When an Additional Insured Is the Party Seeking Coverage, Courts Must Resolve Ambiguities in a Manner Consistent With the Objectively Reasonable Expectations of the Additional Insured
Transport Ins. Co. v. Superior Court, 222 Cal. App. 4th 1216 (2014)
In Transport Insurance Co., the California 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.
Transport Insurance Company (the “Insurer”) issued Vulcan Materials Company (the “Named Insured”) a commercial excess and umbrella liability insurance policy. The policy named R.R. Street & Co., Inc. as an additional insured (the “Additional Insured”) with respect to its distribution or sale of a dry cleaning solvent. The Named Insured and the Additional Insured were named defendants in suits that alleged that the dry cleaning chemicals were released into soil and groundwater, causing damages that resulted from environmental contamination. The Insurer brought a declaratory relief action against the Additional Insured and National Union Fire Insurance Company of Pittsburgh (“National Union”), the Additional Insured’s general liability insurer, seeking a declaration that the Insurer did not have a duty to defend the Additional Insured in the underlying actions. The trial court granted the Additional Insured and National Union’s motions for summary adjudication on the Insurer’s duty to defend the Additional Insured in the underlying suits. The Insurer subsequently petitioned the California Court of Appeal for a writ of mandate directing the trial court to vacate its order and permit the Insurer to conduct discovery relevant to an ambiguity in the commercial excess and umbrella policy it issued to Named Insured. The court issued a writ and overturned the trial court’s ruling on the summary adjudication motions.
In reaching its ruling, the court explained that courts resolve ambiguities in insurance policies in a manner consistent with the objectively reasonable expectations of the party claiming coverage, which may or may not be the named insured under the policy. Because the party claiming coverage was an additional insured in the matter before it, it was the additional insured’s objectively reasonable expectations of coverage that were relevant. Accordingly, the court found that the trial court erred in reaching a summary judgment ruling based on the Named Insured’s reasonable expectations and issued a ruling requiring the trial court to allow discovery relating to the Additional Insured’s reasonable expectations.
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