legally disputed, it cannot be determined as a matter of law that the agreement was a lease. GFC’s motion for summary judgment pursuant to California Insurance Code § 11580.9 is DENIED.

B. CROSS-MOTIONS FOR SUMMARY JUDGMENT: PLAINTIFF SEEKS A DECLARATION THAT THE GFC POLICY LIMIT AS APPLIED TO MENDEZ IS $15 MILLION; DEFENDANT SEEKS A DECLARATION THAT THE GFC POLICY LIMIT AS TO MENDEZ IS $50,000

Plaintiff Great West moves for summary judgment on its claims for declaratory relief and equitable contribution. (Doc. 14.) It seeks a declaration that the coverage limits of the GFC policy as to Mendez are $15 million, inclusive of defense costs. Plaintiff also seeks judgment in its favor on its equitable contribution claim, requesting a judicial determination that Great West is entitled to reimbursement of the approximate $1 million in defense and indemnity costs it incurred and paid on behalf of Mendez in defending and settling claims against him in the underlying action and a declaration that it owes no further indemnity or contribution to GFC.

Defendant GFC moves for summary judgment on the grounds that Mendez was an undeclared driver under the GFC policy and that the policy contains a $50,000 sub-limit for undeclared drivers. (Doc. 15.) It seeks a declaration that, as applied to Mendez, the GFC policy provides coverage in the amount of this $50,000 sub-limit.

Plaintiff Great West contends that GFC’s attempt to limit coverage to Mendez fails to meet the “conspicuous, plain and clear” standard under California law that applies to provisions in insurance policies that attempt to reduce coverage. As such, Plaintiff argues the coverage limit as applied to Mendez is $15 million and that, according to rules of contribution, it should recover much of the amount it paid on behalf of Mendez.

Defendant argues the policy language covering undeclared drivers that allows for a coverage limit of $50,000 is conspicuous within the GFC policy. It further argue the language is plain and clear and, as such, is enforceable.

1. General Principles of California Insurance Law Regarding Policy Interpretation

Under California law, an insurance company must defend its insured against a suit that seeks damages potentially within the coverage of its policy. Gray v. Zurich Ins. Co., 65 Cal.2d 263, 275, 54 Cal.Rptr. 104, 419 P.2d 168 (1966); Montrose Chem. Corp. v. Superior Court, 6 Cal.4th 287, 295, 24 Cal.Rptr.2d 467, 861 P.2d 1153 (1993). In determining whether a duty to defend is owed, the insurer must look to the facts of the complaint and extrinsic evidence, if available, to determine whether there is a potential for coverage. Waller v. Truck Ins. Exchange, Inc., 11 Cal.4th 1, 19, 44 Cal.Rptr.2d 370, 900 P.2d 619 (1995). Where extrinsic facts show there is no potential for coverage, the insurer has no duty to defend the action as a matter of law. Reagan’s Vacuum Truck Service Inc. v. Beaver Ins. Co., 31 Cal.App.4th 375, 384, 37 Cal.Rptr.2d 89 (1994). To establish it has no duty to defend, a carrier is entitled to rely not only on the facts alleged in the complaint, but also extrinsic facts it learns which establish the absence of coverage. Montrose Chem., 6 Cal.4th at 296-297, 300-301, 24 Cal.Rptr.2d 467, 861 P.2d 1153.

[W]here the extrinsic facts eliminate the potential for coverage, the insurer may decline to defend even when the bare allegations of the complaint suggest potential liability.

Waller, 11 Cal.4th at 19, 44 Cal.Rptr.2d 370, 900 P.2d 619.

In California, the interpretation of an insurance policy follows a well-established set of rules. As a general matter, “the mutual intention of the parties at the time the contract is formed governs [contract] interpretation.”  MacKinnon v. Truck Ins. Exch., 31 Cal.4th 635, 647-48, 3 Cal.Rptr.3d 228, 73 P.3d 1205 (2003) (citing Cal. Civ.Code, § 1636). To discern the mutual intent of the parties, a court should apply the following rules, in sequence. See generally, Croskey, et al., Cal. Prac. Guide: Insurance Litigation, Ch. 4-A (The Rutter Group 2005).

