Interpreting Insurance Policy Language In California
General Principles of Interpreting Insurance Policies
"When determining whether a particular policy provides a potential for coverage and a duty to defend, we are guided by the principle that interpretation of an insurance policy is a question of law.
The rules governing policy interpretation require us to look first to the language of the contract in order to ascertain its plain meaning or the meaning a layperson would ordinarily attach to it." (Waller v. Truck Ins. Exchange, Inc., supra, 11 Cal. 4th at p. 18.)
Consequently, in resolving whether the allegations in a complaint give rise to coverage under a CGL policy, we must consider the occurrence language in the policy, as well as the endorsements, if any, that broaden coverage included in the policy terms. (Ibid.)
The fundamental rules governing the interpretation of contracts apply equally to the construing of insurance contracts.
They are premised on the primary goal of giving effect to the mutual intention of the parties at the time the contract is formed.
That intent is to be inferred, if possible, solely from the written provisions of the contract. If the language of the insurance contract is clear and explicit, it governs. Indeed, judicial interpretation is controlled by the clear and explicit meaning of the language of a contract, interpreted in its ordinary and popular sense, unless the parties intended a technical sense or a special meaning by usage.
If the meaning a layperson would ascribe to insurance contract language is not ambiguous, then the courts will apply it regardless whether legally trained observers would perceive the language as raising doubts as to coverage due to sophisticated legal distinctions.
In other words, whatever ambiguity may attach to contract language due to a party's legal knowledge is resolved in favor of coverage. (Vandenberg v. Superior Court (1999) 21 Cal. 4th 815, 839-840 [88 Cal. Rptr. 2d 366, 982 P.2d 229]; Foster-Gardner, Inc. v. National Union Fire Ins. Co. (1998) 18 Cal. 4th 857, 868 [77 Cal. Rptr. 2d 107, 959 P.2d 265]; Waller v. Truck Ins. Exchange, Inc., supra, 11 Cal. 4th at p. 18; Civ. Code, 1636, 1638, 1639, 1644.)
'A policy provision will be considered ambiguous when it is capable of two or more constructions, both of which are reasonable.'
The fact that a term is not defined in the policies does not make it ambiguous.
Nor does 'disagreement concerning the meaning of a phrase,' or ' "the fact that a word or phrase isolated from its context is susceptible of more than one meaning."
"Language in a contract must be construed in the context of that instrument as a whole, and in the circumstances of that case, and cannot be found to be ambiguous in the abstract."
'If an asserted ambiguity is not eliminated by the language and context of the policy, courts then invoke the principle that ambiguities are generally construed against the party who caused the uncertainty to exist (i.e., the insurer) in order to protect the insured's reasonable expectation of coverage." ( Foster-Gardner, Inc. v. National Union Fire Ins. Co., supra, 18 Cal. 4th at p. 868.)
However, before doing so, in order to protect the objectively reasonable expectations of the insured, the courts endeavor to interpret the ambiguous language in the sense in which the insurer believed, at the time of making it, the insured understood it.
Only if this approach does not resolve the ambiguity, do the courts then resolve it against the insurer. ( Bank of the West v. Superior Court (1992) 2 Cal. 4th 1254, 1264-1265 [10 Cal. Rptr. 2d 538, 833 P.2d 545]; Reliance Nat. Indemnity Co. v. General Star Indemnity Co., supra, 72 Cal. App. 4th at p. 1074.)
"In summary, a court that is faced with an argument for coverage based on assertedly ambiguous policy language must first attempt to determine whether coverage is consistent with the insured's objectively reasonable expectations.
In so doing, the court must interpret the language in context, with regard to its intended function in the policy." ( Bank of the West v. Superior Court, supra, 2 Cal. 4th at p. 1265.)
"Courts will not strain to create an ambiguity where none exists." (Waller v. Truck Ins. Exchange, Inc., supra, 11 Cal. 4th at pp. 18-19.)
Simply stated, "an insurer has a duty to defend when the policy is ambiguous and the insured would reasonably expect the insurer to defend him or her against the suit based on the nature and kind of risk covered by the policy, or when the underlying suit potentially seeks damages within the coverage of the policy. ( Foster-Gardner, Inc. v. National Union Fire Ins. Co., supra, 18 Cal. 4th at p. 869, 77 Cal. Rptr. 2d 107, 959 P.2d 265.)