Opinion ID: 1159939
Heading Depth: 3
Heading Rank: 2

Heading: Sentry's Employers' Liability Coverage

Text: Appellants also contend that, even assuming Noyes was an employee of LAS and not Producers, the Sentry policy should provide coverage to Producers because the insuring language of Coverage B is ambiguous, and could be construed as insuring Producers for liability it incurs to an LAS employee. (Both entities are insureds under the policy; see fn. 1, ante. ) Resolving all ambiguities against the insurer ( Gray v. Zurich Insurance Co. (1966) 65 Cal.2d 263, 269 [54 Cal. Rptr. 104, 419 P.2d 168]), appellants argue that the policy language should be construed broadly to provide such coverage. (See Reserve Insurance Co. v. Pisciotta (1982) 30 Cal.3d 800, 808 [180 Cal. Rptr. 628, 640 P.2d 764].) Hence, according to appellants, when a negligence claim is made against an insured (Producers), by an employee of an insured (LAS), the employers' liability provisions should be applicable. (3) It is a basic principle of insurance contract interpretation that doubts, uncertainties and ambiguities arising out of policy language ordinarily should be resolved in favor of the insured in order to protect his reasonable expectation of coverage. ( Insurance Co. of North America v. Sam Harris Constr. Co. (1978) 22 Cal.3d 409, 412-413 [149 Cal. Rptr. 292, 583 P.2d 1335]; Gray v. Zurich Insurance Co., supra, 65 Cal.2d at pp. 269, 270, fn. 7.) It is also well established, however, that this rule of construction is applicable only when the policy language is found to be unclear. ( Gray, supra, at p. 271; Wolf Machinery Co. v. Insurance Co. of North America (1982) 133 Cal. App.3d 324, 328 [183 Cal. Rptr. 695]; Safeco Title Ins. Co. v. Moskopoulos (1981) 116 Cal. App.3d 658, 665 [172 Cal. Rptr. 248, 18 A.L.R.4th 1301].) `A policy provision is ambiguous when it is capable of two or more constructions, both of which are reasonable.' [Citation.] ( Delgado v. Heritage Life Ins. Co. (1984) 157 Cal. App.3d 262, 271 [203 Cal. Rptr. 672].) Whether language in a contract is ambiguous is a question of law. ( Id. at p. 270.) We are also guided by the principle that words in an insurance policy must be read in their ordinary sense, and any ambiguity cannot be based on a strained interpretation of the policy language. ( McKee v. State Farm Fire & Cas. Co. (1983) 145 Cal. App.3d 772, 776 [193 Cal. Rptr. 745].)
(4a) Our first inquiry, therefore, is whether the Sentry policy is reasonably susceptible of a construction other than that found by the trial court. Interpreting the policy as appellants suggest, the employers' liability provision, as applied in the context of the facts of this case, would read in part as follows: [Sentry agrees] to pay on behalf of [Producers] all sums which [Producers] shall become legally obligated to pay as damages because of bodily injury by accident ... sustained ... by any employee of [LAS] arising out of and in the course of his employment by [LAS]. In other words, appellants would freely interchange Producers and LAS in the policy language because technically both are named insureds under the policy. In support of their argument that the policy is reasonably susceptible of such an interpretation, appellants presented evidence to the trial judge detailing the close relationship (including common officers and directors) between Producers and LAS, and the fact that officers of both corporations treated the two as one entity. [2] Appellants also presented the testimony of Richard Shehadey, an officer of both corporations who handled the acquisition of the Sentry and Federal policies. He testified, among other things, that it was his understanding that the Sentry policy covered both companies for injuries to employees of either company, regardless of who was the employer, and that this purpose was achieved by naming both companies as insureds; the Federal policy covered only the companies' vehicles and third party liability. It was also his understanding that coverage under the two policies would not overlap. (5) While extrinsic evidence may be considered by a court as an aid in the interpretation of a written contract when it is relevant to prove a meaning to which the language of the instrument is reasonably susceptible ( Pacific Gas & E. Co. v. G.W. Thomas Drayage etc. Co. (1968) 69 Cal.2d 33, 37 [69 Cal. Rptr. 561, 442 P.2d 641, 40 A.L.R.3d 1373]), `[i]f the evidence offered would not persuade a reasonable man that the instrument meant anything other than the ordinary meaning of its words, it is useless.' ( Blumenfeld v. R.H. Macy & Co. (1979) 92 Cal. App.3d 38, 45 [154 Cal. Rptr. 652].) The foregoing testimony nonetheless does not establish that the language of the policy is reasonably susceptible of a meaning other than that Sentry's employers' liability coverage protected Producers only against its liability as an employer. (6) In assessing Producers's assumptions regarding coverage, we observe that a finding of ambiguity in policy language cannot be based on an unreasonable misunderstanding on the part of the insured. ( Steven v. Fidelity & Casualty Co. (1962) 58 Cal.2d 862, 869 [27 Cal. Rptr. 172, 377 P.2d 284]; Interinsurance Exchange v. Velji (1975) 44 Cal. App.3d 310, 319 [118 Cal. Rptr. 596].) A reasonable person in the position of an officer of Producers would not disregard the fact that legally Producers and LAS were each separate entities, and accordingly that person would not assume coverage existed under Producers's employers' liability policy where the potential plaintiff is not a Producers's employee. (4b) This policy is one covering an employer's liability, that is, liability incurred by virtue of one's status as an employer. Yet, Producers's liability to Noyes was not based on any employment relationship between them, but arose instead from Producers's negligent maintenance of its delivery truck. Despite the fact that Producers did not incur legal liability to Noyes as his employer, appellants assert that the employers' liability provisions should be construed to provide coverage to Producers for Noyes's injuries. We decline to hold that the language of the policy is reasonably susceptible of such an interpretation. Our construction of the policy also accords with established public policy as to the nature and purpose of this type of insurance. While employers' liability insurance is not required by statute, it is statutorily authorized [3] and regulated, [4] and the statutory provisions governing such insurance are helpful to our inquiry herein. Insurance Code section 11750, authorizing the creation of a rating organization for workers' compensation, states in pertinent part: The purpose of this article is to promote the public welfare by regulating concert of action between insurers in collecting and tabulating rating information and other data that may be helpful in the making of adequate minimum rates for workers' compensation insurance and for employers liability insurance incidental thereto and written in connection therewith. ... (Italics added.) Employers' liability insurance is further defined as insurance of any liability of employers for injuries to, or death of, employees arising out of, and in the course of, employment when this insurance is incidental to, and written in connection with, the workers' compensation issued to the same employer and covering the same employer interests.  (Ins. Code, § 11750.1, subd. (f), italics added.) Appellants' interpretation of the Sentry policy, providing coverage to Producers for an injury to an LAS employee, arising out of his employment with LAS, runs contrary to the statutorily expressed notion that employers' liability insurance is aimed at providing additional protection to the same employer, who has workers' compensation insurance covering the employee's injury. Appellant's argument also contravenes the statutory prohibition that liability insurance does not include workers' compensation insurance (Ins. Code, § 108), and the Insurance Commissioner's rule that other classes of insurance may not be included in the same policy providing workers' compensation and employers liability insurance. (Cal. Admin. Code, tit. 10, § 2350 [general rule 8, published separately in the Manual of Rules, Classification and Basic Rates for Workers' Compensation Insurance].) [5] By interpreting the employers' liability provisions as providing coverage in the absence of an employment relationship, appellants essentially construe the provision as a general liability policy for those plaintiffs who are coincidentally employees of a company named as an insured on the same workers' compensation and employers' liability policy as the defendant company, a situation likely to occur in the group insurance context. (See Ins. Code, § 11656.6.) [6] Appellants' erroneous interpretation would similarly affect the purchase of group insurance. Insurance Code section 11656.6 allows employers to combine to purchase workers' compensation insurance at lower premiums, provided [e]ach member of an organization insured under a group policy shall be treated as a single and separate entity as respects rates, classifications and rating plans. (Ins. Code, § 11656.7.) Appellants' interpretation would frustrate this statutory goal as insurers would be justifiably concerned that by providing group coverage, they may be held liable under an employer/defendant's employers' liability coverage simply due to the fortuitous circumstance that the plaintiff/employee had a job with an unrelated member of the same compensation carrier's group policy. Carriers would likely either refuse to provide group coverage, or would do so at greatly increased rates, in either case, to the detriment of the insured employers and their employees. Thus, we conclude that the Sentry policy is not reasonably susceptible of an interpretation providing Producers coverage for tort liability arising from injuries to a nonemployee and his spouse.
(7a) Finally, assuming arguendo, that the first paragraph of Sentry's employers' liability coverage clause applied in this case, Producers nonetheless would still be denied coverage due to exclusion (f) of that same policy. The exclusion applies because the Noyes's injuries created an obligation which Sentry already satisfied under the workers' compensation law, due to the benefits previously paid by Sentry to Noyes as an LAS employee. (8) (See fn. 7.) Appellants argue the phrase the insured, in exclusion (f) is ambiguous and should be construed narrowly ( Reserve Insurance Co. v. Pisciotta, supra, 30 Cal.3d at p. 808) to refer only to the insured against whom an obligation under the workers' compensation law could be imposed. [7] Because no workers' compensation obligation could be imposed on Producers, a nonemployer of Noyes, the exclusion assertedly is inapplicable. We disagree. (9) As the trial court found herein, employers' liability insurance is traditionally written in conjunction with workers' compensation policies, and is intended to serve as a gap-filler, providing protection to the employer in those situations where the employee has a right to bring a tort action despite the provisions of the workers' compensation statute or the employee is not subject to the workers' compensation law. [8] (See generally, 7B Appleman, Insurance Law and Practice (Berdal ed. 1979) § 4571, pp. 1-4.) Generally, these two kinds of coverage are mutually exclusive. ( Ibid. ) Most employers' liability policies limit coverage to liability for which the insured is held liable as an employer. (Hanna, supra, at pp. 21-39.) (7b) The Sentry policy is no exception. Exclusion (f) implements this scheme by excluding from coverage any obligation for which the insured or his insurer may be held liable under workers' compensation. [9] In essence, appellants would have us construe the exclusionary clause in the abstract, without regard to its intended function in the policy. The workers' compensation and employers' liability provisions in Sentry's policy were meant to be read together. An insurance policy, like any other contract, must be construed in its entirety, with each clause lending meaning to the other. ( Holz Rubber Co., Inc. v. American Star Ins. Co. (1975) 14 Cal.3d 45, 56 [120 Cal. Rptr. 415, 533 P.2d 1055, 79 A.L.R.3d 518]; see also Civ. Code, § 1641.) Rather than filling any gaps in coverage, appellants' proffered construction of the policy would require Sentry to pay for Noyes's injuries twice, once by providing on LAS's behalf workers' compensation benefits owing to Noyes as an LAS employee, and the second time by providing on Producers' behalf indemnity for Noyes's tort suit as a nonemployee. This dual recovery under a single policy is contrary to both the plain meaning of the policy itself, and the concept of employers' liability insurance as it is commonly understood.