SUMMARY
Plaintiff and appellant Andrew George filed a class action complaint against his automobile insurer, challenging its alleged practice of identifying a specified amount as a vehicle’s “Actual Cash Value” (in plaintiff’s case, $25,000) in the insurance policy but then refusing to pay that amount in the event of a total loss, instead paying the fair market value of the car at the time of the loss. Plaintiff relied primarily on the declarations page of the policy but also alleged parol evidence supported his interpretation of the policy. The trial court considered the parol evidence allegations and found they were insufficient as a matter of law to show the parties intended the policy to pay plaintiff $25,000 in the event of a total loss. The court sustained the insurer’s demurrer to plaintiff’s first amended complaint without leave to amend, finding it “clear and unambiguous” that the policy called for payment of the fair market value (or actual cash value, as that phrase is commonly understood) up to a limit of $25,000. We affirm the judgment.
FACTS
In December 2007, plaintiff obtained a policy of insurance covering his 1960 Ford Thunderbird from defendant Interinsurance Exchange of the Automobile Club.
Plaintiff sued defendant, asserting the policy required defendant to pay $25,000 in the event of a total loss of the car, without regard to the fair market value of the car at the time of the loss. According to plaintiff, the policy declarations page “identifies a dollar amount agreed upon by the Defendants and the insured for ‘Actual Cash Value’ in connection with the insured vehicle.” In plaintiff’s case, “that identified amount was $25,000 for his 1960 Ford Thunderbird.” Plaintiff alleges that defendant’s “actual cash value” policies, such as his, “in defining the ‘actual cash value’ of the insured automobile were intended to be and were valued policies within the meaning
The relevant insurance policy provisions are these.
First, the declarations page of the policy shows the coverages (liability, medical, physical damage, and uninsured motorist) and the limits of liability for each area of coverage. The coverage that applies to plaintiff’s loss, the physical damage coverage, limits the insurer’s liability to payment of the “Actual Cash Value unless otherwise stated, less deductible.” The declarations page describes the categories of physical damage coverage, including comprehensive and collision, with limits of liability of $25,000 in each case, with a deductible of $250. Thus, the declarations page looks like this, in pertinent part:
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Second, the policy provisions on physical damage describe the limits of liability for a loss other than a total loss as follows: “In the event of: [][] (1) loss to an insured automobile described in the declarations, we will pay the actual cash value of the damaged or stolen vehicle, the limit of liability stated in the declarations or the amount necessary to repair or replace the vehicle, whichever is least. . . .” (Emphasis omitted.)
Fourth, the policy provides an appraisal option in the event of a total loss: “If after a total loss . . ., the amount of loss cannot reasonably be established, either you or we can request in writing that the amount of loss be determined by appraisal.” (Emphasis omitted.) The policy describes the procedure and states, “The appraisers shall then establish the amount of loss subject to our limit of liability.”
In his first amended complaint, plaintiff alleged that “ ‘[a]ctual [c]ash [v]alue,’ as used in the Policy, is intended to mean and means the cash value agreed upon by defendants and the insured at the time the Policy is issued, as reflected in the Policy Declarations Page.” This interpretation, plaintiff alleges, is also supported by extrinsic evidence. The extrinsic evidence “includes, but is not limited to” defendant’s assessment of actual cash value through its inspection during the application process, and the increase in premiums demanded as “Actual Cash Value” increased.
The complaint alleged that during the application process, defendant required an inspection, during which defendant assessed “the physical and mechanical condition of the vehicle to evaluate its ‘Actual Cash Value.’ ” Defendant’s premiums were based on the “Actual Cash Value,” and “[t]he higher the ‘Actual Cash Value,’ the higher the premiums.” “The term actual cash value is defined for each insured vehicle on the Declarations Page following inspection of each vehicle.” Plaintiff “procured and paid premiums for an insurance policy designating $25,000 for ‘actual cash value’ in connection with the insured automobile.”
Based on these allegations, plaintiff’s first amended complaint alleged causes of action for breach of contract, tortious breach of the implied covenant of good faith and fair dealing, declaratory relief, fraud, unfair and fraudulent business practices under the Business and Professions Code, and rescission based on unilateral mistake of fact.
Judgment was entered and this appeal followed.
DISCUSSION
Plaintiff’s principal contention is that the trial court erred when it concluded the insurance contract was “clear on its face.” Plaintiff contends the court was required, as a matter of law, to credit his allegations that extrinsic evidence “renders the insurance contract at issue here ambiguous”—that is, his “allegation that extrinsic evidence supports his construction of the Policy ... is enough, by itself, to require that Defendants’ demurrer be overruled.” We conclude plaintiff misconstrues the law as it applies to the complaint in his case.
