Black Silver Enterprises v. Sequoia Ins.
Filed 2/27/13 Black Silver Enterprises v. Sequoia Ins.
CA4/1
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 This opinion has not been certified for
publication or ordered published for purposes of rule 8.1115
COURT
OF APPEAL, FOURTH APPELLATE DISTRICT
DIVISION
ONE
STATE
OF CALIFORNIA
BLACK SILVER ENTERPRISES, INC.,
Plaintiff and Appellant,
v.
SEQUOIA INSURANCE COMPANY,
Defendant and Respondent.
D059682
(Super. Ct. No. 37-2009-00084685-
CU-BC-CTL)
APPEAL from
a judgment of the Superior Court
of
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
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.
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.
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
property limits in the policies, whereas Sequoia maintains it
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 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, 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
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 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 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
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.
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.
