OPINION
In this case, the District Court, sitting in diversity, was faced with the task of interpreting the language of an all-risk insurance policy that allegedly covered damage to an aircraft engine caused by an unusual occurrence during start-up. The insurer alleged that the policy’s exclusion for wear and tear foreclosed coverage. Applying California law, the District Court found that the term “wear and tear” was ambiguous, and resolved the ambiguity by requiring that damage from wear and tear result from the normal and ordinary operation of the engine. Thus, the District Court granted partial summary judgment for the insured and reserved for trial the question whether the damage resulted from the normal and ordinary operation of the engine. After hearing testimony, the District Court resolved the question in the negative and awarded damages to the insured. The insurer now appeals the District Court’s grant of partial summary judgment resulting from its interpretation of the policy language. We conclude that the parties did not intend the term “wear and tear” to carry a specialized meaning, that the parties intended the policy to cover damage resulting from accidental and fortuitous occurrences, and that the incident that caused the damage to the insured’s aircraft engine fell within the scope of coverage. We AFFIRM.
I.
This appeal presents an intriguing question of law in the guise of a deceptively simple fact pattern. Meridian Leasing, Inc. (“Meridian”), the Appellee in this action, owned a Piper Meridian aircraft (“Aircraft”) that it purchased new in March 2001. On August 10, 2001, James Robins, Meridian’s owner and the Aircraft’s authorized pilot, attempted to start the Aircraft’s engine. As Robins was performing this multi-step process, he observed flames emanating from both of the Aircraft’s exhaust stacks.
Robins immediately shut down the engine. When this failed to extinguish the flames, Robins attempted to evacuate the Aircraft. Mechanic inspector David Tes-ser, who witnessed these events, ran to the Aircraft and directed Robins to remain in the cockpit. Tesser then instructed Robins to re-start the engine. This effort succeeded in extinguishing the flames.
For several seconds as the fire burned, the engine operated at a temperature beyond the range in which the engine was designed to operate safely. Indeed, al *345 though not part of the District Court’s factual findings, there is evidence in the record that the temperature reached 2,260 degrees Fahrenheit for a period of 11 seconds, causing the compressor blade tips to melt and splatter molten metal onto the inside of the engine casing. The excessive internal temperature caused the engine to suffer extensive damage. Meridian subsequently had the engine repaired at a cost of $224,165.53, plus $8,326.36 for engine removal and replacement and $5,356.50 for substitute transportation costs.
Meridian insured the Aircraft under a policy (the “Policy”) issued by Associated Aviation Underwriters, Inc. (“AAU”), the Appellant in this matter. Coverage F of the Policy provided “Physical Damage Coverage” on an “All Risk Basis,” Joint Appendix (“J.A.”) at 154, whereby AAU would “pay for any physical damage loss to the aircraft, including disappearance of the aircraft,” J.A. at 157. Meridian filed a claim with AAU for the damage to the Aircraft. AAU denied the claim on the ground that the damage fell within the Policy’s exclusion for wear and tear.
Meridian brought this suit against AAU in the United States District Court for the Western District of Michigan, seeking a declaration that the damage to the Aircraft was not wear and tear and that the Policy therefore covered Meridian’s claim. The District Court had subject matter jurisdiction over this matter pursuant to 28 U.S.C. § 1332. Shortly thereafter, the case was assigned to Magistrate Judge Ellen S. Carmody, and the parties consented to the Magistrate Judge exercising full judicial authority pursuant to 28 U.S.C. § 636(c) and Fed.R.Civ.P. 73. 1 Meridian then moved for partial summary judgment on the proper interpretation of the Policy’s wear and tear exclusion.
The District Court found that the Policy did not define the term “wear and tear.” Applying California law,
2
the District Court held that the term must be given its “ordinary and popular” meaning, which required that the wear and tear arise from “ordinary” or “normal” operation of the Aircraft.
Meridian Leasing, Inc. v.
Associated
Aviation Underwriters, Inc.,
No. 02-192,
On September 24, 2003, the District Court held a bench trial. An Opinion and Factual Findings followed on January 5, 2004. See Meridian Leasing, Inc. v. Associated Aviation Underwriters, Inc., 297 *346 F.Supp.2d 972 (W.D.Mich.2004) (hereinafter “Meridian Leasing II ”). The District Court concluded that the events that caused the damage to the Aircraft were not “normal” or “ordinary” and awarded Meridian $295,333.45 in damages. AAU timely appealed on February 5, 2004. The only issue on appeal is whether the District Court erred in interpreting the wear and tear exclusion so as to require normal or ordinary operation of the Aircraft. This Court has jurisdiction over the present appeal pursuant to 28 U.S.C. § 1291. .