Rule 1: The Plain Meaning.If possible, the mutual intent of the parties is to be “inferred … solely from the written provisions of the contract.”  MacKinnon, 31 Cal.4th at 647, 3 Cal.Rptr.3d 228, 73 P.3d 1205 (citing Cal. Civ.Code § 1638). If an examination of contractual language reveals a “clear and explicit” meaning, this meaning controls. Id. at 647, 3 Cal.Rptr.3d 228, 73 P.3d 1205. A court must interpret contractual language in its “ordinary and popular sense,” unless terms are “used by the parties in a technical sense or a special meaning is given to them by usage.”Id. (citing Cal. Civ.Code § 1638; 1644). A court must, “attempt to put itself in the position of a layperson and understand how he or she might reasonably interpret the [ ] language.”Id.

A policy provision will be considered ambiguous, and therefore without a “clear and explicit meaning,” when it is “capable of two or more constructions, both of which are reasonable.”Id. But, “language in a contract must be interpreted as a whole, and in the circumstances of the case, and cannot be found to be ambiguous in the abstract.”Id.; Waller v. Truck Ins. Exch. Inc., 11 Cal.4th 1, 19, 44 Cal.Rptr.2d 370, 900 P.2d 619 (1995). The lack of a policy definition does not necessarily render a term ambiguous. Foster-Gardner, Inc. v. National Union Fire Ins. Co., 18 Cal.4th 857, 868, 77 Cal.Rptr.2d 107, 959 P.2d 265 (1998). It is appropriate to consider extrinsic evidence for the purpose of determining whether an ambiguity exists, Pac. Gas & Elec. Co. v. G .W. Thomas Drayage & Rigging Co., 69 Cal.2d 33, 37, 69 Cal.Rptr. 561, 442 P.2d 641 (1968), or to show that the parties attached a special meaning to certain terms, ACL Tech., Inc. v. Northbrook Prop. & Cas. Ins. Co., 17 Cal.App.4th 1773, 1794, 22 Cal.Rptr.2d 206 (1993).

Rule 2: The Insured’s Objectively Reasonable Expectations.If a provision has no “clear and explicit meaning,” ambiguity is “resolved by interpreting the ambiguous provisions in the sense the insurer believed the insured understood them at the time of formation.”  E.M.M.I., Inc. v. Zurich Am. Ins. Co., 32 Cal.4th 465, 470, 9 Cal.Rptr.3d 701, 84 P.3d 385 (2004).

Rule 3: The Contra-Insurer Rule.If application of the first two rules still does not eliminate the ambiguity, “ambiguous language is construed against the party who caused the uncertainty to exist.”  E.M.M.I., 32 Cal.4th at 470, 9 Cal.Rptr.3d 701, 84 P.3d 385. This third “contra-insurer rule” as applied to an insurance policy, “protects not the subjective beliefs of the insurer but, rather, the objectively reasonable expectations of the insured.”  Id. at 470-71, 9 Cal.Rptr.3d 701, 84 P.3d 385. At this stage, “any ambiguous terms are resolved in the insured’s favor, consistent with the insured’s reasonable expectations.”  Id. at 471, 9 Cal.Rptr.3d 701, 84 P.3d 385.

Rule 4: Exclusions Must be Conspicuous, Plain and Clear

The law requires that an exclusionary clause in an insurance policy be conspicuous, plain and clear. E.M.M.I. v. Zurich Amer. Ins. Co., 32 Cal.4th 465, 9 Cal.Rptr.3d 701, 84 P.3d 385, 471 (2004); MacKinnon v. Truck Ins. Co., 31 Cal.4th 635, 3 Cal.Rptr.3d 228, 73 P.3d 1205, 1213 (2003). This is especially true when the coverage portion of the policy would lead an insured to “reasonably expect coverage” for the claim purportedly excluded. MacKinnon, 3 Cal.Rptr.3d 228, 73 P.3d at 1213;E.M.M.I., 84 P.3d at 471. Further, the burden rests upon the insurer to phrase such provisions in “clear and unmistakable language.”  Id.

