Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_04-cv-04933/USCOURTS-cand-3_04-cv-04933-4/pdf.json

Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 28:1332 Diversity-Insurance Contract

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1

 Counterclaimants State Farm Mutual Automobile Insurance Company and State

Farm General Insurance Company (jointly, “State Farm”) initially filed a joinder in the

Westobys’ opposition and thereafter, on January 25, 2006, filed a notice of withdrawal of 

joinder. 

United States District Court

For the Northern District of California

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

NATIONWIDE MUTUAL INSURANCE

COMPANY,

Plaintiff,

 v.

ALEXANDER HOLTON, et al.,

Defendants /

No. C-04-4933 MMC

ORDER GRANTING NATIONWIDE’S

MOTION FOR SUMMARY JUDGMENT;

DENYING RAPHAELS’ MOTION FOR

SUMMARY JUDGMENT; VACATING

HEARING

(Docket Nos. 47, 53)

Before the Court are two motions for summary judgment: (1) the motion filed

December 14, 2005 by plaintiff Nationwide Mutual Insurance Company (“Nationwide”); and

(2) the motion filed December 15, 2005 by defendants Marie Raphael and Ray Raphael

(jointly, “the Raphaels”). With respect to Nationwide’s motion, defendants John Westoby

and Lynn Westoby (jointly, “the Westobys”) have filed an opposition, in which the Raphaels,

and defendant Alexander Holton (“Holton”), respectively, have joined;1 Nationwide has filed

a reply. With respect to the Raphaels’ motion, the Westobys and Holton separately have

filed joinders to the motion; Nationwide has filed an opposition; and the Westobys have

filed a reply, which the Raphaels and Holton have joined. Having reviewed the papers filed

Case 3:04-cv-04933-MMC Document 79 Filed 01/27/06 Page 1 of 11
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2

 Nationwide further alleges that Holton was insured under two policies issued by

State Farm. (See Compl. ¶ 12.) State Farm has agreed to pay a total of $1,100,000 to the

Westobys, and an equal amount to the Raphaels, and has filed a counterclaim against

Nationwide seeking equitable contribution. (See Counterclaim ¶¶ 9-14.)

2

in support of and in opposition to the motions, the Court finds the motions appropriate for

decision without oral argument, see Civil L.R. 7-1(b), hereby VACATES the January 27,

2006 hearing, and rules as follows.

BACKGROUND

The instant action was brought by Nationwide to establish its obligations under a

personal liability umbrella policy Nationwide issued to Nancy and John P. Dickmeyer

(“Nationwide umbrella policy” or “the policy”), with respect to a single-car automobile

accident occurring on August 29, 2003, in which Nancy Dickmeyer’s son, Holton, was the

driver and which resulted in the death of his two passengers, Jamie Westoby and Nicholas

Raphael. The Westobys are the parents of Jamie Westoby; the Raphaels are the parents

of Nicholas Raphael. The parties dispute whether Holton is an insured under the

Nationwide umbrella policy, and further dispute the applicability and enforceability of an

exclusion from coverage.

On September 9, 2004, Holton pleaded guilty to two felony counts of violating

California Penal Code § 192(c)(3), vehicular manslaughter while intoxicated but without

gross negligence. (See Nationwide’s Request for Judicial Notice Exs. D and E.) On

November 1, 2004, imposition of sentence was suspended and Holton was placed on

probation for a period of sixty months. (See id. Ex. E.)

On August 1, 2005, the Westobys filed a wrongful death action against Holton in the

California Superior Court for the City and County of San Francisco. (See id. Ex. B.) On

August 8, 2005, the Raphaels likewise filed a wrongful death action against Holton in that

court. (See id. Ex. A.) In those actions, according to Nationwide, the Westobys and the

Raphaels contend that the Nationwide umbrella policy provides liability coverage for the

deaths of Jamie Westoby and Nicholas Raphael. (See Compl. ¶¶ 25-26.)

The Nationwide umbrella policy was in effect at the time of the accident.2

 The

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3

 Additionally, Nationwide seeks a declaratory judgment as to the applicable

“retained limit” of the Nationwide umbrella policy, a claim that is not at issue in the instant

motions.

