Chacon v. American Family Mutual Insurance Company

Chief Justice QUINN

dissenting:

I respectfully dissent. The majority acknowledges the long-standing principle that an insurance policy should be construed in accordance with basic principles of contract law, but then proceeds to construe the policy in a manner that nullifies the severability clause in the policy. Such construction is contrary to, rather than in accord with, basic principles of contract law.

The insurance policy in this case must be construed in accordance with rules applicable to an integrated contract. E.g., Marez v. Dairyland Ins. Co., 638 P.2d 286 (Colo.1981); North American Accident Ins. Co. v. Cochran, 74 Colo. 515 , 223 P. 28 (1924). A basic rule of contract law is that- “[a]n integrated contract in the first instance is to be interpreted in its entirety with the end in view of seeking to harmonize and to give effect to all provisions so that none will be rendered meaningless.” Pepcol Mfg. Co. v. Denver Union Corp., 687 P.2d 1310, 1313 (Colo.1984); see Restatement (Second) of Contracts § 202(2) (1981). In the absence of some special meaning attached to contractual terms and expressed in the contract itself, words that have a commonly accepted meaning should be interpreted according to their common meaning. Pepcol Manufacturing Co., 687 P.2d at 1314 . If, however, an insurance policy is ambiguous or fairly susceptible to two reasonable interpretations, one of which is favorable to the insured and the other to the insurer, the policy must be construed strictly against the insurer as the drafter of the agreement and in favor of the insured. E.g., Coxen v. Western Empire Life Ins. Co., 168 Colo. 444 , 452 P.2d 16 (1969); North American Accident Ins. Co., 74 Colo. at 515 , 223 P. at 28 .

The part of the insurance policy entitled “Definitions,” states that the words “you and your” refer “to the person or people shown as the named insured in the declarations” — in this case, Reyes and Sarah T. Chacon. The policy then goes on to define the term “insured,” in pertinent part, as follows:

Insured means you and your relatives if residents of your household. It also means any other person under the age of 21 in your care or in the care of your resident relatives.

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Each person described above is a separate insured under this policy. This does not increase our [the insurer’s] limit of liability.

(Emphasis in original). The section of the policy devoted to “Personal Liability” coverage states that the insurance company “will pay, up to our limit of liability, all sums for which any insured is legally liable because of ... property damage covered by this policy.” (Emphasis in original). The term “property damage” is defined in the policy as meaning “injury to or destruction of tangible property including the loss of its use.” The “Exclusions” section of the policy states that the personal liability coverage does not apply to property damage “which is expected or intended by any insured.” (Emphasis in original).

By virtue of the definition of an insured, therefore, the policy creates separate insurable interests for Mr. and Mrs. Chacon and their ten-year-old son. Consistent with these separate insurable interests, the policy provides personal liability coverage for property damage for all sums, up to the limits of coverage, for which any insured is liable. In light of the separate insurable interests for personal liability created by the policy, the most plausible interpretation of the exclusion clause is to exclude coverage for the separate insurable interest of that insured who intentionally causes property damage. In this manner, all provisions of the policy are given effect and one provision is not rendered meaningless by the other.

*754 Limiting the personal liability exclusion to the “separate insured” who intentionally causes the property damage, and not to all the insureds, is consistent with this court's holding in Republic Ins. Co. v. Jernigan, 753 P.2d 229 (Colo.1988). In that case a husband and wife were named as joint insureds under a homeowners policy and made a claim against the insurer for smoke and fire damage to their home. The insurer denied their claim on the basis that the husband had intentionally set fire to the home. In a declaratory judgment action filed by the insurance company, the trial court found that the husband had intentionally set fire to the home but determined that the wife was a separate insured under the policy by reason of a severability clause which stated:

“Severability of insurance. This insurance applies separately to each insured. This condition shall not increase our limit of liability by any one occurrence.”

In approving the trial court’s construction of the policy, we emphasized that the sever-ability clause created separate and independent rights and obligations under the policy, rather than joint rights and obligations, and held that the wife was entitled to recover one-half of the damages, not to exceed the limits of the policy, for the loss to her separate insurable interest up to the limits of that interest. 753 P.2d at 233 . As in Jernigan , the policy in the instant case creates a separate insurable interest with respect to the personal liability of each insured, with the result that the “intentional act” exclusion should not apply to the separate insurable interests of Mr. and Mrs. Chacon, neither of whom intentionally caused the property damage to the school.

The majority attempts to distinguish Jer-nigan by reason of the term “any insured” in the exclusion clause of the policy in the instant case. By basing its holding solely on the term “any insured,” the majority disregards and negates the separate insurable interests expressly created by the policy. I would construe the term “any insured” in the exclusion clause to mean the separate insurable interest of any particular insured who was responsible for intentionally causing the property damage. Such construction gives effect to the whole of the policy, does not nullify one provision at the expense of the other, and, in my view, is consistent with our recent decision in Jernigan, 753 P.2d 229 , as well as with case law from other jurisdictions. See, e.g., Arenson v. Nat’l. Auto. & Casualty Ins. Co., 45 Cal.2d 81 , 286 P.2d 816 (1955) (intentional act exclusion does not exclude liability coverage for parents for intentional act of vandalism committed by son, who also was an insured under policy); Worcester Mut. Ins. Co. v. Marnell, 398 Mass. 240 , 496 N.E.2d 158 (1986) (severability clause in policy created separate insurable interests so as not to exclude parents from coverage for damage caused by son, who also was an insured under policy); Unigard Mut. Ins. Co. v. Argonaut Ins. Co., 20 Wash.App. 261 , 579 P.2d 1015 (1978) (intentional act exclusion not applicable to other insureds who did not engage in excluded conduct).

At the very least, the exclusion clause in this case is ambiguous when considered in connection with the provision creating separate insurable interests for Mr. and Mrs. Chacon and their minor son. Under such circumstances, the ambiguity in the policy must be construed against the insurer and in favor of the insureds. E.g., Coxen, 168 Colo. at 444 , 452 P.2d at 16 ; Wilson v. Auto. Owners Ass’n. Ins. Co., 148 Colo. 550 , 366 P.2d 654 (1961); Royal Indemnity Co. v. Markley, 116 Colo. 84 , 178 P.2d 672 (1947).

For the above reasons, I would reverse the judgment of the court of appeals and would hold that Mr. and Mrs. Chacon, who did not intentionally cause the property damage, were not excluded from coverage by virtue of the intentional damage exclusion.

KIRSHBAUM and VOLLACK, JJ., join in the dissent.