Opinion ID: 2629057
Heading Depth: 3
Heading Rank: 3

Heading: Reasonable Expectation of Coverage

Text: Under the statutory rules of contract interpretation, any ambiguity in the policy terms will be construed against the insurer to protect the insured's reasonable expectation of coverage. Based on the reference to suits in 41 United States Code section 609(d) and (e), a reasonable policyholder would believe that a policy providing coverage for a suit would provide coverage for the IBCA proceedings. As the legislative purpose indicates, the IBCA proceeding provides contractors with their day in court. As noted, this case proceeded in a 22-day IBCA hearing, in which witnesses testified and were cross-examined. The parties then decided to mediate, and reached a settlement in which Ameron agreed to pay the government $10 million. A reasonable policyholder would recognize such proceedings as a suit and would expect to be defended and, if necessary, indemnified by its insurer. It is safe to assume that Ameron would not have proceeded under the IBCA appeals process if it had known that coverage would not be extended to its $10 million settlement with the government. (7) Given insurers' reliance on a complaint for coverage determinations, [10] and our policy of emphasizing substance over form in characterizing pleadings, [11] it is reasonable for all parties to a liability insurance policy that does not define the term suit to expect a federal adjudicative administrative agency board proceeding to trigger the defense and indemnity provisions in the policy. Foster-Gardner notes that [a]lthough insureds certainly deserve no less than the benefit of their bargain, insurers should be held liable for no more, and its rule will continue to apply to actions involving pollution remediation orders, or any matters that involve threats to take legal action only, rather than to suits. ( Foster-Gardner, supra, 18 Cal.4th at p. 882.) (8) In this case, the agency board proceeding was not a threat to take legal action; it was an administrative adjudicative action that dictates our departure from Foster-Gardner 's rule. The duty to defend and indemnify, if necessary, under the policies was therefore activated by the IBCA proceedings here.