3

Nationwide umbrella policy identifies John P. Dickmeyer and Nancy Dickmeyer (jointly, “the

Dickmeyers”) as named insureds, and further provides: ““[I]nsured” means you and also . . . 

any member of your household.” (See Borovsky Decl. Ex. C (Nationwide umbrella policy)

at 10 (emphases omitted).) The policy defines “member of your household” as follows: 

“[M]ember of your household” means any person whose principal place of

residence is the same as yours and who is:

a) related to you by blood or marriage, or

b) your ward or adopted child, or

c) under the age of twenty-one and in your care.

(See id. at 11 (emphases omitted).)

The policy contains an exclusion for “bodily injury, property damage or personal

injury caused by a violation of a penal law or ordinance committed by or with the knowledge

or consent of an insured” (hereafter, “penal law exclusion”). (See id. at 13 (emphases

omitted)). 

Nationwide alleges that Holton is not an insured under the policy because his

principal place of residence at the time of the accident was not the Dickmeyers’ residence. 

(See Compl. ¶ 28.) Nationwide further alleges that even if Holton “did qualify as an insured

under the Nationwide Umbrella Policy as written, it was never the intent of the parties to

that contract to provide coverage for Alexander Holton, and it should be reformed

accordingly to reflect the parties[’] true intentions and agreement.” (See id.) Additionally,

Nationwide argues, coverage is barred by reason of the penal law exclusion. (See id.) 

Nationwide seeks a declaratory judgment that it has no obligation under the Nationwide

umbrella policy to indemnify Holton for any damages that may be assessed against him for

the deaths of Jamie Westoby and Nicholas Raphael, or to defend him against any lawsuits

seeking to hold him liable for those deaths.3 Nationwide also seeks reformation of the

Nationwide umbrella policy to exclude Holton from coverage, in accordance with the intent

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of the Dickmeyers and Nationwide. 

LEGAL STANDARD

Rule 56 of the Federal Rules of Civil Procedure provides that summary judgment as

to “all or any part” of a claim “shall be rendered forthwith 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 and that the moving party is entitled to

judgment as a matter of law.” See Fed. R. Civ. P. 56(b), (c). Material facts are those that

may affect the outcome of the case. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242,

248 (1986). A dispute as to a material fact is “genuine” if there is sufficient evidence for a

reasonable jury to return a verdict for the nonmoving party. See id. The Court may not

weigh the evidence. See id. at 255. Rather, the nonmoving party’s evidence must be

believed and “all justifiable inferences must be drawn in [the nonmovant’s] favor.” See

United Steelworkers of Am. v. Phelps Dodge Corp., 865 F.2d 1539, 1542 (9th Cir. 1989)

(en banc) (citing Liberty Lobby, 477 U.S. at 255).

The moving party bears the initial responsibility of informing the district court of the

basis for its motion and identifying those portions of the pleadings, depositions,

interrogatory answers, admissions and affidavits, if any, that it contends demonstrate the

absence of a genuine issue of material fact. See Celotex Corp. v. Catrett, 477 U.S. 317,

323 (1986). Where the nonmoving party will bear the burden of proof at trial, the moving

party’s burden is discharged when it shows the court there is an absence of evidence to

support the nonmoving party’s case. See id. at 325.

 Where the moving party “bears the burden of proof at trial, he must come forward

with evidence which would entitle him to a directed verdict if the evidence went

uncontroverted at trial.” See Houghton v. South, 965 F.2d 1532, 1536 (9th Cir. 1992)

(citations omitted); see also Fontenot v. Upjohn, 780 F.2d 1190, 1194 (5th Cir. 1986)

(holding when plaintiff moves for summary judgment on an issue upon which he bears the

burden of proof, “he must establish beyond peradventure all of the essential elements of

the claim . . . to warrant judgment in his favor.”) (emphasis in original).

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A party opposing a properly supported motion for summary judgment “may not rest

upon the mere allegations or denials of [that] party’s pleading, but . . . must set forth

specific facts showing that there is a genuine issue for trial.” See Fed. R. Civ. P. 56(e); see

also Liberty Lobby, 477 U.S. at 250. The opposing party need not show the issue will be

resolved conclusively in its favor. See Liberty Lobby, 477 U.S. at 248-49. All that is

necessary is submission of sufficient evidence to create a material factual dispute, thereby

requiring a jury or judge to resolve the parties’ differing versions at trial. See id.

