Cal. Specialty Insulation, Inc. v. Allied World Surplus Lines Ins. Co.

321 Cal.Rptr.3d 193

CALIFORNIA SPECIALTY INSULATION, INC., Plaintiff and Respondent,

v.ALLIED WORLD SURPLUS LINES INSURANCE COMPANY, Defendant and Appellant.

B324805

Court of Appeal, Second District, Division 7.

Filed May 17, 2024

APPEAL from a judgment of the Superior Court of Los Angeles County, Michelle Williams Court, Judge. Affirmed. (Los Angeles County Super. Ct. No. 21STCV06969)

Horvitz & Levy, Andrea L. Russi, San Francisco, Mitchell C. Tilner, Karen M. Bray, Burbank; Selman Leichenger Edson Hsu Newman & Moore, Gregory J. Newman, Los Angeles, and Hee Sung Yoon, Los Angeles, for Defendant and Appellant.

Berman Berman Berman Schneider & Lowary, Spencer A. Schneider and Karen E. Adelman, Los Angeles, for Plaintiff and Respondent.

RAPHAEL, J.^*

INTRODUCTION

This case centers on a commercial general liability insurance policy that Allied World Surplus Lines Insurance Company (Allied World) issued to California Specialty Insulation, Inc. (CSI). CSI filed an action for declaratory relief after Allied World refused to defend and indemnify CSI against a negligence claim following a construction site accident, The parties dispute whether one of the policy’s exclusions from coverage for bodily injury liability applies under these circumstances.

The policy excludes from coverage bodily injury to the employees of any "contractor." The term "contractor" is not defined in the policy. Allied World contends the term is unambiguous and the exclusion precludes coverage for the negligence claim in question. CSI takes the opposite view. It argues the term is ambiguous and the exclusion does not apply to the negligence claim.

After the parties filed cross-motions for summary judgment, the trial court ruled in CSI’s favor, granting its motion and denying Allied World’s. The court determined the term "contractor" in the disputed exclusion was ambiguous, and ultimately construed the term in CSI’s favor. We reach the same conclusion as the trial court. The term "contractor" in the disputed exclusion is ambiguous. Based on CSI’s objectively reasonable expectations, the exclusion does not apply to the negligence claim in question. Therefore, we affirm.

FACTUAL AND PROCEDURAL BACKGROUND

A. The Underlying Negligence Claim

In 2017, a real property owner retained Air Control Systems, Inc. (Air Control) to perform improvement work at a building in Los Angeles. Air Control later retained CSI to install duct insulation as part of the project.

In 2019, Jason Standiford, an Air Control employee, filed a personal injury complaint against CSI, asserting one cause of action for general negligence. Standiford alleged he suffered physical injuries in 2017 when he fell 16 to 20 feet after a CSI employee drove a scissor lift into a ladder he was standing on.

B. The Insurance Policy

At the time of Standiford’s accident, CSI was insured through a commercial general liability insurance policy from Allied World. Under the policy, Allied World agreed to "pay those sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury’ … to which this insurance applies." The policy stated Allied World had a duty to defend CSI "against any ‘suit’ seeking those damages," but also that Allied World had no duty to defend against a suit to which the policy did not apply.

As an addition to the list of exclusions from coverage for bodily injury liability, the policy set forth an endorsement titled "Bodily Injury to Any Employee or Temporary Worker of Contractors Exclusion" (Contractor Exclusion). Relevant here, the Contractor Exclusion stated the policy did not apply to " ‘Bodily injury’ … to any ‘employee’ or ‘temporary worker’ of any contractor or subcontractor arising out of or in the course of the rendering or performing services of any kind or nature by such contractor or subcontractor." Neither the endorsement nor the policy as a whole defined the term "contractor."

C. The Coverage Action

CSI tendered its defense in Standiford’s action to Allied World. Allied World accepted the defense without reserving any rights, and retained counsel filed an answer on CSI’s behalf. Allied World later withdrew its defense, asserting the Contractor Exclusion precluded any defense or coverage obligation.

In February 2021, CSI filed a complaint for declaratory relief. CSI sought to establish that under the policy Allied World had duties to defend and indemnify CSI in the Standiford action.

The parties filed cross-motions for summary judgment, for which they stipulated to the relevant facts. In their motions, the parties narrowed their dispute to whether the Contractor Exclusion applied for purposes of the Standiford action.

The trial court granted CSI’s motion and denied Allied World’s. The court determined the Contractor Exclusion did not apply because the terms "contractor" and "subcontractor" were ambiguous and meant, in line with CSI’s reasonable expectations, "CSI’s contractor or subcontractor, i.e., a contractor or subcontractor retained by CSI." Because CSI did not retain Air Control, the court continued, Standiford was not an employee of a contractor or subcontractor within the meaning of the exclusion and CSI was entitled to the declaratory relief it sought. The court entered judgment in favor of CSI.

