Opinion
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
APPEAL from a judgment of the Superior Court of Los Angeles County. Super. Ct. No. BC306092, William F. Fahey, Judge.
Crowell & Moring, Steven P. Rice and Queena Hu; Selvin Wraith Halman and Gary R. Selvin for Defendant and Appellant.
Law Office of Martin Stanley and Martin Louis Stanley; Esner, Chang & Ellis, Stuart B. Esner and Gregory R. Ellis for Plaintiff and Respondent.
CHAVEZ , J.
This is an insurance coverage dispute concerning whether an insurer has a duty to defend a personal injury action against a contractor hired by the named insured. The plaintiff in the underlying action was seriously injured when a container being loaded onto the contractor’s truck fell off the truck and onto the plaintiff’s legs. The contractor, who had no insurance, tendered the defense of the action under a liability insurance policy issued to the named insured. The contractor is not identified by name as an insured under that policy. An endorsement to the policy provides coverage for bodily injury arising out of the named insured’s use of a “hired auto,” and states that any other person using a “hired auto” with the named insured’s permission is also an insured. The endorsement further states that the “owner” of a “hired auto” is not an insured. The insurer denied coverage on various grounds, including that the contractor was not an insured under the hired auto endorsement.
After obtaining an assignment of the contractor’s rights against the insurer, the plaintiff commenced this bad faith action against the insurer. At the conclusion of the trial, the trial court ruled that the insurer had breached its duty to defend the contractor, and the jury found that the insurer had breached the covenant of good faith and fair dealing. A judgment of $15 million was entered against the insurer.
In this appeal, the insurer contends that there was no duty to defend under the policy, and that substantial evidence does not support the jury’s determination that the insurer breached the covenant of good faith and fair dealing. We reverse the judgment. Because we conclude that the contractor was not an insured under the policy, there was no breach of the duty to defend. The undisputed extrinsic facts known to the insurer at the time it declined the contractor’s request for a defense established that the contractor was the owner of the truck involved in plaintiff’s accident, and accordingly, was not an insured under the hired auto endorsement to the policy. (Safeco Ins. Co. of America v. Parks (2004) 122 Cal.App.4th 779, 791 (Parks) [extrinsic facts obviate insurer’s duty to defend when they are undisputed and conclusively eliminate the potential for coverage].) The contractor also did not qualify as an insured under an additional insured endorsement to the policy. Because there was no breach of the duty to defend, there could be no breach of the covenant of good faith and fair dealing. (Waller v. Truck Ins. Exchange, Inc. (1995) 11 Cal.4th 1, 36 (Waller); R & B Auto Center, Inc. v. Farmers Group, Inc. (2006) 140 Cal.App.4th 327, 353.)
BACKGROUND
A. The Parties and Entities
Defendant and appellant Everest National Insurance Company (defendant) issued a commercial liability insurance policy (the Policy) under which Nautilus Marine Protection, Inc. (Nautilus), is the named insured under the Policy. Nautilus hired Buddy Lee Smithers, doing business as Budd-Co (Budd-Co), to move a storage container owned by Nautilus at Nautilus’s work site. Plaintiff and respondent Daniel O’Donnell (plaintiff), a Nautilus employee, was seriously injured when a container being loaded onto Budd-Co’s truck fell off the truck and onto his legs. As a result of the accident, both of plaintiff’s legs were crushed and subsequently amputated.
B. The Relevant Policy Provisions
The following Policy provisions are relevant to this action:
1.The Insuring Agreement
The insuring agreement states in part: “We will pay those sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury’ or ‘property damage’ to which this insurance applies. We will have the right and duty to defend the insured against any ‘suit’ seeking those damages. However, we will have no duty to defend the insured against any ‘suit’ seeking damages for ‘bodily injury’ or ‘property damage’ to which this insurance does not apply.”
The Policy defines “insured” as “any person or organization qualifying as such under Section II – Who Is An Insured.” Section II of the Policy’s commercial general liability coverage form lists various categories of persons insured under the Policy. None of these categories are at issue here. As discussed infra, endorsements to the Policy modify the definition of an “insured,” and it is those endorsements that are at issue.
2.The Hired Auto Endorsement
The Policy includes an endorsement for “Hired Auto” and “Non-Owned Auto Liability” (the Hired Auto Endorsement), that modifies the commercial general liability coverage form. Paragraph A of the Hired Auto Endorsement, captioned “Hired Auto Liability,” provides in part: “[T]he insurance provided in Section I – Coverages, under Coverage A – Bodily Injury and Property Damage Liability, applies to ‘bodily injury’ or ‘property damage’ arising out of the maintenance or use of a ‘hired auto’ by you or your ‘employees’ in the course of your business.” “Hired auto” is defined as “any ‘auto’ you lease, hire, rent or borrow,” but “does not include any ‘auto’ you lease, hire, rent or borrow from any of your ‘employees,’ your partners or your ‘executive officers,’ or members of their households.” The Policy states that the terms “you” and “your” refer to the named insured, Nautilus.
