EMPLOYERS NATIONAL INSURANCE COMPANY v. CORNETT (1985)

Plaintiff, Employers National Insurance Company (Employers) appeals from an adverse judgment in a declaratory relief action brought by it.   Sean Christopher Cornett (Sean), while a passenger in a 1968 Volkswagen bus operated by his mother, Mary Cornett (Mary), was injured when the bus collided with a vehicle operated by Robert Fletcher (Fletcher), an employee of Durante Construction Company (Durante).   Sean, by his father, John Cornett (John), as guardian ad litem, brought suit for his injuries against Durante and Fletcher.   Durante cross-complained for implied comparative indemnity against Mary.

Employers had issued an automobile liability insurance policy to John and Mary.   The policy provided coverage for the named insured, John, and “any resident of the same household.”   John, Mary, and their son, Sean, were all residents of the same household on May 6, 1980, the date of the accident.   An exclusion clause in the policy stated that the policy did not apply “to liability for bodily injury to an insured.”

Employers filed this action for declaratory relief to determine its liability with respect to Durante's claim for comparative indemnity against Mary.   It is Employers' position that since coverage was precluded under the terms of the intrafamily exclusion for any claim by Sean against Mary, then Durante's claim for comparative indemnity should also be barred by the exclusion.   Employers claims to hold otherwise would be to indirectly bestow benefits upon Mary to which she is not entitled under the intrafamily exclusion.

Before 1983, Insurance Code section 11580.1, subdivision (c)(5) ¹ provided:  “In addition to any exclusion as provided in paragraph (3) of subdivision (b), the insurance afforded by any such policy of automobile liability iinsurance to which subdivision (a) applies may, by appropriate policy provision, be made inapplicable to any or all of the following:  ․ (5) Liability for bodily injury to an insured.”

 In 1982 section 11580.1, subdivision (c)(5) was amended (Stats 1982, ch. 736, § 1, p. 2922), and, as amended, allowed an exclusion for coverage of “(5) Liability for bodily injury to an insured or liability for bodily injury to an insured whenever the ultimate benefits of that indemnification accrue directly or indirectly to an insured.”  (Emphasis added.)   Under this amendatory language an insurance company would be able to exclude liability for an indemnity claim such as that asserted by Durante in this case, assuming the policy's exclusionary language was conspicuous and unambiguous.   However, since the 1982 amendment was not applicable in 1980 at the time of the underlying accident, we conclude that the exclusionary language contained in Employers' policy did not apply to Durante's claim for implied comparative indemnity against Mary.   We disagree with the court's conclusion in State Farm Mut. Auto. Ins. Co. v. Vaughn (1984) 162 Cal.App.3d 486, 208 Cal.Rptr. 601, that the 1982 amendment to section 11580.1, subdivision (c)(5) should be applied retroactively because it was merely declaratory of existing law.  (See also California State Auto. Assn. Inter-Ins. Bureau v. Bourne (1984) 162 Cal.App.3d 89, 93, 208 Cal.Rptr. 131.)   The amendment's purpose was to allow insurance companies to provide an exclusion for coverage in situations that only became prevalent after the California Supreme Court's decision in American Motorcycle Assn. v. Superior Court (1978) 20 Cal.3d 578, 146 Cal.Rptr. 182, 578 P.2d 899 allowing partial comparative indemnity.

“As a general rule of construction, statutes are not to be given retroactive effect unless the intent of the Legislature cannot be otherwise satisfied.   [Citation.]  ‘The Legislature, of course, is well acquainted with this fundamental rule, and when it intends a statute to operate retroactively it uses clear language to accomplish that purpose.’  [Citation.]”  (Balen v. Peralta Junior College Dist. (1974) 11 Cal.3d 821, 828, 114 Cal.Rptr. 589, 523 P.2d 629;  Western Pioneer Ins. Co. v. Estate of Taira (1982) 136 Cal.App.3d 174, 180, 185 Cal.Rptr. 887;  Ponce v. Graceous Navigation, Inc. (1981) 126 Cal.App.3d 823, 827, 179 Cal.Rptr. 164.)   Nothing in the 1982 amendment to section 11580.1, subdivision (c)(5) indicates a legislative intent that it be given retroactive application.