II..
We review the District Court’s grant of partial summary judgment
de novo. Ability Ctr. of Greater Toledo v. City of Sandusky,
Insurance policies are contracts and are interpreted as such.
Palmer v. Truck Ins. Exch.,
California has erected a low threshold for finding ambiguity in an insurance contract. “A policy provision is ambiguous when it can have two or more reasonable constructions.”
Safeco,
It is of course axiomatic that extrinsic evidence may be used to interpret a contract when the terms of the contract are in some respect ambiguous.
See, e.g., Morey v. Vannucci,
The
Pacific Gas
court noted that many other courts have held that a contract may be unambiguous on its face.
Id.
at 38 & n. 4,
In this state, ... the intention of the parties as expressed in the contract is the source of contractual rights and duties. A court must ascertain and give effect to this intention by determining what the parties meant by the words they used. Accordingly, the exclusion of relevant, extrinsic evidence to explain the meaning of a written instrument . could be justified only if it were feasible to determine the meaning the parties gave to the words from the instrument alone.
Id.
at 38,
Subsequent decisions of other courts have criticized the breadth of the Pacific Gas holding. For instance, the Ninth Circuit made the following observation:
California does not follow the traditional rule. Two decades ago the California Supreme Court in [Pacific Gas ] turned its back on the notion that a contract can ever have a plain meaning discernible by a court without resort to extrinsic evidence. The court reasoned that contractual obligations flow not from the words *348 of the contract, but from the intention of the parties.
Trident Ctr. v. Conn. Gen. Life Ins. Co.,
Under Pacific Gas, it matters not how clearly a contract is written, nor how completely it is integrated, nor how carefully it is negotiated, nor how squarely it addresses the issue before the court: the contract cannot be rendered impervious to attack by parol evidence. If one side is willing to claim that the parties intended one thing but the agreement provides for another, the court must consider extrinsic evidence of possible ambiguity. If that evidence raises the specter of ambiguity where there was none before, the contract language is displaced and the intention of the parties must be divined from self-serving testimony offered by partisan witnesses whose recollection is hazy from passage of time and colored by their conflicting interests.
Id.
at 569.
3
Similarly, the Southern District of New York recognized that
Pacific Gas
represented a departure from the law of New York.
See Hanson v. McCaw Cellular Communications, Inc.,
Against this legal backdrop, we turn our inquiry to the specific language of the Policy. Like most insurance contracts, the Policy contains exclusions as well as coverages. The section of the Policy titled “Exclusions” provides as follows:
This policy does not apply:
(f) Under coverages F, G and H, to physical damage
(ii) caused by and confined to (a) wear and tear, (b) deterioration or (c) mechanical or electrical breakdown or failure of equipment, components or accessories installed in the aircraft ....
J.A. at 158 (bold type in original). Two pages later, under the heading “Limit of the Company’s Liability,” the Policy states the following:
With respect to damage to aircraft engines and auxiliary power units insured under this policy:
(b) damage caused by heat which results from the operation, attempted operation or shutdown of the engine shall be considered to be “wear and tear”
J.A. at 160.
The District Court concluded, in its February 14, 2003 Opinion and again in its January 5, 2004 Opinion, that the Policy did not define the term “wear and tear.”
Meridian Leasing I
at 10;
Meridian Leasing II,
We take issue with one aspect of the District Court’s ruling. By declaring that the Policy does not define wear and tear, and suggesting that the heat limitation excluded only heat damage that is properly characterized as wear and tear, we think that the District Court effectively rendered the heat limitation superfluous. If the Policy expressly excludes wear and tear, and the subsequent heat limitation applies only to damage that would otherwise be considered to be wear and tear, we fail to see what purpose the heat limitation would serve. The District Court’s suggested reading of the heat limitation therefore runs afoul of the principle of California law requiring an interpreting court to give effect to every part of a contract if reasonably practicable to do so. See Cal. Civ.Code § 1641. We do not believe, however, that the District Court’s reading of the heat limitation was necessary to its ultimate finding of ambiguity.