DISCUSSION

Nationwide moves for summary judgment on its complaint and on the counterclaim

asserted by State Farm, on the ground the penal law exclusion bars any claim under the

Nationwide umbrella policy. The Raphaels’ motion, which, as noted, the Westobys and

Holton have joined, seeks summary judgment on the following issues: (1) that Holton is an

insured under the Nationwide umbrella policy because his principal place of residence was

the Dickmeyers’ home; (2) the policy cannot be reformed to exclude Holton from coverage;

and (3) coverage is not barred by the penal law exclusion in the Nationwide umbrella

policy. The Court will begin its analysis with the parties’ arguments with respect to the

penal law exclusion because if said exclusion bars coverage for the accident in question,

whether Holton is an insured under the policy is immaterial.

A. Penal Law Exclusion

As noted, the penal law exclusion bars coverage for “bodily injury, property damage

or personal injury caused by a violation of a penal law or ordinance committed by or with

the knowledge or consent of an insured.” (See Borovsky Decl. Ex. C at 4.) Defendants

argue that the penal law exclusion is not enforceable because it is not “conspicuous, plain

and clear,” as required by California Supreme Court case law.

The California Supreme Court has held:

[T]o be enforceable, any provision that takes away or limits coverage

reasonably expected by an insured must be conspicuous, plain and clear. 

Thus, any such limitation must be placed and printed so that it will attract the

reader’s attention. Such a provision also must be stated precisely and

understandably, in words that are part of the working vocabulary of the

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average layperson.

Haynes v. Farmers Ins. Exchange, 32 Cal. 4th 1198, 1204 (2004) (internal quotation and

citation omitted). “[C]onspicuousness, consistently with the inherent logic of that concept,

refers to how a coverage-limiting provision actually has been positioned and printed within

the policy at issue.” Id. at 1209. Additionally, even where exclusionary language is

conspicuously placed in the policy, “[t]he language itself must be plain and clear,” which

“means more than the traditional requirement that the contract terms be unambiguous”;

“[u]nderstandability is also required.” See id. at 1211 (internal quotation and citation

omitted). Where “material facts are not disputed, interpretation of the policy presents solely

a question of law.” See id. at 1204.

1. “Conspicuous”

Defendants argue that the penal law exclusion is not conspicuous because it

appears “in the middle of a list of 18 exclusions, many of which are esoteric or exotic

exclusions which would be unlikely to attract interest from the average insured,” “[n]othing

is done to distinguish the penal exclusion or to alert the reader to the breadth of its scope,”

and there is “no prefatory language alerting the reader to the penal law exclusion.” (See

Raphaels’ motion at 12-13.)

The Nationwide umbrella policy begins with a “Definitions” section, which section is

followed by a section under the bolded heading, “Coverages.” (See Borovsky Decl. Ex. C

at 012.) There are three bolded subheadings within the “Coverages” section of the policy:

“Personal Liability,” “Defense Coverage,” and “Exclusions.” (See id.) The “Personal

Liability” section provides in its entirety: “We will pay on behalf of any insured for ultimate

net loss in excess of the retained limit which the insured shall become legally obligated to

pay as damages because of bodily injury, personal injury or property damage.” (See id.) 

On the same page, under the bolded subheading “Exclusions,” the policy sets forth sixteen

circumstances under which “th[e] policy does not apply.” (See id.) The penal law exclusion

is the tenth of the sixteen exclusions. (See id. at 13.)

It is difficult to imagine how Nationwide could have placed its exclusions more

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prominently within the policy. The exclusions are part of the section of the policy describing

the coverage of the policy, in the same type and size as the rest of the text, and the specific

exclusions are itemized beginning on the same page as the description of coverage for

personal liability. The cases upon which defendants rely all involve exclusions that were

placed far less prominently in the policy. 

In Haynes, for example, a limitation on liability for “permissive users” of the insured’s

automobile appeared in a section of the policy entitled “Other Insurance,” which was

amended later in the policy by an endorsement; the Court held that placing the limitation in

a section titled “Other Insurance” was not conspicuous because there was “nothing in the

heading to alert a reader that it limits permissive user coverage, nor anything in the section

to attract a reader’s attention to the limiting language,” and that the amendment to that

language, contained in an endorsement buried deep within the policy, also was not

conspicuous. See Haynes, 32 Cal. 4th at 1205-1211. Here, by contrast, the penal law

exclusion is located in the “Coverages” section of the policy, precisely where an insured

would expect to find any exclusions from coverage. 

