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Court of Appeal, Second District, Division 2, California.


No. B091392.

Decided: July 02, 1996

Acker, Kowalick & Whipple, W. Frederick Kowalick, Los Angeles, for Plaintiff and Appellant. Neumeyer & Boyd, Carol Boyd and Edward A. Hoffman, Los Angeles, for Defendant and Respondent.

 Continental Heller Corporation (“Heller”) was the general contractor for the Long Beach Post Office building.   An employee of a subcontractor was injured at the construction site.   The employee sued Heller.1  The subcontractor had a commercial general liability (“CGL”) policy with St. Paul Fire & Marine Insurance Company (“St. Paul”).   Heller was an additional insured on that policy.   Heller tendered defense of the suit to St. Paul.   St. Paul declined to defend.   Heller sued St. Paul claiming that St. Paul breached its duty to defend.   The trial court sustained St. Paul's demurrer to Heller's first amended complaint without leave to amend, finding that “[t]he language of St. Paul's additional insured endorsement does not, as a matter of law, create any duties with respect to the underlying ․ action.”   Heller appeals.2  The order sustaining the demurrer without leave to amend is reversed.


When a complaint is reviewed on demurrer, the well-pleaded facts must be accepted as true.  (Blank v. Kirwan (1985) 39 Cal.3d 311, 318, 216 Cal.Rptr. 718, 703 P.2d 58.)   In this case, Heller pleaded:  (a) that it was an additional insured on the policy issued by St. Paul to Heller's subcontractor (a copy of the policy was attached to the first amended complaint),3 (b) that the subcontractor's employee was injured “when he tripped over an electrical conduit” at the construction site while “he was in the course and scope of his employment,” (c) that the employee sued Heller (a copy of the employee's complaint against Heller was attached to the first amended complaint), (d) that Heller tendered defense of the suit to St. Paul, and (e) that St. Paul declined to defend.

 These bare facts have been embellished by the briefing to disclose that the employee was injured in the early morning when he slipped on a piece of scrap conduit on the floor of an unlit storage room while fetching tools for his days' labor.   St. Paul relied on these embellished facts in the trial court and relies on them in this court to support its interpretation that the additional insured endorsement adding Heller to the CGL policy does not apply to this incident.   Whatever the reach of the additional insured endorsement, it is undisputed that Heller was an additional insured.   St. Paul hence had a duty to investigate when Heller tendered its defense to St. Paul. (Mariscal v. Old Republic Life Ins. Co. (1996) 42 Cal.App.4th 1617, 1623–1624, 50 Cal.Rptr.2d 224, citing Egan v. Mutual of Omaha Ins. Co. (1979) 24 Cal.3d 809, 817–820, 169 Cal.Rptr. 691, 620 P.2d 141.)   St. Paul apparently discharged its duty to investigate, at least to some extent, since it has proceeded on the basis of a more detailed familiarity with the evidentiary facts of the case than is set forth in the ultimate facts pleaded.

St. Paul also bases its argument, both here and in the trial court, on a comparison between the additional insured endorsement in the CGL policy involved here, represented to be special manuscript language, and different language contained in what is represented to be the standard Insurance Services Office (ISO) additional insured endorsement.   The case as presented thus departs from strict observance of the rule that on demurrer evaluation of a plaintiff's claim is limited to the face of the pleading.   Inasmuch as the issue has been presented and briefed on the basis of the embellished facts and the comparison between the manuscript endorsement used here and the standard ISO language, and in the interests of both judicial and the litigant's economy, we review the ruling on the demurrer on the same basis employed in the trial court.


1. The alleged distinction between “arising out of” and “results from.”

 The endorsement adding Heller as an additional insured to the subcontractor's CGL policy provided that Heller was a “protected person,” but only for damage that “results from” the subcontractor's “work” for Heller.   “Work” was somewhat tautologically defined as “work done by or for you [the word ‘you’ referring to the subcontractor], including the materials, parts or equipment provided in connection with your work.”

