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Court of Appeal, Second District, Division 4, California.

GREAT SOUTHWEST FIRE INSURANCE COMPANY, Plaintiff and Respondent, v. T.E. HARMS, et al., Defendants and Appellants.

No. B001271.

Decided: March 22, 1985

Hillsinger & Constanzo, John J. Costanzo and Gary L. Green, Los Angeles, for defendant and appellant T.E. Harms. Greene, O'Reilly, Broillet, Paul Simon, McMillan, Wheeler & Rosenberg, Timothy J. Wheeler and Steven J. Wilson, Los Angeles, for defendant and appellant Arcadia Unified School Dist. Clausen, Harris & Campbell, Kenneth H. Clausen and Marie D. Clause, Los Angeles, for plaintiff and respondent.

Defendants appeal from an adverse judgment in an action for declaratory relief as to the coverage of an insurance policy.   We reverse.

Defendant Harms is the named insured in a policy issued by plaintiff insurance company.   He contends, and the insurer denies, that that policy insures him against a liability to defendant school district.   The trial court, sitting without a jury, held that there was no coverage against that liability.

Defendant Harms is a roofing contractor.   On opening his business, he went to an insurance broker, Kramer, to procure insurance for himself.   Kramer secured a policy for Harms with the plaintiff insurance company.   The extent of coverage afforded by that policy is the issue here.

Harms entered into a contract with defendant school district to perform work for it.   An employee of Harms named Ramirez was injured while working on that job under circumstances rendering both Harms and the school district potentially liable for his injuries.   Ramirez has sued the district (Harms is covered as far as Ramirez's right to worker's compensation benefits are concerned by his worker's compensation insurance).   The district has cross-complained against Harms, relying on a “save harmless” provision in its contract with Harms.   The dispute herein involved is over the duty of plaintiff insurer to protect Harms against that indemnity suit.

At the trial, the trial court first held a hearing on the issue of whether the exclusionary clause relied on by plaintiff 1 was clear or ambiguous.   The court rendered a formal ruling that the clause in question was unclear and ambiguous.   The plaintiff does not contend that that ruling was incorrect but urges that the effect of that ruling was to simply require the taking of evidence as to the intention of the parties as to what coverage the parties desired or intended.   It urges that the evidence was uncontradicted that the parties intended an ordinary public liability policy and did not intend contractual coverage.

The trial then proceeded, with substantial evidence as to the expectations of Harms as to whether the policy did cover the liability involved.   Eventually, the trial court held that Harms had had no expectation that the policy would cover any liability under a “save harmless” clause such as is here involved.



 As our Supreme Court explained in State Farm Mut. Auto. Ins. Co. v. Jacober (1973) 10 Cal.3d 193, 110 Cal.Rptr. 1, 514 P.2d 953:  “[A]n insurer cannot escape its basic duty to insure by means of an exclusionary clause that is unclear.   As we have declared time and time again ‘any exception to the performance of the basic underlying obligation must be so stated as clearly to apprise the insured of its effect.’  (Gray v. Zurich Insurance Co. (1966) 65 Cal.2d 263, 269 [54 Cal.Rptr. 104, 419 P.2d 168] );  thus, ‘the burden rests upon the insurer to phrase exceptions and exclusions in clear and unmistakable language.’  (Harris v. Glens Falls Ins. Co. (1972) 6 Cal.3d 699, 701 [100 Cal.Rptr. 133, 493 P.2d 861].)  The exclusionary clause ‘must be conspicuous, plain and clear.’  (Steven v. Fidelity & Casualty Co. (1962) 58 Cal.2d 862, 878 [27 Cal.Rptr. 172, 377 P.2d 284].)”  (State Farm Mut. Auto. Ins. Co. v. Jacober, supra, 10 Cal.3d at pp. 201–202, 110 Cal.Rptr. 1, 514 P.2d 953;  italics in original.)

 Any reasonable doubt as to ambiguous language in an adhesive policy of insurance such as the one here involved must be resolved in favor of the insured.  (Miller v. Elite Ins. Co. (1980) 100 Cal.App.3d 739, 161 Cal.Rptr. 322.)   The Miller court explains at pages 751 and 752:  “[A]ny ambiguity is to be interpreted against the insurer and reasonable doubts as to uncertain language should be resolved against the insurer.  [Citation.]  The policy should be read as a layman would read it, interpreting the terms in an ordinary and popular sense as a person of average intelligence and experience would understand them.  [Citation.]  Any exclusionary clause must be conspicuous, clear and plain and construed strictly against the insurer and liberally in favor of the insured.  [Citation.]”  (See Schilk v. Benefit Trust Life Ins. Co. (1969) 273 Cal.App.2d 302, 308, 78 Cal.Rptr. 60;  see also Ponder v. Blue Cross of Southern California, supra, 145 Cal.App.3d 709, 193 Cal.Rptr. 632.)