Likewise, Gray v. Zurich Ins. Co., 65 Cal. 2d 263 (1966) is distinguishable. There,

the California Supreme Court held that an exclusion for bodily injury caused intentionally by

the insured was not conspicuous because “it appear[ed] only after a long and complicated

page of fine print, and [was] itself in fine print.” See id. at 273. Here, by contrast, the

exclusions appear in the section describing the coverage of the policy and are in the same

type size as the other coverage provisions. 

Finally, in Thompson v. Mercury Casualty Co., 84 Cal. App. 4th 90 (2000), 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.” See id. at 97. Here, by

contrast, the penal law exclusion is included in the “Coverages” section of the policy. 

Moreover, as Nationwide points out, the California Supreme Court, when presented

with an exclusionary clause located and printed in a manner more closely resembling the

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4

 Although the pilot exclusion appeared in two places in the policy there at issue, the

Supreme Court’s decision was not dependent on the fact of repetition. Rather, the

Supreme Court found each such provision “conspicuous.” See id. at 385 (“The pilot

exclusion clause . . . as a matter of law is conspicuous, both in the exclusion clause and in

the ‘Declarations.’”).

8

clause at issue herein, has found such exclusion to be conspicuous. In particular, in

National Insurance Underwriters v. Carter, 17 Cal. 3d 380 (1976), the Supreme Court

considered an argument that an exclusion in an aircraft liability insurance policy, barring

coverage for operation by an unqualified pilot, was not conspicuous. See id. at 384. The

Supreme Court rejected the argument because the exclusion appeared in a section titled

“Exclusions” on the page immediately following the definition of the insured, and was “in

printing of size and intensity identical to that of the rest of the policy save only for

paragraph headings.” See id.

4

 The Supreme Court held: “Although we have invalidated an

exclusionary clause where it is hidden in a subsequent section of the policy bearing no

clear relationship to the insuring clause, or concealed in a mass of fine print, the pilot

exclusion clause in the present policy suffers from neither defect and as a matter of law is

conspicuous[.]” See id. 

Accordingly, the Court finds the penal law exclusion is conspicuous.

2. “Plain and Clear”

Defendants further argue that the penal law exclusion is not “plain and clear,” as

required by California Supreme Court case law. It is not enough that exclusionary

language is placed conspicuously in the policy; “[t]he language itself must be plain and

clear.” See Haynes, 32 Cal. 4th at 1211 (internal quotation and citation omitted). Put

another way, an exclusion “must be stated precisely and understandably, in words that are

part of the working vocabulary of the average layperson.” See id. at 1204. Thus, in

determining whether a term is plain and clear, a court “must attempt to put itself in the

position of a layperson and understand how he or she might reasonably interpret the

exclusionary language.” See MacKinnon v. Truck Ins. Exchange, 31 Cal. 4th 635, 649

(2003). 

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 The Court recognizes that a dictionary definition does not necessarily establish the

average layperson’s understanding of a term. See MacKinnon, 31 Cal. 4th at 649.

6

 In Safeco v. Robert S., the California Supreme Court found invalid an exclusion for

“illegal acts.” See id. No such provision exists in the instant policy.

9

Here, defendants first argue that the penal law exclusion is not plain and clear

because the phrase “violation of a penal law” contained therein is not part of the working

vocabulary of the average layperson. The Court disagrees. The average layperson

reading the phrase “violation of a penal law” would interpret it to mean a criminal act or

crime. A “penal institution,” for example, is commonly understood to refer to a place of

incarceration for persons who have been convicted of crimes. Similarly, a dictionary in

common usage defines “penal code” as “[t]he body of laws relating to crimes and offenses

and the penalties for their commission.” See The American Heritage Dictionary of the

English Language, 4th ed., available at http://www.dictionary.com.5 Indeed, the one

reported decision to have addressed the language here at issue has found “‘penal law’ is

synonymous with ‘criminal law.’” See American Family Mutual Ins. Co. v. Hadley, 648

N.W.2d 769, 781 (Neb. 2002). Moreover, as Nationwide notes, California courts routinely

have found exclusions for “criminal” activity to be unambiguous and enforceable. See 20th

Century Ins. Co. v. Schurtz, 92 Cal. App. 4th 1188, 1189, 1195-96 (2002) (finding exclusion

for “bodily injury . . . which is a foreseeable result of [a] . . . criminal act” enforceable);

Century-National Ins. Co. v. Glenn, 86 Cal. App. 4th 1392, 1397 (2001) (same); 20th

Century Ins. Co. v. Stewart, 63 Cal. App. 4th at 1336 (same); see also Safeco Ins. Co. of

America v. Robert S., 26 Cal. 4th 758, 763-64 (2001) (noting exclusions for “criminal acts”

are common and valid).6 Accordingly, the Court finds the penal law exclusion

unambiguously excludes coverage for criminal acts.