The uncodified portion of the Assembly Bill, which included the amendment, provides, “․ it is the intent of the amendments made by this act which are contained in paragraph (5) of subdivision (c) of Section 11580.1 of the Insurance Code to ensure that there is no duty to indemnify an insured named in a cross-complaint where there would be no duty to indemnify if the insured were sued directly.”  (Emphasis added.)  (Stats.1982, ch. 736, § 3, p. 2932.)   The quoted portion may indicate what the Legislature intended to accomplish by the 1982 amendment, but nothing in that language indicates an intent that the amendment be retroactively applied.

 An exception to the general rule that statutes should not be construed to apply retroactively arises when the legislation merely clarifies existing law.  (Balen v. Peralta Junior College Dist., supra, 11 Cal.3d at p. 828, fn. 8, 114 Cal.Rptr. 589, 523 P.2d 629;  Pacific Intermountain Express v. National Union Fire Ins. Co. (1984) 151 Cal.App.3d 777, 781, 198 Cal.Rptr. 897.)   When an amendment is said to clarify existing law, the Legislature's intent that it be applied retroactively is inferred.  “The rationale of this exception is that in such an instance, in essence, no retroactive effect is given to the statute because the true meaning of the statute has been always the same.  [Citation.]”  (Tyler v. State of California (1982) 134 Cal.App.3d 973, 976–977, 185 Cal.Rptr. 49;  see Pacific Coast Medical Enterprises v. Department of Benefit Payments (1983) 140 Cal.App.3d 197, 206, 189 Cal.Rptr. 558.)   This rationale could not be applied in this case because the 1982 amendment was designed to cover a situation which arose after a significant change in tort law.

 Clauses excluding the named insured or members of his family from coverage have been upheld in California case law prior to the enactment of any legislation allowing such clauses.  (Schwalbe v. Jones (1976) 16 Cal.3d 514, 521–522, 128 Cal.Rptr. 321, 546 P.2d 1033, overruled on other grounds in Cooper v. Bray (1978) 21 Cal.3d 841, 855, 148 Cal.Rptr. 148, 582 P.2d 604.)   In 1970 the Legislature amended section 11580.1 to expressly permit such an exclusion.   Twelve years passed before the amendment we consider here was added to the statute.   During that 12 years a revolution in tort law took place.   In 1975, Li v. Yellow Cab (1975) 13 Cal.3d 804, 119 Cal.Rptr. 858, 532 P.2d 1226, was decided and the concept of comparative negligence was adopted by California.   Three years later in American Motorcycle, the California court also embraced the concept of implied comparative indemnity.   These cases necessitated an amendment of the intrafamily exclusion.   The kind of active versus passive negligence cognizable under the old “all or nothing” equitable implied indemnity had not been an issue in the ordinary automobile accident case.   If one of the drivers was guilty of negligence his or her liability was based on his own primary negligence, not negligence based on status, etc., the only grounds, pre-Li and American Motorcycle, for indemnity.   Hence, indemnity was rarely an issue in such cases.   However, after Li and American Motorcycle, comparative negligence and implied comparative indemnity became issues in many automobile accident cases.   The Legislature enacted the amendment to section 11580.1 in reaction to these changing doctrines of tort law.   In so doing, the Legislature added substantial new language to the section, not merely a clarifying phrase.   A substantial change in the language of a law generally infers an intent to change or enlarge its meaning.  (Pacific Intermountain Express v. National Union Fire Ins. Co., supra, 151 Cal.App.3d at p. 781, 198 Cal.Rptr. 897.)

In Farmers Ins. Exchange v. Cocking (1981) 29 Cal.3d 383, 173 Cal.Rptr. 846, 628 P.2d 1, the court explained the legislative purpose in allowing the exclusion for bodily injury to an insured as follows:  “As previously noted, the challenged provision permits, but does not require, automobile insurers to continue to exclude coverage for bodily injury liability to insureds (usually, family household members).   The primary basis underlying the use of this exclusion has been well described in a recent Indiana case:  ‘[T]he concept of a household exclusion is a common one which has long enjoyed judicial support.   Its purpose is to prevent suspect inter-family legal actions which may not be truly adversary and over which the insurer has little or no control.   Such an exclusion is a natural target for the insurer's protection from collusive assertions of liability.  [¶] ․ [T]he freedom of the parties to exclude risks from an insurance contract is well established:  [Citations.]’  [Citations.]”  (Id., at p. 389, 173 Cal.Rptr. 846, 628 P.2d 1.)   The purpose of the underlying subsection is not advanced by the amendment we consider here.   Prevention of fraudulent or collusive intra-family claims is not furthered by excluding third-party suits for comparative equitable indemnity from coverage.

