Court Opinion

ID: 9465950
Source: CourtListenerOpinion
Date Created: 2023-08-05 01:01:11.646923+00
Date Added: 2024-06-11T17:39:28.062846
License: Public Domain

McNICHOLS, District Judge.
This is an appeal from a summary judgment granted by the district court in favor of appellee. The district court exercised jurisdiction pursuant to 28 U.S.C. § 1332. We have jurisdiction of this appeal under 28 U.S.C. § 1291.
Prudential Insurance Company of America (“Prudential”), appellant here and the defendant below, issued Group Insurance Policy No. G-91550 to Getty Oil Company (“Getty”) covering Getty’s employees with life insurance and accidental death insurance. The group policy insured Getty employee Dan Ayres, now deceased, by way of two certificates of insurance. The certificates named Dan Ayres’ wife, Dolores Ayres, appellee here and plaintiff below, as Dan Ayres’ beneficiary.
Dan Ayres died in the crash of a private airplane he was piloting. Prudential paid $36,500.00 to Dolores Ayres under the regular life insurance portion of his certificate of insurance, but refused to pay under the portion which provided coverage for accidental death. Prudential contends that the following limiting provisions, found in the accidental death portions of the policy and certificates, exclude Dan Ayres from accidental death coverage:
“Not Covered: Any loss which results—
(1) from suicide or attempted suicide, whether the Employee is sane or insane, or
(2) directly or indirectly from bodily or mental infirmity or disease or medical or surgical treatment thereof, or
(3) from any infection, other than a pyogenic infection occurring through and at the time of an accidental cut or wound, or
(4) from war or any act of war (‘war’ means declared or undeclared war and includes resistance to armed aggression), or
(5) from travel or other movement by means of, or descent from or with, any kind of moving aircraft aboard which the Employee has any duties relating in any way to such aircraft or to its crew or aboard which he is giving or receiving training for any such duties (‘aircraft’ includes rocket craft or any other vehicle, conveyance, or device designed for travel or other movement in or beyond the earth’s atmosphere).’’ (Emphasis supplied.)
Prudential refused payment for accidental death due to its belief that the language of paragraph (5) of the exclusion, supra, operated to suspend coverage any time the insured undertook a duty relating to the operation of an aircraft aboard which he was traveling. Therefore, Prudential refused to pay accidental benefits for Dan Ayres’ death because he was piloting the airplane in which he died.
Appellee sued Prudential on the theory that the word “Employee,” in conjunction with the word “duties,” meant that the exclusion acted only when the insured operated an aircraft in conjunction with a duty of employment for Getty.
The parties filed cross-motions for summary judgment. The district court granted appellee’s motion upon the theory that the limitation clause was ambiguous in that it *1311could be reasonably read either as Prudential argued or as appellee argued, and therefore it must be construed against the insurance company. Prudential has appealed this judgment against it.
The law of the forum state governs cases brought to federal district courts by 28 U.S.C. § 1332 diversity jurisdiction. Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938). The interpretation of the insurance contract at issue in this case is thus controlled by California law.
Under California law, the intent and reasonable expectations of the parties govern the construction pf insurance contracts. Atlantic National Insurance Company v. Armstrong, 65 Cal.2d 100, 52 Cal.Rptr. 569, 577, 416 P.2d 801, 809 (1966). What the parties intended is, in fact, the primary focus for a court when construing contracts of insurance. General Casualty Co. of America v. Azteca Films, Inc., 278 F.2d 161 (9th Cir.), cert. denied, 364 U.S. 863, 81 S.Ct. 103, 5 L.Ed.2d 85 (1960).
In the Azteca Films case, this Court was asked to construe limiting language in a contract of insurance, applying California law. The contract in question insured the defendant against liability for damage or destruction of third persons’ property. The policy contained an exclusion for claims and expenses arising out of use of the property after the insured relinquished “possession” of it.
Plaintiff insurance company argued that “possession” meant only actual possession so that the limiting language covered a broad area. The insured argued, however, that “possession” included constructive possession and the exclusion did not operate until the insured parted with both actual and constructive possession. The district court perceived an ambiguity arising from the use of the word “possession,” and therefore construed the contract strictly against the insurance company. The insurance company appealed that judgment.
While searching out the intent and reasonable expectations of the parties, this Court recognized the first question to be whether the clause under examination— because of the word “possession” — is ambiguous. If it is, the familiar rules of strict construction against an insurer will become applicable. But any ambiguity must be real before the court is justified in invoking the rule. It is ambiguity and not awkwardness of language which opens the door for construction.
Id. at 165.
