Simon v. Shelter General Insurance Co.

Chief Justice ROVIRA

delivered the Opinion of the Court.

We granted certiorari to review the decision of the Colorado Court of Appeals in Shelter General Insurance Co. v. Coppola, 824 P.2d 58 (Colo.App.1991), which held that provisions of an insurance policy contained in an endorsement prevail over inconsistent provisions contained in the body of the policy, even though the endorsement and the body of the policy were issued simultaneously, and are fully enforceable against the insured. We reverse.

I

The relevant facts are undisputed. In November 1987, Marilyn Simon was seriously burned when she fell into a hot tub that had been reconditioned by Rob Coppola, d/b/a Designer Spas & Hot Tubs (Coppola). Coppola furnished an equipment pack which contained a defective thermostat as part of its reconditioning of the hot tub. Due to the failure of the thermostat, the water in the hot tub rose to approximately 160 degrees. The thermostat was manufactured by Eaton Corporation.

Simon and her husband later brought suit against Coppola asserting claims for negligent reconditioning of the hot tub and negligent failure to instruct on the proper use of the hot tub. Shelter General Insurance Company (Shelter) then filed a declaratory judgment action against Coppola claiming that its comprehensive general liability policy did not provide coverage for the claims asserted by the Si-mons. The trial court agreed, finding that both the products hazard and completed operations exclusions unambiguously applied to the stipulated facts and provided no coverage. The court of appeals affirmed.¹

Under the general grant of coverage contained in the body of the policy issued to Coppola, Shelter agreed to “pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of A. bodily injury or B. property damage to which this insurance applies_” This general grant of coverage is limited by a series of exclusions which narrow the scope of coverage under the policy. In the body of the policy, one such exclusion provides:

This insurance does not apply:

(a) to liability assumed by the insured under any contract or agreement except an incidental contract; but this exclusion does not apply to a warranty of fitness or quality of the named insured’s products or a warranty that work performed by or on behalf of the named insured will be done in a workmanlike manner....

(Emphasis added and omitted.) (Hereinafter “exclusion (a).”) The general grant of coverage is also limited by exclusions contained in endorsements to the policy. One such endorsement exclusion states:

It is agreed that such insurance as is afforded by the Bodily Injury Liability Coverage and the Property Damage Liability Coverage does not apply to bodily injury or property damage included within the Completed Operations Hazard or the Products Hazard.

(Emphasis omitted.) (Hereinafter “endorsement” or “endorsement exclusions.”) The definitions section contained in the body of the policy defines “completed operations” and “products hazard” as follows:

“completed operations hazard” includes bodily injury and property damage arising out of operations or reliance upon a representation or warranty made at any time with respect thereto, but only if the bodily injury or property damage occurs after such operations have been completed or abandoned and occurs away from premises owned by or rented to the named insured. “Operations” include materials, parts or equipment furnished in connection therewith. Operations shall be deemed completed at the earliest of the following times:

(1) when all operations to be performed by or on behalf of the named insured under the contract have been completed,

(2) when all operations to be performed by or on behalf of the named insured at the site of the operations have been completed, or

(3) when the portion of the work out of which the injury or damage arises has been put to its intended use by any person or organization other than another contractor or subcontractor engaged in performing operations for a principal as a part of the same project.

Operations which may require further service or maintenance work, or correction, repair or replacement because of any defect or deficiency, but which are otherwise complete, shall be deemed completed, (emphasis omitted) (Hereinafter the “completed operations exclusion”).

* * * sfs * #

“products hazard” includes bodily injury and property damage arising out of the named insured’s products or reliance upon a representation or warranty made at any time with respect thereto, but only if the bodily injury or property damage occurs away from premises owned by or rented to the named insured and after physical possession of such products has been relinquished to others....

(Emphasis omitted.) (Hereinafter “product hazards exclusion.”)

Coppola argues that these five provisions, when read together, create an inherent conflict respecting the scope of coverage under the policy. Coppola maintains this conflict requires that we construe the policy most strictly against Shelter — and in favor of Coppola — finding that the policy grants coverage to Coppola for the Simons’ claims.

Shelter argues (1) that the above cited provisions do not conflict and (2) that if these provisions are found to be in conflict, the endorsement exclusions govern because the provisions of an endorsement prevail over inconsistent provisions contained in the body of the policy.