It is curious that this collusive claim argument is said to still support the validity of intrafamily exclusion clauses.   The argument was totally rejected by the California Supreme Court in Klein v. Klein (1962) 58 Cal.2d 692, 26 Cal.Rptr. 102, 376 P.2d 70, the opinion which did away with interspousal immunity in negligence cases.   The intrafamily exclusion, under section 11580.1, tends to defeat the strong public policy against intrafamily immunity for tort liability enunciated by the Supreme Court in cases such as Self v. Self (1962) 58 Cal.2d 683, 26 Cal.Rptr. 97, 376 P.2d 65, Klein v. Klein, supra, 58 Cal.2d 692, 26 Cal.Rptr. 102, 376 P.2d 70 and Gibson v. Gibson (1971) 3 Cal.3d 914, 92 Cal.Rptr. 288, 479 P.2d 648.  (See Levy and Ursin, Tort Law in California:  At the Crossroads (1979) 67 Cal.L.Rev. 497, 505;  Comment, Family Exclusion Clauses:  Whatever Happened to the Abrogation of Intrafamily Immunity? (1984) 21 San Diego L.Rev. 415.)   The Legislature has now extended such clauses to exclude coverage for third party claims for implied comparative indemnity.   However, to rule that such a result was intended from the time of the 1970 amendment of section 11580.1 flies in the face of reason.   The insurance industry has had to nudge the Legislature into protecting it from the consequences of these expansive tort liability doctrines as they have developed.

 We can find nothing in the language of the amendment nor in a consideration of the surrounding circumstances and the basic purposes of the original version of the statute to support a conclusion that the 1982 amendment was a mere clarification of existing law or was to be applied retroactively.   (Cf. In re Marriage of Bouquet (1976) 16 Cal.3d 583, 587, 128 Cal.Rptr. 427, 546 P.2d 1371;  and State Farm Mut. Auto. Ins. Co. v. Vaughn, supra, 162 Cal.App.3d 486, 208 Cal.Rptr. 601.)

 Even if the Legislature had intended the 1982 amendment to be applied retroactively, the exclusionary language actually used in the insurance policy issued by Employers should not be interpreted to provide an exclusion of claims for implied comparative indemnity against an insured.  Section 11580.1, subdivision (b)(3) requires that every policy of automobile liability insurance contain “[d]esignation by explicit description of the purposes for which coverage for such motor vehicles is specifically excluded.”   And, of course, it is hornbook law that an exclusion from coverage in an insurance policy must be conspicuous, plain and clear, and any ambiguity of language will be construed against the insurer.  (Gray v. Zurich Insurance Co. (1966) 65 Cal.2d 263, 273, 54 Cal.Rptr. 104, 419 P.2d 168;  Farmers Ins. Exchange v. Stratton (1983) 145 Cal.App.3d 612, 616, 193 Cal.Rptr. 119;  Lovy v. State Farm Insurance Company (1981) 117 Cal.App.3d 834, 844–845, 173 Cal.Rptr. 307.)

 Here the exclusionary clause states merely, “[t]his policy does not apply under Part I:  ․ (k) to liability for bodily injury to an insured․”  In State Farm Mut. Auto Ins. Co. v. Jacober (1973) 10 Cal.3d 193, 202, 110 Cal.Rptr. 1, 514 P.2d 953 the court concluded identical language was unclear noting the parties had put forth three separate interpretations of the exclusion clause.   The provision is subject to an interpretation that it is applicable only to cases in which one insured sues another insured under the policy.  (See Farmers Ins. Exchange v. Cocking, supra, 29 Cal.3d 383, 173 Cal.Rptr. 846, 628 P.2d 1;  State Farm Mutual Auto. Ins. Co. v. Ammar (1981) 126 Cal.App.3d 837, 179 Cal.Rptr. 146.)   Since the policy does not expressly exclude third party claims for indemnity against an insured we do not feel the language should be expanded by interpretation.

For the reasons stated herein, the judgment in the declaratory relief action is affirmed.