1. The Law
Our review is de novo. (Hervey v. Mercury Casualty Co. (2010)
The usual rules of contract interpretation apply to insurance policies. (See AIU Ins. Co. v. Superior Court (1990)
And: “The meaning of particular words or groups of words varies with the ‘. . . verbal context and surrounding circumstances and purposes in view of the linguistic education and experience of their users and their hearers or readers (not excluding judges). ... A word has no meaning apart from these factors; much less does it have an objective meaning, one true meaning.’ [Citation.] Accordingly, the meaning of a writing ‘. . . can only be found by interpretation in the light of all the circumstances that reveal the sense in which the writer used the words. The exclusion of parol evidence regarding such circumstances merely because the words do not appear ambiguous to the reader can easily lead to the attribution to a written instrument of a meaning that was never intended.’ ” (Pacific Gas, supra, 69 Cal.2d at pp. 38-39.)
And: “Although extrinsic evidence is not admissible to add to, detract from, or vary the terms of a written contract, these terms must first be determined before it can be decided whether or not extrinsic evidence is being offered for a prohibited purpose. The fact that the terms of an instrument appear clear to a judge does not preclude the possibility that the parties chose the language of the instrument to express different terms. That possibility is not limited to contracts whose terms have acquired a particular meaning by trade usage, but exists whenever the parties’ understanding of the words used may have differed from the judge’s understanding.” (Pacific Gas, supra,
A number of cases after Pacific Gas (which did not involve a demurrer) have discussed the propriety of sustaining a demurrer based on the plain meaning of a contract and without receiving extrinsic evidence, with differing (at least superficially) results. But all the cases, we believe, ultimately express
Before we describe those cases, a few observations are in order. After Pacific Gas, there is no doubt that parol evidence must be conditionally considered to determine mutual intention with respect to specified policy terms or provisions that are reasonably susceptible of more than one meaning. Pacific Gas does not, however, extend to the proposition plaintiff posits that a demurrer can never be sustained to a complaint so long as there is an allegation that unidentified parol evidence exists to support plaintiff’s claim. In the context of a demurrer, the court must conditionally consider the parol evidence alleged in the complaint, to determine if it would be relevant to prove a meaning to which the language of the instrument is reasonably susceptible. Thus, trial courts err if they refuse to consider the alleged parol evidence on the ground that no parol evidence of any sort is pertinent because the particular contract in dispute is unambiguous. But there may be no error if the trial court conditionally accepts as true that plaintiff can proffer specified parol evidence and, having considered the parol evidence allegations, then determines as a matter of law that the parol evidence alleged must be disregarded because, for whatever reason, the contract is not reasonably susceptible of the interpretation plaintiff alleged. As we will see, that is exactly what the trial court did in this case. We turn to the cases.
In Diamond v. Insurance Co. of N. A. (1968)
In this case, the trial court specifically gave plaintiff the opportunity to amend the complaint to allege parol evidence—e.g., statements made to plaintiff as to an agreed amount or “some kind of a preagreement appraisal by which the parties agree what the value of the car is.” The only evidence plaintiff alleged—inspection of the car and premiums based on its value—did not address any mutual understanding of the parties, but merely plaintiff’s subjective intent, flowing from the inspection and premiums, that the insurer would, contrary to the written terms of the policy, pay $25,000 for a total loss.
Later cases have also reversed trial court rulings sustaining demurrers in breach of contract cases. Plaintiff relies, for example, on a point enunciated in Southern Pacific Land Co. v. Westlake Farms, Inc. (1987)
Southern Pacific Land involved the interpretation of an oil and gas lease, and the question was whether the lease had expired. (Southern Pacific Land, supra,
Southern Pacific Land differs from this case in numerous respects. Despite the fact that the Southern Pacific Land contract was ambiguous (as demonstrated by the differing interpretations of the trial court and the Court of Appeal), the trial court concluded it would be inappropriate to receive any parol evidence because the lease had a plain meaning on its face. This case is different because the policy is not ambiguous, plaintiff did allege what parol evidence he could offer, and the trial court did consider the parol evidence allegations. Southern Pacific Land establishes that the failure to identify extrinsic evidence to the trial court, where the contract is ambiguous, did not waive the plaintiff’s right to contend on appeal that parol evidence supported the plaintiff’s interpretation. Southern Pacific Land does not stand for the proposition, as plaintiff would have it, that it is always unnecessary at the demurrer stage to even generally describe the parol evidence which would support the alleged meaning of a contract that is not ambiguous on its face.
