Reserve Insurance Co. v. Pisciotta

RICHARDSON, J.

I concur in part, and respectfully dissent in part.

Liability of Busch

I fully concur in the majority’s analysis of the liability of defendant Busch.

The Reserve Policy

I am unable to agree with my colleagues’ construction of the primary policy issued by Reserve to Pisciotta. The majority insists that “Words used in an insurance policy are to be interpreted according to the plain meaning which a layman would ordinarily attach to them.” {Ante, p. 807.) Adopting such an interpretative approach, I conclude that Tyler was a “member of the family of the insured residing in the same household as the insured,” and thus was excluded from coverage under the Reserve policy. Tyler lived with his mother, his brother, and his stepfather, the insured Pisciotta, and was fully supported by Pisciotta. In the words of the majority, the insured “treated” {ante, p. 805) him as if he was a natural child. He lived in the “same household as the insured,” Pisciotta. The record before us strongly suggests that Pisciotta, his wife (Tyler’s mother), and Tyler himself considered Tyler to be, in every sense, a member of Pisciotta’s “family.” Within their several functions, I would expect that the federal census, Internal Revenue Service, public schools, Department of Motor Vehicles, the military draft, etc. would similarly treat Tyler as a “member” of Pisciotta’s family.

While the majority insists that “Courts will not adopt a strained or absurd interpretation” to create an “ambiguity” {ante, p. 807), the consequences of its analysis are unusual. If the following persons, all living together in Pisciotta’s “household,” were injured in the same boat accident, the majority would interpret his Reserve insurarice coverage to exclude his wife, his son and an adopted son, but not to exclude his stepson. This seems to me to be a “strained” interpretation, and an artificial and unnatural result. It surely is not consistent with the reasonable coverage expectations of the insured or his family. In the absence of contrary evidence, there is no basis upon which to conclude that Pisciotta distinguished Tyler from the other members of his household, whom he also supported; and it is unreasonable to assume that Pisciotta contemplated a differential in insurance coverage among those members which, for example, would exclude his wife, but not her son.

In short, I find no ambiguity upon which to predicate differential insurance exposure. I think that the average layman would interpret the plain meaning of the term “family” in the Reserve policy to include Tyler. Accordingly, he is among those expressly excluded from coverage.

The CNA Policy

A conclusion that Tyler was a member of Pisciotta’s “family” in every reasonable sense relevant to the contract of insurance between Reserve and Pisciotta, however, neither adds to nor detracts from CNA’s contractual obligations under its excess insurance policy. For “An insurance policy is but a contract; and, like all other contracts, it must be construed from the language used, .... The courts will not indulge in a forced construction so as to fasten a liability on the insurance company which it has not assumed.” (Farmers Ins. Exch. v. Harmon (1974) 42 Cal.App.3d 805, 809 [117 Cal.Rptr. 117].) While fundamental, it bears repeating that “The whole of a contract is to be taken together, so as to give effect to every part ...” (Civ. Code, § 1641), and that the overriding goal of all contractual interpretation is to carry out the intentions of the contracting parties. “A contract must be so interpreted as to give effect to the mutual intention of the parties as it existed at the time of contracting, so far as the same is ascertainable and lawful.” (Id., § 1636, italics added.)

What were the mutual obligations undertaken by the parties in the contract of insurance between CNA and Pisciotta? As the majority acknowledges, the CNA policy was “designed to cover liability incurred by Pisciotta in excess of the limits of the ‘underlying insurance’” in effect at the time the CNA insurance contract was entered into. (Ante, p. 805.) At the relevant time, that “underlying insurance” was the primary USF&G policy with a single limit coverage of $300,000 per occurrence. It contained no “family member” exclusion. The CNA policy further required Pisciotta to maintain the underlying policy in full effect “without alteration of terms or conditions” during the life of the CNA excess coverage policy. In the event Pisciotta replaced the USF&G policy with another, the CNA policy required that such replacement coverage not be “more restrictive” than the USF&G policy. (Ibid.)

Further, if Pisciotta failed to maintain such “not more restrictive” underlying insurance, CNA’s obligation was not to increase thereby. Its policy provided that “in the event of such failure, the company [CNA] shall only be liable to the same extent had the Named Insured [Pisciotta] complied with” the clause requiring maintenance of the “not more restrictive” underlying insurance. That liability undertaken by CNA was express, specific and limited. Insofar as relevant here, the assumed liability was that CNA “shall only be liable for the ultimate net loss in excess of ... the amount recoverable under the underlying insurance as set out in the Schedule of Underlying Insurance ...” up to $1 million. (Italics added.) That schedule specifically described the USF&G policy with its $300,000 limits.

It seems to me crystal clear that the intention of the parties, as reflected in the policy language, contemplated that Pisciotta was to maintain underlying insurance coverage which did not contain a “family member” exclusion and which did have $300,000 primary coverage as a condition of CNA’s promise to pay any amounts for which Pisciotta was liable in excess of $300,000. The parties to the CNA policy also expressly provided that the excess carrier’s undertaking was to be no greater if Pisciotta failed to maintain such underlying insurance or replacement insurance of equal coverage. Undoubtedly, the amount of premium paid by Pisciotta for CNA’s excess coverage policy reflected both CNA’s limited obligation and the irisured’s obligations in the maintenance of primary coverage.

In the face of this unambiguous expression of the commitment of each of the parties, it seems to me fanciful to suggest that either insured Pisciotta or excess carrier CNA reasonably could have assumed “at the time of contracting” (Civ. Code, § 1636) that either Pisciotta’s failure to maintain equally comprehensive underlying insurance or the unpredictable insolvency of a replacement primary carrier would increase CNA’s obligations under its umbrella policy. The majority freely acknowledges as much with respect to Pisciotta’s failure to replace the underlying policy with other equally broad primary coverage (ante, p. 812). However, it refuses to apply similar—and equally appropriate —reasoning to the financial failure of Reserve.

To fasten on an excess carrier liability for coverage within the primary limits, the majority in my view distorts the clear language of CNA’s policy. The amount which CNA obligated itself to pay under its policy was directly related to the amounts “set forth in the Schedule of Underlying Insurance”—namely, sums in excess of $300,000. The majority transforms this promise into an obligation to pay the loss covered by the primary coverage as well. Thus, the insolvency of Reserve over which CNA has neither control, nor perhaps knowledge, unilaterally and substantially expands CNA’s contractual obligations.

I believe that such a policy construction is forced and artificial and that its result does not fit the reasonable expectations of the parties. The majority imposes upon CNA a liability which it has never assumed. (See Farmers Ins. Exch., supra, 42 Cal.App.3d, at p. 809.)

In my view, Pisciotta’s liability to Tyler is excluded from coverage under the “family member” exclusion of the Reserve policy, and regardless of Reserve’s insolvency, CNA’s contractual liability remains that of an excess carrier. It commences when Pisciotta’s liability to Tyler exceeds $300,000, and I would so hold.

The petition of appellant Busch for a rehearing was denied March 19, 1982. Richardson, J., was of the opinion that the petition should be granted.