In evaluating allegedly ambiguous language in liability policy, the reasonable expectations of the named insured may differ from the reasonable expectations of an additional insured. ( Transport Insurance Co. v. Superior Court (2014) 222 Cal.App.4th 1216)
Facts
Vulcan Materials Company (Vulcan) manufactured perchloroethylene (PCE), a solvent used by dry cleaners. One of Vulcan’s distributors was R.R. Street & Co., Inc. (Street). Various parties sued Vulcan and Street alleging that Vulcan and Street had manufactured, distributed and/or sold PCE, resulting in soil and groundwater contamination in Modesto, California.
Vulcan was the named insured, and Street was an additional insured, on a commercial umbrella liability insurance policy issued by Transport Insurance Company (Transport). The Transport umbrella policy provided among other things that Transport would defend an insured against claims covered by the Transport umbrella policy but not covered by “underlying insurance.” The Transport umbrella policy’s schedule of underlying insurance identified nine primary policies issued to Vulcan as named insured (although Vulcan also had other policies). Street was listed as an additional insured on the Transport umbrella policy, but was not listed as an additional insured on any of the nine underlying primary policies listed in the Transport umbrella policy.
Transport filed an initial declaratory relief action to determine the scope of its obligations to its named insured, Vulcan . In that action, Transport argued that it had no duty to defend Vulcan under the Transport umbrella policy, because the Transport policy was excess to “underlying insurance,” and “underlying insurance” meant all primary policies available to Vulcan during the period of a continuous loss, not just the primary policies listed in the schedule of the Transport umbrella policy. The appellate court disagreed. It held that the term “underlying insurance” was ambiguous; that the ambiguity had to be resolved in favor of the “reasonable expectations of the insured [i.e., Vulcan]”; and that Vulcan could reasonably expect that “underlying insurance” only referred to the primary policies listed in the schedule of the Transport excess policy. (See Legacy Vulcan Corp. v. Superior Court (2010) 185 Cal.App.4th 677.)
Transport then filed a second declaratory action to determine the scope of its obligations to its additional insured, Street . Transport argued that its duty to defend Street had not been triggered, because all of the primary policies available to Vulcan had not been exhausted. In response, Street pointed to Transport’s earlier litigation with Vulcan and asserted that Transport was “collaterally estopped” from arguing that the term “underlying insurance” referred to something other than the policies listed on the schedule of the Transport umbrella policy. The trial agreed with Street, and granted summary adjudication in favor of Street. Transport sought appellate review.
Holding
The Court of Appeal reversed the summary adjudication in favor of Street. The appellate court held that “collateral estoppel” did not apply because the earlier litigation had focused on the reasonable expectations of Vulcan , the named insured, not on the reasonable expectations of Street , the additional insured. According to the appellate court, “[w]hen the party claiming coverage is an additional insured, it is the additional insured’s objectively reasonable expectations of coverage that are relevant, and not the objectively reasonable expectations of the named insured .” Thus, the trial court had erred in relying on Vulcan’s objectively reasonable expectations of coverage instead of relying on Street’s objectively reasonable expectations of coverage. Accordingly, the appellate court remanded the case to the trial court for further proceedings to determine the reasonable expectations of the additional insured, Street.
Comment
Ambiguities in insurance policies are generally construed in favor of the insured’s reasonable expectations. However, when faced with allegedly ambiguous policy language, a court must consider the reasonable expectation of the particular insured who is seeking coverage. As this case makes clear, the reasonable expectations of the named insured may be different from the reasonable expectations of the additional insured.