Black Silver Enterprises v. Sequoia Ins. CA4/1 ( 2013 )

Filed 2/27/13 Black Silver Enterprises v. Sequoia Ins. CA4/1
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not
certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been
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COURT OF APPEAL, FOURTH APPELLATE DISTRICT
DIVISION ONE
STATE OF CALIFORNIA
BLACK SILVER ENTERPRISES, INC., D059682
Plaintiff and Appellant,
v. (Super. Ct. No. 37-2009-00084685-
CU-BC-CTL)
SEQUOIA INSURANCE COMPANY,
Defendant and Respondent.
APPEAL from a judgment of the Superior Court of San Diego County,
Linda B. Quinn, Judge. Reversed.
This case involves an insurance coverage dispute between Black Silver
Enterprises, Inc. (Black Silver) and Sequoia Insurance Company (Sequoia). Black
Silver sought coverage under two separate business owners insurance policies for
losses resulting from employee theft at its clothing boutiques. Sequoia concluded
that coverage for Black Silver's loss was limited by a coverage extender to
$10,000 per policy and refused to pay up to the business personal property limits
in the policies. After a bench trial, the court entered judgment in favor of Sequoia
on Black Silver's breach of contract, bad faith and declaratory relief claims. Black
Silver appeals, contending the trial court erred by (1) entering judgment in favor of
Sequoia because the purported coverage limitation was not conspicuous, plain and
clear, and (2) ignoring its objection to expert testimony on the ultimate issues of
the case. We conclude the employee dishonesty coverage limitation is not
conspicuous, plain and clear and reverse the trial court's judgment. This
conclusion moots Black Silver's claim of evidentiary error.
FACTUAL AND PROCEDURAL BACKGROUND
Black Silver operates five clothing boutiques in San Diego County.
Between June 2006 and September 2008, Black Silver's employee, Jennifer Chase,
removed a substantial amount of merchandise from the five stores, resulting in a
loss to Black Silver in the amount of $65,000. During this time, Black Silver was
insured by Sequoia under two business owners policies, one effective February 1,
2007 to February 1, 2008, and the other effective February 1, 2008 to February 1,
2009.
Black Silver notified Sequoia of its loss and made a claim for coverage.
Sequoia responded to the claim by paying $10,000 and explained that coverage
was limited because Black Silver did not purchase "optional coverage" for
employee dishonesty and was covered only up to $10,000 by a coverage extender.
After Black Silver disputed the amount of coverage, Sequoia sent another payment
of $10,000 as a result of the two successive policies. Black Silver also received
payments from another insurance carrier, leaving a balance on its loss of $25,000.
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Black Silver sued Sequoia, alleging the full amount of its loss was covered
under the two Sequoia policies. It further alleged that the coverage extender for
employee dishonesty was in addition to coverage afforded by other policy
provisions. At trial, Paul Caccamise, the insurance broker who helped Black
Silver secure the Sequoia policies, testified that he understood employee
dishonesty was covered up to the business personal property limits and the
coverage extender provided coverage in excess of those limits.
Sequoia's coverage expert, GailAnn Stargardter, testified that employee
dishonesty is not covered by standard business owners policies such as Black
Silver's policies. However, an insured has the option to purchase employee
dishonesty coverage in two ways. First, an insured can purchase "optional
coverages," which would be reflected on the policy's declarations page. Second,
Sequoia offered a coverage extender for employee dishonesty up to $10,000.
Based on her review of the policy, Stargardter stated that Black Silver did not elect
to purchase "optional coverage" because if it had done so, the limit would have
been set forth on the declarations page. Instead, Black Silver purchased the
coverage extender, which had a limit of $10,000.
After a bench trial, the trial court entered judgment in favor of Sequoia,
effectively ruling that Sequoia was not obligated to pay any more under the
policies. This appeal followed.
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DISCUSSION
A. Policy Provisions Concerning Employee Dishonesty
The parties agree that the general provisions of the Sequoia policies
excluded coverage for employee dishonesty. However, they disagree as to the
effect of the coverage extender. Black Silver contends the coverage extender
provided coverage in addition to the business personal property limits in the
policies, whereas Sequoia maintains it limited coverage to $10,000. In regard to
employee dishonesty, the coverage extender provided the following:
"As respects coverage under this endorsement, the following
is added to the Businessowners Coverage Form Section I.A.
Coverage, Subsection 5. Additional Coverages:
"Coverage for Employee Dishonesty is provided as
described in Section I.G. Optional Coverages,
Subsection 3. Employee Dishonesty of form BP 0003.
The most we will pay under this coverage is the limit of
insurance shown for Employee Dishonesty on Page 1 of
this endorsement. The requirements of ERISA are
provided by this coverage. The limit provided under
this endorsement is an additional limit to limits
provided under similar coverage if provided elsewhere
in this policy. The deductible applicable to business
personal property applies to losses under this coverage."
Accordingly, the coverage extender appears to reference two separate
provisions in the policy that include a coverage limit for employee dishonesty:
(1) optional coverages (section I.G., subsection 3), and (2) page 1 of the
endorsement. Under optional coverages, the policies stated, "The most [Sequoia]
will pay for loss or damage in any one occurrence is the Limit of Insurance for
Employee Dishonesty shown in the Declarations." However, there is no limit
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included on the policies' declarations pages. Instead, the only reference to the
coverage extender is on a page entitled "Coverages Applying to All Locations,"
which is located between the property declarations and liability declarations. That
page listed the "BOP Coverage Extender" followed by "see Form SEQ 1528,"
which is the form number of the coverage extender. Although there are spaces to
indicate the limit and deductible associated with the coverage extender, those
spaces were left blank.