Paragraph D of the Hired Auto Endorsement, captioned “Who Is An Insured,” states in part: “Section II – Who Is An Insured is deleted with respect to Coverages provided under this endorsement and is replaced by the following: [¶] 1. Each of the following is an insured under this insurance to the extent set forth below: [¶] a. You. [¶] b. Any other person using a ‘hired auto’ with your permission. [¶] c. With respect to a ‘non-owned auto,’ any partner or ‘executive officer’ of yours, but only while such ‘non-owned auto’ is being used in your business. [¶] d. Any other person or organization, but only with respect to their liability because of acts or omissions of an insured under paragraphs a., b., or c. above. [¶] 2. None of the following is an insured: [¶] . . . [¶] d. The owner or lessee (of whom you are a sublessee) of a ‘hired auto’ or the owner of a ‘non-owned auto’ or any agent or ‘employee’ of any such owner or lessee.” The term “owner,” is not defined in the Hired Auto Endorsement or elsewhere in the Policy.
3.The Additional Insured Endorsement
The Policy also includes an additional insured endorsement (Additional Insured Endorsement) that states in relevant part: “This endorsement modifies insurance provided under the following: [¶] COMMERCIAL GENERAL LIABILITY COVERAGE PART [¶] SCHEDULE [¶] Name of Person or Organization: [¶] Any person or organization that is: [¶] 1. An owner of real or personal property on which you are performing operations, or [¶] 2. A contractor on whose behalf you are performing operations, but only at the specific written request by that person or organization to you, and if: [¶] 1. That request is made prior to the date your operations for that person or organization commenced; and [¶] 2. A certificate of insurance evidencing that request is on file with, or received by, us prior to sixty days after the end of the policy period for this insurance. [¶]. . . [¶] Who Is An Insured (Section II) is amended to include as an insured the person or organization shown in the Schedule, but only with respect to liability arising out of your ongoing operations performed for that insured.”
C. The Underlying Personal Injury Action
On May 8, 2001, plaintiff filed an action for negligence against Budd-Co. Plaintiff’s complaint alleged: “On or about October 30, 2000, plaintiff, while in the employ of Nautilus Marine Protection, was injured at the employer’s yard when an intermodal container being transported for relocation by a subcontractor slipped off the back of a truck, crushing both of his legs. [¶] . . . Defendants, and each of them, negligently acted and failed to act in the operation, management, maintenance, and control of said truck and container so as to negligently cause the injuries and damages suffered by plaintiff as described herein when the container fell off the back of the truck.”
Budd-Co filed an answer generally denying the allegations of the complaint and alleging the following affirmative defense: “Plaintiff and his employer, Nautilus Marine Protection, Inc. acted and failed to act in such a negligent and careless manner so as to place an overloaded and damaged container upon defendant’s truck which had been borrowed from defendant by plaintiff’s employer without compensation so as to create a dangerous and hazardous condition and otherwise negligently failed to exercise reasonable care for plaintiff’s own safety and well-being . . . .”
Budd-Co had no insurance, and on March 10, 2002, Budd-Co’s counsel tendered Budd-Co’s defense of plaintiff’s lawsuit to defendant. The tender letter stated that plaintiff’s injuries “occurred when an inter-modal container fell off a truck owned by Budd-Co landing on the plaintiff.”
After receiving Budd-Co’s tender, defendant retained a claims adjusting firm to investigate Budd-Co’s claim. As part of the investigation, claims adjusters interviewed Budd-Co’s defense counsel, Nautilus’s president, and a Nautilus employee present at the time of plaintiff’s accident. Defendant’s investigation did not include a search of Department of Motor Vehicle records for documents concerning Budd-Co’s ownership of the truck. By letter dated August 29, 2002, defendant denied coverage of the underlying action on various grounds, including that the vehicle involved was not a hired auto or non-owed auto within the meaning of the Hired Auto Endorsement, and that Budd-Co was not an insured under the Hired Auto Endorsement or the Additional Insured Endorsement. The letter did not state that coverage was being denied because Budd-Co was the owner of the vehicle, nor did it specify why defendant contended Budd-Co did not qualify as an insured under the Hired Auto Endorsement or the Additional Insured Endorsement.
In January 2003, plaintiff and Budd-Co entered into a settlement agreement that included a stipulation for entry of judgment in the amount of $15 million, a covenant not to execute on the judgment, and an assignment of Budd-Co’s rights against defendant. The settlement agreement stated in part: “2. At the time of the accident, which is the subject of said action, [Budd-Co] and a truck owned by him were performing work at the premises of Nautilus Marine Protection in Long Beach, California. [¶] 3. [Plaintiff] sustained injuries in the accident which is the subject of said action when he was struck by a cargo container owned by Nautilus . . . . [¶] 4. The cargo container that struck [plaintiff] at the time of the accident, which is the subject of said action, was in the process of being moved aboard a truck owned by [Budd-Co] and such activity was being undertaken by [Budd-Co] and employees of Nautilus.” Buddy Lee Smithers, individually and doing business as Budd-Co, signed this agreement.
In February 2003, plaintiff sent defendant a notice of motion for determination of good faith settlement. The motion stated that, “The cargo container that struck Plaintiff at the time of the accident, was in the process of being moved onto a truck owned by [Budd-Co] and such activity was being undertaken by [Budd-Co] and employees of Nautilus.” Plaintiff submitted a declaration, signed under penalty of perjury, in support of the motion in which he stated: “On the date of the accident, I observed that a truck owned by the Budd Company and being driven by Buddy Lee Smithers (the owner of the Budd Company) came onto the premises for the purpose of moving the tool container. The proper procedure would have been to pick up the container on a flat bed truck with the use of a fork lift or crane. Four pins one on each corner should then have been used to secure the container on the flat bed truck. The truck being owned and operated by the Budd Company did not have a flat bed but instead had a bed with rails which could not easily accommodate the containers. Because of this, Mr. John Jeppesen one of the employees and owners of Nautilus Marine Protection Inc., supervised the winching of the container onto the Budd Company’s truck. President and co-owner of Nautilus Marine Protection, Inc. David Bilicki, was also involved in the operation. Apparently, they were not entirely successful in winching the Nautilus tool container onto the Budd Company truck.” On June 30, 2003, an order was entered determining plaintiff’s settlement with Budd-Co to be in good faith, and a $15 million stipulated judgment was entered against Budd-Co.
