Congleton v. National Union Fire Insurance

Opinion

—Appellants, Paul C. Congleton and Dorothy H. Congleton, appeal from the summary judgment entered in favor of respondents, National Union Fire Insurance Company of Pittsburgh, Pa., Southeastern Aviation Underwriters, Inc., and Southeastern Aviation (California) Insurance Service, and from an order denying them leave to file an amended complaint. We affirm the judgment and the order.

Appellants filed a complaint for damages against respondents for tortious denial of their property loss claim under an aviation insurance policy, alleging causes of action for breach of statutory duties under Insurance Code section 790.03, subdivision (h), breach of the implied covenant of good faith and fair dealing, intentional infliction of emotional distress and breach of fiduciary duties.

Facts

In February 1979, appellants purchased a new twin-engine Piper Navajo Chieftain aircraft and then leased it to Baja Cortez Airlines, a corporation of which Paul Congleton was a member of the board of directors, president and a stockholder.

During the period of the lease, Baja Cortez decided to sublease the aircraft for financial reasons. In anticipation of the sublease, Paul Congleton contacted respondents’ agent, William Tassio, to procure aviation insurance coverage. Congleton told Tassio that he intended to lease the aircraft to R. Bruce Allender, and Tassio subsequently interviewed Allender over the tele

On August 1, 1980, Baja Cortez entered into the sublease with Allender and delivered possession of the aircraft to him through his agent, Ralph Boone, in Knoxville, Tennessee.

On August 5, 1980, respondents issued a policy of aviation insurance to appellants, naming appellants and Allender as insureds and “lessor” and “lessee,” respectively, as on the binder.

The “Declarations” page of the policy provided, in part, that, “The aircraft will be used only for the purposes indicated by ‘X’ below (see Definitions). [¶] ... X ‘ Pleasure and Business’ ”

The relevant “insuring agreements” portion of the policy provided as follows:

“Coverage F—All Risk Basis To pay for any physical damage loss to the aircraft, including disappearance of the aircraft. [¶] Coverage G—All Risk Basis Not in Flight To pay for any physical damage to the aircraft sustained while the aircraft is not in flight and which is not the result of fire or explosion following crash or collision while the aircraft was in flight. [¶] Coverage H —All Risk Basis Not in Motion To pay for any physical damage loss to the aircraft sustained while the aircraft is not in motion and which is not the result of fire or explosion following crash or collision while the aircraft was in motion.”

Among the express policy “exclusions” to these coverages were the following:

“This policy does not apply: [¶] 1. To any insured while the aircraft is in flight with the knowledge and consent of such insured or of any executive officer, partner, or managing agent of such insured for any unlawful purpose, or any purpose not so designated in the Declarations. [¶] .... 6. Under Coverages F, G and H [¶] (a) to loss or damage due to conversion, embezzle

Appellants submitted a claim for the missing aircraft in the amount of $240,000 to respondents under their aviation policy.

Although respondents settled a claim submitted by Crocker National Bank, which held a security interest in the aircraft as lender, respondents denied appellants’ claim on the following three grounds: (1) the policy expressly excludes coverage “while the aircraft is in flight with the knowledge and consent of such insured ... for ... any purpose not so designated in the Declarations,” and the declarations provided that the aircraft would be used only for “pleasure and business” purposes; the aircraft was not being used either by appellants or by their co-insured, Allender, for “pleasure” or “business” at the time of its loss; (2) under exclusion number “6.(a),” quoted above, the policy expressly excludes coverage for conversion or secreting of the aircraft by any person in possession under a lease, and all of the known facts indicated that either Allender or his agent, Boone, had converted or secreted the aircraft; and (3) appellants failed to establish “physical damage” loss to or “disappearance” of the aircraft within the meaning of the policy.

The trial court granted respondents’ motion for summary judgment and denied appellants’ motion for leave to file an amended complaint; appellants now appeal.

Contentions

Appellants contend that the trial court erred in granting summary judgment against them for the following reasons: (1) at the time of its loss the aircraft was not being used for other than “pleasure and business” purposes; (2) regardless of whether the aircraft was stolen on the ground or in flight, the loss was covered by the insurance policy; (3) the coverage exclusion for

Appellants further contend that the trial court prejudicially erred in denying them leave to file a first amended complaint.