 The trial court found in the case at bench that “the policy of insurance issued by Great Southwest Fire Insurance Company to defendant T.E. Harms as to exclusions contained therein is not clear and unambiguous.   It is unclear and ambiguous.”  (Emphasis in original.)   It is not here contended that the provisions in question were other than ambiguous.   After independent review of that language we agree with the trial court's determination that the exclusions in question were unclear and ambiguous.   Moreover, rather than being conspicuous, the exclusions are buried in a sea of print which, on the one page on which they appear, contains over 1,700 words.   On the other hand, at least one other exclusion, i.e., the exclusion for punitive or exemplary damages is on an endorsement in type at least twice as large as that of the exclusions here involved.   We, therefore, conclude that the exclusions respondent rely on are anything but conspicuous, plain and clear.  (Steven v. Fidelity & Casualty Co., supra;  see also Ponder v. Blue Cross of Southern California (1983) 145 Cal.App.3d 709, mod. 146 Cal.App.3d 779a, 193 Cal.Rptr. 632, [as modified].)


 Respondent insurer contends that the effect of the decision by the trial court that the policy exclusions were unclear and ambiguous was simply to require the taking of evidence of the intentions of the contracting parties.   They urge that Harms' intentions were, in effect, delineated by the insurance broker, Kramer, who negotiated on Harms' behalf with an individual from Compass Insurance on behalf of Great Southwest.   In behalf of their position in this regard respondent cites us to Sequoia Insurance Co. v. Miller (1984) 156 Cal.App.3d 563, 202 Cal.Rptr. 866 2 and Wint v. Fidelity & Casualty Co. (1973) 9 Cal.3d 257, 107 Cal.Rptr. 175, 507 P.2d 1383.

Respondent is incorrect insofar as its contention would impose on a named insured who purchases and pays for a policy of insurance both an objective and a subjective standard in interpreting exclusional language in an insurance policy.   It appears clear to us that the test is solely an objective one in terms of reasonable expectations of an ordinary lay person, i.e., “as a person of average intelligence and experience would understand them.”   As Miller v. Elite Ins. Co., supra, 100 Cal.App.3d, goes on to explain at pages 751–752, 161 Cal.Rptr. 322:  “Where a strict, literal interpretation of a clause would unreasonably restrict the coverage of the policy, such an interpretation cannot be foisted onto a layman nor can it be defended in terms of the risks which the layman sought to insure against.”  (See also Ponder v. Blue Cross of Southern California, supra, 145 Cal.App.3d 709, 193 Cal.Rptr. 632.)

Further, respondent's reliance on Wint v. Fidelity & Casualty Co., supra, is misplaced.   As Justice McComb, writing for the majority in Wint, 9 Cal.3d, points out at page 261, 107 Cal.Rptr. 175, 507 P.2d 1383, of that opinion:  “[A]ny ambiguity [in an adhesion contract of insurance] must be construed against the insurer.  [Citations.]”  (See also Miller v. Elite Ins. Co., supra, 100 Cal.App.3d 739, 161 Cal.Rptr. 322.)   It is only where there is no ambiguity with respect to exclusional language in an adhesive policy of insurance or where the exclusion is not conspicuous, plain and clear, that we need examine the reasonable expectations of the named insured.   Otherwise the policy provision is interpreted strictly against the drafting insurer and liberally in favor of the insured in accordance with the ordinary rules of contract construction.  (Miller v. Elite Ins. Co., supra, 100 Cal.App.3d 739, 161 Cal.Rptr. 322.)   The Wint majority, in fact, found coverage in favor of the named insured on the one policy he purchased in the face of an ambiguous exclusion without discussing whether that named insured had even read the policy.  (Wint v. Fidelity & Casualty Co., supra, 9 Cal.3d at pp. 261–264, 107 Cal.Rptr. 175, 507 P.2d 1383.)   As Justice McComb explained for the majority on page 264, 107 Cal.Rptr. 175, 507 P.2d 1383, of Wint regarding a business pursuit exclusion in one of the policies there in question:  “Under the circumstances, there being no ambiguity with respect to the exclusion ․ it remains only for us to determine if under the language of the policy the insurer has led the insured reasonably to believe that a defense would be provided.”  (Emphasis added.)

Thus, it was only after it concluded that the exclusional language in the homeowner's policy of another person was unambiguous that the majority in Wint went on to consider the reasonable expectations of a person claiming to be an additional insured thereunder.  (Ibid.)  Under those distinguishable circumstances the Wint majority concluded that the reasonable expectations to be considered were those of such a person (i.e., a named insured who purchased and paid for the policy) and not those of someone claiming to be an additional insured thereunder.  (Wint v. Fidelity & Casualty Co., supra, 9 Cal.3d at pp. 264–265, 107 Cal.Rptr. 175, 507 P.2d 1383.)   In so concluding, the Wint majority stated at page 265, 107 Cal.Rptr. 175, 507 P.2d 1383, of its opinion that “it would be unreasonable for [the named insured] to have assumed that part of the premium he paid for the policy was to purchase the protection of a defense to someone claiming to be an additional insured, when such person, because of a clear exclusionary clause in the policy, actually had no basis for sustaining his claim of being covered thereunder.   Furthermore, our holding in Gray is premised upon a finding that the policy provisions reasonably led the insured to expect to be defended.   Here, [the additional insured] had never seen the policy and probably did not even know of its existence, and hence cannot claim that it reasonably led him to expect to be defended.”

