ALLSTATE INSURANCE COMPANY v. REEVES (1976)

OPINION

Defendant and appellant Winnie Reeves appeals from a judgment decreeing that an insurance policy issued by plaintiff and respondent did not afford coverage to her husband, Walter Reeves (now deceased) for injuries sustained by appellant while a passenger in a vehicle being driven by her husband.

Walter and Winnie Reeves were husband and wife on October 3, 1973, on which date a car driven by Walter crashed into another vehicle with the result that Walter was killed and Winnie seriously and permanently injured.

Walter Reeves had been an insured of respondent for many years, successive policies designated as ‘Crusader’ having been issued to him each year with many changes in coverage from time to time as he acquired or disposed of insured vehicles. On April 22, 1973, Allstate reissued its Crusader Policy for a one-year period with policy limits of $25,000/$50,000/$10,000 for each occurrence with uninsured motorists coverage. On April 27, 1973 at the request of Mr. Reeves the policy limits were increased to $100,000/$300,000.

Winnie Reeves brought suit against the executrices of her husband's estate for her injuries. Allstate denied coverage and filed the declaratory relief action which is the subject of this litigation to determine the issue of coverage.

Before undertaking an analysis of the arguments of the contending parties we observe that the instant case is but another in the seemingly endless list of cases involving the construction and delivery of insurance policies wherein the protagonists assert their ingenious interpretations of such simple words as an ‘an’ or a ‘the’ with all the forensic dexterity at their command.

But some things are clear. It is undisputed that all policies issued prior to the one here in question would have provided conerage for the insured, Walter Reeves for his wife's injuries. And though the particulars are unclear it is also undisputed that with the policy renewal on April 22, 1973, apparently in response to the case of Brown v. Merlo (1973) 8 Cal.3d 855, 106 Cal.Rptr. 388, 506 P.2d 212 and the extension of liability announced therein Allstate ‘sent’ a document entitled ‘AMENDATORY ENDORSEMENT’ which endorsement forms the focal point of this case. The only proof that this endorsement was ‘sent’ to Mr. Reeves is that it was found among his effects after his death. No cover letter was found nor is it shown that one was sent.

The policy itself contained, inter alia, the following provisions:

‘SECTION I—LIABILITY PROTECTION

PART 1.

‘Automobile Liability Insurance

‘Coverage A—Bodily Injury

‘Coverage B—Property Damage

‘Allstate will pay for an insured all damages which the insured shall be legally obligated to pay because of:

‘A. bodily injury sustained by any person, and

‘B. injury to or destruction of property, arising out of the ownership, maintenance or use, including loading and unloading, of the owned automobile or a non-owned automobile. . . .

‘The following persons are insured under this Part

‘1. The named insured with respect to the owned or a non-owned automobile;

‘2. Any resident of the named insured's household with respect to the owned automobile;

‘3. Any other person with respect to the owned automobile, provided the actual use thereof is with the permission of the named insured; . . .’ (CT 8.)

‘Definitions of words used under this Part

‘1. Persons Insured

‘(a) ‘insured’ means any person or organization listed as insured in this Part;

‘(b) ‘named insured’ means the individual named on the Supplement Page, and his spouse if a resident of the same household; and

‘(c) ‘relative’ means a relative of the named insured who is a resident of the same household.' (CT 9.)

The critical language in the amendatory endorsement reads as follows:

‘III. Exclusion 9 is added to Part 1 of Section I of the policy:

‘This policy does not apply to:

‘9. bodily injury to:

‘(a) the named insured, and

‘(b) any person who is related by blood, marriage, or adoption to the insured against whom claim is made if such person resides in the same household as the insured.’ (CT 25.)

The above quoted language was on the first page of a six page document with no indication by underlining or italicizing or otherwise drawing attention or explaining the manner in which the amendatory document changed the coverage which had theretofore been afforded the assured.

We are aware of the general rule that insurance policies are contracts and subject to certain exceptions are to be treated as other contracts. We are also cognizant of the general rule that by mutual assent contracts, i. e., insurance policies, may be amended and that payment of a premium, as in this case, by an assured after receiving a policy with an amendatory endorsement could be considered as assent to the amendatory provisions. However, under the facts of this case we do not believe that the necessary assent of the insured was procured.

It will be remembered that the policy herein was reissued and but for the amendatory endorsement would have provided insurance coverage for the present contingency. We cite the language in Logan v. John Hancock Mutual Life Insurance Co. (1974) 41 Cal.App.3d 988, 995, 116 Cal.Rptr. 528, 532, to-wit:

‘In the case of standardized insurance contracts, exceptions and limitations on coverage that the insured could reasonably expect, must be called to his attention, clearly and plainly, before the exclusions will be interpreted to relieve the insurer of liability or performance.’

We may infer from a silent record that had it been the practice of Allstate to enclose amendatory documents in envelopes which carried printing on their face to alert their insureds of the importance of the enclosures evidence of such practice would have been produced. We know also from the testimony of Allstate's claims supervisor that the amendatory endorsement was prepared specifically to ‘soften’ the impact of Brown v. Merlo, supra, 8 Cal.3d 855, 106 Cal.Rptr. 388, 506 P.2d 212 by removing from coverage the very risk upon which recovery is here sought. Yet there is no explanatory matter on the amendatory endorsement as to its purpose and the testimony of Allstate's insurance agent is that policy changes were not normally explained to Allstate's assureds unless a particular assured called upon his insurance agent to explain a particular policy provision. Of importance also is the fact that there is no suggestion that Reeves requested any amendment of his policy.