2. Is the Permissive User Limitation Conspicuous?

Great West contends that the permissive user limitation in the GFC policy is not conspicuous, arguing “buried at the bottom of the one-hundred-and-fifth page of its 120-page policy package, is small-print, inconspicuous and opaque language….” (Doc. 14 at 3.) Great West points to both the length of the policy and the placement of the permissive user limitation for support, asserting “[t]he supposed coverage restriction is literally over one-hundred densely written (in 9-point print) pages away from the place on the face of the policy where the $15 million coverage promise is so prominently made; the restriction is tucked in after provisions that are guaranteed to lull a reader into torpor.”(Id. at 4.) Great West argues that similar efforts to restrict permissive users’ coverage have not succeeded, pointing to Thompson v. Mercury Casualty Co., 84 Cal.App.4th 90, 100 Cal.Rptr.2d 596 (2000), and Jauregui v. Mid-Century Insurance Co., 1 Cal.App.4th 1544, 3 Cal.Rptr.2d 21 (1991).

In Thompson, the California Court of Appeal held that a limitation on liability for “permissive users” of the insured’s automobile was inconspicuous because it did not appear in the “Liability” section of the policy, “where an average layperson would expect to find it.”  Thompson, 84 Cal.App.4th at 97, 100 Cal.Rptr.2d 596. There permissive users were included in the definition of insured persons on page one of the six page policy and the limitation was obliquely referred to on the first page as “Condition 23,” which was explained later on the policy’s last page. Id. On this page, “Condition 23” was listed in a miscellaneous section that contained 30 random and unrelated subsections.Id. It was “not bolded, italicized, enlarged, underlined, in different font, CAPITALIZED, boxed, set apart, or in any other way distinguished from the rest of the fine print.”Id.

The Jauregui court found a permissive user limitation inconspicuous where the definition of an insured on the first page of the policy included permissive drivers but language limiting permissive user coverage was found in the “Other Insurance” section on the second page. Jauregui, 1 Cal.App.4th at 1549-50, 3 Cal.Rptr.2d 21. There were five sections set forth in bold in the policy, including the “Other Insurance” section and sections entitled “Exclusions” and “Limits on Liability.”  Id. Ruling that the insurer did not meet its obligations “by hiding the disfavored language in an inconspicuous portion of the policy,” the court held:

The coverage limitation for permissive drivers is not contained within one of the subheadings that might alert the reader to a partial exclusion. Rather it appears within a subsection whose ordinary language would not encompass the limitation and is surrounded by language that has nothing to do with exclusions or limitations on coverage.

Jauregui, 1 Cal.App.4th at 1549-50, 3 Cal.Rptr.2d 21.

In Haynes v. Farmers Ins. Exchange, 32 Cal.4th 381 (2004), the California Supreme Court found two limitations on liability for permissive users in the same policy inconspicuous, one in the main policy and one in an endorsement. There the first page of the policy, the declarations page, listed dollar amounts for coverage limits and, two-thirds of the way down the page, a box was displayed that contained “endorsement numbers,” including one listed as “S9064.”  Id. at 384.No explanation or definition of “endorsement” was given and no information was provided as to the location or subject matter of any of the endorsements. Id. On page 7, the definition of an insured person included permissive users. Id. On page 24, “Endorsement S9064” was listed and described as a permissive user limitation, detailing the specific dollar amounts that applied. Jd. at 384-85.

In the main policy, the “Liability” section consisted of 4 subsections: “Coverage,” “Exclusions,” “Limits of Liability,” and “Other Insurance.”  Id. at 384.On page 10 of the policy, under the heading “Other Insurance,” language was included that limited permissive user coverage to the minimum limits of the financial responsibility law of the state. Id. In finding this language inconspicuous, the Haynes court noted that the heading “Other Insurance” did not alert a reader to its contents, the permissive user coverage limit. Id. at 386, 7 Cal.Rptr.3d 828, 81 P.3d 264. Further, nothing in the section attracted attention to the limiting language. Id.

As to the endorsement, Haynes first observed that nothing on the declarations page alerted a reader to the content of endorsement S9064, nor was there any reference to coverage limits for permissive users consisting of amounts less than the specific dollar amounts displayed on the first page. Id. at 387, 7 Cal.Rptr.3d 828, 81 P.3d 264. Next it noted that within the endorsement, the limiting language was “ ‘not bolded, italicized, enlarged, underlined, in different font, capitalized, boxed, set apart, or in any other way distinguished from the rest of the fine print.’ “  Id. (citing Thompson, 84 Cal.App.4th at 97, 100 Cal.Rptr.2d 596). Moreover, the definition of the insured still “ ‘gives every indication that a permissive driver stands in the same position as the insured and receives the same coverage’ ” and the language “in endorsement S9064 remains ‘surrounded by language that has nothing to do with exclusions or limitations on coverage.’ ” Id. at 388, 100 Cal.Rptr.2d 596 (citing Jauregui, 1 Cal.App.4th at 1549-50, 3 Cal.Rptr.2d 21).

