E.M.M.I. Inc. v. Zurich American Insurance
9 Cal. Rptr. 3d 701, 84 P.3d 385, 32 Cal. 4th 465 (2004)
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Rule of Law:
When an exception to a vehicle theft exclusion in an insurance policy uses the ambiguous phrase "actually in or upon such vehicle," that phrase is construed broadly in favor of the insured to include situations where the insured is in close proximity to the vehicle and actively attending to it at the time of the theft.
Facts:
- Brian Callahan, a jewelry salesman, left his home with two garment bags containing jewelry (some belonging to E.M.M.I. Inc.) in the trunk of his vehicle.
- Shortly after driving away, Callahan heard a clanking noise emanating from the rear of the vehicle.
- Callahan stopped on the side of the road, exited the car, closed the door but left the engine running, to investigate the noise.
- He walked to the rear of the vehicle and crouched down to visually inspect the exhaust pipes, remaining approximately two feet from the car.
- An individual quickly passed Callahan, got into his car, and drove away with the jewelry.
- E.M.M.I. Inc. was insured under a jeweler’s block insurance policy issued by Zurich American Insurance Company (Zurich).
- The policy's exclusion provision stated that Zurich would "not pay for 'loss' caused or resulting from...[t]heft from any vehicle unless, you, an employee, or other person whose only duty is to attend to the vehicle are actually in or upon such vehicle at the time of the theft."
Procedural Posture:
- E.M.M.I. Inc. submitted a claim to Zurich American Insurance Company, which Zurich denied because E.M.M.I. was unable to show Brian Callahan had been physically touching the vehicle.
- E.M.M.I. Inc. filed a lawsuit against Zurich American Insurance Company for breach of contract, breach of the implied covenant of good faith and fair dealing, and unfair business practices in the superior court (trial court). E.M.M.I. also sued its insurance agent, Vartan Karlubian, for professional negligence.
- The parties, E.M.M.I., Zurich, and Karlubian, subsequently filed cross-motions for summary judgment and summary adjudication.
- The superior court granted Zurich’s motion for summary judgment and denied E.M.M.I.’s and Karlubian’s motions, finding there was no coverage.
- The Court of Appeal affirmed the resulting judgment, ruling that Callahan was not "actually in or upon" the car.
- The Supreme Court of California granted review.
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Issue:
Does an exception to a jeweler's block insurance policy's vehicle theft exclusion, requiring an insured to be "actually in or upon" the vehicle at the time of theft, apply when the insured is in close proximity to and attending to the vehicle, but not physically inside or touching it?
Opinions:
Majority - Moreno, J.
Yes, an exception to a jeweler's block insurance policy's vehicle theft exclusion, requiring an insured to be "actually in or upon" the vehicle at the time of theft, applies when the insured is in close proximity to and attending to the vehicle, even if not physically inside or touching it. The court found the phrase "actually in or upon" ambiguous, particularly the word "upon," because it is susceptible to multiple reasonable constructions when read in the context of the policy and circumstances. Insurance policy exclusions are strictly construed, while exceptions to exclusions are broadly construed in favor of the insured and consistent with the insured's reasonable expectations. The word "upon" in its ordinary sense can mean "in close proximity." The use of the disjunctive "or" also suggests alternatives beyond merely "in" or "on top of" the vehicle. The court rejected Zurich's interpretation that "upon" applies only to vehicles like motorcycles or that the exception is limited to thefts by force or intimidation (robbery), noting the policy uses "theft," not "robbery." Construing the ambiguous language in favor of the insured's reasonable expectations, the court held that a salesman two feet from and actively attending to his vehicle falls within the exception's scope, especially given the broad "all-risk" nature of jeweler's block policies. The court distinguished prior cases that denied coverage as typically involving "temporary abandonment" of the vehicle, which was not the case here.
Dissenting - Kennard, J.
No, an exception to a jeweler's block insurance policy's vehicle theft exclusion, requiring an insured to be "actually in or upon" the vehicle at the time of theft, does not apply when the insured is in close proximity to and attending to the vehicle, but not physically inside or touching it. Justice Kennard argued that the words "actually in or upon" are clear and unambiguous, meaning literally "in fact on" the vehicle. The word "actually" further negates any constructive presence or possession. To interpret "upon" as "in close proximity to a car" is contrary to its ordinary, common, and popular understanding. The dissent cited numerous courts from other jurisdictions that have consistently held similar policy language unambiguous and denied coverage when insureds were not literally in or upon their vehicles, even if nearby. The court's role is to enforce the contract as written, not to rewrite its terms or strain to create ambiguity where none exists.
Dissenting - Chin, J.
No, an exception to a jeweler's block insurance policy's vehicle theft exclusion, requiring an insured to be "actually in or upon" the vehicle at the time of theft, does not apply when the insured is in close proximity to and attending to the vehicle, but not physically inside or touching it. Justice Chin agreed that the language "actually in or upon such vehicle" is unambiguous and does not contemplate coverage for "close proximity." The deliberate inclusion of "actually" emphasizes the requirement for literal presence to deter theft, especially for valuable jewelry in unattended vehicles. He cited Ruvelson stating the exclusion's intent is to cover situations where property is protected by someone "in or upon" the car, and the absence of such presence creates theft opportunity. Historical context suggests "on" or "upon" applied to vehicles like horses, carriages, or motorcycles, not to being near a car. He criticized the majority for departing from standard dictionary definitions and rules of contract interpretation, which require adherence to clear and explicit meaning in ordinary and popular sense. To broaden coverage beyond the policy's plain meaning risks increased premiums and undermines the insurer's reasonable decision to require actual presence as a basic precaution against theft.
Analysis:
This case significantly clarifies the interpretation of ambiguous exclusionary clauses in insurance contracts, particularly in California. By broadly construing exceptions to exclusions in favor of the insured and prioritizing the insured's reasonable expectations, the decision emphasizes the insurer's burden to draft "conspicuous, plain and clear" exclusionary language. Future cases involving similar "in or upon" language will likely lean towards coverage if the insured is in close proximity and actively attending to the vehicle, shifting the burden to insurers to define such terms with greater specificity to limit liability. It reinforces the principle that courts will not interpret policy language in a way that would render broad "all-risk" coverage illusory for routine, necessary activities.
