Caliber One v. Carey

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
CALIBER ONE INDEMNITY COMPANY, 
a foreign corporation,
Plaintiff-Appellee,
v.
No. 04-35181
WADE COOK FINANCIAL
CORPORATION, a foreign  D.C. No.
CV-01-01128-JCC
corporation,
Defendant, OPINION
and
DIANA K. CAREY,
Trustee-Appellant.

Appeal from the United States District Court
for the Western District of Washington
John C. Coughenour, Chief District Judge, Presiding
Argued and Submitted
July 27, 2006—Seattle, Washington
Filed June 22, 2007
Before: J. Clifford Wallace, Kim McLane Wardlaw and
Raymond C. Fisher, Circuit Judges.
Opinion by Judge Fisher;
Partial Concurrence and Partial Dissent by Judge Wardlaw
7531
7534 CALIBER ONE INDEMNITY v. CAREY
COUNSEL
H. Troy Romero and Michael E. Wiggins (argued), Romero
Montague P.S., Bellevue, Washington, for appellant Wade
Cook Financial Corporation.
CALIBER ONE INDEMNITY v. CAREY 7535
William A. Pelandini (argued), Melissa O’Loughlin White
and Thomas J. Braun, Cozen O’Connor, Seattle, Washington,
for appellee Caliber One Indemnity Company.
OPINION
FISHER, Circuit Judge:
This case arises from a commercial property insurance pol-
icy Plaintiff-Appellee Caliber One Indemnity Company
(“Caliber One”) issued to the Defendant Wade Cook Finan-
cial Corporation (“Cook”). Cook — through its trustee Diana
K. Carey — appeals the district court’s summary judgment
under Washington law that the insurance contract between
Cook and Caliber One limited earthquake coverage to
$500,000, subject to a deductible calculated as a percentage
of the total insured value of the property affected by an earth-
quake rather than of the claimed earthquake loss. Cook also
appeals the district court’s refusal to consider affidavits sub-
mitted in connection with its motion for reconsideration. We
affirm in part and reverse in part.
BACKGROUND
In 1998, Cook purchased a comprehensive commercial
property insurance policy from Caliber One that, among its
various terms and conditions, provided $5 million in earth-
quake coverage for various buildings Cook owned. In 1999,
Cook — through its insurance broker, Crump Insurance Ser-
vices, Inc. (“Crump”) — told Caliber One that Cook wanted
to renew the policy “under exactly the same terms” as the ini-
tial 1998 policy. Contrary to Cook’s asserted intent and appar-
ently unbeknownst to it, the 1999-2000 policy Caliber One
issued and Cook accepted contained only a $500,000 sublimit
for earthquake coverage. Caliber One acknowledges that the
reduction in earthquake coverage from $5 million to $500,000
7536 CALIBER ONE INDEMNITY v. CAREY
was simply the result of a “clerical error in the preparation of
that policy.”
In 2000, Cook sought to renew the policy once again, “on
the same terms and conditions” as the 1999-2000 policy. Con-
sequently, the mistaken $500,000 earthquake sublimit carried
through to the renewal policy. Caliber One gave Cook
(through Crump) a quotation confirmation including the
$500,000 earthquake sublimit, and Cook “accept[ed] the
quote” and expressed its “wish[ ] to have the agreement
bound.” The final insurance policy in effect from December
2000 to December 2001 therefore had a stated earthquake
coverage limit of $500,000. Also relevant to this appeal, the
insurance policy provided that in the event of a claim, Cook
would be responsible for a “5.00% deductible Earthquake per
occurrence, minimum $50,000.”
On February 28, 2001, Cook’s corporate headquarters in
Tukwila, Washington, suffered significant damage as a result
of a large earthquake in the Puget Sound area. Losses, accord-
ing to Cook, were in excess of $8 million. After Cook submit-
ted a claim, Caliber One discovered the $500,000 sublimit
and traced it to the much earlier clerical error. It notified Cook
of the limit and stated its intent to seek declaratory judgment
that its liability would be only that lesser amount. Moreover,
Caliber One notified Cook that its claim would be subject to
a deductible of $695,100, calculated as 5% of the total insured
value (“TIV”) of the damaged corporate headquarters build-
ing ($13,902,000). Cook contended that the deductible was
only about $400,000, calculated as 5% of the loss suffered
rather than 5% of the TIV.