We see no reason to perpetuate the unwarranted myth that ordinary lay persons who buy liability insurance read every word of their adhesive insurance policies containing seas of hypertechnical and often incomprehensible language when they receive them.   To conclude from that incorrect premise that a named insured who purchases a policy of liability insurance is barred from recovery solely because he has not read and relied on his reading of an ambiguous and unclear exclusion in such policy does violence to both logic and the law of construction of contracts.   Even had he read it an ordinary lay insured could have understood little or nothing from the unclear and ambiguous exclusional language in the policy we consider here.


 But even assuming, arguendo, as we do not, that Mr. Harms' specific reasonable expectations had to be met, we believe that Mr. Harms' uncontroverted testimony as to his reasonable expectations surrounding his purchase of the policy in question compels a reversal.   We do not believe that such requirement is altered by the expectations of the broker, Kramer, for the law is settled that where reasonable expectations are relevant in interpreting provisions of adhesive policies of insurance, it is the reasonable expectations of an average, ordinary lay person buying that insurance that is relevant and not the expectations of people involved in the business of insurance.

It is true that Mr. Harms had no prior experience with, or knowledge of, a hold harmless agreement.   Mr. Harms' uncontroverted testimony was, however, (1) that he knew that one of the bid requirements of the school district was that he have insurance;  (2) that he understood that among his obligations he was to “[p]ut on a good roof and to protect [the school district] and everybody else from injury or anything else”;  and (3) that when he requested an insurance policy it was his desire, among other things, to be protected by it “with respect to [his] responsibility towards the Arcadia School District.”   Those were his expectations as an ordinary lay person, phrased as such a lay person might phrase them.   While admittedly those expectations were not phrased in elegant or pristine legal terminology, there is no requirement we know of that they need be.   We believe the phraseology was adequate enough to express his reasonable expectation of coverage from legal responsibility to the district.

The judgment is reversed.

I dissent:

I cannot agree that, in this case, on the record before us, Mr. Harms is entitled to receive coverage from the plaintiff against his liability to the district under the “hold harmless” clause in his contract with the district.

Beginning with the seminal case of Gray v. Zurich Insurance Co. (1966) 65 Cal.2d 263, 54 Cal.Rptr. 104, 419 P.2d 168, the theory of the cases always has been that the insurer may not, by using ambiguous language, lead its insured into believing that he was covered against a risk that the insurer did not intend to cover.   For the theory of protecting insureds against fraud, it is necessary that there have been some ambiguous statements by the insurer on which the insured has relied.   An insured who is so indifferent to the actual terms of his policy as not to read it, cannot claim to have been mislead or defrauded.

It is of no consequence that Mr. Harms may have instructed his agent, Kramer, to secure coverage against every possible liability.   Mr. Harms may have some cause of action against Kramer for not meeting Kramer's fiduciary duty to Harms, but that does not mean that Harms has a claim against the insurer for not issuing an unambiguous policy that Kramer should have ordered.   If Mr. Harms was so trusting as to assume, without checking the policy, that Kramer had fulfilled Harms' vague direction, that does not mean that the insurer, ignorant of Mr. Harms' broad hopes, must issue a policy that no one had ever told it the insured desired.   If Mr. Harms was cheated with regard to coverage, the wrong was that of Kramer, not the insurer.

The case for the insurer, on the facts before us, is strengthened by the admitted fact that Mr. Harms had never heard of “hold harmless” clauses (apparently he was as negligent in reading his contract with the district as he was with respect to the policy).   Not knowing that the “hold harmless” clause subjected him to the risk herein involved, he would not have read the policy as covering what, to him, was a non-existent risk.

It is unfortunate that Mr. Harms' inexperience has led him to become uninsured, but our sympathy cannot allow this court to make the insurer his guardian angel.


1.   The provision in question reads as follows:  “This insurance does not apply (a) to liability assumed by the insured under any contract or agreement except an incidental contract;  but with respect to bodily injury or property damage occurring while work performed by the named insured is in progress.   This exclusion does not apply to a warranty that such work will be done in a workmanlike manner;  [¶] ․  [¶] to bodily injury to an employee of the insured arising out of and in the course of his employment by the insured or to any obligation of the insured to indemnify another because of damages arising out of such injury, but this exclusion does not apply to liability assumed by the insured under an incidental contract.”

2.   Sequoia Insurance Co. v. Miller, supra, was decertified for publication by the Supreme Court on August 9, 1984, over four months before respondent cited us to it.   We therefore may not consider it.

McCLOSKY, Associate Justice.

WOODS, P.J., concurs.