After entry of the stipulated judgment, defendant sent Budd-Co a letter dated March 27, 2003, reaffirming its denial of coverage. The letter stated that coverage was denied on the ground that Budd-Co was not an insured under the Hired Auto Endorsement. The letter explained that the terms of the endorsement provided that the “owner” of a “hired auto” was not an insured under the Policy and that the settlement agreement between plaintiff and Budd-Co, as well as pleadings from the underlying action, confirmed that Budd-Co owned the truck involved in plaintiff’s accident.
D. The Instant Bad Faith Litigation
On November 13, 2003, plaintiff, as Budd-Co’s assignee, filed this action for breach of contract and breach of the implied covenant of good faith and fair dealing. Paragraph five of plaintiff’s complaint states in part: “At the time of the subject accident, Budd-Co was an insured under the Policy and entitled to a defense thereunder, since it was an owner of personal property (the truck involved in the accident injuring plaintiff) on which it and Nautilus (and its employee, plaintiff herein) were performing operations.” Paragraph seven of the complaint states: “At the time of said accident, Budd-Co was hired by Nautilus as a contractor and was operating its truck (personal property) on real property on which Nautilus was performing business operations and plaintiff, an employee of Nautilus, was assisting in the loading of the truck owned and operated by Budd-Co, when plaintiff was injured as alleged herein, through Budd-Co’s negligent acts.”
Trial commenced on April 18, 2005. Plaintiff and another Nautilus employee who was present at the time of plaintiff’s injury testified concerning the circumstances of the accident. Plaintiff also presented two expert witnesses, Rex Heeseman and Michael Carter, who testified with regard to defendant’s investigation and handling of Budd-Co’s claim. Mr. Heeseman testified that the language of the Hired Auto Endorsement, as well as the circumstances of plaintiff’s accident, warranted further investigation concerning ownership of the container, ownership of the truck, and an analysis of both the container and the truck under the various Policy provisions. Mr. Heeseman opined that the Nautilus container attached to the truck came under the Policy definition of an “auto.” Mr. Heeseman further opined that a proper coverage analysis should have included a public records search to determine ownership of the truck as well as ownership of Budd-Co.
Mr. Carter testified that defendant’s investigation of Budd-Co’s claim was inadequate and should have included a search of Department of Motor Vehicle records, and a public records search concerning Budd-Co. Mr. Carter further testified that there was evidence available from the Department of Motor Vehicles in 2001 indicating that an entity named Master Leasing/Investment was the legal owner of the Budd-Co truck involved in plaintiff’s accident.
Defendant presented both percipient and expert witnesses who testified concerning the investigation and evaluation of Budd-Co’s claim.
After the close of evidence, the trial court ruled as a matter of law that defendant breached its duty to defend Budd-Co. The parties then stipulated that the damages for breach of the duty to defend would be $2 million, and that total damages would not exceed $15 million if the jury found that defendant had also breached the covenant of good faith and fair dealing. The jury subsequently found that defendant breached the covenant of good faith and fair dealing owed to Budd-Co. The trial court awarded plaintiff damages in the amount of $15 million, and judgment in that amount was entered against defendant. This appeal followed.
DISCUSSION
I. Standard of Review
“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. [Citation.]” (Waller, supra, 11 Cal.4th at p. 18.) Accordingly, we review de novo the trial court’s determination that defendant owed Budd-Co a duty to defend under the Policy. (Parks, supra, 122 Cal.App.4th at p. 789.) The substantial evidence standard applies to our review of the jury’s verdict that defendant breached the covenant of good faith and fair dealing owed to Budd-Co. (Dalrymple v. United Services Auto. Assn. (1995) 40 Cal.App.4th 497, 511.)
II. Duty to Defend
“[A] liability insurer owes a broad duty to defend its insured against claims that create a potential for indemnity. [Citation.] . . . ‘[T]he carrier must defend a suit which potentially seeks damages within the coverage of the policy.’ [Citation.] Implicit in this rule is the principle that the duty to defend is broader than the duty to indemnify; an insurer may owe a duty to defend its insured in an action in which no damages ultimately are awarded. [Citations.]” (Horace Mann Ins. Co. v. Barbara B. (1993) 4 Cal.4th 1076, 1081.) “However, while the duty to defend is broad, it is not unlimited. It is entirely dependent upon a showing by the insured that the third party claim for which it seeks a defense is one for damages which potentially fall within the policy coverage. It is the nature and kind of risk covered by the policy which both defines and limits the duty to defend. [Citation.]” (Lebas Fashion Imports of USA, Inc. v.v. ITT Hartford Ins. Group (1996) 50 Cal.App.4th 548, 556.)
