Insurance Policy Expressly Limited to Actual Collapse May Not Be Construed To Cover Imminent Collapse, Regardless of Public Policy

In Rosen v. State Farm General Ins. Co. (2003) 30 C.4th 1070, 135 C.R.2d 361, 70 P.3d 351, plaintiff submitted a claim to defendant, his homeowners insurance carrier, for the cost of repairing two decks attached to his home. Plaintiff undertook the repairs on the recommendation of a contractor who had discovered severe deterioration of the framing members supporting the decks. Plaintiff believed his decks were in a state of imminent collapse, entitling him to policy benefits. Defendant denied plaintiff's claim on the ground that there had been no collapse of his decks within the meaning of the policy, which defined "collapse" as "actually fallen down or fallen to pieces." Plaintiff sued defendant for breach of contract and breach of the covenant of good faith and fair dealing. The trial court found for plaintiff, holding that California public policy entitles policyholders to coverage for collapse as long as the collapse is imminent, irrespective of policy language. The Court of Appeal affirmed. Held, reversed; plain, unambiguous language in an insurance policy may not be judicially rewritten on public policy or other grounds.

(a) While insurance contracts have special features, they are still contracts to which the ordinary rules of contractual interpretation apply. Thus, the mutual intention of the parties at the time the contract is formed governs interpretation. If the policy language is clear and explicit, as here, it governs. The plain language of the collapse provision in plaintiff's policy is unambiguous, in that it is susceptible only of one reasonable interpretation--actual collapse of a building or a portion of the building is a prerequisite to an entitlement to policy benefits. (30 C.4th 1074, 1075.)

(b) The trial court and Court of Appeal rewrote the coverage provision to conform to their notions of sound public policy, i.e., that literal enforcement of the provision would create financial incentives to allow decks to collapse so as to injure the public. In doing so, they exceeded their authority, disregarding the clear language of the policy and the equally clear holdings of this court. A California court may not rewrite an insurance policy for purposes of public policy or for any other purpose. (30 C.4th 1077, 1078.) To rewrite the provision imposing the duty to indemnify for collapse in order to remove its limitation to actual collapse would compel the insurer to give more than it promised and would allow the insured to get more than it paid for, thereby denying the parties' freedom to contract as they please. (30 C.4th 1078.)

Three justices concurred in the result but disagreed with the majority's conclusion that courts are forbidden from employing public policy in interpreting insurance policy provisions. It is still true that contracts violating public policy will not be enforced. In interpreting whether a contract violates public policy, courts essentially engage in a weighing process, balancing the interest of enforcing the contract with those interests against enforcement. Plaintiff here failed to meet the strong burden placed on those challenging unambiguous provisions. (30 C.4th 1082, 1083.)

Witkin References

On interpretation of unambiguous provisions in insurance policies, see 1 Summary (9th), Contracts, Supp., §§699C, 699D.

On interpretation of contracts generally, see 1 Summary (9th), Contracts, §681 et seq.

On contracts contrary to public policy, see 1 Summary (9th), Contracts, §462 et seq.

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Last updated
Tuesday, November 11, 2003