In interpreting the exclusion in this policy and the pre-1983 version of Insurance Code section 11580.1, subdivision (c)(5) as permitting a carrier to exclude coverage “only [in] cases [where] one insured sues another insured under the policy,” the majority has misunderstood the purpose of the statutory change, a legislative precaution following Li v. Yellow Cab Co. (1975) 13 Cal.3d 804, 119 Cal.Rptr. 858, 532 P.2d 1226 and American Motorcycle Assn. v. Superior Court (1978) 20 Cal.3d 578, 146 Cal.Rptr. 182, 578 P.2d 899 ironically designed to avoid just such an error.   The parties to this case are, respectively, the beneficiary and victim of the first published manifestation of an absurd and unwarranted anomaly:  Whereas a driver of an automobile sued directly by an insured family member cannot expect either defense or indemnification from their mutual insurer, the same driver, when named by a third party tortfeasor in a cross-action for equitable indemnity for the same family member's injuries, can.

The inequity of such a result was recognized years ago in the analogous context of wrongful death actions:  A driver sued by the heirs of an insured passenger, whether insureds or not, is not entitled to defense or indemnification by the deceased's and driver's carrier.  (Schwalbe v. Jones (1976) 16 Cal.3d 514, 128 Cal.Rptr. 321, 546 P.2d 1033, overruled on another point in Cooper v. Bray (1978) 21 Cal.3d 841, 844, 148 Cal.Rptr. 148, 582 P.2d 604;  Farmers Ins. Exch. v. Brown (1967) 252 Cal.App.2d 120, 60 Cal.Rptr. 1.)   The rationale is clear:  Although the action is prosecuted by a noninsured heir for his own loss, the basis for the driver's liability is still the bodily injury to the insured passenger (i.e., death;  see Ins. Code, § 11580.06, subd. (c)).

The cross-complaint before us is simply another vehicle to the same destination, liability of one insured for the bodily injury of another.   I see no reason to depart from the well-established rule where the driver is sued not by the injured passenger, but by a third party tortfeasor for comparative partial indemnity.

Decades before the Legislature expressly authorized carriers to exclude “[l]iability for bodily injury to an insured” (Ins.Code, § 11580.1, subd. (c)(5)), it codified the principle that automobile liability insurance “need not cover any liability for injury to the assured․”  (Former Veh.Code, § 415, subd. (d), added by Stats. 1937, ch. 840, p. 2357.)   California courts accepted the proposition without cavil, and policy exclusions of the named insured and his or her family were upheld even before the enactment of section 11580.1, subdivision (c)(5).  (See, e.g., Farmers Ins. Exch. v. Brown, supra, 252 Cal.App.2d 120, 60 Cal.Rptr. 1, and Farmers Ins. Exch. v. Geyer (1967) 247 Cal.App.2d 625, 55 Cal.Rptr. 861.)   By 1976, the so-called “family exclusion” was sufficiently ingrained in our jurisprudence that the Supreme Court took judicial notice “as a matter of generalized knowledge (Evid.Code, § 451, subd. (b)) that substantially all [automobile liability] policies presently contain exclusions of this nature—which exclusions, if stated in unambiguous terms[,] clearly operate to preclude an owner from recovering under his own liability policy under any circumstances․”  (Schwalbe v. Jones, supra, 16 Cal.3d 514, 521, fn. 9, 128 Cal.Rptr. 321, 546 P.2d 1033, emphasis added.)

Is a policy exclusion reciting verbatim the language of section 11580.1, subdivision (c)(5) ambiguous?   Citing State Farm Mut. Auto. Ins. Co. v. Jacober (1973) 10 Cal.3d 193, 110 Cal.Rptr. 1, 514 P.2d 953, the majority says yes.   But the majority's reliance on Jacober is misplaced.   In Jacober, the policy excluded coverage only for “ ‘bodily injury to the insured․’ ”  (Id., at p. 199, 110 Cal.Rptr. 1, 514 P.2d 953.)  Section 11580.1, subdivision (c)(5) is not so restrictive;  it authorizes carriers to exclude coverage for “bodily injury to an insured.”  (Emphasis added.)   The semantic distinction is critical, as the Supreme Court itself observed in California State Auto. Assn. Inter-Ins. Bureau v. Warwick (1976) 17 Cal.3d 190, 130 Cal.Rptr. 520, 550 P.2d 1056:  “Jacober is distinguishable because its exclusion clause refers to injuries to ‘the insured’ while the present policy [as the one in this case] refers to injuries sustained by ‘any insured.’ ․  [¶] We conclude that the exclusion clause in the policy is susceptible to only one interpretation by the lay reader:  that the insurer would not pay indemnity for injuries suffered by [an insured] while she was riding as a passenger in the insured vehicle.”  (Id., at p. 195, 130 Cal.Rptr. 520, 550 P.2d 1056.)