“‘The determination whether the insurer owes a duty to defend usually is made in the first instance by comparing the allegations of the complaint with the terms of the policy. Facts extrinsic to the complaint may also give rise to a duty to defend when they reveal a possibility that the claim may be covered by the policy. [Citation.]’ [Citation.]” (Montrose Chemical Corp. v. Superior Court (1993) 6 Cal.4th 287, 295.) “[T]he extrinsic facts which may create a duty to defend must be known by the insurer at the inception of the third party lawsuit.” (Gunderson v. Fire Ins. Exchange (1995) 37 Cal.App.4th 1106, 1114.) “[W]here the extrinsic facts eliminate the potential for coverage, the insurer may decline to defend even when the bare allegations in the complaint suggest potential liability. [Citations.]” (Waller, supra, 11 Cal.4th at p. 19.) “Extrinsic facts obviate the insurer’s defense duty where they are undisputed and conclusively eliminate the potential that the policy provides coverage for the third party’s claim. [Citations.]” (Parks, supra, 122 Cal.App.4th at p. 791.)
III. Principles of Policy Interpretation
The rules governing the interpretation of a contract apply equally to insurance policies. “‘[I]nterpretation of an insurance policy is a question of law.’ [Citation.] ‘While insurance contracts have special features, they are still contracts to which the ordinary rules of contractual interpretation apply.’ [Citation.] Thus, ‘the mutual intention of the parties at the time the contract is formed governs interpretation.’ [Citation.] If possible, we infer this intent solely from the written provisions of the insurance policy. [Citation.] If the policy language ‘is clear and explicit, it governs.’ [Citation.] [¶] When interpreting a policy provision, we must give its terms 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.] We must also interpret these terms ‘in context’ [citation], and give effect ‘to every part’ of the policy with ‘each clause helping to interpret the other.’ [Citations.]” (Palmer v. Truck Ins. Exchange (1999) 21 Cal.4th 1109, 1115.)
“Any ambiguity or uncertainty in an insurance policy is to be resolved against the insurer.” (Crane v. State Farm Fire & Cas. Co. (1971) 5 Cal.3d 112, 115.) “Although this rule of construction has ‘particular application’ where exclusions from the policy are involved, there must still be some ambiguity in the policy language before construction against the insurer is called for. [Citations.]” (Allstate Ins. Co. v. Chinn (1969) 271 Cal.App.2d 274, 279 (Chinn).) “‘A policy provision will be considered ambiguous when it is capable of two or more constructions, both of which are reasonable.’ [Citations.] The fact that a term is not defined in the policies does not make it ambiguous. [Citations.] Nor does ‘[d]isagreement 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.”’ [Citation.] ‘“[L]anguage 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.”’ [Citation.]” (Foster-Gardner, Inc. v. National Union Fire Ins. Co. (1998) 18 Cal.4th 857, 868 (Foster-Gardner).)
A commercial general liability insurance policy, such as the one at issue here, “is written in two essential parts: the insuring agreement, which states the risk or risks covered by the policy, and the exclusion clauses, which remove coverage for risks that would otherwise fall within the insuring clause. [Citation.] Before ‘even considering exclusions, a court must examine the coverage provisions to determine whether a claim falls within [the policy terms].’ [Citation.] ‘This is significant for two reasons. First, “. . . when an occurrence is clearly not included within the coverage afforded by the insuring clause, it need not also be specifically excluded.” [Citation.][’] [¶] ‘Second, although exclusions are construed narrowly and must be proven by the insurer, the burden is on the insured to bring the claim within the basic scope of coverage, and (unlike exclusions) courts will not indulge in a forced construction of the policy’s insuring clause to bring a claim within the policy’s coverage.’ [Citation.]” (Waller, supra, 11 Cal.4th at p. 16.)
IV. The Parties’ Contentions
Plaintiff contends that defendant breached its duty to defend Budd-Co because Budd-Co was potentially covered as an insured under the Hired Auto Endorsement or the Additional Insured Endorsement. Defendant maintains that it properly denied coverage because Budd-Co’s own statement that it owned the truck involved in plaintiff’s accident conclusively eliminated any potential for coverage under section D(2)(d) of the Hired Auto Endorsement, which states that the “owner” of a “hired vehicle” is not an insured under the Policy. Defendant further argues that Budd-Co did not come within the terms of the Additional Insured Endorsement and that even if it did, an exclusion in the Policy for automobile liability barred coverage.
In this appeal, defendant also challenges two other arguments plaintiff advanced at trial – that Budd-Co was potentially covered under the Policy by virtue of Insurance Code section 11580.1, subdivision (b)(4), and that Budd-Co was potentially covered under the Policy provision extending coverage for liability “[a]ssumed in a contract or agreement that is an ‘insured contract.’” Plaintiff maintained that, at the time of plaintiff’s injury, Nautilus was performing work pursuant to an “insured contract” that required it to carry liability insurance covering Budd-Co. Plaintiff has not presented these arguments on appeal, and we therefore need not address them.
V. The Hired Auto Endorsement
The Hired Auto Endorsement is a standard provision in automobile liability insurance policies. (Providence Wash. Ins. v. Alaska Pac. Assur. (Alaska 1979) 603 P.2d 899, 901 (Providence).) “Under such provisions, the owner of a ‘hired automobile’ is generally excluded from coverage as an insured because such owner normally is expected to carry his or her own insurance on the vehicle.” (Marshall v. Providence Washington Inc. Co. (N.M. 1997)951 P.2d 76, 80; 8A Couch on Insurance (3d ed. 2006) § 118:53, pp. 118-84–118-85; Annot., Effect of Provision of Liability Policy Covering Hired Automobiles but Excluding from Definition of “Insured” the Owner of Such Vehicle or His Employee (1953) 32 A.L.R.2d 572, and cases cited.) In the Hired Auto Endorsement at issue here, that exclusion is set forth in section D(2)(d), which states that “[t]he owner or lessee (of whom you are a sublessee) of a ‘hired auto’” is not an insured under the Policy.