Both parties sought summary judgment in the federal dis-
trict court as to the amount of coverage and the meaning of
“deductible.” The district court determined that the $500,000
sublimit was unambiguous and declined to consider extrinsic
evidence to contradict that amount. The court also rejected
Cook’s claim of mutual mistake, and refused to reform the
CALIBER ONE INDEMNITY v. CAREY 7537
contract on the ground that Crump, Cook’s insurance broker,
knew about the $500,000 sublimit and its knowledge was
imputed to Cook. As to the definition of “deductible,” the dis-
trict court held that the term was ambiguous, rejecting Cook’s
argument that the term plainly referred to the amount of loss.
Relying on evidence submitted by Caliber One to elucidate
the meaning of deductible, including documents Crump
drafted referring to the deductible as 5% of TIV, the district
court granted summary judgment in favor of Caliber One.
Cook moved for reconsideration and offered two declara-
tions from Crump employees. Cook argued that these declara-
tions supported its mutual mistake claim and directly
contradicted the district court’s finding that Crump knew of
the mistake in the earthquake sublimit. The district court
refused to reconsider its earlier summary judgment or the new
declarations, concluding that Cook could not satisfy the strict
test for admission of new evidence.
STANDARD OF REVIEW
We review de novo the district court’s rulings on cross-
motions for summary judgment. See Lamps Plus, Inc. v. Seat-
tle Lighting Fixture Co., 345 F.3d 1140, 1143 (9th Cir. 2003).
The district court’s ruling on a motion for reconsideration is
reviewed for abuse of discretion. See Smith v. Pac. Props. &
Dev. Corp., 358 F.3d 1097, 1100 (9th Cir. 2004).
DISCUSSION
1. Earthquake Sublimit
[1] The district court erred in holding the mutual mistake
doctrine inapplicable, precluding Cook from obtaining refor-
mation of the contract. Under Washington law, “a mutual
mistake occurs when the parties, although sharing an identical
intent when they formed a written document, did not express
that intent in the document.” Seattle Prof’l Eng’g Employees
7538 CALIBER ONE INDEMNITY v. CAREY
Ass’n v. Boeing Co., 991 P.2d 1126, 1130 (Wash. 2000)
(internal quotation marks and citation omitted). Cook claims
that a mutual mistake occurred when the contract for the
2000-01 term failed to express the parties’ identical intent that
the earthquake sublimit provide $5 million in coverage.
[2] Negligence in failing to observe that a writing does not
express what has been assented to “is not a bar to reformation
of a contract when the reformation claim is based upon
mutual . . . mistake.” Wash. Mut. Sav. Bank v. Hedreen, 886
P.2d 1121, 1125 (Wash. 1994). Here, Cook was negligent in
failing to confirm that the terms of the 1999-2000 contract
were the same as those in the 1998-99 contract and were in
turn correctly restated in the 2000-01 contract. Caliber One
was similarly negligent in failing to catch the mistake in the
1999-2000 contract, which Cook claims Caliber One unwit-
tingly repeated in the 2000-01 policy.
[3] The most reasonable inference to be drawn is that both
Caliber One and Cook intended the terms of the original
1998-99 contract to carry over into the contracts governing
policy years 1999-2000 and 2000-01. Because Caliber One
has provided no contemporaneous evidence to refute the rea-
sonable inference that both parties shared an identical intent
that the 2000-01 contract provide $5 million in earthquake
coverage, and because the parties’ mutual mistake in provid-
ing only $500,000 in coverage does “relate to a basic assump-
tion on which both parties relied when making the contract,”
Denaxas v. Sandstone Court of Bellevue, 63 P.3d 125, 131
(Wash. 2003), reformation is warranted. See Denny’s Rest.,
Inc. v. Sec. Union Title Ins. Co., 859 P.2d 619, 629 (Wash. Ct.