St. Paul argues that the endorsement covering Heller for damage that “results from” the subcontractor's “work” is clear and unambiguous and that St. Paul clearly has no duty to defend a suit alleging injuries sustained while a worker fetches tools in preparation for his day's labor.   According to St. Paul, such injuries cannot be said to “result from” the subcontractor's “work.”   St. Paul bases this construction in large part on a comparison between the wording of the additional insured endorsement used here, and what is represented to be the wording of the standard ISO additional insured endorsement.   The allegedly standard ISO additional insured endorsement provides for coverage of liabilities “arising out of” the “work.”   In the standard ISO endorsement, “work” is defined to include “work or operations performed by you or on your behalf.”   In St. Paul's view, the special manuscript wording used here was intended to limit coverage to the supposedly narrower scope of liability that “results from” the work, rather than to encompass the assertedly broader scope of liability that “arises out of” the work.

The manuscript endorsement was part of the policy;  the standard ISO form endorsement was not part of the policy.   Since the ruling was made on demurrer, no facts were developed regarding how this particular policy came to contain the manuscript language rather than the allegedly standard ISO language, or what meanings the relevant parties might have placed on this language.   Nevertheless, largely on the argument that the manuscript language differed from the standard ISO language, St. Paul obtained a ruling on demurrer that it had no duty to defend as a matter of law.

2. The “arising out of” versus “results from” question raises an issue of law.

St. Paul concedes that the standard ISO “arising out of” language would create a potential for coverage on the facts evaluated here and hence a duty to defend.   St. Paul contends, however, that the “results from” language in the manuscript endorsement involved here does not, as a matter of law, create a potential for coverage.   Since the trial court's ruling was made on demurrer, the trial court made no determination of disputed fact.   When a trial court's interpretation of an insurance policy does not involve determination of disputed issues of fact, that interpretation raises pure issues of law.   On appeal we therefore review the policy interpretation question as an issue of law.  (Delgado v. Heritage Life Ins. Co. (1984) 157 Cal.App.3d 262, 270, 203 Cal.Rptr. 672.)

3. The Montrose “potentiality” principle and the “results from” language.

 An insurer has a duty to defend its insured in any action in which the damages sought could potentially come within the coverage of the policy.4  The duty to defend is excused only if the complaint of the third party “can by no conceivable theory raise a single issue which could bring it within the policy coverage.”  To prevail on the issue of duty to defend, “the insured need only show that the underlying claim may fall within the policy coverage;  the insurer must prove it cannot․   Any doubt as to whether the facts establish the existence of the defense duty must be resolved in the insured's favor.”  (Montrose Chemical Corp. v. Superior Court (1993) 6 Cal.4th 287, 299–300, 24 Cal.Rptr.2d 467, 861 P.2d 1153;  italics in original.)

The Montrose potentiality principle is applied most often to resolve factual questions regarding the potential for coverage in view of facts alleged.   The instant case raises not only a factual question but also a legal one.   St. Paul acknowledges that a duty to defend would exist under the ISO “arising out of” language, but contends that the result is different under the “results from” manuscript language used here.   If St. Paul's narrow construction of the “results from” language is legally correct, and if “results from” language does not cover an accident which occurs while a worker is fetching tools in preparation for his days' labor, then St. Paul is correct that it had no duty to defend.  (Waller v. Truck Ins. Exchange, Inc. (1995) 11 Cal.4th 1, 25–26, 44 Cal.Rptr.2d 370, 900 P.2d 619 [if there is no potential of coverage as a matter of law, there is no duty to defend, even if the legal issue is unsettled at the time of tender].)  Resolution of this case thus depends upon construction of the “results from” language.

4. The rules of policy construction.

 If policy language is “clear and explicit,” no analytical construction is necessary;  the policy is simply enforced in accordance with its plain meaning.  (See, e.g., Bank of the West v. Superior Court (1992) 2 Cal.4th 1254, 1264, 10 Cal.Rptr.2d 538, 833 P.2d 545.)   The first step in interpreting a policy is to examine the language to determine its plain meaning or “the meaning a layperson would ordinarily attach to it.”  (Civ.Code, § 1638;  Waller, supra, 11 Cal.4th 1, 18, 44 Cal.Rptr.2d 370, 900 P.2d 619.)   In the instant case, however, the policy language has no “plain meaning” and it is not clear what meaning a layperson would necessarily ascribe to it.

