Opinion ID: 2610834
Heading Depth: 3
Heading Rank: 1

Heading: principles of insurance policy interpretation

Text: Under statutory rules of contract interpretation, the mutual intention of the parties at the time the contract is formed governs interpretation. (Civ. Code, § 1636.) Such intent is to be inferred, if possible, solely from the written provisions of the contract. ( Id., § 1639.) The clear and explicit meaning of these provisions, interpreted in their ordinary and popular sense, unless used by the parties in a technical sense or a special meaning is given to them by usage ( id., § 1644), controls judicial interpretation. ( Id., § 1638.) (1) Thus, if the meaning a layperson would ascribe to contract language is not ambiguous, we apply that meaning. (See, e.g., Reserve Insurance Co. v. Pisciotta (1982) 30 Cal.3d 800, 807 [180 Cal. Rptr. 628, 640 P.2d 764]; Crane v. State Farm Fire & Cas. Co. (1971) 5 Cal.3d 112, 115 [95 Cal. Rptr. 513, 485 P.2d 1129, 48 A.L.R.3d 1089].) If there is ambiguity, however, it is resolved by interpreting the ambiguous provisions in the sense the promisor (i.e., the insurer) believed the promisee understood them at the time of formation. (Civ. Code, § 1649.) If application of this rule does not eliminate the ambiguity, ambiguous language is construed against the party who caused the uncertainty to exist. ( Id., § 1654.) (2a) In the insurance context, we generally resolve ambiguities in favor of coverage. (See, e.g., State Farm Mut. Auto. Ins. Co. v. Jacober (1973) 10 Cal.3d 193, 197 [110 Cal. Rptr. 1, 514 P.2d 953]; Bareno v. Employers Life Ins. Co. (1972) 7 Cal.3d 875, 878 [103 Cal. Rptr. 865, 500 P.2d 889]; Continental Casualty Co. v. Phoenix Constr. Co. (1956) 46 Cal.2d 423, 437 [296 P.2d 801, 57 A.L.R.2d 914].) (3) (See fn. 8.), (2b) Similarly, we generally interpret the coverage clauses of insurance policies broadly, protecting the objectively reasonable expectations of the insured. [8] (See, e.g., Garvey v. State Farm Fire & Casualty Co. (1989) 48 Cal.3d 395, 406 [257 Cal. Rptr. 292, 770 P.2d 704]; Reserve Insurance Co. v. Pisciotta, supra, 30 Cal.3d at p. 808.) These rules stem from the fact that the insurer typically drafts policy language, leaving the insured little or no meaningful opportunity or ability to bargain for modifications. (See, e.g., Garcia v. Truck Ins. Exchange (1984) 36 Cal.3d 426, 438 [204 Cal. Rptr. 435, 682 P.2d 1100]; Bareno, supra, 7 Cal.3d at p. 878.) Because the insurer writes the policy, it is held responsible for ambiguous policy language, which is therefore construed in favor of coverage. It follows, however, that where the policyholder does not suffer from lack of legal sophistication or a relative lack of bargaining power, and where it is clear that an insurance policy was actually negotiated and jointly drafted, we need not go so far in protecting the insured from ambiguous or highly technical drafting. ( Garcia v. Truck Ins. Exchange, supra, 36 Cal.3d at p. 438 [refusing to resolve ambiguity against insurer when insured enjoyed substantial bargaining power vis-a-vis the carrier, and actually negotiated and joined in drafting terms of coverage]; see also 13 Appleman, Insurance Law and Practice (1981) § 7402, pp. 300-301 [it has been held that the principle that ambiguities in insurance policies should be strictly construed against the insurer need not be strictly adhered to in instances where one large corporation and one large insurance company both advised by competent counsel do business with each other].) (4) FMC unquestionably possesses both legal sophistication and substantial bargaining power. For this reason, the insurers contend, we should neither construe the policy language at issue in this case in the broad sense understood by laypersons (as opposed to a narrower technical sense) nor resolve ambiguities in favor of coverage. There is some force to these arguments, particularly in light of the fact that FMC itself operates a subsidiary that drafts CGL policies identical to those at issue in this case. In the absence of evidence that the parties, at the time they entered into the policies, intended the provisions at issue here to carry technical meanings and implemented this intention by specially crafting policy language, however, we see little reason to depart from ordinary principles of interpretation. Similarly, in the absence of evidence that the insurers had cause to believe, at the time of formation, that FMC understood policy language in any technical or restrictive manner, we decline to depart from the settled rule that ambiguities are resolved against the party responsible for their inclusion in the policies. We deem this party to be the insurers. They have presented no evidence suggesting that the provisions in question were actually negotiated or jointly drafted. [9] (Compare Garcia v. Truck Ins. Exchange, supra, 36 Cal.3d at p. 434.) Indeed, the evidence that is before us reveals that such provisions, drafted by the insurers, are highly uniform in content and wording. For the above reasons, we interpret their contents, if ambiguous, in favor of coverage.