Discussion Summary Judgment

“[O]n an appeal from a summary judgment, the appellate court has the duty to determine whether a triable issue of material fact exists. [Citation.]” (Estate ofPitzer (1984) 155 Cal.App.3d 979 , 986 [ 202 Cal.Rptr. 855 ].)

“A motion for summary judgment may only be granted where no triable issue of material fact exists and where the moving party’s affidavits, declarations, admissions, answers to interrogatories, depositions or judicially noticeable matters set forth sufficient facts to sustain a judgment in its favor. (Code Civ. Proc., § 437c, subd. (b); Estate ofPitzer [supra] 155 Cal.App.3d 979 .)” (Rincon v. Burbank Unified School Dist. (1986) 178 Cal.App.3d 949 , 954 [ 224 Cal.Rptr. 88 ].)

Both appellants and respondents urge us to adopt various interpretations of the insurance policy’s provisions in determining whether triable issues of material fact exist. Before undertaking an analysis of specific policy provisions, however, we first consider the applicable legal principles upon which our determination of factual materiality will be based.

At the outset we note that appellants’ action is essentially one for first party insurance bad faith against respondents for alleged tortious refusal to pay benefits under a policy of aviation insurance following appellants’ reported loss of their aircraft while it was subleased to Allender, also a named insured under the policy. “ ‘[W]hen the insurer unreasonably and in bad faith withholds payment of the claim of its insured, it is subject to liability in tort.’ [Citations.] For the insurer to fulfill its obligation not to impair the right of the insured to receive the benefits of the agreement, it... must give at least as much consideration to the latter’s interests as it does to its own.

Before turning to the specific policy provisions which respondents have interpreted so as to deny coverage, we begin with the general scope of coverage provided under the “Physical Damage Coverages” in the “insuring agreements” portion of the policy. Appellants contend that all of the physical damages coverages, “F,” “G” and “H,” begin with reference to an “All Risk Basis,” which is the broadest possible coverage.

It t has been held that where the words appear in a policy of aviation insurance, “The use of the term ‘all risks’ ordinarily covers every loss that may happen, except by fraudulent acts of the insured, and is not given a restrictive meaning. Miller v. Boston Insurance Co., 420 Pa. 566 , 218 A.2d 275 (1966) and Fidelity Southern Fire Insurance Co. v. Crow, Tex.Civ.App., 390 S.W.2d 788 (1965).” (Bryant v. Continental Insurance Company (1970) 2 Wn.App. 37 [ 466 P.2d 201 ,202].) Application of such a broad interpretation here finds support in one of the general rules governing interpretation of insurance policies in this state: “‘Whereas coverage clauses are interpreted broadly so as to afford the greatest possible protection to the insured ..., exclusionary clauses are interpreted narrowly against the insurer____’ [Citations.]” (Reserve Insurance Co. v. Pisciotta (1982) 30 Cal.3d 800 , 808 [ 180 Cal.Rptr. 628 , 640 P.2d 764 ]; White v. Western Title Ins. Co. (1985) 40 Cal.3d 870 , 881 [ 221 Cal.Rptr. 509 , 710 P.2d 309 ].)

Accordingly, we find that appellants’ failure to sustain their burden of producing evidence of their aircraft’s “disappearance” so as to invoke coverage under the policy entitled respondents reasonably to deny coverage under the circumstances presented here.

Alternatively, appellants contend that coverage clauses “G” and “H” applied even if “F,” with its “disappearance” requirement, did not. However, the “Declarations” page of the policy, under an item identified as “Description of Aircraft and Physical Damage Coverage hereinunder,” lists coverage “F” as the only physical damage coverage for which appellants contracted.

Finally, appellants contend that the broad reading that must be accorded their “all risk” policy under established rules of interpretation requires it to be interpreted so as to provide coverage for theft even though an express exclusion, “6(a),” would omit coverage for conversion or secretion of the aircraft by one in possession under a lease, such as Allender and Boone. They argue in support of this contention that, first, Allender and Boone intended to steal their aircraft at the time the lease was executed, thereby rendering the lease null and void and, second, any ambiguity between a covered “theft” and an excluded “conversion” or “secretion” must be resolved in favor of coverage under established rules of policy interpretation.

Aside from the absence of any evidence to show Allender’s and Boone’s intent to steal, appellants’ contention begs the preliminary question of what evidence they had that a theft had occurred. As the court in Compass Ins.

