RESERVE INSURANCE COMPANY v. PISCIOTTA (1981)

Until May of 1976 John Pisciotta's boat was insured by United States Fidelity and Guaranty Company (U. S. F. & G.) for bodily injury and property damage resulting from its use, with single limits of $300,000 per occurrence. Renewal was not available. Pisciotta was considering a sale of the boat and did not seek other watercraft liability insurance when the policy lapsed, even though his insurance agent, Ernie C. Busch, sent him an application for it.

Busch also had obtained a “Personal Umbrella Supplement” for Pisciotta from CNA Insurance Group (CNA). The U. S. F. & G. policy (along with other policies) was listed on the CNA policy in the latter's “Schedule of Underlying Insurance,” which thereby provided that CNA would cover any liability related to the boat in excess of $300,000 and up to $1 million (per occurrence).

On Friday, June 25, 1976, Pisciotta's secretary called Busch's office to arrange for another primary boat policy because Pisciotta was taking the boat on a family camping trip. Busch arranged for a watercraft liability policy from Reserve Insurance Company (Reserve), with combined single limits of $100,000; it became effective at 12:01 a. m. on June 25. Tyler Campbell, Pisciotta's wife's son by a previous marriage, was seriously injured that evening when the boat collided with another operated by one George Brannigan.

Pisciotta, Brannigan, and several others were named defendants in a damage suit brought by Campbell through his mother. Reserve employed counsel to defend Pisciotta, then filed this action against him seeking a declaration of nonliability by virtue of a policy clause excluding coverage for injuries to members of the family of the insured residing in the same household. Pisciotta cross-complained for declaratory relief against Reserve, CNA, and Busch; he sought indemnification from CNA as to any future judgment in favor of Campbell exceeding $100,000 and indemnification from Busch for the asserted $200,000 gap in coverage allegedly caused by Busch's negligence in his capacity as agent for Reserve and CNA. Busch then cross-complained against Reserve and CNA seeking indemnity, declaratory relief, reformation, and damages, for negligent misrepresentation by their agents.

The trial proceeded in three stages. The issue of Reserve's exclusion clause and coverage was first tried to the court alone. The court determined the word “family” in the clause to be ambiguous, resolved the ambiguity against Reserve, and found Pisciotta covered for liability to his stepson under the Reserve policy. The question of Busch's negligence was then tried to a jury which found, in special verdicts, that 75 percent of the $200,000 coverage gap was attributable to Busch's negligence and 25 percent to that of Pisciotta. The third stage, CNA's coverage, was then briefed and argued to the court.

Judgment was entered on April 24, 1979. The trial court held Reserve responsible for Pisciotta's defense in the Campbell suit and ordered Reserve to pay the first $100,000 of any damages awarded therein. Busch was held liable for the next $150,000 and CNA for up to $1 million after the Reserve and Busch payments. Pisciotta was awarded costs against Reserve and $3,400 attorney fees against Busch. Reserve, CNA, and Busch have appealed.

The Reserve Policy

All parties to the appeal argue that we must consider the case in light of Reserve's apparent current insolvency, notice of which was filed in the trial court two months after the judgment. The general rule is that matters occurring after the entry of judgment are not reviewable (see 6 Witkin, Cal.Procedure (2d ed. 1971) Appeal, s 220, p. 4210), and we see no reason here to depart from that rule. Moreover, in view of our ultimate decision as to Reserve, the issue is academic.

Reserve's dominant claim is that the trial court erred in its construction of the family exclusion clause. The clause reads: “This section (Boat Liability and Boat Medical Payments Insurance) does not apply: under Coverage B (Boat Liability Insurance) to bodily injury to the insured or to any member of the family of the insured residing in the same household as the insured. (P) The unqualified word ‘insured’ includes: (1) with respect to owned property, (a) the named insured and any relative, and (b) any other person, provided the actual use (of the boat) is with the permission of the named insured and such use is within the scope of the permission granted ”¹

Finding that multiple dictionary definitions of the term “family” made it equally possible to construe Reserve's policy both to cover and not cover the injury to Campbell, the trial court construed the term against Reserve and found coverage, applying the rule that ambiguities are construed against the insurer.

We cannot agree with a conclusion of ambiguity in this context. As our Supreme Court has noted, “There is little to be gained by reviewing the numerous definitions given by the courts and lexicographers of the words ‘family’ and ‘household.’ They mean different things under different circumstances.” (Moore S. Corp. v. Industrial Acc. Com. (1921) 185 Cal. 200, 207, 196 P. 257.) In this case, trial testimony showed that Mr. and Mrs. Pisciotta treated and treat both Campbell and his full-blood brother as members of the basic family unit; they live together, celebrate holidays together, and vacation together. Pisciotta supports the boys both financially and emotionally. In this situation, blood relationships are irrelevant; in any ordinary and reasonable sense of the word, Campbell is a member of Pisciotta's “family.” Since the ordinary meaning of terms in a contract should govern, and since courts should avoid forced constructions (Farmers Ins. Exch. v. Harmon (1974) 42 Cal.App.3d 805, 809, 117 Cal.Rptr. 117), the trial court erred in finding an ambiguity. There is no way Campbell's status could have been anything but a “member of the family of the insured residing in the same household as the insured.” The exclusion applies.

