Opinion ID: 2610709
Heading Depth: 1
Heading Rank: 5

Heading: The Question of Ambiguity

Text: Plaintiffs contend that the insurance policy is ambiguous and uncertain. Accordingly, they offered extrinsic evidence for the purpose of establishing that it was the intent of the parties that the policy afford plaintiffs the right to recover defense costs and expenses regardless of the amount paid by plaintiffs as the result of a claim of a third party. This evidence was admitted subject to defendants' motion to strike, which was timely interposed. [6] The trial court took the motion under submission and in its written memorandum of decision stated that it was unnecessary for the court to rule on the motion on the basis that there was nothing in the evidence offered by plaintiffs which showed an intent of the parties contrary to that expressed in the policy as interpreted pursuant to section 2778. (4) In Delta Dynamics, Inc. v. Arioto, 69 Cal.2d 525, 528 [72 Cal. Rptr. 785, 446 P.2d 785], the Supreme Court, relying on Pacific Gas & Elec. Co. v. G.W. Thomas Drayage etc. Co., supra, 69 Cal.2d 33, 39-40 [69 Cal. Rptr. 561, 442 P.2d 641], states the applicable principle thusly: `The test of admissibility of extrinsic evidence to explain the meaning of a written instrument is not whether it appears to the court to be plain and unambiguous on its face, but whether the offered evidence is relevant to prove a meaning to which the language of the instrument is reasonably susceptible.' To determine whether offered evidence is relevant to prove such a meaning the court must consider all credible evidence offered to prove the intention of the parties. `If the court decides, after considering this evidence, that the language of a contract, in the light of all the circumstances, is fairly susceptible of either one of the two interpretations contended for ... [citations], extrinsic evidence to prove either of such meanings is admissible.' [Citation.] (5) In applying the foregoing test, the preliminary consideration of all credible evidence offered to prove the intention of the parties requires that the trial court consider evidence which includes testimony as to the circumstances surrounding the making of the agreement including the object, nature and subject matter of the writing so that the court can place itself in the same situation in which the parties found themselves at the time of contracting. ( Pacific Gas & Elec. Co. v. G.W. Thomas Drayage etc. Co., supra, at p. 40.) Adverting to the extrinsic evidence offered by plaintiffs and preliminarily considered by the trial court in the instant case, we observe the following testimony. Donald Brown, plaintiffs' insurance broker, testified that he discussed with Ralph Jackson, a surplus line underwriter for Appleton & Cox of California, Inc., [] [the brokerage firm which procured the policy from defendants] how the deductible operated in relationship to the defense costs; that when he told Jackson, following the receipt of a policy form and prior to the issuance of the policy, that he could not interpret the exact action that would be taken if claims did occur, Jackson advised him that there would be a $2,500 deductible applicable to a claim under the policy and that legal fees would be taken care of under the policy without a deductible. Brown also testified that he later got a different interpretation from Jackson when he asked Jackson to contact the underwriters directly to get an interpretation from them and that he was advised by the underwriters that the interpretation made by plaintiffs was completely wrong. He testified that this communication was not received until early 1967 [after the policy had been issued]. Guy Blase, an attorney for plaintiffs, also testified that prior to the issuance of the policy he too had a conversation with Jackson concerning defense costs. He testified that Jackson told him that if a claim was in excess of the deductible then defense costs would be paid from the ground up, that is, that in any case involving a claim in excess of $2,500 defense costs in their entirety would be paid by the insurer, but that if the claim was less than $2,500 defense costs would not be indemnified. Avery Tindell, vice-president of Appleton & Cox in charge of surplus line operations, testified that on July 24, 1964, he sent a letter to Blase to the effect that [] [defendants were not liable for the defense of claims not likely to exceed the $2,500 deductible. Ralph Jackson testified that he advised Blase that as far as the deductible was concerned the defense costs would be included from the ground up provided the claim exceeded the deductible, and that by the term from the ground up he (Jackson) meant from the first dollar, provided the claim exceeded $2,500. Jackson also testified that by the term claim he meant the claim made by the assured against the assurer, and not the claim made by a third party against the assured. In addition to the foregoing extrinsic evidence, several letters and a cablegram were admitted into evidence. A letter dated April 3, 1964, from Jackson to the underwriters' representative in London, indicated an understanding that the deductible would not apply to defense costs and that if the plaintiffs used their own attorney in cases where the claim was under the deductible, the use of such attorney was in order but at the assured's cost. The same letter stated that if the claim was in excess of the deductible and plaintiffs had used their own attorney and his use was approved by the underwriters, the total legal cost would be borne by the underwriters. This letter requested a verification by cable of this understanding. The response to this letter with respect to the matter of defense was by a cablegram, dated April 8, 1964, which, in pertinent part, read: ... please refer to policy Conditions One and Two. Another letter, dated April 8, 1964, from Jackson to Brown, with a copy to Blase, directed attention with respect to defense, to conditions 1, 2 and 3 of the insuring agreement and noted that these will be found to be self-explanatory. [The foregoing correspondence was exchanged prior to the issuance of the policy. Subsequently,] another letter, dated July 22, 1964, from the claims manager of Appleton & Cox, confirmed the understanding had with Jackson on the question of fees. Blase responded to this letter on July 24, 1964, by a letter wherein he stated, I feel it is clear that only in the event that a claim appears to exceed $2,500.00 will the Underwriter assume the cost of attorneys fees and your defense expenses of the insured. As already pointed out the trial court did not formally rule upon defendants' motion to strike the offered extrinsic evidence but stated that it did not do so because that evidence did not show an intent of the parties contrary to that expressed in the policy as interpreted by section 2778. [7] [] In the light of this determination the trial court concluded that the pertinent provisions of the policy were not uncertain or ambiguous, and therefore concluded that these provisions were to be interpreted according to the intention expressed by the words of the policy as interpreted by section 2778. (See Estate of Russell, 69 Cal.2d 200, 211-212 [70 Cal. Rptr. 561, 444 P.2d 353].) It is appropriate to observe here that neither of the parties contend it was error for the trial court not to admit the extrinsic evidence. Indeed, both of the parties assert that the basic insuring clauses and the subject conditions of the policy should be interpreted according to the provisions of section 2778. Accordingly, plaintiffs' claim of error is based on their contention that the trial court erroneously applied the rules of interpretation specified in section 2778. Our inquiry, therefore is whether the trial court's interpretation was erroneous. (6) In this regard we note that, since the interpretation does not turn on the credibility of extrinsic evidence, the interpretation is solely a judicial function and is, therefore, a question of law. Under these circumstances we are not bound by the trial court's interpretation. (See Parsons v. Bristol Dev. Co., 62 Cal.2d 861, 865-866 [44 Cal. Rptr. 767, 401 P.2d 839]; Estate of Platt, 21 Cal.2d 343, 352 [131 P.2d 825]; Estate of Russell, supra, 69 Cal.2d 200, 213.) We, therefore, proceed to make an independent examination of the policy concurrently with the applicable provisions of section 2778.