We think the law is well established that an insurer must convey to the insured an explanation of the provisions of his insurance policy in terms which he can comprehend. As we said in Young v. Metropolitan Life Ins. Co. (1969) 272 Cal.App.2d 453 at 460–461, 77 Cal.Rptr. 382 at 387:

‘It is now firmly settled that insurance contracts are contracts of adhesion between parties not equally situated (Steven v. Fidelity & Casualty Co., 58 Cal.2d 862, 27 Cal.Rptr. 172, 377 P.2d 284; Allen v. Metropolitan Life Insurance Co., supra, 44 N.J. 294, 208 A.2d 638). Consequently, the insurer, as the dominant and expert party in the field, must not only draft such contracts in unambiguous terms but must bring to the attention of the insured all provisions and conditions which create exceptions or limitations on the coverage (Steven v. Fidelity & Casualty Co., supra, 58 Cal.2d 862, 27 Cal.Rptr. 172, 377 P.2d 284). Manifestly, it should have even a greater duty to call attention to such provisions or conditions when they are contained in receipts given to an applicant after he has paid the premium in advance, because the very acceptance of an advance premium by the carrier tends naturally toward an understanding of immediate coverage though it be temporary and terminable (Wernecke v. Pacific Fidelity Life Ins. Co., 238 Cal.App.2d 884, 48 Cal.Rptr. 251).’

The language in Bauer v. Jackson (1971) 15 Cal.App.3d 358 at 370, 93 Cal.Rptr. 43 at 50 is of the same import.

‘Ordinarily when a person with capacity of reading and understanding an instrument signs it, he may not, in the absence of fraud, imposition or excusable neglect, avoid its terms on the ground he failed to read it before signing it. (Smith v. Occidental Etc., Steamship Co., 99 Cal. 462, 471, 34 P. 84; Oakland Bank of Commerce v. Washington, 6 Cal.App.3d 793, 800, 86 Cal.Rptr. 276; Currin v. Currin, 125 Cal.App.2d 644, 653, 271 P.2d 61; Nichols v. Hitchcock Motor Co., 22 Cal.App.2d 151, 155, 70 P.2d 654.) However, with respect to standardized adhesion contracts between parties of unequal bargaining strength, exclusionary clauses and provisions limiting liability have been held to be ineffective in the absence of ‘plain and clear notification to the public’ and ‘an understanding consent.’ (See Steven v. Fidelity & Cas. Co., 58 Cal.2d 862, 883, 27 Cal.Rptr. 172, 377 P.2d 284.)'

Here we have an insured who was offered no explanations or warnings with respect to the amendatory endorsement. We have an amendatory endorsement not requested by the insured, not discussed with the insured, not emphasized in any of its particulars by underlining, etc., and not sent in any conspicuous envelope. Admittedly, the endorsement contained in enlarged type the heading ‘Amendatory endorsement’. However, this heading only informed the insured that amendments were being made, not that they were significant changes affecting basic coverage. Faced with a technical six page document written in legal language difficult for any layman to understand, and aware that there was no change in premium or letter or document indicating the importance of the changes, an insured in all probability would assume the changes were minor, and would choose not to undertake the well nigh impossible task of attempting to understand their substance and significance. We think that a policyholder should not, like the outraged wife, be the last to know.

In the case of Ins. Co. of North America v. Electronic Purification Co. (1967) 67 Cal.2d 679, 691–692, 63 Cal.Rptr. 382, 390, 433 P.2d 174, 440, the California Supreme Court made this observation: ‘The instant case presents yet another illustration of the dangers of the present complex structuring of insurance policies. Unfortunately the insurance industry has become addicted in the practice of building into policies one condition or exception upon another in the shape of a linguistic Tower of Babel. We join other courts in decrying a trend which both plunges the insured into a state of uncertainty and burdens the judiciary with the task of resolving it. We reiterate our plea for clarity and simplicity in policies that fulfill so important a public service.’

While our situation is somewhat different here in that we are determining at this point whether adequate notice of an amendment to a policy was given, nevertheless the above quoted comments of the Supreme Court seem equally applicable.

The cases cited by respondent in support of its argument that the mailed notice was sufficient upon examination disclose that they actually point out the weaknesses in respondent's contention rather than lend support. For example, in the case of Industrial Indemnity Co. v. Industrial Accident Commission (1949) 34 Cal.2d 500, 506, 211 P.2d 857, 860, the insured who had been covered by a partnership policy which did not exclude relatives from its coverage changed his business to that of a sole ownership and requested a renewal of his policy. The policy was renewed but the renewal contained an exclusion of relatives employed by the insured. A relative of the insured was killed in an industrial accident and the insurer denied coverage upon the basis of the relative exclusion clause admittedly set forth in the policy. The court found that the exclusionary clause was not effective stating: ‘where an insurer requests an existing but expiring policy to be renewed, no change may be made in the terms of the renewal policy without notice to the insured.’

Similarly, in the case of Zito v. Fireman's Insurance Company (1973) 36 Cal.App.3d 277, 111 Cal.Rptr. 392, relied upon by respondent insurer, the insured was specifically told in unmistakable language that no coverage would be provided for the loss for which the insured later made claim. We find no comparable situation in our case.

We deem that fairness requires that when an insurer makes basic coverage changes in insurance afforded a long-time insured, it has an obligation to inform the insured, by cover-letter or a conspicuous heading to the amendatory endorsement, or some similar means, that the endorsement contains significant changes in coverage, and offering to explain and discuss the significance of the changes to the insured upon request.

The judgment is reversed.

FOOTNOTES

FOOTNOTE.  

THOMPSON, Associate Justice.* FN* Retired judge of the superior court sitting under assignment by the Chairman of the Judicial Council.

GEO. A. BROWN, P. J., and GARGANO, J., concur.