St. Paul contends that “results from” necessarily requires some ill-defined but narrowly limited causal connection between the injury and the subcontractor's “work,” something along the lines of in-place construction collapsing on a worker or a mishap occurring while a worker is erecting or emplacing a portion of the construction.   St. Paul contends that “results from” cannot be read more broadly to encompass an accident which occurs while a worker is fetching tools.   St. Paul thus makes a distinction between doing the “work” and preparing to do the “work.”   St. Paul contends only an accident which occurs while the “work” is actually being performed, as opposed to while preparations for the “work” are being made, can “result from” the “work.”   St. Paul in essence contends that “work” refers to the physical construction, and that fetching tools is not within the scope of the “work.”

 If, contrary to St. Paul's construction, fetching tools is within the scope of the “work,” it appears that here we consider an accident that could be said to have “resulted from” fetching tools.   Insurance policies must be construed consistently with common understanding of the language used, with words interpreted in their “ordinary and popular sense.”  (AIU Ins. Co. v. Superior Court (1990) 51 Cal.3d 807, 821–822, 274 Cal.Rptr. 820, 799 P.2d 1253.)   This proposition has been described as “bedrock.”  (Bay Cities Paving & Grading, Inc. v. Lawyers' Mutual Ins. Co. (1993) 5 Cal.4th 854, 867, 21 Cal.Rptr.2d 691, 855 P.2d 1263.)   It is an ordinary usage to say that a worker is working when he fetches necessary tools.   Indeed, time spent fetching tools would normally be considered as within the scope of work in various other legal contexts.5  The language in St. Paul's policy thus cannot be construed according to St. Paul's claim of “plain meaning,” because it does not plainly have a meaning placing the act of fetching tools outside the scope of the term “work.”   Nor does it have a plain meaning excluding an accident occurring during the fetching of tools from the scope of the “results from” language.

 Whenever an insurance policy provision is susceptible to two different constructions, both of which are reasonable, that provision is ambiguous.   (Waller, supra, 11 Cal.4th 1, 18, 44 Cal.Rptr.2d 370, 900 P.2d 619;  Bay Cities Paving & Grading v. Lawyers' Mutual Ins. Co., supra, 5 Cal.4th 854, 867, 21 Cal.Rptr.2d 691, 855 P.2d 1263.)   When policy language is ambiguous, certain rules governing interpretation of ambiguities in insurance policies then apply.  (Bank of the West v. Superior Court, supra, 2 Cal.4th 1254, 1264, 10 Cal.Rptr.2d 538, 833 P.2d 545.)   The language used here can reasonably be read to cover an accident occurring while fetching tools as an accident resulting from the work.   Whether the more limited construction championed by St. Paul is reasonable is more difficult to evaluate, since the exact parameters of that construction are not clear.   For purposes of appeal, however, we acknowledge the theoretical possibility of a meaning more narrow than the one urged by Heller.

 The first rule for resolving such an ambiguity is to interpret the provision in accordance with the insured's “objectively reasonable” expectations, defined as the manner in which the insurer believed the insured understood the provision.  (AIU Ins., supra, 51 Cal.3d 807, 822, 274 Cal.Rptr. 820, 799 P.2d 1253;  Croskey, et al, Cal. Practice Guide:  Insurance Litigation (Rutter 1995) [¶] 4:79 et seq.)   To the extent application of this rule necessitates factual inquiry, we are without the means to initiate it on appeal, just as the trial judge was without the means to require it on demurrer.   Hence, in keeping with the Montrose “potentiality” principle, we inquire simply whether the policy provision in question could potentially be construed to cover the loss here involved, assuming appropriate evidentiary support.   Since the answer to that question is yes, the demurrer should have been overruled and the case should have been permitted to proceed into necessary factual determinations.   To the extent that there is no relevant evidence or relevant facts to be determined, and that the policy must be construed simply as a matter of law and abstract semantics, we find it reasonable for an insured to expect coverage for an accident occurring while a worker was fetching needed tools on the theory that such an accident “results from” doing the work.