App. 1993).
Caliber One argues that Cook had “constructive knowledge
of the circumstances giving rise to the alleged mistake,”
Denaxas, 63 P.3d at 131, and is not entitled to reformation
because Cook’s belief was actually in accord with the stated
sublimit in the 2000-01 contract and thus not mistaken. How-
CALIBER ONE INDEMNITY v. CAREY 7539
ever, there is no evidence that Crump actually knew that the
sublimit had been reduced from the original 1998-99 amount
— although had Crump compared the original policy with the
second-generation 2000-01 policy, the discrepancy would
have surfaced. Moreover, although Crump acted as Cook’s
agent in securing insurance, see Orsi v. Aetna Insurance Co.,
703 P.2d 1053, 1057 (Wash. Ct. App. 1985), Crump’s role in
renewing Cook’s insurance contract with Caliber One insofar
as the earthquake sublimit is concerned was ministerial.
Unlike the project architect in Denaxas, who had actual
knowledge of the true square footage and who had the author-
ity to create a project that would fit the available land, there
is no evidence that Crump had the unilateral discretion to
accept a change in the earthquake sublimit coverage. Crump
was merely obeying Cook’s instructions to renew on the
terms Caliber One had previously provided, which both Cook
and Crump assumed were the same as those set forth in the
1998 policy. See Roderick Timber Co. v. Willapa Harbor
Cedar Prods., Inc., 627 P.2d 1352, 1355 (Wash. Ct. App.
1981), cited in Denaxas, 63 P.3d at 130.
[4] Importantly, Caliber One has admitted that both parties
intended the original and first renewal insurance contracts to
provide $5 million in earthquake coverage and that the change
to $500,000 was simply a clerical error. Accordingly, the par-
ties here are unlike the seller and purchaser in Denaxas,
whose respective intentions differed as to the formulation of
a price offer based on square footage. Denaxas, 63 P.3d at
132-33. The parties’ contractual intentions were identical, and
even though Cook or Crump may bear some responsibility for
not discovering Caliber One’s error, that does not preclude
reformation for mutual mistake. See Hedreen, 886 P.2d at
1126 (stating that “mere carelessness, however, is not neces-
sarily a defense to an action for reformation” and that “[i]f
negligence were a defense to a reformation claim, then refor-
mation would almost never be available as a remedy because
. . . negligence generally results from mistake”) (internal quo-
tation marks and alterations omitted).
7540 CALIBER ONE INDEMNITY v. CAREY
[5] Because the district court erred in holding the mutual
mistake doctrine inapplicable on the basis of Crump’s sup-
posed knowledge of the stated $500,000 sublimit, we reverse
the court’s summary judgment to Caliber One in this respect.
Upon remand the district court should reform the 2000-01
contract to reflect the parties’ intent that the earthquake sub-
limit provide $5 million in coverage.
2. Deductible Amount
[6] Cook argues that the term “deductible” is itself unam-
biguous and is necessarily tied to the amount of loss claimed.
Caliber One counters that the term is ambiguous in context
here, and that the parties demonstrably intended the amount
of the deductible to be tied to the TIV of the building giving
rise to the loss. Under Washington law, “[a] policy provision
is ambiguous when, on its face, it is fairly susceptible to two
different interpretations, both of which are reasonable.” Mor-
gan v. Prudential Ins. Co. of Am., 545 P.2d 1193, 1195
(Wash. 1976).
[7] Washington law cautions against a court “creat[ing]
ambiguity where none exists,” Ross v. Hall & Co., 870 P.2d
1007, 1010 (Wash. Ct. App. 1994), and if a term is undefined,
“[it] must be given [its] plain, ordinary, and popular mean-
ing,” Tyrrell v. Farmers Ins. Co. of Wash., 994 P.2d 833, 836
(Wash. 2000) (quotation omitted). However, Washington law
provides that “if a contract is ambiguous on its face . . . the
court [will] look to evidence of the parties’ intent as shown
by the contract as a whole, its subject matter and objective,
the circumstances of its making, the subsequent conduct of
the parties, and the reasonableness of their interpretations.”