a) Extension of Coverage to Permissive Users

As in Thompson, Jauregui, and Haynes, the GFC policy lists permissive users on the same page where the insured is defined, without any language specifying that coverage limits for such users are different than those for other insured persons. Ex. D, GFC 63. The three cited cases are otherwise distinguishable. In the GFC policy, permissive users are distinctly defined as “additional insureds” in a later section following where “the insured” are defined at the top half of the page. Id. The words “[t]he following are insureds under this policy” appear at the top of page GFC 63 under the capitalized heading “THE INSURED” before a list that includes named persons in the policy declarations and schedules and their family, legal representative, employees and others. In a separate section headed “ADDITIONAL INSUREDS” at the bottom of the same page, permissive users are included as additional insureds: “The following are ADDITIONAL INSUREDS: A. Any person operating your vehicles or watercraft with your permission, but only with respect to their operation of covered vehicles or watercraft.”Thus, although perhaps a minor difference with the California cases discussed above, coverage is extended under the GFC policy to permissive users specifically as “additional insureds” in a different section and paragraph from where the original insureds are set forth.

b) Notice of the Existence of Coverage Limitation

More significant differences exist. At the outset, on the first page of the policy booklet, the insured is notified that the policy is composed of five sections, including one entitled “Legal Liability and Defense,” and is directed to pay special attention to “[w]ords or phrases in bold face italic script.”Ex. D, GFC 60 .This page begins with a notice to the insured: “Please read this Policy and the Declarations and Schedules carefully.”Id. The fourth paragraph informs the reader that the policy booklet is composed of five sections: “the Covered Property Section, the Business Income or Extra Expense Section, the Legal Liability and Defense Section, the Uninsured Risks Section, and the Common Section. Words or phrases in bold face italic script are key terms defined in that section. The meaning of these key terms remains consistent throughout each section.”Id.

The 120 page GFC policy consists of two parts: 1) the Policy Declarations and Schedules, which is presented in Exhibit D as the first 59 pages of the entire policy (GFC 1-59), and 2) the policy form or booklet, presented as 61 pages long (GFC 60-120), which appears to be a separate document as it contains a table of contents, an index, and its own internal numbering of pages 1-54 which does not include the table of contents or index.

On the second page of the policy booklet, the concept of a liability sub-limit is introduced in the Table of Contents, under the section entitled “Legal Liability and Defense” as subsection “I. Sub-Limited Legal Liability and Defense Causes of Loss-Consequential Loss or Damage,” listed as page 35. Ex. D, GFC 61. More specifically, the second and third pages of the policy booklet encompass and are entitled “Table of Contents” and set forth eight bolded, capitalized, unnumbered section headings in the following order: THE INSURER, THE INSURED, ADDITIONAL INSUREDS, COVERED PROPERTY, LOSS OF BUSINESS INCOME OR EXTRA EXPENSE, LEGAL LIABILITY AND DEFENSE, UNINSURED RISKS, COMMON POLICY TERMS AND CONDITIONS. Ex. D, GFC 61-62. The sixth bolded heading is “LEGAL LIABILITY AND DEFENSE” and this heading appears on the first page of the table of contents. Id. at GFC 61. It lists nine subsections marked A-I and appears as follows:

LEGAL LIABILITY AND DEFENSE                   32

A.       INSURING AGREEMENT  32

B.       OUR DUTY TO INVESTIGATE, DEFEND AND SETTLE          32

C.       LEGAL COUNSEL   32

D.       PRIOR WRITTEN CONSENT REQUIRED           32

E.        LEGAL LIABILITY AND DEFENSE WITHIN POLICY LIMITS          32

F.        YOUR DUTIES IN THE EVENT OF A LEGAL LIABILITY AND DEFENSE LOSS  32

G.       COVERED LEGAL LIABILITY AND DEFENSE COSTS          33

H.       COVERED LEGALLIABILITY AND DEFENSE CAUSES OF LOSS   33

I.         SUB-LIMITED LEGAL LIABILITY AND DEFENSE CAUSES OF LOSSCONSEQUENTIAL LOSS OR DAMAGE           35

On the second page of the policy booklet, the contents of the Legal Liability and Defense Section are outlined for the reader, including a subsection on sub-limits, and the corresponding page numbers are explicitly referenced.