A. Burden of Proof
Plaintiff contends that section D(2)(d) of the Hired Auto Endorsement is an exclusion taking away coverage previously conferred under section D(1)(b) for permissive users of a hired auto, and that defendant bore the burden of establishing that the exclusion applied before relying on it to deny coverage. (Garvey v. State Farm Fire & Casualty Co. (1989) 48 Cal.3d 395, 406.) We need not determine whether section D(2)(d) is an exclusion from coverage (see Universal Underwriters Ins. Co. v. Gewirtz (1971) 5 Cal.3d 246, 251; Otter v. General Ins. Co. (1973) 34 Cal.App.3d 940, 945) or, as defendant argues, an integral part of the policy’s insuring clause defining which persons are covered (Waller, supra, 11 Cal.4th at p. 16; Vargas v. Athena Assurance Co. (2001) 95 Cal.App.4th 461, 466). Even assuming defendant had the burden of establishing that section D(2)(d) applied, that burden was satisfied by Budd-Co’s counsel’s statement that Budd-Co owned the truck involved in plaintiff’s accident. That statement was subsequently confirmed by similar statements in the settlement agreement and stipulation for entry of judgment entered into by Budd-Co and plaintiff.
In view of our conclusion, infra, that defendant was entitled to rely on Budd-Co’s counsel’s statement that Budd-Co owned the truck involved in the accident, we need not address the parties’ arguments as to whether plaintiff is judicially estopped from contending in this action that Budd-Co may not have been the owner of the truck, because that contention contradicts statements concerning Budd-Co’s ownership in the settlement agreement, stipulation for entry of judgment, and plaintiff’s declaration in support of the stipulation for entry of judgment.
B. Meaning of the Term “Owner”
Plaintiff argues that the term “owner,” as used in section D(2)(d) of the Hired Auto Endorsement, is inherently ambiguous. He contends that because of this ambiguity, defendant was not entitled to rely on Budd-Co’s statement that it “owned” the truck, but should have investigated Budd-Co’s ownership of the truck before denying coverage. Plaintiff further contends that section D(2)(d) of the Hired Auto Endorsement is unenforceable because it conflicts with the language of section D(1)(b), which states that “any other person” who uses a hired auto with the permission of the named insured is also an insured under the Policy. Alternatively, plaintiff argues that Nautilus’s container, attached to Budd-Co’s truck, was an “auto” owned by Nautilus within the meaning of the Policy, and that Budd-Co was potentially an insured under section D(1)(d) of the endorsement to the extent that its liability was based on the actions of Nautilus.
The term “owner,” as used in the Hired Auto Endorsement, is not inherently ambiguous. Although that term is not defined in the Policy, the absence of such a definition does not make it inherently ambiguous. (Foster-Gardner, supra, 18 Cal.4th at p. 868.) Under California law, “‘“[t]he word ‘owner’ as applied to motor vehicles, is commonly understood to designate the person in whom title is vested either as legal [or equitable] owner or as registered owner.” [Citations.]’ [Citation.]” (Allstate Ins. Co. v. Thompson (1988) 206 Cal.App.3d 933, 938; Oil Base, Inc. v. Transport Indemnity Co. (1956) 143 Cal.App.2d 453, 463 (Oil Base); accord Mid-Century Ins. Co. v. Gardner (1992) 9 Cal.App.4th 1205, 1211 (Gardner).) “For the purpose of determining liability insurance coverage, there may be several ‘owners’ of an automobile.” (Chinn, supra, 271 Cal.App.2d at p. 278.) That there may be more than one owner of a vehicle does not render the term “owner” inherently ambiguous. (See id. at p. 279 [“the concept of ownership in an insurance policy is not ambiguous”].)
Plaintiff also argues that the definition of “owner” is ambiguous because it can be construed more expansively than what it is commonly understood to mean under California law. To support this argument, plaintiff contends that the term can include “people [who] believe they are owners.” Gardner, on which plaintiff relies to support this argument, holds to the contrary. In Gardner, an insurer sought to apply an exclusion for “‘bodily injury sustained by a person . . . [w]hile occupying a motor vehicle owned by you . . .’” against the named insured, who was injured while driving a pickup truck. (Gardner, supra, 9 Cal.App.4th at p. 1210.) Although title to the truck was held not by the named insured, but by a corporation owned and controlled by the named insured, the insurer argued that the named insured’s dominion and control over the truck made him an “owner” for purposes of the policy exclusion. The court disagreed. Noting that the term “owner” was not defined in the policy, the court applied “the meaning a reasonable person would ordinarily give the term,” which included “‘hav[ing] a rightful title to, whether legal or natural.’” (Id. at p. 1211, quoting Webster’s 3d New Internat. Dict. (1971) p. 1612.) The court in Gardner concluded: “Under the ordinary sense of this definition, Mr. Gardner did not own the vehicle in which he was injured. Title to the 1987 pickup truck was in the corporation’s name, which held the vehicle as its property. Regardless of the extent to which Mr. Gardner owned or controlled the corporation as a stockholder and executive officer (including the use of the pickup truck), this does not confer upon him the corporation’s title to the truck.” (Ibid.)