Berg v. Hudesman, 801 P.2d 222, 228 (Wash. 1990). More-
over, “[i]f the clause is ambiguous . . . extrinsic evidence of
intent of the parties may be relied upon to resolve the ambigu-
ity.” Panorama Village Condo. Owners Ass’n Bd. of Dirs. v.
Allstate Ins. Co., 26 P.3d 910, 913-14 (Wash. 2001) (citation
omitted).
CALIBER ONE INDEMNITY v. CAREY 7541
[8] The district court did not err in finding ambiguous the
2000-01 policy definition of deductible — “5.00% deductible
Earthquake per occurrence, minimum $50,000” — because
nothing within that definition or the contract considered as a
whole explains what figure serves as the basis for the 5% cal-
culation. Nor does the clause become unambiguous if given
its “plain, ordinary, and popular meaning,” Tyrrell, 994 P.2d
at 836, because the text’s plain, ordinary and popular meaning
is not evident.
[9] Here, the policy does not explain whether “deductible
. . . per occurrence” refers to the loss claimed or the total
insured value of the property suffering a covered loss.1 The
dissent’s conclusion, based on dictionary definitions, that the
word “deductible” unambiguously refers to a percentage of
loss is not persuasive. See Diss. at 7544. Dictionaries do not
“uniformly” define the word “deductible” in relation to the
amount of loss suffered. See Boeing Co. v. Aetna Cas. & Sur.
Co., 784 P.2d 507, 511 (Wash. 1990). The American Heritage
College Dictionary 362 (3d ed. 2000), for example, defines
“deductible” as “[a] clause in an insurance policy that
exempts the insurer from paying a specified amount in the
event of a claim.” Here, the “specified amount” is defined in
terms of percentage, but we cannot conclusively tell from the
four corners of the contract what the percentage is in relation
to. Even assuming as true, as an empirical matter, that most
deductible provisions are defined in relation to the amount of
loss claimed — a proposition not supported by any evidence
before us — we still disagree that the word “deductible” is so
consistently defined in relation to amount of loss that the term
is unambiguous on its face.
[10] Nor does the policy definition’s reference to a “mini-
1
The examples provided in Caliber One’s Commercial Property Build-
ing Coverage Form do not resolve this ambiguity, because, although they
show how a deductible functions when a claim of loss is processed, they
do not explain how the deductible itself is calculated.
7542 CALIBER ONE INDEMNITY v. CAREY
mum $50,000” deductible obviate the ambiguity, as Cook
argues. Cook’s theory is that there would be no need to spec-
ify an alternative minimum if the percentage basis referred to
TIV — because the TIV of covered property would presum-
ably be fixed from the start, 5% of which would be thus speci-
fiable. Although this argument has some force, the policy at
issue covers multiple buildings, any one or a combination of
which could potentially be damaged by an earthquake or
appreciate or depreciate in value during the course of the poli-
cy’s effectiveness. Thus, the alternative minimum deductible
is not superfluous if the percentage basis is understood as
referring to TIV.
[11] Given the ambiguity in the deductible definition, the
district court did not err in admitting “extrinsic evidence of
[the] intent of the parties . . . to resolve the ambiguity.” Pan-
orama Village, 26 P.3d at 913-14 (internal citation omitted).
Nor did the district court err in holding that the extrinsic evi-
dence reveals the parties’ intent and resolves the ambiguity in
Caliber One’s favor. Cook offered no extrinsic evidence to
prove that it intended the deductible to correlate with the
amount of loss claimed. By contrast, Caliber One offered into
evidence documents Crump prepared — a certificate of liabil-
ity insurance and a property insurance proposal — that
expressly tied the deductible to TIV. Summary judgment is
appropriate where, as here, the undisputed evidence supports
only one reasonable inference. See Braxton-Secret v. A.H.