The actual “LEGAL LIABILITY AND DEFENSE SECTION” begins on what is internally numbered as page 32 in the policy form. Ex. D, GFC 94. The first line at the top of the page, which is a heading, reads “LEGAL LIABILITY AND DEFENSE SECTION” in font size that is capitalized and bigger than that on the rest of the page. The first two subsections within this section read:

A. INSURING AGREEMENT

Subject to all the terms and conditions of this policy, we will pay your legal liability and defense costs up to the blanket legal liability and defense limit, or up to the legal liability and defense sub-limit for Covered Legal Liability and Defense Causes of Loss or from Sub-limited Legal Liability and Defense Causes of Loss-Consequential Loss or Damage that first occurs during the policy period.

Exposure to substantially the same cause or causes of loss or damage or a series of related acts or omissions shall be considered a single claim. In the event a claim relates to two or more of our policy periods, such claim shall be deemed to have originated in the earliest policy period in which the loss first occurred. If that claim is covered, all damages related to that claim shall be included in the applicable blanket legal liability and defense limit or legal liability and defense sub-limit of the earliest policy period during which the claim first began to occur.

This coverage applies to covered claims that take place anywhere in the world during the policy period. Please be aware that many foreign countries (including Mexico) do not accept or recognize any coverage (including vehicle liability coverage) issued by an insurance company not domiciled in that country. We are domiciled in the United States of America.

B. OUR DUTY TO INVESTIGATE, DEFEND AND SETTLE

We have the duty to investigate, defend or settle any covered claim or suit. Our duty to investigate, defend or settle is completed when we have paid the applicable blanket legal liability and defense limit or legal liability and defense sub-limit of insurance in investigation, attorney’s fees, settlement, defense costs, interest or payment of claims.

(Doc. 19, Ex. D at GFC 94.)

In these first two sub-sections of the “Legal Liability and Defense Section,” there are three references to the “legal liability and defense sub-limit” at issue here and all of them are in bolded, italicized type. While these references do not explain what this sub-limit is, they do describe the “blanket legal liability and defense limit” and the “legal liability and defense sub-limit” as contrasting alternatives, with section A stating: “we will pay your legal liability and defense costs up to” the blanket limit or the sub-limit. In section B, the insurer’s duty is explained as “completed when we have paid the applicable blanket legal liability and defense limit or legal liability and defense sub-limit,” also providing the two limits as two different options.

The nature of the sub-limit is explained a few lines later on the same page, in section E2:

2. LEGAL LIABILITY AND DEFENSE SUB-LIMIT: Certain causes of loss, consequential loss or damages are sub-limited and have a lower limit than the blanket legal liability and defense limit.These lower limits are stated in the Policy Declarations and Schedules and are defined in Sub-limited Legal Liability and Defense Causes of Loss-Consequential Loss or Damage.Losses paid under this coverage part will reduce the available blanket legal liability and defense limit and do not represent additional limits of coverage.

(Doc. 19, Ex. D at GFC 94.)

The existence of sub-limits is mentioned upfront in the liability section of the policy, where an insured would go to find details of coverage after having an accident that resulted in a lawsuit. The language is bolded and italicized to attract a reader’s attention and makes clear that the blanket limit is not applicable to all causes of loss. Taken as a whole, on the first page of the “Legal Liability and Defense Section,” the sub-limit is mentioned four times in bold type and a paragraph, subsection E2, is devoted to explaining it. The paragraph explicitly references “lower limits” than the blanket limit, detailing that some losses “are sub-limited and have a lower limit than the blanket legal liability and defense limit” in its first sentence. The lower limits are not specified in this section, rather, the reader is put on notice that the lower limits are detailed in two separate places: l)the Policy Declarations and Schedules, and 2) “Sub-limited Legal Liability and Defense Causes of Loss-Consequential Loss or Damage.”

