California Insurance ''Coverage'' Definition

The California Insurance Code does not define "coverage," but it defines "insurance" as "a contract whereby one undertakes to indemnify another against loss, damage, or liability arising from a contingent or unknown event" ( 22) and, "policy" as "The written instrument, in which a contract of insurance is set forth . . ." ( 380), and it provides that "A POLICY SHALL SPECIFY: . . . P . . . P (d) the risks insured against. P (e) the period during which the insurance is to continue . . ." ( 381). The meaning of "coverage" intended by the Legislature may be drawn from the definitions referred to above, from the context in which the word is used in subdivision (c)(1) of section 1063.1, and from other usage of the word in the Guarantee Act. The usage that most nearly parallels the phrase at issue in this case is found in subdivision (c)(9) of section 1063.1, which provides: " 'Covered claims' does not include (i) any claim to the extent it is covered by any other insurance . . . ." "Coverage" and "covered," as used in subdivision (c)(1) and (9) appear to refer to the protection from risk that is afforded by insurance. The Guarantee Act also uses the word "coverage" in slightly different contexts. for example, section 1063.2, subdivision (c), refers in paragraph (1) to "uninsured motorists coverage" and in paragraph (2) to "collision coverage." Subdivision (c) of section 1063.2, as originally enacted contained the provisions relating to "uninsured motorist coverage." (Stats. 1969, ch. 1347, 3, p. 2702.) Paragraph (2), relating to "collision coverage," was added in 1970. (Stats. 1970, ch. 1205, 4, p. 2122.) These two uses refer to types of protection afforded by a policy of automobile insurance. In common usage, "coverage" can denote "The extent of protection afforded by an insurance policy." (Am. Heritage College Dict. (3d ed. 1993) p. 320, col. 1). Based on these definitions and uses of "coverage" in the referenced statutes, we conclude that the Legislature intended the phrase "within the coverage of an insurance policy" in section 1063.1, subdivision (c)(1) to mean within the risks of loss protected against by an insurance policy. Thus, the reading of the pertinent portion of subdivision (c)(1) would be: the obligations of an insolvent insurer within the risks of loss protected against by an insurance policy of the insolvent insurer. We believe this reading is faithful to the legislative intent. That the "risks protected against by an insurance policy" is commonly indicated by "coverage" may also be seen by reference to insurance treatises. Thus, "The significance of the coverage of a risk by a policy lies in the fact that in accord with the contractual intent of the parties, the insured cannot recover on a policy unless the loss is occasioned by one of the perils covered by the policy. That is, recovery can be had only when the loss is brought fairly within the terms of the contract or is, by reasonable intendment, covered by it, in other words, the risk run must also correspond with that understood and intended to be run at the time the contract was effected, in order to subject the insurers to liability for the loss." (9 Couch on Insurance 2d (rev. ed. 1985) 39:3, pp. 496-497, fns. omitted, italics added.) The same meaning--the risk protected against by an insurance policy--may be inferred from the use of the word "coverage" by the courts. Thus, from Bank of the West v. Superior Court (1992) 2 Cal. 4th 1254, 1258 10 Cal. Rptr. 2d 538, 833 P.2d 545: "Comprehensive general liability (CGL) insurance policies generally include coverage for 'advertising injury.' This coverage, as ordinarily written, applies to 'damages' the insured must pay for injury arising out of 'unfair competition' occurring in the course of the insured's 'advertising activities.' We granted review to consider questions regarding the scope of coverage afforded by this standard policy language." And, from Palmer v. Truck Ins. Exchange (1999) 21 Cal. 4th 1109, 1116 90 Cal. Rptr. 2d 647, 988 P.2d 568: "The only applicable clause provides coverage for 'advertising liability' resulting from infringement 'of title or of slogan' (coverage clause). Construing this language in light of the rules governing contractual interpretation reveals that the coverage clause--when read in conjunction with the clause excluding coverage for trademark infringement (trademark exclusion clause)--does not cover the . . . judgment in the underlying case . . . ." See also Montrose Chemical Corp. v. Admiral Ins. Co. (1995) 10 Cal. 4th 645 42 Cal. Rptr. 2d 324, 913 P.2d 878: "The difference in the nature of the risks insured against under first party property policies and third party liability policies is also reflected in the differing causation analyses that must be undertaken to determine coverage under each type of policy. . . . ' "Property insurance . . . is an agreement, a contract, in which the insurer agrees to indemnify the insured in the event that the insured property suffers a covered loss. Coverage, in turn, is commonly provided by reference to causation, e.g., 'loss caused by . . .' certain enumerated perils. . . ." ' . . . 'The right to coverage in the third party liability insurance context draws on traditional tort concepts of fault, proximate cause and duty. This liability analysis differs substantially from the coverage analysis in the property insurance context, which draws on the relationship between perils that are either covered or excluded in the contract. In liability insurance, by insuring for personal liability, and agreeing to cover the insured for his own negligence, the insurer agrees to cover the insured for a broader spectrum of risks.' " ( Id. at pp. 663-664). There can be aspects of "coverage" other than those we have discussed above, to be sure. for example, the word is commonly used to refer to the period during which a policy is in force, as in coverage period. And it is also used in relation to the monetary limitation of an insurer's liability, as in coverage limits. Nevertheless, because of the context in which the phrase "within the coverage of an insurance policy" is used in section 1063.1, subdivision (c)(1), we believe the Legislature intended the phrase to mean within the risks protected against by an insurance policy.