Assuming that application of the “expectations of the insured” rule does not resolve the ambiguity, ambiguous policy language is then construed against the party who caused the ambiguity to exist.  (Croskey, et al, Cal. Practice Guide:  Insurance Litigation (Rutter 1995) [¶] 4:79 et seq.)   While policy language is usually the responsibility of the insurer, that is not necessarily the case, especially where manuscript language is involved.   However, we again have no way to determine, on a demurrer, which party caused the ambiguity to exist.   St. Paul alleges that the ambiguous language here resulted from language used by Heller in its subcontract, but that is a matter for proof, not demurrer.   A demurrer cannot properly be sustained on this basis while the facts remain undeveloped.

5. The outcome in the underlying case does not control the ruling on demurrer.

 Between the time that a first demurrer was sustained to the initial complaint and the time the demurrer to the first amended complaint was sustained without leave, the underlying case against Heller was tried.   The result was a finding that Heller was 100 percent liable;  other subcontractors were found not liable.6  (In an unpublished decision, we affirmed the judgment against Heller because there was substantial evidence that the accident was caused by the lack of sufficient lighting, and that Heller was responsible for lighting).   What effect the verdict in the underlying case had on the trial court's ruling on the demurrer is unclear, but for two reasons it should have had no effect:

 First, the duty to defend must be evaluated as of the time of tender.  (Montrose Chemical Corp. v. Superior Court, supra, 6 Cal.4th 287, 295, 24 Cal.Rptr.2d 467, 861 P.2d 1153;  B & E Convalescent Center v. State Compensation Ins. Fund (1992) 8 Cal.App.4th 78, 92, 9 Cal.Rptr.2d 894;  Croskey, et al., Cal. Practice Guide:  Insurance Litigation [¶] 7:604 et seq.)  If a duty exists on the basis of facts known at that time, the duty continues until proven otherwise.  (Montrose Chemical Corp., supra, 6 Cal.4th 287, 295, 24 Cal.Rptr.2d 467, 861 P.2d 1153.)   The insurer cannot rely on a subsequent judgment to show an earlier lack of coverage and hence lack of a duty to defend at an earlier time.  (Mullen v. Glens Falls Ins. Co. (1977) 73 Cal.App.3d 163, 173, 140 Cal.Rptr. 605.)

 Second, even had it initially been known that Heller was 100 percent liable for the worker's injuries, this would still not legally preclude a finding that those injuries “resulted from” the subcontractor's “work” and hence were covered by St. Paul's policy.   The argument that these injuries cannot be covered if Heller is 100 percent liable is based on the proposition that the additional insured endorsement covers only those injuries for which Heller is found vicariously liable.   This is not a legally compelled construction of the language used, and hence resort must be had to the rules for construing ambiguous provisions.   As noted above, these rules could theoretically raise underlying factual issues, thus precluding determination on demurrer.7

6. The demurrer to the bad faith claim must also be overruled.

Finally, Heller's first amended complaint alleged breach of the covenant of good faith and fair dealing by St. Paul, generally on the theory that St. Paul had unreasonably interpreted the policy language in issue.   The validity of this claim may depend upon what evidence does or does not develop.   Without passing judgment on those unknown possibilities, we find it sufficient for pleading purposes that St. Paul's construction in this instance could be found unreasonable, especially in view of the standard rules of policy interpretation applicable here.