With respect to the District Court’s broader holding that the Policy was ambiguous, we are in agreement. Our finding of ambiguity flows from the primary mandate of any court interpreting a contract under California law: to give effect to the mutual intent of the parties as it existed at the time of contracting. Cal. Civ.Code § 1636. To this end, a court must give terms their “ordinary and popular” meaning unless they are used in a technical sense or are given a special meaning by usage.
Id.
§ 1644. An interpreting court may not focus on the perceived ambiguity of a term or expression in the abstract, but must interpret a policy holistically and in the context of the circumstances of the case.
Waller v. Truck Ins. Exch., Inc.,
Section 1644 of the California Civil Code was the focus of the California Supreme Court’s recent decision in
E.M.M.I. Inc. v. Zurich American Insurance Co.,
The instant case is closely analogous to E.M.M.I. Where the term “wear and tear” first appears in the Exclusions section of the Policy, there are no quotation marks to denote that the expression is a term of art or carries a specialized meaning. Whereas other terms in the exclusion, such as “physical damage” and “aircraft,” appear in bold typeface to indicate that they are defined in the Definitions section of the Policy, 4 the term “wear and tear” appears in an undistinguished typeface. Indeed, “wear and tear” is nowhere defined in the Definitions section of the Policy, as one would expect it to be if AAU and Meridian had intended the term to convey a special meaning. Under these circumstances, we find nothing to indicate that the parties understood “wear and tear” to convey a meaning other than its ordinary and normal meaning.
We are likewise mindful of the type of insurance at issue here, which we believe sheds further light on the parties’ mutual intent. All-risk insurance coverage, which Coverage F purports to provide, is a type of coverage that traditionally provides indemnification for “fortuitous and extraneous” events.
See
Andrew C. Hecker & M. Jane Goode,
Wear and Tear, Inherent Vice, Deterioration, etc.: The Multi-Faceted All-Risk Exclusions,
21 Tort & Ins. L.J. 634, 634 (1986) [hereinafter “Hecker & Goode”];
see also Kilroy Indus.,
*351 Under all-risk insurance policies covering machinery, coverage typically extends to damage caused by “accidents.” Hecker & Goode at 644. The requirement of an accident is substantially equivalent to the fortuity requirement. Id. Hence, in the instant Policy, where Coverage F insures against “any physical damage loss to the aircraft,” J.A. at 157, “physical damage” is expressly defined as “direct and accidental physical loss of or damage to the aircraft,” J.A. at 161 (emphasis added). Stated another way, the express purpose of Coverage F of the Policy is to indemnify against accidental damage to the Aircraft.
Where an insurance policy employs broad coverage language, California law demands that the exclusionary language be exacting.
[ A]n insurer cannot escape its basic duty to insure by means of an exclusionary clause that is unclear. As we have declared time and again[,] any exception to the performance of the basic underlying obligation must be so stated as clearly to apprise the insured of its effect. Thus, the burden rests upon the insurer to phrase exceptions and exclusions in clear and unmistakable language. The exclusionary clause must be conspicuous, plain and clear. This rule applies with particular force when the coverage portion of the insurance policy would lead an insured to reasonably expect coverage for the claim purportedly excluded.
MacKinnon v. Truck Ins. Exch.,
The jeweler’s block insurance policy in
E.M.M.I.,
we think, is closely analogous to the all-risk insurance policy here. Both policies broadly purport to cover all risks of loss not expressly excluded. It is therefore of critical importance that AAU express its exclusions with a clarity that will leave no doubt in the mind of the insured as to the types of occurrences that are not afforded coverage. But where, as here, a policy broadly purports to indemnify against accidental damage to an aircraft, excluding damage caused • by wear and tear, and gives no indication that wear and tear carries a specialized meaning that encompasses the type of unusual incident that occurred here, we think that California law requires a construction consistent with the reasonable expectations of the insured.