Other cases overruling demurrers are likewise different from the case at bar. In Aragon-Haas v. Family Security Ins. Services, Inc. (1991)
The contract in Aragon-Haas provided for an initial one-year term, unless terminated in accordance with another provision which permitted termination with or without cause, and “ ‘thereafter’ ” the agreement would automatically be extended for six consecutive one-year terms. (Aragon-Haas, supra,
In Hayter Trucking, Inc. v. Shell Western E&P, Inc. (1993)
The Hayter Trucking court observed that plaintiffs sometimes allege breach of a written contract by attaching the contract as an exhibit to the complaint and incorporating it into the complaint without alleging the terms of the contract have any special meaning. In such cases, “a court will construe the language of the contract on its face to determine whether, as a matter of law, the contract is reasonably subject to a construction sufficient to sustain a cause of action for breach.”
In Fremont Indemnity Co. v. Fremont General Corp. (2007)
Other cases involving demurrers in insurance matters have sustained demurrers, or otherwise reflect the principles the trial court properly applied in this case.
In Hervey, supra,
In Palacin v. Allstate Ins. Co. (2004)
Columbia Casualty Co. v. Northwestern Nat. Ins. Co. (1991)
2. This Case
None of the cases just described enunciates the principle plaintiff suggests—that a mere allegation of unidentified extrinsic evidence requires a demurrer to be overruled. They are all consistent with our initial observations: the trial court must provisionally consider parol evidence allegations,
Thus, in most of the demurrer cases (such as Southern Pacific Land, Aragon-Haas and Hayter Trucking), an ambiguous contract is attached to a complaint alleging that one provision or another means something other than the meaning that would ordinarily attach to those words, because the parties intended a special meaning or the words had acquired a special meaning through trade usage. And many cases (including Diamond and Fremont) say that a court can never determine that the meaning of a document is clear and unambiguous without provisionally considering any extrinsic evidence offered by the parties. On a demurrer, the court must consider the sufficiency of the allegations, including any parol evidence allegations, to determine whether the contract is reasonably susceptible to the plaintiff’s alleged interpretation.
The trial court here did consider plaintiff’s parol evidence allegations, and correctly determined they were insufficient as a matter of law to show the parties intended the policy to pay plaintiff $25,000 in the event of a total loss. Plaintiff simply did not offer parol evidence that could establish a mutual understanding between him and the insurance company, or custom or usage, explaining what they understood any term or provision to mean. And, as the courts recognized in Palacin and Columbia Casualty, insurance policy language may “unambiguously negate[] beyond reasonable controversy the construction alleged in the body of the complaint.” (Palacin, supra,
Plaintiff has not identified a particular term or specific words in the policy that he claims have a meaning different from their ordinary meaning. Instead, he alleges that the parties agreed that a specified amount—$25,000—was (and would always be, in the event of loss at any time during the policy period) the actual cash value of the insured vehicle “as reflected in the Policy Declarations Page.” But the policy itself—including the declarations page— precludes plaintiff’s allegations as a matter of law. The declarations page contains no statement of “cash value agreed upon by defendants and the insured . . . .” The declarations page shows coverages and limits of liability. It expressly states the limit of liability—the most the policy will pay, not the amount the policy will pay—is $25,000, less the $250 deductible.
The declarations page, when read together with the rest of the policy, unambiguously provides that in the event of a total loss, the policy will pay the actual cash value of the car up to $25,000, less the deductible.
Nothing in the declarations page supports the allegation that $25,000 is anything other than a limit of liability. Moreover, as the court explained in Hervey, “the declaration [page] does not purport to set forth or define the operative terms. Thus, any ambiguity in the declaration ‘is resolved by’ the terms of the policy.” (Hervey, supra,
Plaintiff’s allegations would render the operative provisions of the policy nonsensical. (Cf. Reserve Insurance Co. v. Pisciotta (1982)
If this were not enough, we note as well that the complaint alleges (as was necessary to attain the desired result) that the insurance policy here is a valued policy: that is, it “expresses on its face an agreement that the thing insured shall be valued at a specified sum.” (Ins. Code, § 412.) As we have seen, the policy does no such thing. The declarations page does not show “on its face” (or otherwise) an agreement to value the vehicle at $25,000, and the operative terms, as just discussed, confirm the contrary, namely that the insurance policy “is one in which the value of the subject matter is not agreed upon, but is left to be ascertained in case of loss.” (Ins. Code, § 411; cf. Elliano v. Assurance Co. of America (1975)
This is not a case where the allegations of the complaint show a “possibility that the parties chose the language of the instrument to express different terms” or where “the parties’ understanding of the words used may have differed from the judge’s understanding.” (Pacific Gas, supra,
3. Plaintiff’s Other Causes of Action
Plaintiff’s next claim is that the demurrers to his fraud, unfair competition and reformation causes of action should have been overruled. We disagree.