Ambiguity is not necessarily to be found in the fact that a word or phrase isolated from its context is susceptible of more than one meaning. As expressed by the Seventh Circuit in Hill v. Standard Mut. Casualty Co., 110 F.2d 1001, 1004:
“To find that a word or phrase isolated from its context is susceptible to more than one meaning, or that a word or phrase in its context is susceptible to one reasonable and one unreasonable meaning, does not spell ambiguity.”
All rules of construction are subordinate to the leading principle that the intention of the parties, to be collected from the entire instrument, must prevail, unless inconsistent with some rule of law. Chesapeake & Ohio Canal Co. v. Hill, 15 Wall. 94, 82 U.S. 94, 21 L.Ed. 64. The test to be applied by the court in determining whether there is ambiguity is not what the insurer intended its words to mean, but what a reasonably prudent person applying for insurance would have understood them to mean. Trousdell v. Equitable Life Assur. Soc. of United States, 55 Cal.App.2d 74, 130 P.2d 173, 990; New York Life Ins. Co. v. Hiatt, 9 Cir., 140 F.2d 752, 168 A.L.R. 551. In other words, the criterion is ambiguity from the standpoint of a layman, not from that of a lawyer. Where it is possible to adopt a construction which is favorable to the insured without doing violence to the policy wording that construction will be preferred. This anticipates a reasonable interpretation of the language and can apply only so far as the fair application of the ordinary meaning of language permits. But this rule of strict construction *1312against the insurer cannot apply unless there is some reasonable basis for doubt. Couch on Insurance 2d states:
“ ‘Usual and ordinary meaning’ has been stated variously to be that meaning which the particular language conveys to the popular mind, to most people, to the average, ordinary, normal man, to a reasonable man, to persons with usual and ordinary understanding, to a businessman, or to a layman.” Couch on Insurance 2d § 15:18, (citing among other cases the California case of Hobson v. Mutual Benefit Health & Accident Assoc., 99 Cal. App.2d 330, 221 P.2d 761.)
Id. at 167-168.
Later the same year, this Court reiterated the interpretative rule of California Law:
The term “duty” is likewise subject to different meanings in different contexts. What controls is not the interpretation of individual words which are not defined in the policy itself, but the interpretation which the ordinary man would give to the phrase as a whole taken in the context of the whole policy and the average man’s knowledge of the way insurance is set up.
Prudential Insurance Company of America v. Barnes, 285 F.2d 299, 301 (9th Cir. 1960).
Finally, it must always be borne in mind that the end purpose of all such rules of construction is the discovery of the reasonable expectations and intentions of the parties. General Casualty Co. of America v. Azteca Films, Inc., 278 F.2d at 167; Herzog v. National American Insurance Company, 2 Cal.3d 192, 84 Cal.Rptr. 705, 465 P.2d 841, 843 (1970). When this inquiry focuses upon the interpretation of words or phrases, “it is the duty of the appellate court to make its own independent determination of the meaning of the language used in the instrument under consideration.” Bareno v. Employers Life Insurance Co. of Wausau, 7 Cal.3d 875, 103 Cal.Rptr. 865, 868, 500 P.2d 889, 892 (1972).
The task of this Court, therefore, is to ascertain the meaning of the contested phrase “Employee has any duties” against the background of a layman’s understanding of the entire policy and the average man’s knowledge of the way insurance is set up.
This Court has reviewed copies of the policy and the certificates issued thereunder. One certificate, certifying insurance in the amount of $1,500.00, is for non-contribution life and accidental death and disability insurance. The other certificate, certifying coverage for $35,000.00, is regular life and accident insurance. Because both are substantially identical in the relevant, particulars, we will analyze only the latter policy.
The regular life and accident certificate begins by certifying that “the Employee is insured under Group Policy G-91550.” Immediately thereunder is the designation “POLICYHOLDER” followed by the printed name “GETTY OIL COMPANY.” Below this is set forth “EMPLOYEE,” followed by a space for the insured individual’s name. After these initial designations of who is the policyholder and who is the intended insured, neither Getty’s name nor that of the insured employee appears again in the certificate. To know who is spoken of when the certificate speaks of the “Employee,” the reader must refer back to the antecedent name written in the space provided at the beginning of the certificate. Therefore, the use of the word “Employee” in the certificate necessarily denotes for the reader the particular individual named at the beginning of the certificate.
The district court believed that, at least in the instance of the aviation exclusion clause in issue, the term “Employee” serves a double duty: not only does it denote the insured person, Dan Ayres, as it necessarily must, but it also implies that the insured must be functioning in some capacity related to his employment by the policyholder, Getty. While ascertaining the intentions of the parties, the question before this Court is whether such an interpretation is reasonably consistent with the other uses of the word “Employee” throughout the entire certificate. Jurd v. Pacific Indemnity Company, 57 Cal.2d 699, 21 Cal.Rptr. 793, 371 P.2d 569, 571-572 (1962) citing 27 Cal. *1313Jur.2d, Insurance, § 280, p. 778. We believe that it is not.