The CNA Policy

CNA's Personal Umbrella Supplement requires it to pay “all sums which the insured shall be obligated to pay by reason of the liability imposed upon the insured by law as defined by the term ‘ultimate net loss' (the total recovery of an injured person) on account of Personal Injury ” Its obligation is limited however to that portion of such loss which exceeds “the amount recoverable under the underlying insurance as set out in the schedule of the underlying insurance, ” and up to $1 million. As noted, the underlying watercraft insurance set forth in the schedule at the time of the accident was the $300,000 U. S. F. & G. policy. A further provision of the insuring contract requires the insured to maintain the underlying insurance or replace it with equivalent coverage; and additionally provides that if this is not done, CNA is liable only to the extent it would be if the listed coverage were in fact maintained.

The limiting language is in no way equivocal. It is abundantly clear from the above that the CNA policy provided coverage under any circumstances only for sums in excess of $300,000 (up to its million dollar limit), and the trial court so found in its formal findings of fact and conclusions of law. In a further paragraph thereof, however, the court inconsistently concluded that CNA was obligated to pay Pisciotta's damages “immediately after payment by Busch of up to $150,000.” The judgment reflects this conclusion. The effect is to make CNA responsible for $50,000 in potential damages to Campbell before the amount reaches $300,000. This is error. The judgment must therefore be modified to eliminate the requirement for payment by CNA of any part of the Campbell damages below $300,000.

Busch's Liability

Busch contends there is no substantial evidence to support the jury's finding that he was negligent, that Pisciotta failed to sustain his burden of proof by not presenting expert testimony at the trial, that the layered liability in the judgment is incorrect, and that the award of attorney fees to Pisciotta was improper.

The substantiality of the evidence of Busch's negligence in obtaining only $100,000 of coverage appears in his own testimony. He stated that he understood $300,000 of underlying coverage was required by the CNA policy, that he is an expert in insurance brokerage, and that it was his duty to obtain adequate insurance for Pisciotta and inform him of any coverage problems. He also testified he should have informed Pisciotta that he didn't have time to review his file on the 25th, that he was not aware of the coverage gap on that date, and that he had serious doubts when he mailed the application that Pisciotta and his family would be covered properly. This evidence is sufficient to sustain the jury's verdict; it also disposes of Busch's contention that Pisciotta should have presented expert testimony on the standard of care of an insurance broker. If any such evidence was needed (which we do not decide) to assist the jury, it was supplied by Busch himself.

Nevertheless, the judgment in favor of Pisciotta and against Busch cannot stand. As we have held, the Reserve policy did not cover the accident because of the family exclusion clause. The jury by special verdict found Busch not negligent in procuring a policy containing this exclusion. Hence Busch's negligence in procuring insufficient policy limits did not proximately cause any damage to Pisciotta as a matter of law, for had Reserve's limits been $300,000, $100,000, or any other sum, Reserve still would not have supplied coverage, and through no fault of Busch.

With the fall of the judgment of Pisciotta against Busch, the remaining contentions of Busch are resolved. The layered liability question becomes moot along with the sufficiency of evidence and expert testimony questions, and the award of attorney fees likewise falls.

The judgments against Reserve and Busch are reversed. The judgment against CNA is modified so as to delete any liability on its part for any of Campbell's damages below $300,000. Plaintiffs Reserve, Busch and CNA shall recover costs on appeal.

FOOTNOTES

1.  A similar exclusion in an automobile liability policy was struck down by this court on statutory grounds in Phelps v. Allstate Ins. Co. (1980) 106 Cal.App.3d 752, 165 Cal.Rptr. 263 (hg. den. August 8, 1980). The question of the constitutionality of the statute (Ins.Code, s 11580.1, subd. (c)(5)), is currently pending before the Supreme Court in State Farm Mut. Auto. Ins. Co. v. Smith (former citation 109 Cal.App.3d 575, 167 Cal.Rptr. 410). We note that the statute at issue there deals only with motor vehicle insurance; it has no application to the present watercraft coverage question, as to which there is no statutory limitation. (See National Ins. Underwriters v. Carter (1976) 17 Cal.3d 380, 387-388, 131 Cal.Rptr. 42, 551 P.2d 362.)

PARAS, Acting Presiding Justice.

REYNOSO and BLEASE, JJ., concur.