II

In determining the meaning of an insurance contract and assessing whether it contains conflicting provisions, we are guided by well-settled principles of interpretation. Our starting point is, of course, the intent of the parties as manifested by the plain language of the policy. Marez v. Dairyland, Ins. Co., 638 P.2d 286, 289 (Colo.1981) (“Policy is not sui generis but is treated in the law in the same way as contracts are treated generally, and is to be interpreted according to the intent of the parties.”); Allstate Ins. Co. v. Starke, 797 P.2d 14, 18 (Colo.1990) (“In construing insurance policy, words should be given their plain meaning according to common usage ... and strained construction should be avoided.” (citations omitted)). When construing the language of an insurance contract, its provisions cannot be read in isolation, but must be considered as a whole. Security Ins. Co. of Hartford v. Houser, 191 Colo. 189, 191, 552 P.2d 308, 310 (1976). When provisions of an insurance policy conflict, they are to be construed against the insurer and in favor of coverage to the insured. See 13 John A. Appleman & Jean Appleman, Insurance Law and Practice § 7401, at 253-54 (1976).

It is also important to recognize that the determination of an insurance contract’s meaning and whether it contains conflicting provisions is not answered by reference to what those who are experts in the construction of insurance contracts or those with a clear understanding of the legal effects of specific language might understand by reading a policy. See Travelers Ins. Co. v. Jeffries-Eaves, Inc., 166 Colo. 220, 223, 442 P.2d 822, 824 (1968); Standard Marine Ins. Co. v. Peck, 140 Colo. 56, 60, 342 P.2d 661, 663 (1959); Co-lumbian Nat’l Life Ins. Co. v. McClain, 115 Colo. 458, 461, 174 P.2d 348, 350 (1946). To the contrary, the construction of an insurance contract must be ascertained by reference to what meaning a person of ordinary intelligence would attach to it. Standard Marine, 140 Colo, at 60, 342 P.2d at 663.

The exception to exclusion (a) for a warranty of fitness or quality and the products hazard exclusion found in the endorsement are plainly in conflict. Exclusion (a) provides that “this exclusion does not apply to a warranty of fitness or quality of the named insured’s product_” The endorsement exclusion, however, provides that coverage does not apply to damage included within the products hazard exception. Products hazard, as defined in the policy, encompass damage “arising out of the named insured’s products or reliance upon a representation or warranty made at any time thereto....” Thus, the Shelter policy on the one hand excepts from exclusion certain warranties while the products hazard specifically excludes coverage for damage arising from reliance upon a warranty. The two provisions are in conflict respecting the policy’s coverage for liability resulting from product warranties.

Similarly, there is a conflict between exclusion (a)’s exception for “work performed by or on behalf of the named insured ... in a workmanlike manner” and the completed operations exclusion. “Workmanlike” is defined as “worthy of a good workman: well performed, skillful.” Webster’s Third New Int’l Dictionary at 2635 (1986). More specifically, workmanlike has been used to refer to the promise that a “building will be erected in a reasonably good and workmanlike manner and will be reasonably fit for the intended purpose.” Markman v. Hoefer, 252 Iowa 118, 106 N.W.2d 59, 62 (1960). The completed operations hazard exclusion, however, covers myriad operations in which the warranty of workmanlike performance would be applicable. Additionally, a conflict arises due to exclusion (a)’s exception for a warranty of workmanlike performance and the endorsement exclusion for “reliance upon a ... warranty.” Consequently, we find that these provisions are in conflict respecting the scope of coverage under Shelter’s policy-

Shelter argues that these provisions are not in conflict. It argues that because exclusion (a) excepts coverage from “this exclusion,” it cannot be read to grant coverage under the rest of the policy. In short, Shelter argues that an exception to an exclusion can never amount to a grant of coverage but by nature, can only limit coverage.

Although we recognize the technical merits of Shelter’s argument, we nevertheless hold that these provisions are in conflict when viewed from the standpoint of a person of ordinary intelligence. As noted above, the meaning and effect of insurance contracts are not to be considered from the perspective of a person who has particular expertise in interpreting them. Given the broad grant contained in the general grant of coverage, and the exceptions found in exclusion (a) for warranties of fitness, quality, and workmanlike performance, we are of the opinion that a person of ordinary intelligence would conclude that the policy issued by Shelter covers damages resulting from the breach of such warranties — in spite of the endorsement’s exclusions for damages resulting under the products hazard or completed operations hazard.

Thus, after considering the plain language of the insurance contract, we hold that exclusion (a) and the endorsement exclusions are in conflict.

Ill

Having found that the insurance contract contains conflicting provisions, we now consider whether these otherwise conflicting provisions are rendered harmonious by virtue of the fact that two exclusions are contained in an endorsement, and are not found in the body of the policy where exclusion (a) is found.

