Apparel City Sewing Machine Co. v. Transamerica Insurance Group

Opinion

This is an action to determine the coverage afforded to plaintiff and appellant Apparel City Sewing Machine Company, Inc., by an insurance policy issued by defendant and respondent Transamerica Insurance Group. The matter was submitted to the trial court for decision on the pleadings and the trial briefs filed by the parties. There is no factual dispute in the instant case.

On April 12, 1974, appellant purchased a policy of insurance from respondent which included coverage for a loss resulting from the interruption of business caused by a fire. On December 17, 1976, while said policy was in effect, there was a fire at appellant’s premises which resulted in an interruption of its business affairs. “An accountancy firm hired to compute the loss, determined that [appellant’s] gross earnings for the twelve months following the loss, had -the loss not occurred, would have been $390,744.00.” The net earnings loss resulting from the fire was computed by the same firm to be $41,603. The parties do not contest the accuracy of these figures.

Paragraph six of the business interruption form of the insurance policy issued by respondent provides: “Contribution Clause: In Consideration of the Rate and Form Under Which This Policy is Written, This Company Shall Be Liable, in the Event of Loss, for No Greater Proportion Thereof Than the Amount Hereby Covered Bears to the Contribution (Coinsurance) Percentage Specified on the First Page of This policy (or endorsed hereon) of the Gross earnings That Would Have Been Earned (Had No Loss Occurred) During the 12 Months Immediately following the Date of Damage to or Destruction of the Described property.” The amount of coverage under the policy at the time of the fire was $60,000. The coinsurance percentage specified in the policy is 50 percent.

Appellant filed a complaint in the Superior Court of San Francisco County alleging under the terms of the policy issued by respondent, it was entitled to $20,801.50 (one-half of the net earnings loss it sustained

Based upon the pleadings and the trial briefs of the parties, the trial court concluded: “1. The contribution clause is valid and enforceable and is neither vague nor ambiguous.

“2. Pursuant to the contribution clause, defendant was not liable for any greater portion of the loss then [sic] the amount covered, $60,000.00 bore to the contribution (coinsurance) percentage, to wit, fifty (50%) percent of the gross earnings, which were $390,744.00.

“3. Fifty (50%) percent of $390,744.00 equals $195,372.00 and the percentage of $60,000.00 to $195,372.00 equals 30.71%.

“4. The plaintiff was therefore entitled to 30.71% of his loss of $41,603.00 or $12,776.28, which has already been paid to plaintiff.” Thereafter judgment was entered in favor of respondent from which appellant appeals.

Appellant contends on appeal that the contribution clause is ambiguous and therefore must “be construed against the insurer in order to achieve the object of coverage for the losses to which the policy relates.” Appellant also contends that Insurance Code sections 2070, 2071 and 2079 are applicable to this case, and under these code sections “[respondent's contentions amount to illegal conditions and are thus void (even if deemed included within the policy) .... ”

Ambiguity of Contribution Clause

Appellant contends that the policy at the time of the loss provided coverage in the amount of $60,000 “for loss of gross earnings subject to fifty (50%) percent coinsurance. As there was no other insurance it becomes apparent that Appellant became its own coinsurer to the extent of one-half (1/2) of any loss.” Appellant claims the contribution clause merely provides that “the carrier shall not be responsible for a greater proportion of the loss than the amount covered bears to the contribution percentage specified on the first page of the policy. This would be the fifty (50%) percent .... Accordingly, it is submitted that as the

