Great Expectations

Dina Bernardelli
Zupkus & Angell, P.C.
Denver, Colorado

“Take nothing on its looks; take everything on evidence. There's no better rule.”
-Charles Dickens, Great Expectations

In Transport Ins. Co. v. Superior Court, the California District Court of Appeal held that because the additional insured was the party seeking coverage, ambiguities found in the insurance policy had to be resolved in a manner consistent with the objectively reasonable expectations of the additional insured—rather than the objectively reasonable expectations of the named insured. 222 Cal.App.4th 1216 (2014).

This case marks the retention of important rights of policy interpretation for insureds who were not party to negotiation of the contract of insurance. The effects, especially if adopted in other jurisdictions, are a warning to carriers to craft their policies with care, and will be valuable to frequent additional insureds such as construction professionals and landlords in dry-cleaning pollution cases.

Transport issued an umbrella policy to named insured Vulcan Materials Company which was to provide coverage above “underlying insurance.” The policy contained a provision naming R.R. Street & Co., Inc. (“Street”) as an additional insured. Street was being defended in an underlying environmental pollution case for contamination related to Perchloroethylene (“PCE”), a chemical with dry cleaning application, through CGL policies that were not scheduled on the Transport policy. Street tendered to Transport for defense and indemnification because all of the scheduled policies underlying the Transport policy had been used up. The trial court found that the term “underling insurance” in the Transport policy was ambiguous. While the named insured who negotiated the policy would have a reasonable expectation that the excess policy only applied over CGL policies issued to the named insured which were scheduled therein, the appellate court found that this was not necessary so of the additional insured, State. The appellate court reversed, holding that it was error for the trial court not to have taken into consideration the independent reasonable expectation of State, even though State did not negotiate the Transport Policy.

This ruling brings into further definition the case law requiring insurers to carefully craft their insurance contracts, as they will be bound by the language contained therein. In a battle between named insured and insurer, there is an opportunity to explain ambiguities in the policy by reference to underwriting files and the mutual expectations of the insurer and the insureds purchasing the policy. This is not so with additional insureds who presumably take the policy as they find it (or with discrete changes to the additional insured provisions, which are set forth in the contract between the additional insured and the named insured). With this holding out of California, the reasonable expectations of the additional insured, which are based on the policy as written, are a separate consideration which may result in coverage where there would be no coverage to the primary insured, unless otherwise prohibited by the policy. This sets up great expectations of insurers, indeed.

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