c) Locating the Coverage Limitation

Accordingly, there are two alternate approaches a reader can take to find the $50,000 undeclared drivers sub-limit that GFC claims applies to Mendez. First, the reader can begin with the Policy Declarations and Schedules and locate the listing of the sub-limit for “Vehicle Liability-Undeclared Drivers” on page 30 of the declarations. Ex. D, GFC 30. To do this, because there is no table of contents to the Policy Declarations and Schedules, from page 1 a reader has to read through the first six pages listing insureds and additional insureds, to reach the “Covered Property Section” on page 7 and the “Loss of Business Income or Extra Expense Section” on page 19-because these sections do not relate to the type of loss incurred-to reach the “Legal Liability and Defense Section” on page 22. Ex. D, GFC 1-22. The first seven pages of the “Legal Liability and Defense Section” consists of listings of declared vehicles and drivers. Id. at GFC 22-28. A reader who is a permissive user would, after reading through these 7 pages, discover that a permissive user is not included on the list of declared drivers.

The reader has reached the heading of “SUB-LIMITED LEGAL LIABILITY AND DEFENSE CAUSES OF LOSS-CONSEQUENTIAL LOSS OR DAMAGE” at the top of page 29, which is bolded, capitalized and highlighted between two lines. Ex. D, GFC 29. Listed in alphabetical order, the reader can review one and a half pages to reach the bottom of page 30 to find “Vehicle Liability-Undeclared Drivers.”  Id. at GFC 30. Here the reader is referred to the pages in the policy booklet which list the undeclared driver limits by the following statement in parentheses: “See pages 43 and 44 of the policy form for definition and limitation.”Turning to these pages in the policy booklet, the reader encounters a section numbered 33 dealing with undeclared drivers:

33. VEHICLE LIABILITY-UNDECLARED DRIVERS means all liability and defense claims arising out of the operation or use of your vehicles by undeclared operators or drivers (other than employees). The maximum liability limits available to the undeclared operators or drivers (other than employees) for the accident is as follows according to the type of vehicles involved:

a. Automobiles, pick-ups, motorcycles, and trucks not subject to Federal Department of Transportation motor carrier regulations; are limited to the statutorily required minimum coverage amount as defined by the automobile financial responsibility laws of the state where the accident occurs;

b. Trucks subject to Federal Department of Transportation motor carrier regulations are limited to the statutorily required minimum coverage amount as defined in Part 387 of the Federal Department of Transportation motor carrier regulations;

c. Snowmobiles, all terrain vehicles (ATV), golf carts, forklifts, trailers, and other mobile equipment such as construction or farm machinery that is not permanently installed, attached or in service to a building or dwelling are limited to $50,000 per accident.

These vehicle liability-undeclared drivers coverage limitations apply regardless of whether you have selected a higher liability limit than the limitations listed above.

Vehicles mean automobiles, motorcycles, trucks, trailers, forklifts, snowmobiles, all terrain vehicles (ATV), and golf carts. Vehicles also include other mobile equipment such as construction or farm machinery that is not permanently installed/ attached or in service to a building or dwelling.

GFC argues section 33(c) as it appears in the policy applies to Mendez because he was hauling a “trailer” that is “limited to $50,000 per accident.”

The alternative route to reach the sub-limit section is to look for “Sub-limited Legal Liability and Defense Causes of Loss-Consequential Loss or Damage.”This listing is found in the table of contents of the policy booklet, which refers the reader to page 35, subsection I. Ex. D, GFC 61. It is also separately listed in the index of the policy booklet. Id. at 120, 7 Cal.Rptr.3d 828, 81 P.3d 264. Page 35 sets forth a list of definitions of sub-limits for 37 different causes of loss, numbered as 1-37 under section I and spanning 10 pages. Id. at GFC 97-108. The sub-limit GFC claims applies to Mendez is listed on page 43 as number 33, “Vehicle Liability-Undeclared Drivers.”  Id. at GFC 105. This requires a reader to thumb though 8 pages, from page 35 to 43 of the policy booklet, to find the relevant sub-limit.

A third way to find the undeclared drivers sub-limit is by referencing the policy booklet index. If a reader understood he was an undeclared driver, the reader finds the provision by looking under “V” in the index, where “Vehicle Liability-Undeclared Drivers” is listed and page 43 is cited as the location of this provision. Ex. D, GFC 120.