Therefore, under the circumstances presented here, we must conclude that appellants failed to produce any evidence that respondents’ denial of coverage was unreasonable. There having been presented no other evidence of “bad faith” by the insurer respondents in denying appellants’ claim, we have determined that summary judgment in respondents’ favor was proper here.

Denial of Leave to File Amended Complaint

In their last contention, appellants argue that the trial court abused its discretion when it denied them leave to file an amended complaint.

“C.C.P. 473 authorizes the trial court, in its ‘discretion,’ to allow amendments ‘in furtherance of justice.’ The policy of great liberality in permitting amendments at any stage of the proceeding was declared at an early date and has been repeatedly restated. [Citations.]... [¶]... [¶] When an order granting or denying leave to amend is attacked on appeal, an additional policy enters into the reviewing court’s determination: The discretion of the trial court should be upheld unless clearly abused____” (5 Witkin, Cal. Procedure (3d ed. 1985) Pleading, § 1121, pp. 537-538.) “If the lower court denies leave to amend, the conflict of policies ... is often resolved in favor of the privilege of amending, and reversals are common where the appellant makes a reasonable showing of prejudice from the ruling. [Citations.]” (Id., at p. 540.) However, “It is of course proper to deny leave when the proposed amendment or amended pleading is insufficient to state a cause of action or defense. [Citations.] [¶] Likewise, an amendment which contradicts an admission in the original pleading will ordinarily not be allowed unless a showing is made of mistake or other excuse for changing the allegations of fact. [Citations.] [¶] Similarly, denial of leave may be upheld where the amendment contradicts a stipulation____” (Id., at p. 541.)

In their proposed first amended complaint, appellants alleged, in addition to the four causes of action alleged in their original complaint, a fifth cause of action for negligence which incorporated almost all of the allegations of the first cause of action and added the following: “ 19. Defendants negligently failed to disclose to plaintiffs the facts alleged in paragraph 9 (A) herein and negligently sold, issued and delivered to plaintiffs the policy of insurance described herein.”

Paragraph 9 of the proposed amended complaint, which was incorporated by reference into the new cause of action, alleged in subparagraph A.:

The remaining subparagraphs of paragraph 9 describe the suspicious facts linking Allender and Boone to an international drug smuggling ring which stole private aircraft for use in its smuggling operations as were previously recited.

In their opening brief, appellants explain their proximate cause theory in the proposed negligence cause of action as follows: “Had defendants not issued the binder or policy naming Allender as an insured, and told plaintiffs the reasons why, plaintiffs would never have delivered, and lost, their aircraft to a thief.” However, earlier in their brief appellants recite facts from the record which contradict this theory: “On August 1, 1980, Baja Cortez Airlines, plaintiffs’ lessee, entered into the purported lease ... with Allender, and delivered possession of the aircraft to him____[¶] Thereafter, on August 5, 1980, defendants issued a policy insuring plaintiffs’ aircraft effective July 29, 1980 ____The named insureds were the same as on the binder, ‘Paul and Dorothy Congleton (Lessor) and Bruce Allender (Lessee).’ ”

Thus, the evidence appellants presented in opposition to the summary judgment motion showed that they could not have relied on respondents’ issuance of the policy to Allender as a named insured in deciding whether they would lease their aircraft to Baja Cortez which, in turn, would sublease it to Allender; Baja Cortez had already subleased the aircraft to Allender and delivered possession to Boone when respondents issued the policy. Appellants also could not reasonably have relied on the binder of temporary insurance because it was provided only by the local insurance agent, Tassio, and expressly advised that it was “a temporary Insurance Contract to serve as evidence of Insurance pending: Issuance and Delivery of a Policy,” and was subject to cancellation by the insurer. Clearly, a binder signed by an agent of the insurer, though evidence of temporary insurance, cannot serve as evidence of the insurability of a named insured where the issuing company has not yet had any opportunity to conduct an investigation. By not waiting for issuance of the actual policy before leasing their aircraft to Baja Cortez and then subleasing and delivering possession to Allender and Boone, appellants demonstrated their intent to deal with Allender and Boone regardless of the results of any investigation or information provided by respondents.

Accordingly, we conclude that the trial court did not abuse its discretion in denying appellants leave to file their proposed first amended complaint.

Disposition

The judgment and order are affirmed.

Kingsley, Acting P. J., and McClosky, J., concurred.