Next, the coverage extender referenced page 1 of the endorsement. That
page is located about 60 pages into the policy. It stated the "Limit of Insurance"
for "Employee Dishonesty / ERISA" was $10,000.
B. Analysis
Black Silver contends the trial court erred in entering judgment in favor of
Sequoia because the purported limitation in the coverage extender was not
conspicuous, plain and clear. We agree.
Where, as here, "the material facts are not disputed, interpretation of the
policy presents solely a question of law." (Haynes v. Farmers Ins. Exchange
(2004) 32 Cal.4th 1198, 1204 (Haynes).) " ' "[I]t is the duty of the appellate
court . . . to make its own independent determination of the meaning of the
language used in the [instruments] under consideration." ' " (State Farm Mut. Auto.
Ins. Co. v. Partridge (1973) 10 Cal.3d 94, 100.)
We begin with the premise that "[u]nquestionably, California insurers may
rely on endorsements to modify printed terms of a form policy." (Haynes, supra,5
32 Cal.4th at p. 1208.) However, "to be enforceable, any provision that takes
away or limits coverage reasonably expected by an insured must be 'conspicuous,
plain and clear.' [Citation.] Thus, any such limitation must be placed and printed
so that it will attract the reader's attention. Such a provision also must be stated
precisely and understandably, in words that are part of the working vocabulary of
the average layperson." (Id. at p. 1204.) "The burden of making coverage
exceptions and limitations conspicuous, plain and clear rests with the insurer."
(Ibid.)
"A policy provision is ambiguous when it is susceptible to two or more
reasonable constructions. [Citation.] Language in an insurance policy is
'interpreted as a whole, and in the circumstances of the case, and cannot be found
to be ambiguous in the abstract.' [Citation.] 'The proper question is whether the
[provision or] word is ambiguous in the context of this policy and the
circumstances of this case. [Citation.]" (E.M.M.I. Inc. v. Zurich American Ins.
Co. (2004) 32 Cal.4th 465, 470.) "Moreover, insurance coverage is ' " 'interpreted
broadly so as to afford the greatest possible protection to the insured,
[whereas] . . . exclusionary clauses are interpreted narrowly against the insurer.' " '
[Citation.]" (MacKinnon v. Truck Ins. Exchange (2003) 31 Cal.4th 635, 648
(MacKinnon).)
Here, the employee dishonesty coverage limitation Sequoia seeks to apply
is not conspicuous. The limitation is not identified on the policies' declarations
pages. Instead, the "BOP Coverage Extender," in which the limitation appears, is
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listed on a page nestled between the property declarations and liability
declarations only with a reference of "see Form SEQ 1528." Although there are
spaces to indicate the limit and deductible, those spaces were left blank.
Based on our review of the policies, there is nothing in the declarations
pages to alert the insured to any specific limitations in the coverage extender. A
reference to a "Form SEQ 1528" is not sufficient as it does not identify the subject
matter of the coverage extender or reveal to the reader that the coverage extender
modifies the policy or sets forth limits apart from those on the declarations pages.
In order to ascertain the limits of the coverage extender, the insured must delve
about 60 pages into the policies to get to the first page of the coverage extender.
We see no reason why the limits set forth on the first page of the coverage
extender could not have been placed within the policies' declarations, where an
insured would likely look for policy limits. Regardless, we may have reached a
different result as to conspicuousness if, at a minimum, the declarations pages
alerted the reader to look for additional limits of insurance in the coverage
extender, rather than leaving the space for the "Limit" blank.
Also troubling is that the employee dishonesty provision in the coverage
extender is not plain and clear. To the contrary, the provision is ambiguous and
susceptible to two or more interpretations. The provision first states that coverage
for employee dishonesty is as provided in the policies' "optional coverages"
section. The "optional coverages" section directs the reader to the declarations
pages for the limit of insurance. As we already discussed, the declarations pages
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contain no such limit. However, they do include business personal property limits.
Given that there was no employee dishonesty limit identified on the declarations
pages and the space for the "Limit" next to the reference to the coverage extender
was left blank, the insured could reasonably conclude the business personal
property limits applied.
Continuing with the confusion, the employee dishonesty provision in the
coverage extender next refers the reader to page 1 of the endorsement for the limit
of insurance. That page sets forth a limit of $10,000. The coverage extender,
however, continues by stating, "The limit provided under this endorsement is an
additional limit to limits provided under similar coverage if provided elsewhere in
this policy." Again, an insured could conclude from this ambiguous language
combined with the reference to "optional coverages" that the coverage extender
provided $10,000 of coverage in addition to the business personal property limits
in the policies. (MacKinnon, supra, 31 Cal.4th at p. 648 [coverage should be
interpreted broadly to afford the greatest possible protection to the insured].)
While the coverage extender uses words that the average person could
understand, in order to be "plain and clear," a limitation must be precise and
understandable. (Haynes, supra, 32 Cal.4th at p. 1204.) Based on the foregoing
discussion, we find the coverage extender in this case was not "plain and clear"
with regard to its limit on coverage for employee dishonesty because it was neither
precise nor understandable.
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In sum, we conclude the employee dishonesty provision in the coverage
extender provided $10,000 in coverage in addition to the business personal
property limits in the policies.
DISPOSITION
The judgment is reversed insofar as it fails to award Black Silver the
balance of its claim. The matter is remanded to the trial court for consideration of
any additional issues raised by this court's disposition, including a determination
of the unreimbursed balance of Black Silver's claim, and for entry of a new
judgment consistent with this opinion.
Black Silver is entitled to costs on appeal.
MCINTYRE, J.
WE CONCUR:
BENKE, Acting P. J.
AARON, J.
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