Defendants next argue that an average layperson is unlikely to understand the penal

law exclusion “to exclude coverage for an accident caused by a common violation of the

Vehicle Code,” citing, inter alia, such examples as making an unsafe lane change and

making an illegal left turn, both of which are classified as infractions in the California

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 California law defines “crimes and public offenses” to include felonies,

misdemeanors, and infractions. See Cal. Pen. Code § 16.

8

 In determining whether an exclusion is plain and clear, the court considers its

language “in the context of the facts of the case and not in the abstract.” See 20th Century

Ins. Co. v. Stewart, 63 Cal. App. 4th at 1338; see also MacKinnon, 31 Cal. 4th at 653-54

(interpreting exclusion to extent necessary “to resolve the present case”; noting “further

clarification may be required” in the future).

9

 The Court further notes that the same statute by which primary policies are

restricted expressly exempts excess policies from such restrictions. See id.

10

Vehicle Code.7 (See Raphaels’ motion at 10, 13-14.) No such violation is at issue in the

instant case, however, and none of the parties contends that coverage for common traffic

infractions is excluded. Here, as noted, Holton pleaded guilty to two felonies, specifically,

two counts of violating California Penal Code § 192(c)(3), vehicular manslaughter while

intoxicated. (See Nationwide’s Request for Judicial Notice Exs. D and E.) Both offenses

clearly meet the average layperson’s understanding of a crime.8 Consequently, given the

penal law exclusion, the average layperson could not reasonably expect coverage under

the Nationwide umbrella policy for injuries resulting from conduct of such nature.

Defendants next argue that because California law precludes primary automobile

insurance policies from excluding coverage for driving under the influence, see Cal. Ins.

Code § 11580.1; see also Hertz Corp. v. Home Ins. Co., 14 Cal. App. 4th 1071, 1078

(1993), a reasonable insured would expect that an excess or umbrella policy would provide

similar coverage. The issue at hand, however, is not whether a reasonable insured would,

in the abstract, expect an excess or umbrella policy to provide coverage for injuries

resulting from driving under the influence, but, rather, whether a reasonable insured would

understand the penal law exclusion in the instant umbrella policy to bar such coverage.9

 As

noted, even where an exclusion “takes away or limits coverage reasonably expected by an

insured,” such exclusion is enforceable if it is ”conspicuous, plain and clear.” See Haynes,

32 Cal. 4th at 1204. 

Lastly, defendants argue that an average layperson would understand the penal law

exclusion to “exclude coverage only if an accident occurs when a vehicle is consciously

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being used in connection with a criminal enterprise – such as, for example, when it is being

used to smuggle drugs or used as a ‘getaway’ car.” (See Raphaels’ motion at 14.) This

argument is not persuasive. Nothing in the penal law exclusion limits its coverage to

crimes committed with a particular state of mind. Moreover, the language of the penal law

exclusion, as noted, is synonymous with an exclusion for criminal acts, and the California

Court of Appeal has held that criminal acts need not be intentional to fall within the scope of

the “criminal acts” exclusion. See 20th Century Ins. Co. v. Schurtz, 92 Cal. App. 4th at

1196-97 (noting exclusion “applies regardless of intent” (emphasis in original)).

 For the reasons set forth above, the penal law exclusion is conspicuous, plain, and

clear, and is therefore enforceable. See Haynes, 32 Cal. 4th at 1204. Consequently, the

penal law exclusion bars any claim under the Nationwide umbrella policy arising out of the

events relevant to the instant action.

B. Other Issues

As a result of the above ruling, the Court does not reach the parties’ arguments as to

the location of Holton’s primary residence, and whether the Nationwide umbrella policy

should be reformed to exclude coverage for Holton.

CONCLUSION

For the reasons set forth above,

1. Nationwide’s motion for summary judgment is hereby GRANTED.

2. The Raphaels’ motion for summary judgment is hereby DENIED.

The Clerk shall close the file.

IT IS SO ORDERED.

Dated: January 27, 2006 MAXINE M. CHESNEY

United States District Judge

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