The court of appeals held exclusion (a) and the endorsement exclusions did not conflict because endorsements prevail over any inconsistent provisions contained in the body of the policy. In so holding, the court of appeals stated the general rule regarding conflicts between endorsement provisions and provisions found elsewhere in an insurance agreement.

The general rule provides that when a conflict in an insurance contract arises between provisions contained in the body of the policy and provisions contained in an endorsement to that policy, the endorsement provisions prevail. 13A John A. Appleman & Jean Appleman, Insurance Law and Practice § 7537, at 146 (1976) (“If any irreconcilable conflict exists between provisions of the policy and provisions of an endorsement, then the latter must control.”) Shelter relies heavily on Martinez v. Hawkeye-Security Insurance Co., 195 Colo. 184, 576 P.2d 1017 (1978), also relied on by the court of appeals in Shelter, to support its contention that the general rule governs this case and compels a decision that the Shelter policy neither contains conflicting provisions nor does it provide coverage to Coppola for the Simons’ claims.

In Martinez we addressed the question of whether a door installed with a faulty latch fell within the completed operations exclusion as defined in the policy issued by Hawkeye. There, the insured argued that the policy was ambiguous because bodily injury coverage for completed operations hazards was excluded in spite of the fact that the basic policy included coverage for bodily injury. In response to this assertion, we stated that “[a]n insurance policy and endorsement attached to it must be considered as a single instrument, and they should be construed together in the absence of an internal conflict which cannot be reconciled. The endorsement, being the last expression of intent, prevails if the language of the two conflicts.” Id. at 187, 576 P.2d at 1019 (citations omitted).

The rationale which supports the general rule is that because the endorsement represents the last expression of intent of the contracting parties, it should prevail over other inconsistent provisions. 1 George J. Couch, Cyclopedia of Insurance Law § 4:36 (R. Anderson 2d rev. ed. 1984) (“As the indorsement is later in time, it should prevail over any conflicting provisions of the policy.”); 7 Walter H.E. Jaeger, Williston on Contracts § 900, at 24 (3d. ed. 1963) (an endorsement “inconsistent with the printed provision of the policy will control because it embodies an agreement of the parties necessarily made subsequent to the date of execution of the policy to which it is attached, hence it represents the latest intentions of the contracting parties.”). But see Cyclopedia of Insurance Law § 436 (“If there is an ambiguity arising because of difference of language used in indorsement and body of policy, language of entire contract is construed most strongly against insurer.”).

The uncontroverted evidence in this case established that the body of the policy and the endorsement were presented at the same time as a “single package” of insurance coverage to Coppola. The endorsement contained no separate signatures, nor was there any evidence or allegations that the endorsement had been separately negotiated.²

Thus, we find that application of the rule laid down in Martinez is inapplicable to this case. There can be no justification for applying a rule when the rationale which supports the rule is not present. To hold otherwise would require the rigid and formalistic application of a general rule, while ignoring the undisputed fact that the justification for the rule itself is not present. Consequently, we hold that the mere fact that the endorsement exclusions are contained in an “endorsement,” as opposed to the body of the policy, insufficient grounds to find that the otherwise inconsistent insurance contract is rendered consistent and fully enforceable.

IV

We hold that the policy issued by Shelter to Coppola contains inconsistent provisions and thus, must be construed against Shelter and in favor of coverage to Coppola. We hold further that the otherwise conflicting provisions of the policy are not rendered consistent and fully enforceable by virtue of the fact that the conflicting provisions are contained in the body of the policy and a contemporaneously issued endorsement to that policy.

Judgment is reversed and the case remanded to the court of appeals with directions to return to the trial court for further proceedings consistent with this opinion.

VOLLACK, J., dissents, and ERICKSON and LOHR, JJ., join the dissent.

1 . The issues raised in this appeal are not moot. Shelter provided a defense to Coppola under a reservation of rights. Consequently, this case requires us to determine whether or not Shelter actually has such rights (and we need not be concerned with the question whether these rights will indeed be invoked by Shelter). The determination of whether these rights exist will turn on whether Shelter’s policy excludes coverage or is fully enforceable. If the Shelter policy provides coverage to Coppola, then clearly Shelter would have no right to recover the cost of defending Coppola against the Simons’ claims. Consequently, the decision of this court will have a “practical legal effect upon the existing controversy.” American Drug Store, Inc. v. City & County of Denver, 831 P.2d 465, 469 (Colo. 1992).

2 . When questioned about these facts in arguments before this court, Shelter responded that the general rule is simply a "legal fiction” and as such, it did not matter whether or not the justification for the "fiction" was in fact existent in this case.