The judgment of dismissal after the sustaining of the demurrer without leave to amend is reversed and remanded for further proceedings not inconsistent with this opinion.8


1.   No issue is raised on this appeal regarding the possible effect of Privette v. Superior Court (1993) 5 Cal.4th 689, 21 Cal.Rptr.2d 72, 854 P.2d 721.   Various ramifications of the Privette decision are now pending before the Supreme Court.  (See order granting review (March 14, 1996 (S050870)) in Toland v. Sunland Housing Group, Inc. (1996) 44 Cal.App.4th 1555, 47 Cal.Rptr.2d 373:  “The issues to be argued before this court shall be limited to whether, after Privette v. Superior Court (1993) 5 Cal.4th 689, [21 Cal.Rptr.2d 72, 854 P.2d 721], a subcontractors' employee has a cause of action for direct liability against a general contractor or developer.”)   This appeal involves only issues of insurance policy interpretation.

2.   An order sustaining a demurrer is not an appealable order.   (Lavine v. Jessup (1957) 48 Cal.2d 611, 614, 311 P.2d 8.)   However, a judgment of dismissal was entered prior to the filing of the notice of appeal.   We construe the appeal to be from the judgment of dismissal.   (Wilson v. Household Finance Corp. (1982) 131 Cal.App.3d 649, 651–652, 182 Cal.Rptr. 590 [adding paragraph dismissing action so appeal could be taken following order sustaining demurrer];  accord Childs v. PaineWebber Incorporated (1994) 29 Cal.App.4th 982, 988, fn. 2, 35 Cal.Rptr.2d 93.)

3.   The endorsement adding Heller as an additional insured was not included in the voluminous attachment to the first amended complaint, whether by tactical design or by inadvertence is not clear.  (The endorsement was attached to the original complaint.)   However, St. Paul's demurrer to the first amended complaint quoted the additional insured endorsement verbatim.   St. Paul's construction of the additional insured endorsement was the basis for its demurrer and the basis for the court's ruling.   We thus treat as waived any objection that the additional insured endorsement was not included in the attachment to the first amended complaint.

4.   This is the law at least regarding typical policy clauses on duty to defend.   No atypical defense duty clause has been cited in this litigation.

5.   For example, the area of workers' compensation law, which is admittedly less restrictive than tort law in finding coverage or liability (Nash v. Workers' Comp. Appeals Bd. (1994) 24 Cal.App.4th 1793, 1809, 30 Cal.Rptr.2d 454) nevertheless provides some guidance.   An injury is deemed within the course and scope of employment for workers' compensation purposes when an employee is injured, even after discharge as an employee, while retrieving tools at the employer's premises.  (Mitchell v. Hizer (1977) 73 Cal.App.3d 499, 507–508, 140 Cal.Rptr. 790;  accord Shoemaker v. Myers (1990) 52 Cal.3d 1, 19, 276 Cal.Rptr. 303, 801 P.2d 1054.)   In the case at bench, the injury occurred during the term of employment while the injured employee was on the work site retrieving his tools in order to proceed with the day's activities.

6.   St. Paul argues that Heller was obligated to join these other alleged tortfeasors in Heller's instant suit against St. Paul.   The issue here, however, is Heller's rights under St. Paul's policy.   There was no need for Heller to join other parties to this suit.

7.   In the trial court, St. Paul sought judicial notice of Heller's subcontract with the employer of the injured worker, which described the insurance to be obtained in a way that would exclude coverage of an injury caused 100 percent by Heller itself.   This was evidence favoring St. Paul's position, but it is not necessarily dispositive and cannot support a ruling on demurrer as a matter of law.   Among other things, it was not conclusively established for purposes of demurrer that it was known at the time of tender that the injury was due 100 percent to Heller's negligence, hence a duty to defend could exist whatever the language means.   The potential was certainly present that the negligence of others could have contributed.   Nor does the record conclusively establish that the policy as issued was issued in response to and as limited by Heller's subcontract with its subcontractor.   The record was established only to the point of demurrer, and hence does not fully develop the facts.

8.   Assuming that the injured worker's case against Heller is final by the time this matter is again taken up by the trial court, declaratory relief may no longer be necessary.   That is a matter for the trial court's sound discretion.

ZEBROWSKI, Associate Justice.

BOREN, P.J., and NOTT, J., concur.