In December 1999, MIRPAD purchased a commercial office building in Phoenix, Arizona in which one of the tenants was POS Systems, Inc., a corporation ("POS"). In early 2000, MIRPAD learned that POS was in default under the terms of its lease. At about the time that MIRPAD locked POS out of the premises, POS filed a Chapter 7 petition in bankruptcy. The bankruptcy trustee filed an adversary proceeding against MIRPAD for, inter alia, wrongful eviction, while the president and CEO of POS filed a similar action in state court.
At the time of the eviction, MIRPAD was a named insured under a CGL policy issued by United Pacific Insurance Company (United Pacific) that included coverage for "personal injury and advertising injury liability." "Personal injury," was defined to include "wrongful eviction from, wrongful entry into, or invasion of the right of private occupancy of: (a) a room; (b) a dwelling, or (c) premises; that a person occupies by or on behalf of its owner, landlord or lessor..." After United Pacific was declared insolvent, the tender of the defense to the underlying actions was referred to CIGA pursuant to California Insurance Code § 1063.1. CIGA denied coverage and rejected the tender, leading to MIRPAD's expenditure of defense costs in excess of $500,000. In July 2003, MIRPAD filed a declaratory relief action against CIGA, seeking to recover its defense costs.
CIGA took the position that "personal injury" coverage for wrongful eviction under the United Pacific policy applied only where the tenant allegedly wrongfully evicted was a natural person as opposed to an "organization," such as POS, Inc. The trial court disagreed. In deciding cross-motions for summary judgment based upon stipulated facts, the court noted that the word "person" was not defined in the policy but was "defined as a matter of state law." Without attempting to construe or interpret the relevant policy language, the Court merely adopted CA Ins. Code § 19, which defines "person" as "any person, association, organization, partnership, business trust, limited liability company, or corporation." It then entered judgment in favor of plaintiff.
In reversing the trial court's granting of summary judgment, the Court of Appeal noted that CIGA's obligations were no broader than United Pacific's would have been but for its insolvency. Therefore, for plaintiff to recover its defense costs, it had to establish the possibility that the underlying wrongful eviction actions were "covered claims" within the coverage of the United Pacific policy. To establish the duty to defend, "the insured need only show that the underlying claims may fall within policy coverage; the insurer must proved it cannot." Relying upon Palmer v. Truck Insurance Exchange (1999) 21 Cal.4th 1109, the Court outlined the following basic principles of policy construction that the trial Court had ignored:
• Interpretation of an insurance policy is a question of law.
• While insurance contracts have special features, they are still contracts to which ordinary rules of contractual interpretation apply.
• The mutual intention of the parties at the time the contract is formed governs interpretation.
• If possible, "mutual intent" is inferred solely from the written provisions of the insurance policy.
• If the policy language is "clear and explicit, it governs."
• When interpreting a policy provision, its terms must be given their "ordinary and popular sense," unless "used by the parties in a technical sense or special meaning is given to them by usage."
• Policy terms must be interpreted "in context" giving effect to every part of the policy with "each clause helping to interpret the other."
The Court emphasized that "language in a contract must be interpreted as a whole, and in the circumstances of the case, and cannot be found to be ambiguous in the abstract." It also relied on the Supreme Court's "same meaning rule" set forth in Caminetti v. Pacific Mutual Life Insurance Co. (1943) 22 Cal.2d 344, 358, that "words used in a certain sense in one part of an instrument are deemed to have been used in the same sense in another."
There were numerous instances within the policy in which the word "person" was used clearly and unambiguously to mean "natural person" while "organizations" were referred to separately. The court found it significant that the term "organization," by itself, was used 12 times within the policy while the phrase "person or organization" was used in the policy an additional 20 times. The term "person," standing alone, was used 28 times, most often in contexts where it could only be interpreted as a "natural person."
The Court then pointed to Foster-Gardner, Inc. v. National Union Fire Insurance Co. (1998) 18 Cal.4th 857, which held that where a policy used the words "suit" and "claim" separately, they must have separate meanings. Thus, the Court concluded, because the terms "person" and "organization" in the United Pacific policy were used separately, and clearly with separate meanings, the trial Court erred by equating the two. It further erred by using Ins. Code § 19 to give meaning to the word person in this context without performing any independent analysis.
The trial court should have read the words "person" and "organization" as used in the policy as a whole, giving those words their ordinary lay person meaning. Had it done so, the appellate court concluded, the word "person," as used in the definition of "personal injury" relating to wrongful eviction, would have been interpreted in a manner consistent with every other use of the word throughout the policy, where it clearly meant "natural person." Summary judgment would then have been granted in CIGA's favor, having concluded that POS, Inc. was not a "person" within the meaning of the policy and that as a result, the policy did not provide coverage for defense or indemnity with respect to the underlying wrongful eviction claims. This case is another example of the old adage "read the policy".