Plaintiff also cites Allstate Ins. Co. v. Condon (1988)198 Cal.App.3d 148 (Condon), to support his ambiguity argument. That case, however, is distinguishable. In Condon, a lawsuit was filed against a mother and son after an accident that occurred while the son was driving a truck. Although the mother was the registered owner of the truck, it was driven, maintained, and repaired exclusively by the son. The truck was not specifically listed as a covered vehicle under an automobile liability policy issued to the mother and that provided coverage for a listed vehicle and for “‘[a] non-owned auto used with the permission of the owner.’” (Id. at p. 151.) To properly deny coverage, the insurer had to demonstrate that both the mother and the son were not owners of the non-listed truck. The insurer argued that the truck was not “non-owned” with respect to the mother because she was the registered owner. With regard to the son, the insurer argued that his exclusive control over the car’s use and care made him an “owner,” and that the truck was therefore not “non-owned” as to him. The court in Condon rejected the insurer’s argument that the term “owner” can reasonably be interpreted to include one who exercises exclusive use and control of a vehicle. On that basis the court concluded that the son was not an “owner” of the truck for insurance coverage purposes. (Ibid.)
The son apparently testified in his deposition that he considered himself the owner of the vehicle. (Condon, supra, 198 Cal.App.3d at p. 152, fn. 3.)
The court in Condon reasoned that the terms “owner” and “non-owned” were “ambiguous terms requiring the court to interpret ‘non-owned’ so as to favor coverage under the policy.” (Condon, supra, 198 Cal.App.3d at p. 151.) The court explained: “‘The word “owner” is a nomen generalissimum. Its meaning is to be gathered from the context in which it is used and the subject matter to which it is applied. . . . “Owner” is to be interpreted in a manner in which it would be understood by the average man, . . . even though a different or technical meaning may have been intended by the insurer. . . .’” (Ibid., quoting Government Employees Ins. Co. v. Kinyon (1981) 119 Cal.App.3d 213, 222.)
Condon does not establish that the term “owner,” as used in the Hired Auto Endorsement, is inherently ambiguous. Rather, the court in Condon concluded that the insurer’s interpretation of the term “owner” as including exclusive use and control of a vehicle was not reasonable. The ambiguity in Condon was created by the insurer itself when it sought to define “owner” in a manner different than the common understanding of that term. The court in Condon acknowledged this when it stated: “The multiple interpretations advanced by [the insurer] on the question of ownership highlight the ambiguity of the term ‘non-owned.’” (Condon, supra, 198 Cal.App.3d at p. 152.) In this case, unlike the insurer in Condon, defendant has not advanced multiple interpretations of the term “owner” in order to deny coverage, nor does it seek to apply an interpretation that is different than its common understanding under California law. Also unlike Condon, the instant case does not involve separate claimants against whom defendant has sought to apply different interpretations of the term “owner.” Condon is thus inapposite.
There is no indication that the term “owner,” as used in the Hired Auto Endorsement, is ambiguous under the circumstances of this case. Plaintiff has made no showing that Budd-Co’s statement that it “owned” the truck was intended to mean anything other than the common understanding of ownership -- that Budd-Co held title to the truck as either the legal or registered owner. Plaintiff’s ambiguity argument is premised on the assumption that defendant could have interpreted Budd-Co’s statement that it “owned” the truck to mean something other than the common understanding of legal or registered ownership. As we discuss, there is no basis in the record to support such an assumption.
Plaintiff also has made no showing that similar statements contained in the underlying settlement agreement, motion for determination of good faith settlement, and plaintiff’s own declaration in support of that motion were intended to mean anything other than the common understanding that Budd-Co was either the legal or registered owner of the truck.
C. Extrinsic Facts Known to Defendant
The undisputed extrinsic facts known to defendant at the time it denied Budd-Co a defense established that Budd-Co was an “owner” of the truck involved in plaintiff’s accident, and therefore was not an insured under the Hired Auto Endorsement. Budd-Co’s tender letter stated that plaintiff’s accident “occurred when an inter-modal container fell off a truck owned by Budd-Co landing on the plaintiff.” Defendant’s subsequent investigation uncovered no information that contradicted Budd-Co’s claim of ownership.
Plaintiff argues that defendant was not entitled to rely on the statement in Budd-Co’s tender letter that it “owned” the truck involved in plaintiff’s accident because that statement was not made in the context of explaining why a particular policy provision (in this case, the Hired Auto Endorsement), did or did not apply. Budd-Co’s statement was made in the context of seeking a defense under the Policy, however, and defendant was entitled to consider that statement when making its coverage determination.
Plaintiff contends that defendant had a duty to investigate Budd-Co’s ownership of the truck by searching Department of Motor Vehicle records. Budd-Co’s own statement that it owned the truck obviated the need for such a search. Defendant was not obliged to search for documents that might contradict Budd-Co’s statement.
The facts presented here are similar to those in Parks, supra, 122 Cal.App.4th 779. In that case, the claimant tendered the defense of a personal injury action to the insurer who had issued a homeowner’s policy to the man with whom the claimant’s mother was living. Although the claimant was not named or listed as an insured under the homeowner’s policy, the policy defined the term “insured” to include certain “residents” of the named insured’s household. (Id. at p. 784.) After the action was tendered, a claims adjuster spoke with the claimant, her mother, and the named insured. All three said that the claimant did not live in the named insured’s house, and the insurer declined the claimant’s request for a defense on that basis. Defense counsel subsequently provided the insurer with various documents, including the deposition transcript of a witness who testified that the claimant lived at least half of the time in the named insured’s house. In the ensuing bad faith litigation, an assignee of the claimant argued that the insurer had breached its duty to defend because it failed to resolve conflicting evidence concerning the claimant’s residence in favor of coverage, and because it did not search for tax and vehicle records that would have confirmed that the claimant lived with the named insured. The court in Parks disagreed, concluding that the insurer “‘does not have a continuing duty to investigate whether there is a potential for coverage. If it has made an informed decision on the basis of the third party complaint and the extrinsic facts known to it at the time of tender that there is no potential for coverage, the insurer may refuse to defend the lawsuit.’ [Citation.]” (Id. at p. 794.)