Robins Co., 769 F.2d 528, 531 (9th Cir. 1985) (holding that
“where the palpable facts are substantially undisputed, such
issues can become questions of law which may be properly
decided by summary judgment”). Accordingly, we affirm the
district court’s conclusion that the contract’s deductible refers
to the TIV of the property affected by an earthquake.
3. Affidavits
[12] We also affirm the district court’s refusal to consider
the affidavits Cook submitted with its motion for reconsidera-
CALIBER ONE INDEMNITY v. CAREY 7543
tion. Cook has not argued that the facts sworn to in them were
“newly discovered or unknown to it” prior to the filing of its
motion for reconsideration, nor has Cook shown that “it could
not with reasonable diligence have discovered and produced”
the affidavits earlier. See Frederick S. Wyle P.C. v. Texaco,
Inc., 764 F.2d 604, 609 (9th Cir. 1985).
The parties shall bear their own costs.
AFFIRMED in part, REVERSED in part.
WARDLAW, Circuit Judge, concurring in part and dissenting
in part:
I agree that the mutual mistake doctrine is applicable, the
contract should be reformed, and that the district court prop-
erly excluded Cook’s affidavits. However, I dissent because
both the district court and the majority have erred by using
extrinsic evidence to create ambiguity where none exists.
Nothing in the policy language supports the majority’s view
that “5.00% deductible” meant a percentage of the total
insured value (“TIV”) of properties affected by the earth-
quake, or that the TIV would be adjusted during the policy
term for appreciation or depreciation of the covered proper-
ties.
This is a diversity action, which requires us to apply Wash-
ington State’s law. When interpreting insurance contracts,
“[t]he pertinent rules are simple enough. If the policy lan-
guage is clear and unambiguous, the court may not modify the
contract or create an ambiguity where none exists.” E-Z
Loader Boat Trailers, Inc. v. Travelers Indem. Co., 726 P.2d
439, 443 (Wash. 1986). Here, the insurance policy expressed
the deductible in terms of a percentage per occurrence. The
policy does not expressly define “deductible.” Under Wash-
ington law, “[w]e give undefined terms in a policy their popu-
7544 CALIBER ONE INDEMNITY v. CAREY
lar and ordinary meaning, turning to dictionaries if the plain
meaning of the term is not clear.” State Farm Fire & Cas. Co.
v. English Cove Ass’n, Inc., 88 P.3d 986, 989 (Wash. Ct. App.
2004) (footnotes omitted). Only after Washington courts
examine the dictionary meaning of a term is ambiguity evalu-
ated. See id. 989-91. The Washington Supreme Court has
examined both standard and insurance-specific dictionaries in
order to divine the plain meaning of terms in an insurance
contract. See Boeing Co. v. Aetna Cas. & Sur. Co., 784 P.2d
507, 511 (Wash. 1990). The term “deductible” is defined by
one insurance dictionary cited by the Washington Supreme
Court as the “[a]mount of loss that insured pays in a claim.”
Barron’s Dictionary of Insurance Terms 124 (4th ed. 2000).
Similarly, the Insurance Information Institute defines deduct-
ible as “[t]he amount of loss paid by the policyholder. Either
a specified dollar amount, [or] a percentage of the claim
amount.” http://www.iii.org/media/glossary/alfa.D; see also
Black’s Law Dictionary 444 (8th ed. 2004) (“Under an insur-
ance policy, the portion of the loss to be borne by the insured
before the insurer becomes liable for a payment.”). Each defi-
nition of deductible defines the term only in relation to the
amount of loss suffered, which is the same as the claim
amount, and we should do the same.
A commonsense reading of the policy dictates that the
deductible was expressed as a percentage because it could
only be determined by reference to a claim made against the
policy—and thus that the deductible was a percentage of the
claimed loss. The insured value of the various properties was
known, and if a fixed deductible based on those values was
intended, it could easily have been expressed in the contract.
The majority goes astray by failing to follow Washington
State rules of interpretation and incorporating the ambiguity
it finds in the term “occurrence” into what should be a
straightforward analysis of the plain meaning of “deductible.”