Allied World timely appealed.

DISCUSSION

A. Standard of Review and Applicable Law

"Summary judgment is appropriate only ‘where no triable issue of material fact exists and the moving party is entitled to judgment as a matter of law.’ " (Regents of University of California v. Superior Court (2018) 4 Cal.5th 607, 618, 230 Cal.Rptr.3d 415, 413 P.3d 656; see Code Civ. Proc., § 437c, subds. (c) & (f).) We review a ruling on summary judgment de novo. (Gonzalez v. Mathis (2021) 12 Cal.5th 29, 39, 282 Cal.Rptr.3d 658, 493 P.3d 212.)

[1–7] This appeal requires us to interpret an insurance policy. "In general, interpretation of an insurance policy is a question of law that is decided under settled rules of contract interpretation." (State of California v. Continental Ins. Co. (2012) 55 Cal.4th 186, 194, 145 Cal.Rptr.3d 1, 281 P.3d 1000; accord, Yahoo Inc. v. National Union Fire Ins. Co. etc. (2022) 14 Cal.5th 58, 67, 301 Cal.Rptr.3d 1, 519 P.3d 992 (Yahoo Inc.) [" ‘ "While insurance contracts have special features, they are still contracts to which the ordinary rules of contractual interpretation apply." ’ "].) " ‘Our goal in construing insurance contracts, as with contracts generally, is to give effect to the parties’ mutual intentions. [Citations.] "If contractual language is clear and explicit, it governs." [Citations.] If the terms are ambiguous [i.e., susceptible of more than one reasonable interpretation], we interpret them to protect " ‘the objectively reasonable expectations of the insured.’ " [Citations.] Only if these rules do not resolve a claimed ambiguity do we resort to the rule that ambiguities are to be resolved against the insurer. [Citation.]’ [Citation.] The ‘tie-breaker’ rule of construction against the insurer stems from the recognition that the insurer generally drafted the policy and received premiums to provide the agreed protection." (Minkler v. Safeco Ins. Co. of America (2010) 49 Cal.4th 315, 321, 110 Cal.Rptr.3d 612, 232 P.3d 612 (Minkler).) "To further ensure that coverage conforms fully to the objectively reasonable expectations of the insured, the corollary rule of interpretation has developed that, in cases of ambiguity, basic coverage provisions are construed broadly in favor of affording protection, but clauses setting forth specific exclusions from coverage are interpreted narrowly against the insurer. The insured has the burden of establishing that a claim, unless specifically excluded, is within basic coverage, while the insurer has the burden of establishing that a specific exclusion applies." (Id. at p. 322, 110 Cal. Rptr.3d 612, 232 P.3d 612.)

B. The Trial Court Did Not Err in Granting Summary Judgment in Favor of CSI

The parties agree that the property owner hired Air Control to complete certain improvement work and that Standiford was performing such work as an employee of Air Control at the time of his accident. There is also no dispute that Standiford’s negligence claim falls within the scope of the policy’s general protection from bodily injury liability. But the agreement ends there. Allied World argues it does not have a duty to defend or indemnify CSI in Standiford’s action because the Contractor Exclusion applies and thus precludes any defense or coverage obligation. CSI contends the opposite is true.

The parties’ dispute turns on the language of the Contractor Exclusion and specifically its term "contractor."¹ CSI asserts the term is ambiguous and that its objectively reasonable expectations, as the insured, establish that the exclusion does not apply. Allied World argues the term is unambiguous and that, even if it is ambiguous, CSI’s reasonable expectations support application of the exclusion. The trial court agreed with CSI’s position. We do as well.

1. The undefined term "contractor" in the Contractor Exclusion is ambiguous

[8] The Contractor Exclusion states in relevant part that the policy does not cover " ‘[b]odily injury’ … to any ‘employee’ or ‘temporary worker’ of any contractor … arising out of or in the course of the rendering or performing services of any kind or nature by such contractor …. " While the policy does not define "contractor," that alone does not make the term ambiguous. (See State of California v. Continental Ins. Co., supra, 55 Cal.4th at p. 195, 145 Cal.Rptr.3d 1, 281 P.3d 1000.) Rather, the term is ambiguous only if " ‘it is capable of two or more constructions, both of which are reasonable.’ " (Ibid.)

Allied World contends the term "contractor" unambiguously means anyone who has "contracted to work on a construction project." It cites dictionary definitions, arguing these show "the ordinary and popular meaning of ‘contractor’ is a person who has signed a contract to...