See Safeco,
26. Cal.4th at 763,
Furthermore, AAU was on notice that its wear and tear exclusion was susceptible to an interpretation requiring ordinary or normal operation of the engine. In
Carlson Cos. v. Associated Aviation Underwriters,
No. 89-819,
AAU relies upon
Arawak Aviation, Inc. v. Indemnity Insurance Co.,
The Arawak case is distinguishable in several important respects. Looking beyond the simple fact that Arawak involved Florida law, rather than California law, the Arawak court was concerned with whether the insured’s reading of “caused by” yielded an interpretation to which the contract was susceptible. Unlike the instant case, the insured in Arawak never argued that the damage sustained was not wear and tear. Instead, the insured argued that the damage to the engine was not “caused by” heat, but rather, by the pilot’s negligence. Thus, Arawak was not, as here, a dispute over the proper characterization of damage under the terms of an insurance policy-
Even if the Eleventh Circuit had reached the question whether “wear and tear” was ambiguous, we think it would have encountered a materially distinct set of circumstances. In Arawak, the insurance policy contained two relevant exclusionary clauses. The first clause stated, in relevant part, the following: “Wear and tear. We will not cover wear and tear or depreciation.” Id. at 956. The second clause went on to state, in relevant part, as follows: “Wear and tear to engines. We will not cover the following types of damage to your aircraft’s engines or auxiliary power units: damage caused by heat that results from the operation, attempted operation, or shutdown of the engine.” Id. The second exclusionary clause stands on its own. A court need only determine that damage was caused by heat to find that coverage was properly denied. By contrast, the Policy in the instant case casts the heat limitation as a subset of wear and tear when it states that “damage caused by heat which results from the operation, attempted operation or shutdown of the engine shall be considered to be ‘wear and tear.’ ” J.A. at 160. In this manner, AAU’s Policy shifts the inquiry back to the exclusion for wear and tear. As we have already noted, the Policy does not indicate with a sufficient degree of precision that the term “wear and tear” is meant to carry a specialized meaning. We therefore find that the Arawak policy’s use of self-contained, independent exclusionary clauses *353 achieves a degree of precision lacking in the instant case.
III.
Accordingly, we find a lack of evidence that the parties intended “wear and tear” to carry a specialized meaning, coupled with significant circumstantial evidence tending to show that the parties never intended the wear and tear provisions of the Policy to exclude coverage for the type of event that occurred on August 10, 2001. Under the circumstances of this case, we hold that the District Court did not err in finding the language of the Policy to be ambiguous with respect to the scope of coverage afforded and construing the ambiguity in favor of the objectively reasonable expectations of Meridian. The interpretation advocated by AAU stretches “wear and tear” beyond any semblance of its ordinary meaning and is at odds with the requirement that exclusions must be interpreted narrowly. Such a broad interpretation would overlook evidence that the parties never intended to give “wear and tear” a special meaning and would be contrary to the traditional purpose of all-risk insurance. By interpreting the limitation so as to require “ordinary” or “normal” operation or attempted operation of the engine, the District Court followed established precedent in interpreting wear and tear exclusions.
See Cyclops Corp.,
Our holding is also in keeping with the requirement of California law that we interpret the Policy as a whole, giving effect to every part of the contract. Cal. Civ. Code § 1641. We do not believe that requiring the wear and tear to result from the ordinary and normal operation of the engine renders the heat limitation superfluous. An interpretation requiring ordinary and normal engine operation leaves intact the heat limitation because the Policy’s limiting language captures damage from heat generated through normal operation of the engine, which one might not ordinarily consider to be wear and tear.
For the foregoing reasons, the District Court’s finding of ambiguity in the terms of the Policy and resolution of that ambiguity by requiring wear and tear to result from the ordinary and normal operation of an aircraft engine is hereby AFFIRMED.
Notes
. We will hereafter refer to Judge Carmody as the "District Court.”
. The Policy apparently did not contain a choice-of-law provision, and the District Court requested briefing from the parties on the applicable law. Meridian urged application of California law. AAU conceded that Michigan's vested rights approach to choice-of-law questions dictated that California law should apply, but nevertheless suggested that the court follow the "trend” toward applying the law of the forum. Def.'s Br. Choice L. at 4,
Meridian Leasing, Inc. v. Associated Aviation Underwriters, Inc.,
. We note that the
Trident
decision was itself criticized by a panel of the California Court of Appeals, which characterized the decision as an "unfortunate and, in our view, inaccurate characterization of California law.”
Banco Do Brasil,
S.A. v.
Latian, Inc.,
. The Definitions section of the Policy makes clear that special meaning attaches to terms in the Policy that appear in bold typeface.