Citations
- 31 Cal. App. 4th 1094
Full opinion text
Opinion
HAERLE, J.
I. Introduction
This is an appeal from a declaratory judgment entered in favor of the insurer, respondent Transcontinental Insurance Company (Transcontinental), and against the insured, appellant The Cooper Companies, Inc. The trial court held that two liability insurance policies issued to Cooper Laboratories (Cooper Labs), and its wholly owned subsidiary, CooperVision (later renamed The Cooper Companies; hereafter sometimes Cooper) by Transcontinental from July 1, 1982, to August 1, 1985 (policy period) did not provide coverage to Cooper and two of its subsidiaries, which were acquired after the expiration of the policy period, for bodily injury claims arising during the policy period alleged to have been caused by breast implants manufactured and distributed by the two subsidiaries. We affirm the judgment.
II. Factual and Procedural Background
Cooper Labs was a Palo Alto-based company that, in the early 1980’s, manufactured and sold various medical and dental drugs, devices and diagnostics. During that period, it also pursued a policy of acquiring and divesting itself of businesses that developed and/or marketed other such products, as well as ophthalmic and orthopedic devices, birth control devices and surgical lasers. In March of 1980, it consolidated some of its product lines into a new subsidiary, CooperVision, Inc., which in 1987 was renamed The Cooper Companies, Inc. Cooper Labs “spun off’ CooperVision to its shareholders in 1983, after which the latter became, and was operated as, an independent entity. Cooper Labs continued its “spin off’ and sale strategy and eventually dissolved in 1985. Thereafter, CooperVision adopted its parent company’s strategy of buying and selling various businesses manufacturing and marketing medical and dental devices and products.
Effective July 1, 1982, and continuing for a little over three years thereafter, until August 1, 1985, Transcontinental issued to Cooper Labs and CooperVision the two occurrence liability insurance policies at issue here (sometimes hereafter jointly referred to as the policies). The first policy is entitled Special Excess Liability Policy — Excess Products and Completed Operations Only (products policy); it provides $50,000 coverage per occurrence over a $1 million retained limit with total payment limited to $50,000 during each policy year. The second policy is entitled Commercial Umbrella Liability Policy (umbrella policy), which provides $10 million of products liability coverage per policy year, under two separate insuring agreements: (a) coverage A, which provides “following form” excess coverage on top of the products policy; and (b) coverage B, which provides umbrella coverage in excess of a $10,000 retention for claims that fall within the umbrella policy’s own insuring agreement, but are not covered by the products policy.
Because Cooper Labs desired to minimize any potential gaps in coverage that could arise in light of its strategy of buying and selling companies, as originally drafted both policies contained a named insured endorsement that was, at least in one respect, unusual; it stated that “[t]he named insured, of the declarations shall read: Cooper Laboratories, Inc., and any organization, association or business entity now existing or hereafter a[c]quired, in which Cooper Laboratories, Inc. owns an interest of fifty percent (50%) or more over which Cooper Laboratories, Inc. ex[]ercises active management and control. Such organization, association or entity as described herein shall include subsidiary or organizations standing in like relationship to such organization, association or entity, and shall include any employee club or association which is sponsored or approved by the management of Cooper Laboratories, Inc.” The unusual feature of this endorsement, at least as compared to industry practice as established in the court below, was the broadening of the named insured coverage by the inclusion of the words “or hereafter acquired” without the inclusion of any further temporal limitation.
In 1987, almost two years after both policies had expired, and also two years after the original insured, Cooper Labs, had dissolved, Cooper acquired two companies, Natural Y Surgical Specialties, Inc. (Natural Y) and Aesthetech Corporation (Aesthetech), both of which manufactured and sold breast implants. Cooper divested itself of these companies in 1988 but, in the process, retained their liabilities. Prior to the 1988 sale, neither of these briefly held subsidiaries of Cooper had experienced much exposure to breast implant claims. This situation started to change in 1990 and, by 1993, over 1,400 lawsuits were on file against Cooper or one or both of the two subsidiaries. One of these lawsuits resulted in a $4.5 million jury verdict in New York state court, shortly after which Cooper tendered to Transcontinental the defense of the breast implant claims against it or either subsidiary arising during the policy period. Transcontinental denied coverage and this declaratory relief action ensued.
The parties commendably stipulated to much that expedited the trial and this appeal. First of all, they stipulated to bifurcate the trial into two phases, phase I to address the issue of whether the policies, with their “after acquired” language, provided coverage to Cooper or either subsidiary, and phase II to address other coverage issues. The parties agreed that there would be no need to proceed to phase II if Transcontinental prevailed in phase I. The parties also stipulated to many basic background facts and assumptions, including that some or all of the bodily injury alleged in the breast implant suits occurred during the policy period and that Cooper has exhausted its retention requirements under the policies.
The case was tried over three trial days to the court, sitting without a jury. On October 5,1993, the court issued a statement of tentative decision which, with minor modifications, became final in December of that year. The trial court concluded that the “hereafter acquired” language in the named insured endorsement was ambiguous, but that an insured who purchased the policies would have an objectively reasonable expectation only for coverage of companies acquired during the policy period. The court therefore held as a matter of law that the policies do not provide coverage for Natural Y and Aesthetech or for Cooper’s liability for the tortious conduct of these two subsidiaries.
III. Discussion
A. Standard of Review
Based upon differing views of the evidence presented to the trial court, the parties urge disparate standards of review to govern this appeal. After reviewing the record, we agree with appellant that the trial court’s interpretation of the insurance policies in this case is subject to de novo review.