In his fraud cause of action, plaintiff alleged defendant represented it would pay “the amount identified as the ‘actual cash value’ on the Declarations Page in the event of a total loss,” and made those representations “in the Policy and Declarations Page.” The complaint alleged these representations “were also implicit in Defendants’ practice of demanding higher insurance premiums for ‘Actual Cash Value’ policies and in Defendants’ practice of increasing their premiums if the designated ‘Actual Cash Value’ was increased—even though the designated ‘Actual Cash Value’ was higher than Defendants would designate as the ‘replacement value’ or ‘fair market value’ of the insured vehicle.”
Further, in making these representations in the policy, defendant “omitted and concealed” material facts: “that the dollar amount specified in the Declarations page under ‘Actual Cash Value unless otherwise stated’ was not intended by them to reflect the ‘actual cash value’ of the insured automobile,”
Plaintiff contends these allegations support a claim for fraudulent omission “in light of Defendants’ numerous implied and express statements suggesting that Plaintiff was purchasing a policy that would pay him $25,000 (less his deductible) in the event he suffered a total loss . . . .” Plaintiff’s contention necessarily fails in light of our conclusion that the policy is clear and unambiguous, and nowhere suggests, much less states, that the policy would pay him $25,000 for a total loss. That being so, the allegation that defendant “omitted and concealed” the material facts just described cannot serve as the basis for a fraud claim.
On appeal, plaintiff argues that defendant failed to disclose facts required to be disclosed by Insurance Code section 332, and that this failure to disclose was actionable fraud. Section 332 provides that “[e]ach party to a contract of insurance shall communicate to the other, in good faith, all facts within his knowledge which are or which he believes to be material to the contract and as to which he makes no warranty, and which the other has not the means of ascertaining.”
Plaintiff contends Insurance Code section 332 required defendant to disclose two facts: “that they had determined that the amount they would be required to pay Plaintiff in the event of a total loss of his vehicle was substantially less than $25,000,” and that “Plaintiff received nothing of value for the premiums he paid that exceeded the amount he would have been charged had the policy limit been approximately equivalent to the value of Plaintiffs car as Defendants had determined it.” This assertion is implausible on its face because it charges insurer with knowing what the actual value of a classic car will be at some point in the future when a total loss occurs. Section 332 applies only when the insurer knows something “which the [insured] has not the means of ascertaining.” Plaintiff has not alleged he did not know or could not ascertain the actual value of his car at the time the policy was issued so as to pay a lower premium covering a lower “Actual Cash Value,” or that insurer knew when it issued the policy in 2007 that the car would be worth only $13,227, or some other amount less than $25,000, in 2009. Plaintiff’s reliance on section 332 is thus misplaced.
Next, plaintiff contends his complaint adequately alleged that defendant’s conduct was unfair and fraudulent under the unfair competition law. To state a cause of action under the “fraudulent” prong of the unfair
Finally, plaintiff claims that his reformation claim based on unilateral mistake should have survived defendant’s demurrer. He is again mistaken.
Under Civil Code section 3399, “[w]hen, through ... a mistake of one party, which the other at the time knew or suspected, a written contract does not truly express the intention of the parties, it may be revised on the application of a party aggrieved, so as to express that intention . . . .” Plaintiff alleged that he entered into the contract believing he would receive $25,000 for a total loss of his vehicle, and defendant “[was] aware or had reason to know of Plaintiff’s mistake of fact at the time the Policy was issued.”
Plaintiff’s bare, conclusory allegations are insufficient to state a cause of action for reformation based on mistake. “[I]n a suit for reformation of a contract for mutual mistake, in the absence of a clear recitation of facts showing how, when and why the mistake occurred, the pleading is inadequate as against a general and special demurrer.” (Girard v. Miller (1963)
DISPOSITION
The judgment is affirmed. Defendants are to recover their costs on appeal.
Bigelow, P. J., and Flier, J., concurred.
A petition for a rehearing was denied January 10, 2012, and appellant’s petition for review by the Supreme Court was denied March 28, 2012, S199559.
Notes
Plaintiff also named as defendants two entities that did not issue the insurance policy: the Automobile Club of Southern California and ACSC Management Services, Inc. Those defendants remain parties to the appeal, but we will refer to defendants in the singular as defendant or insurer.
Defendant demurred to the original complaint. The trial court sustained that demurrer as well, but gave plaintiff leave to amend. Plaintiff added the allegations concerning inspection of the vehicle and extrinsic evidence, and added the cause of action for rescission and reformation of the policy.
(See also Beck v. American Health Group Internal, Inc. (1989)