Since no extrinsic evidence was offered or received as an aid in interpreting the provisions of the insurance policy, this court is not bound by the interpretation of the trial court. In making an independent determination of the meaning of the insurance policy we must look to the “accepted canons of interpretation.” (Becker v. State Farm Mut. Auto. Ins. Co. (1975) 52 Cal.App.3d 282 , 284 [ 124 Cal.Rptr. 739 ].) The general rules relating to the interpretation of insurance clauses containing ambiguous or uncertain language were well articulated by the court in Beaumont-Gribin-Von Dyl Management Co. v. California Union Ins. Co. (1976) 63 Cal.App.3d 617 , 622 [134 CaL.Rptr. 25], as follows: “Any ambiguity or uncertainty in an insurance policy must be resolved in favor of the insured. (Insurance Co. of North America v. Electronic Purification Co., 67 Cal.2d 679 , 686 . . ..) If the insurer uses language which is uncertain any reasonable doubt will be resolved against it; whether the doubt relates to extent or fact of coverage, peril insured against, amount of liability or persons protected, the language will be understood in its most inclusive sense for the benefit of the insured. (State Farm Mut. Auto. Ins. Co. v. Elkins, 52 Cal.App.3d 534 , 538 .. . .) If semantically permissible, the insurance contract will be given such construction as will fairly achieve its manifest object of securing indemnity to the insured for losses to which the insurance relates. (Holz Rubber Co., Inc. v. American Star Ins. Co., 14 Cal.3d 45 , 60 . ..; Crane v. State Farm Fire & Cas. Co., 5 Cal.3d 112 , 115 .. ..) Moreover, ‘in doubtful cases, the law favors the insured over the insurer.’ (State Farm Mut. Auto. Ins. Co. v. Elkins, 52 Cal.App.3d at p. 538 ....)”

The rules pertaining to the interpretation of ambiguous or uncertain language in insurance policies are only applicable when in fact a policy “actually presents some uncertainty or ambiguity.” (Farmers Ins. Exch. v. Harmon (1974) 42 Cal.App.3d 805 , 809 [117 CaL.Rptr. 117].) ’There is no question that an insurance company has the right to limit the coverage of a policy issued by it, and when it has done so, the plain

Application of the above basic rules relating to the interpretation of insurance contracts to the insurance contract under consideration in the instant case supports the trial court’s conclusion. As noted above we are not bound by the trial court’s interpretation of the insurance policy involved in this case, but our independent determination has resulted in an interpretation that is consistent with that of the trial court.

The full text of paragraph six of the business interruption form which is entitled “Contribution Clause” has been set out earlier in this opinion. If we were to adopt the interpretation of the contribution clause proposed by appellant, we would have disregarded most of the language of the clause. In determining the meaning of the contribution clause we cannot ignore any language in the clause which is not ambiguous. “[T]he understanding of the ordinary person is the standard to be used in construing an insurance contract [citations]. It is unreasonable for one to block from his vision subject matter contained in the rest of the sentence or to construe the language of this exception clause without reference, to either the subject from which it is to be excepted or its context as one of several areas of concern dealt with in the exclusions portion of the policy.” (Becker v. State Farm Mut. Auto. Ins. Co., supra, 52 Cal.App.3d 282 , 287.) Specifically, appellant would disregard the language which refers to the gross earnings as follows, “the gross earnings that would have been earned (had no loss occurred) during the 12 months immediately following the date of damage to or destruction of the described property.”

Applicability of Insurance Code

Appellant contends that paragraph six of the business interruption form is invalid under Insurance Code sections 2070-2080.

Section 2070 of the Insurance Code provides: “All fire policies on subject matter in California shall be on the standard form, and, except as provided by this article shall not contain additions thereto. No part of the standard form shall be omitted therefrom except that any policy which in addition to coverage against the peril of fire includes substantial coverage against other perils need not comply with the provisions of the standard form of fire insurance policy or Section 2080; provided, that the coverage of such policy with respect to the peril of fire, when viewed in its entirety, is substantially equivalent to or more favorable to the insured than that contained in such standard form fire insurance policy.”

Section 2071 of the Insurance Code sets out the standard form for a fire insurance policy and states that a fire insurance policy shall provide payment of “the actual cash value of the property at the time of loss, but not exceeding the amount which it would cost to repair or replace the property with material of like kind and quality within a reasonable time after such loss, without allowance for any increased cost of repair or reconstruction by reason of any ordinance or law regulating construction or repair, and without compensation for loss resulting from interruption of business or manufacture, ...” (Italics added.)

The judgment is affirmed.

Scott, J., and Barry-Deal, J., concurred.