The interpretation of an insurance contract, as with that of any written instrument, is primarily a judicial function. (Devin v. United Services Auto. Assn. (1992) 6 Cal.App.4th 1149, 1157-1158, fn. 5 [8 Cal.Rptr.2d 263].) Unless the interpretation of the instrument turns upon the credibility of conflicting extrinsic evidence, a reviewing court makes an independent determination of the policy’s meaning. (Parsons v. Bristol Development Co. (1965) 62 Cal.2d 861, 865 [44 Cal.Rptr. 767, 402 P.2d 839]; Masonite Corp. v. Great American Surplus Lines Ins. Co. (1990) 224 Cal.App.3d 912, 916 [274 Cal.Rptr. 206].)
In the present case, the relevant extrinsic evidence is not in dispute. First, while the testimony of the parties’ experts regarding the scope of the disputed policy language differed, the meaning of the policy is a question of law about which expert opinion testimony is inappropriate. (See Suarez v. Life Ins. Co. of North America (1988) 206 Cal.App.3d 1396, 1406-1407 [254 Cal.Rptr. 377] [upholding trial court ruling excluding opinion testimony regarding reasonable interpretation of policy language]; Devin v. United Services Auto. Assn., supra, 6 Cal.App.4th at pp. 1157-1158, fn. 5 [expert testimony that complaint alleged facts triggering coverage improper and not a bar to granting nonsuit].) The conflicting expert testimony has no effect on our duty to independently interpret the policy language. (Cf. Suarez v. Life Ins. Co. of North America, supra, 206 Cal.App.3d at p. 1407 [independently interpreting policy language and affirming summary judgment, notwithstanding expert testimony supporting contrary interpretation].) Second, as recognized by Cooper, the trial court did not make a finding of fact regarding the origin of the language comprising the named insured endorsement, the only potentially material issue about which conflicting extrinsic evidence was received. As will become apparent, however, this issue is not germane to our resolution of the appeal.
B. Interpreting the Policies
The threshold issue in this appeal is the meaning of the “hereafter acquired” language in the named insured endorsements. Cooper contends that the absence of specific temporal limitations on this language mandates the conclusion that coverage was intended to extend in perpetuity to companies acquired after the policy period. Transcontinental, on the other hand, argues that coverage is limited to companies acquired during the policy period. The trial court ruled in favor of Transcontinental, concluding as a matter of law that an insured would have an objectively reasonable expectation of coverage only for companies acquired during the policy period.
Cooper urges that, in so ruling, the trial court misapplied the basic rules of interpretation applicable to insurance policies. As we shall explain, the trial court correctly applied the basic framework for insurance policy interpretation set forth by our Supreme Court in a trilogy of recent decisions. (See AIU Ins. Co. v. Superior Court (1990) 51 Cal.3d 807, 821-823 [274 Cal.Rptr. 820, 799 P.2d 1253] [hereafter AIU]; Bank of the West v. Superior Court (1992) 2 Cal.4th 1254, 1264-1265 [10 Cal.Rptr.2d 538, 833 P.2d 545] [hereafter Bank of the West]; Bay Cities Paving & Grading, Inc. v. Lawyers’ Mutual Ins. Co. (1993) 5 Cal.4th 854, 867 [21 Cal.Rptr.2d 691, 855 P.2d 1263] [hereafter Bay Cities].)
1. Framework for Insurance Policy Interpretation
In AIU the high court explained the three-step process for insurance policy interpretation. First, the court instructed that the primary goal of interpreting an insurance policy, like any contract, is to give effect to the mutual intent of the parties at the time they formed the contract. (AIU, supra, 51 Cal.3d at pp. 821-822.) This intent is inferred, if possible, solely from the written provisions of the contract. (Id. at p. 822.) “The ‘clear and explicit’ meaning of these provisions, interpreted in their ‘ordinary and popular sense,’ unless ‘used by the parties in a technical sense or a special meaning is given to them by usage’ [citation], controls judicial interpretation. [Citation.]” (Ibid.)
Second, if the court is faced with ambiguous policy language, the ambiguity is resolved by interpreting the ambiguous provision in the sense in which the promisor (insurer) reasonably believed, at the time of making it, that the promisee (insured) understood it. (AIU, supra, 51 Cal.3d at p. 822.)
Third, if the ambiguity is not eliminated through application of the above rule, then the ambiguous language is construed against the party who caused the uncertainty to exist. (AIU, supra, 51 Cal.3d at p. 822.) In most circumstances, the ambiguous language therefore is construed in favor of the insured. (Ibid.; cf. Garcia v. Truck Ins. Exchange (1984) 36 Cal.3d 426, 438 [204 Cal.Rptr. 435, 682 P.2d 1100] [general rule inapplicable where sophisticated parties negotiate and jointly draft language in question].)
In Bank of the West, the high court “clarified” the rules for interpreting allegedly ambiguous insurance policies (American Motorists Ins. Co. v. Allied-Sysco Food Services, Inc. (1993) 19 Cal.App.4th 1342, 1349 [24 Cal.Rptr.2d 106]; see also Transamerica Ins. Co. v. Superior Court (1994) 29 Cal.App.4th 1705, 1714 [35 Cal.Rptr.2d 259]) as follows: “If contractual language is clear and explicit, it governs. [Citation.] On the other hand, ‘[i]f the terms of a promise are in any respect ambiguous or uncertain, it must be interpreted in the sense in which the promisor believed, at the time of making it, that the promisee understood it.’ [Citations.] This rule, as applied to a promise of coverage in an insurance policy, protects not the subjective beliefs of the insurer but, rather, ‘the objectively reasonable expectations of the insured.’ [Citation.] Only if this rule does not resolve the ambiguity do we then resolve it against the insurer. [Citation.] [