Here, as in Parks, defendant made an informed decision that Budd-Co was not an insured under the Policy, based on Budd-Co’s own tender letter stating that it owned the truck involved in plaintiff’s accident. Defendant had no duty to search for documents that might contradict Budd-Co’s statement.
Because defendant based its coverage determination on extrinsic facts showing that Budd-Co was the “owner” of the truck, and there was no extrinsic evidence showing that Budd-Co was a lessee, we need not address the parties’ arguments concerning Budd-Co’s potential ineligibility for coverage under the Hired Auto Endorsement as a “lessee” of a “hired auto.”
Plaintiff argues that Parks is distinguishable because that case did not involve an ambiguous policy provision and because the claimants in that case initially concealed contradictory facts from the insurer. As discussed, we do not find the policy language at issue here to be ambiguous, nor is there any evidence in the record to contradict Budd-Co’s statement that it owned the truck involved in plaintiff’s accident. The testimony of plaintiff’s expert that evidence was available from the Department of Motor Vehicles in 2001 indicating that an entity named Master Leasing/Investment was the legal owner of the Budd-Co truck does not negate Budd-Co’s statement that it owned the truck. As discussed, the term “owner,” as applied to motor vehicles, is commonly understood to include either the legal owner or the registered owner (Allstate Ins. Co. v. Thompson, supra, 206 Cal.App.3d at p. 938), and there may be more than one owner of a vehicle for purposes of determining liability insurance coverage. (Chinn, supra, 271 Cal.App.2d at p. 278.) That another entity may have been the legal owner of the truck involved in plaintiff’s accident does not preclude Budd-Co from also being its owner.
D. Enforceability
Plaintiff contends that “the text and structure” of the Hired Auto Endorsement render section D(2)(d) of that endorsement unenforceable. He claims that section D(2)(d), which excludes owners and lessees of a hired auto from the definition of an insured, conflicts with other, more expansive language in the endorsement granting coverage to permissive users of a hired auto. Plaintiff points to section D(1)(b) of the Hired Auto Endorsement, which states that “[a]ny other person using a ‘hired auto’ with [the named insured’s] permission” is an insured, and argues that the term “any” has been interpreted broadly to mean “‘one indifferently out of more than two’; ‘one or another’; and ‘one, no matter what one.’ [Citation.]” (California State Auto. Assn. Inter-Ins. Bureau v. Warwick (1976) 17 Cal.3d 190, 195, quoting Webster’s 3d New Internat. Dict. (1961) p. 97.) Plaintiff also cites language at the beginning of section D(1), which states that “[e]ach of the following is an insured under this insurance to the extent set forth below.” He maintains that the term “each” has been given a similarly broad interpretation. Plaintiff argues that the expansive language of sections D(1) and D(1)(b), when read together with the exclusionary provisions of section D(2)(d), results in conflicting Policy language that renders the exclusionary provisions of section D(2)(d) unenforceable.
There appears to be no California authority interpreting the policy language at issue. Because the Hired Auto Endorsement is a standard provision in automobile insurance policies, however, courts outside of California have often decided whether the provision excluding the “owner” of a hired vehicle from the definition of an “insured” removes from coverage persons who also fall within the definition of an “insured” as a permissive user of a hired auto. Courts in other jurisdictions are divided on this issue. Some courts have held that the owner exclusion applies to remove from coverage only persons who do not otherwise fall within the definition of an insured. (See cases cited in Providence, supra, 603 P.2d at pp. 901-902.) Others have held that the owner exclusion clause removes from coverage persons who fall within its terms even though they also come within the definition of an insured as a permissive user. (Id. at p. 902.) We agree with the Alaska Supreme Court that the latter category of authorities have the better side of this argument. As the court in Providence reasoned: “It is difficult to understand the function of the owner exclusion clause if it does not take away coverage from those who, except for its existence, would come within the definition of persons insured. If it only applied to those who were not covered anyway it would be superfluous. And the inclusionary and exclusionary clauses cannot be viewed as totally separate entities which thus create a logical conflict, for they both fall under the language at the beginning of the “Persons Insured” paragraph: ‘Each of the following is an insured to the extent set forth below. . . .’ (emphasis added). Thus a permissive user of a hired vehicle is an insured only to the extent set forth, which is to the extent he is not its owner or an employee of its owner. [¶] The purpose of the exclusion seems obvious. The owner should carry his own insurance to protect himself and his employees.” (Ibid.) We find this reasoning to be persuasive and apply it here.
Defendant cites Vargas v. Athena Assurance Co., supra, 95 Cal.App.4th 461 as controlling authority on this issue; however, the particular policy language at issue here does not appear to have been considered by the court in that case.
The text and structure of the Hired Auto Endorsement do not render section D(2)(d) of that endorsement unenforceable.