Some examples of how the word “Employee” is used elsewhere in the policy will show that forcing upon it a construction which connotes that the insured individual is doing work for the policyholder is anomalous, inconsistent, and unreasonable.
The provision for death benefits is one such example. It reads “[i]f the Employee dies while a covered individual, the amount of his insurance under this Coverage is payable when Prudential receives due written proof of death.” Should the word “Employee” as used here be made to bear the burden of meaning the insured must be, at the time of death, engaged in employment-related activities for Getty, appellee would not have received the $36,500.00 already paid to her by Prudential because it is uncontested by either party to this litigation that Dan Ayres died off the job.
Another example exhibiting that “Employee” is used only as a convenient substitute for the insured’s name may be found in a portion of the accidental death provision not at issue in this case. The first condition precedent for payment of accidental death benefits is that “[t]he Employee sustained an accidental bodily injury while a covered individual.” If “Employee” as used here is meant to suggest that the injury suffered must be sustained in an employment-related capacity, once again there exists no question that appellee is ineligible for benefits.
These examples illustrate that if “Employee” is read consistently throughout the policy, not only to designate the insured individual, but also to imply activity in a work-related capacity, then no benefits whatsoever would accrue to appellee. If, however, the sole function given the word throughout is to designate the insured individual, then appellee rightfully received death benefits for the loss of her husband, but is not entitled to accidental death benefits because Dan Ayres was piloting an airplane at the time he died.
Notwithstanding the argument accepted below, involving the word “duties,” a uniform reading of “Employee” is dictated by “the average man’s knowledge of the way insurance is set up.” Prudential Insurance Company of America v. Barnes, 285 F.2d at 301. It is no secret that insurance companies generally seek to limit their liability under life insurance policies for injuries or deaths resulting from the insured’s connection with certain enumerated activities. The common risks which accident and death policies exclude are death by suicide, Couch on Insurance 2d §§ 40:4, 41; 195; death or disability caused by certain diseases or infections, Id. § 41:398; death or injury suffered during war or military service, Id. § 41:696; and death or injury connected with aviation, Id. § 41:541; Annotations at 155 A.L.R. 1026 and 17 A.L.R.2d 1041. The average individual should not be surprised, therefore, to find that these very same exclusions do in fact exist in the accident coverage portion of the certificate issued to Dan Ayres. Included among these common exclusions is the aviation clause at issue in this case.
These types of provisos, which exclude aviation-related risks from coverage, are not only common, but their usual and ordinary purpose has been characterized by the courts. In the words of this Court, such a proviso “distinguishes between persons involved in the flying of planes and persons not so involved — that [the insurance company] intended to insure most people who fly but not those whose profession or hobby is connected with the actual flying of planes and who are therefore normally subject to more repeated risks and risks more directly within their own control.” Prudential Insurance Company of America v. Barnes, 285 F.2d at 300. The exclusion fails only if the insured can reasonably believe aviation is not excluded in light of what is publicly known of such exclusions.
Recognizing that such provisos exist, and that they exist for some reason, the reasonable understanding of laymen must be that the inclusion of such a proviso deserves some effect. To render language nugatory is unreasonable as a matter of law. General Casualty Co. of America v. Azteca Films, Inc., 278 F.2d at 168. Yet, interpreting *1314“Employee” and “duties” in the aviation exclusion clause to mean employment-related duties robs that clause of any effect. In the case at bar, it is undisputed that Getty neither owned aircraft nor had their employees operate aircraft in the course of their employment, and that these facts were generally known at Getty. Therefore, allowing the aviation exclusion effect only when an employee operated an airplane in the course of his employment at Getty means allowing it no effect at all, simply because it failed to limit any risk to the insurer. An interpretation of this type, which renders the language of the exclusion meaningless because it fails to limit any risk, cannot be acceptable to a layman or a court. It comports neither with the common understanding that aviation exclusions exist to limit some risk, or the reasonable expectation that language in an insurance contract must mean something.
Recognition of the function of the aviation exclusion leads inescapably to the conclusion that the exceptional reading of “Employee” together with the word “duties” to mean employment-related duties is an unreasonable interpretation, and therefore an unacceptable one. We hold, therefore, that the presence of the word “duties” in. the aviation exclusion clause does not alter the conclusion that “Employee” must be read consistently throughout the certificate solely as a designation for the person insured.
The judgment of the district court is reversed. Because we find the aviation exclusions to the accidental coverage portions of Dan Ayres’ certificates of insurance to be unambiguous exclusions from coverage for death while piloting an airplane, summary judgment for appellant is mandated.
The cause is remanded to the district court to enter judgment in accordance with this opinion.