Similarly, the pre-1983 version of Insurance Code section 11580.1, subdivision (c)(5) is simply not susceptible to the interpretation given to it by my colleagues, i.e., that the family exclusion applies only when one insured is sued directly by another insured.   The authority cited for this notion, State Farm Mutual Auto. Ins. Co. v. Ammar (1981) 126 Cal.App.3d 837, 179 Cal.Rptr. 146, is clearly inapt.   The policy in that case was issued in 1977, before American Motorcycle appeared.   But the exclusion, like that of the Jacober policy, did not incorporate the language of section 11580.1, subdivision (c)(5).   Instead, it excluded coverage only for liability “claims brought by (1) the named insured, (2) any other insured, and (3) any member of the family of the named insured or other insured residing in the same household with the named insured or other insured.”  (Id. at p. 839, 179 Cal.Rptr. 146, emphasis omitted.)   I agree the language of that policy would not relieve the carrier of the duty to defend and indemnify an insured on a cross-complaint for comparative partial indemnity.

But neither section 11580.1, subdivision (c)(5) nor the exclusion in the policy we review is so narrow.   As the noncodified section of the Assembly Bill explained, “it is the intent of the amendments made by this act which are contained in paragraph (5) of subdivision (c) of Section 11580.1 of the Insurance Code to ensure that there is no duty to indemnify an insured named in a cross-complaint where there would be no duty to indemnify if the insured were sued directly.”  (Stats.1982, ch. 736, § 3, p. 2932.)   In other words, fearful of the very holding the majority reaches, the Legislature acted to forestall it;  but this intent to clarify has been misread as a concession of change.   As one court graphically explained, “The amendments to section 11580.1 do no more than lock the barn door when the horse is tethered inside.”   (California State Auto. Assn. Inter-Ins. Bureau v. Bourne (1984) 162 Cal.App.3d 89, 93, 208 Cal.Rptr. 131, fn. omitted (hg. den. March 14, 1985).)

Bourne is but one of the two recent decisions resolving this precise issue, and both courts concluded the 1982 amendment did no more than clarify existing law.   The facts in Bourne are legally indistinguishable from ours.   A child riding in her mother's car was injured.   An action on her behalf was filed against both the mother and the driver of the other vehicle.   The latter cross-complained against the plaintiff's mother for comparative indemnity.   The Court of Appeal held the insurer was not obligated to defend or indemnify the mother in either the main action or the cross-complaint:  “Where, as here, the concurrent tortfeasor is an insured, the [cross-complaint] puts in issue the damages for which the insured is liable and to that extent brings it within the policy․  Damages are not payable, by reason of the exclusion clause, [however,] if they are ․ for bodily injury to any insured․  Since the damages upon which the concurrent liability of an insured [the mother] are predicated in the [third party cross-complaint] are damages to an insured [the child] the exclusion clause negates any obligation of [the insurance company] to defend [the mother] in the action.”  (Id., at pp. 92–93, 208 Cal.Rptr. 131.)

State Farm Mut. Auto. Ins. Co. v. Vaughn (1984) 162 Cal.App.3d 486, 208 Cal.Rptr. 601 independently reached the same result.   There, as here, the accident occurred before the amendment to section 11580.1, subdivision (c)(5).   The court concluded retroactivity of the amendment was not really an issue:  “Under the section as previously written the Legislature provided without qualification that the insuring party was not obligated to provide coverage in the form of a defense or indemnification of any insured against the personal injury claim of any other insured.  [Citation.]  If such an exclusion was to be meaningful, it must necessarily have been applicable not only to direct claims brought by one insured against another insured under the same policy, but also to indirect claims created when a noninsured third party sought indemnification or contribution from one insured for the personal injuries suffered by another insured.”  (Id., at p. 489, 208 Cal.Rptr. 131.)   I agree.

Bourne and Vaughn are correct.   The majority is not;  no court has embraced its conclusion in the ten years since Li appeared.   I would reverse.

FOOTNOTES

1.   All statutory references are to the Insurance Code.

TROTTER, Presiding Justice.

SONENSHINE, J., concurs.