E. Nautilus’s Container As an Auto
Plaintiff advances as an alternative argument for potential coverage under the Hired Auto Endorsement that the Nautilus storage container attached to Budd-Co’s truck was itself an “auto” within the meaning of the Policy, and that Budd-Co was insured under section D(1)(d) of the Hired Auto Endorsement to the extent that its liability was premised on the actions of Nautilus. We need not determine whether the term “auto” should be interpreted to include cargo temporarily strapped onto a truck for the purpose of moving it to another location. Even assuming that the Nautilus storage container, once loaded onto and secured to the Budd-Co truck, came under the Policy definition of an “auto,” coverage would nevertheless be precluded by section D(2)(d) of the Hired Auto Endorsement, which states that the “owner” of a hired auto is not an insured. As discussed, there may be more than one owner of a vehicle. Once the Nautilus container was attached to the Budd-Co truck, the resulting “auto” would be owned by both Nautilus and Budd-Co. Budd-Co, as the “owner,” would not be an insured by virtue of section D(2)(d) of the Hired Auto Endorsement.
The Policy defines “auto” as “a land motor vehicle, trailer or semi-trailer designed for travel on public roads, including any attached machinery or equipment.”
Section D(1)(d) of the Hired Auto Endorsement provides that “[a]ny other person or organization, but only with respect to their liability because of acts or omissions of an insured under paragraphs a., b., or c. above” is an insured under the endorsement.
VI. The Additional Insured Endorsement
Plaintiff claims that defendant owed Budd-Co a duty to defend because Budd-Co was an insured under the Additional Insured Endorsement. As discussed, the Additional Insured Endorsement affords coverage to two categories of eligible persons or organizations: “Any person or organization that is: [¶] 1. An owner of real or personal property on which you [Nautilus] are performing operations, or [¶] 2. A contractor on whose behalf you are performing operations.” Plaintiff argues that Budd-Co was insured under paragraph one of the endorsement as an “owner” of “personal property,” i.e., the truck, on which Nautilus’s employees were “performing operations,” in this case, loading the container onto the truck.
The Additional Insured Endorsement also states, however, that a “person or organization” eligible for coverage under the endorsement must make a “specific written request” to be covered under the Policy, and further requires that (1) the request be “made prior to the date your [Nautilus’s] operations for that person or organization commenced” and (2) “[a] certificate of insurance evidencing that request is on file with, or received by, us [defendant] prior to sixty days after the end of the policy period. . . .” Plaintiff argues that under settled principles of insurance policy interpretation, a limiting clause such as this must be interpreted to apply only to the last antecedent. Under plaintiff’s interpretation, the conditions imposed by the Additional Insured Endorsement apply only to the second category of persons or organizations eligible for coverage under the endorsement (“[a] contractor on whose behalf you are performing operations”).
The principle of policy interpretation that plaintiff advances, also known as the rule of the last antecedent, is “merely an aid to construction, applicable only where there exist uncertainties and ambiguities.” (Anderson v. State Farm Mut. Auto. Ins. Co. (1969) 270 Cal.App.2d 346.) No ambiguity exists here. It is evident from both the text and context of the endorsement that the limiting proviso applies to both the owner and contractor categories.
We repeat here the relevant provisions of the Additional Insured Endorsement, as it appears in the Policy:
The endorsement delineates two categories of “person[s] or organization[s]” eligible for coverage – (1) owners of real or personal property on which the named insured is performing operations, and (2) contractors on whose behalf the named insured is performing operations. The language of the limiting proviso does not refer solely to the contractor category, but to “person[s] or organization[s],” terms that encompass both owners and contractors. In addition, the limiting proviso is part of the same sentence as both the “owner” and “subcontractor” categories, evidencing an intent that it apply to both.
The limiting conditions imposed by the Additional Insured Endorsement, that a person eligible for coverage make a specific written request to the named insured for coverage under the endorsement, and that a certificate of insurance evidencing such request be on file or received by the insurer within 60 days after the end of the policy period, therefore apply to both “[a]n owner of real or personal property on which [the named insured is] performing operations,” and to “[a] contractor on whose behalf [the named insured is] performing operations.” Budd-Co made no written request for coverage under the Additional Insured Endorsement, and no certificate of insurance evidencing such request exists; accordingly, Budd-Co was not covered under this endorsement. In view of our holding, we need not address the parties’ arguments as to whether the Policy’s automobile liability exclusion might also apply to preclude coverage if Budd-Co were an insured under the Additional Insured Endorsement, or whether the concurrent causation doctrine would bar application of that exclusion.
VII. Breach of the Implied Covenant of Good Faith and Fair Dealing
Because we conclude that defendant reasonably denied Budd-Co a defense as there was no potential for coverage under the Policy, defendant could not be held liable for breach of the covenant of good faith and fair dealing. “[W]hen there is no potential for coverage, no action lies for bad faith in the investigation and processing of a claim. [R & B Auto Ctr., Inc. v. Farmers Group, Inc. (2006) 140 CA4th 327, 353, 44 CR3d 426, 448].” (Croskey, et al., Cal. Practice Guide: Insurance Litigation (The Rutter Group 2006) ¶ 12:221, p.12B-6.1.)
DISPOSITION
The judgment is reversed. The parties will bear their respective costs on appeal.
We concur: DOI TODD, Acting P. J., ASHMANN-GERST, J.
“Any person or organization that is:
“1. An owner of real or personal property on which you are performing operations, or
“2. A contractor on whose behalf you are performing operations, but only at the specific written request by that person or organization to you, and if:
“1. That request is made prior to the date your operations for that person or organization commenced; and
“2. A certificate of insurance evidencing that request is on file with, or received by, us prior to sixty days after the end of the policy period for this insurance.”