Whichever method a reader uses to find the “Vehicle Liability-Undeclared Drivers” provision on page 43, the provision is clearly highlighted to make it conspicuous. The heading “VEHICLE LIABILITY-UNDECLARED DRIVERS” is capitalized, numbered (as number 33), bolded, and italicized to distinguish it from the rest of the print on the page. This heading and the language of the provision itself are in type that is the same size as the print on the rest of the page. This provision is located in a section, “Sub-limited Legal Liability and Defense Causes of LossConsequential Loss or Damage,” that is named to reflect its content and is highlighted through capitalization, bold font, and lines drawn above and below the title of the section that emphasize it as a heading. See  National Ins. Underwriters v. Carter, 17 Cal.3d 380, 385, 131 Cal.Rptr. 42, 551 P.2d 362 (1976) (exclusion was conspicuous when located in section of policy under boldface heading, “EXCLUSIONS,” notwithstanding print was of the same size and density as the rest of the policy).

Unlike in Thompson, this disputed provision is located in the section of the policy “where an average layperson would expect to find it”-the Legal Liability and Defense Section, and within that, the subsection on sub-limits. Thompson, 84 Cal.App.4th at 97, 100 Cal.Rptr.2d 596. Similarly, the limitation here is distinguished from Jauregui because it is contained within a sub-heading that alerts the reader to an exclusion and is not “surrounded by language that has nothing to do with exclusions or limitations on coverage.”  1 Cal.App.4th at 1549-50, 3 Cal.Rptr.2d 21.

The way the limiting language is designed to attract the reader’s attention is entirely different from the language found inconspicuous in Thompson and Haynes, where none of the language at issue was “bolded, italicized, enlarged … capitalized” or otherwise set apart from the print on the rest of the page. Thompson, 84 Cal.App.4th at 97, 100 Cal.Rptr.2d 596; Haynes, 32 Cal.4th at 387, 7 Cal.Rptr.3d 828, 81 P.3d 264.

This conclusion is reinforced by the fact that Plaintiff declares the extension of coverage to permissive users in the “additional insured” section on the first page of the policy booklet “relatively accessible and easy-to-read” and also states coverage for permissive users “is explicitly and prominently promised.” (Doc. 14 at 4, 7.) Interestingly, the print used for the undeclared driver limitation on page 43 of the same booklet is the exact same size and font type as the section extending coverage to permissive users. Compare Ex. D at GFC 63 to Ex. D at GFC 105. All this contradicts Plaintiff’s argument that the coverage limitation is inconspicuous.

3. Is the Limitation Plain and Clear?

A coverage limitation is plain and clear when, from the perspective of an average layperson, it is communicated in clear and understandable language. MacKinnon, 31 Cal.4th at 649, 3 Cal.Rptr.3d 228, 73 P.3d 1205; Nat’l Auto. & Cas. Ins. Co. v. Stewart, 223 Cal.App.3d 452, 457, 272 Cal.Rptr. 625 (1990).

Great West contends that the language of the limitation is unclear, claiming “undeclared driver” is defined nowhere in the policy nor is it listed in the policy’s index. This contention is inaccurate as the “Vehicle Liability-Undeclared Drivers” provision is located under “V” in the index. Plaintiff argues that Mendez’s tractor is not a “trailer” within the meaning of section c of the “33. Vehicle Liability-Undeclared Drivers” section.

An examination of the “33. Vehicle Liability-Undeclared Drivers” provision reveals that the liability limits are listed “according to the type of vehicles involved.”Sub-section “a” deals with automobiles, pick-ups, motorcycles and trucks not subject to federal regulations, while sub-section “b” deals with trucks subject to federal regulations. Sub-section “c” deals with snowmobiles, ATVs, golf carts, forklifts, trailers and other mobile equipment not permanently attached to a building or dwelling.

The OHK trailer Mendez was hauling is listed as a trailer in the schedule of vehicles in the GFC policy and the sub-haul agreement between OHK and Mendez also references “trailers.” In the undeclared driver limit, “trailer” is among those vehicles listed in section c as “limited to $50,000 per accident.” This is clear and understandable to an average layperson. Accordingly, the undeclared driver provision is plain and clear.

4. Conclusion

For the foregoing reasons, Plaintiff’s motion for summary judgment is DENIED. Defendant’s motion for summary judgment is GRANTED.

Defendant shall submit a proposed order consistent with the above decision within 5 days of service of this order.

SO ORDERED.