Low, Ball & Lynch’s
WEEKLY LAW RESUME
September
29, 2005 Issue By: Mark
Hazelwood
Coverage - Interpretation of
Insurance Policy Language
Mirpad v. California
Insurance Guarantee Association
Court of Appeal, Second Appellate
District
(September 19, 2026)
Insurance policies are, in essence, contracts. While insurance policies have
special features, they are still contracts to which the ordinary rules of
contractual interpretation apply. Thus, the mutual intent of the parties at the
time of the contract is formed governs interpretation. If possible, intent is
determined from the written provisions of the policy. This case analyzes
whether intent may be established by considering language in the context of the
entire policy, even though, in other contexts, it could have a different
meaning.
In 1999, Mirpad purchased a commercial office building in Phoenix, Az. One
of the tenants in the office building was POS Systems, Inc. In April
2000, Mirpad, through its’ property manager, notified POS that it was in
default under the terms of its lease. Later that month, the property manager
locked POS out of the premises. At the same time POS declared bankruptcy.
Subsequently, POS filed two lawsuits against Mirpad, and others, that included
claims for wrongful eviction.
At the time of POS’s alleged eviction, Mirpad was a named insured in a CGL
policy issued by United Pacific Insurance Company. The policy included coverage
for claims of “Personal Injury,” which included “wrongful eviction ... from a
premises ... that a person occupies ..” Defense of the POS actions was tendered
to United Pacific. Prior to responding to the tender, United Pacific was
declared insolvent. The tender of defense was then referred to the
California Insurance Guarantee Association (CIGA). In July 2002, CIGA
denied coverage and rejected the tender. Mirpad defended the underlying actions
at its’ own expense, incurring defense costs in excess of $500,000.
In July 2003, Mirpad filed the subject action against CIGA for declaratory
relief and for violation of California Insurance Code, section 1063.2.
The parties stipulated to the facts of the case. The pure legal question
for the trial court was whether POS could be considered a “person” for purposes
of a wrongful eviction claim.
CIGA’s position was that POS’s claim was not covered, because POS as a
tenant, was an organization, as opposed to a person. POS, on the other hand,
contended that coverage did extend to an organization, and that CIGA was
obligated to pay its defense costs of over $500,000. In support of their
positions, the parties filed competing motions for judgment on the pleadings.
The trial court ruled in favor of Mirpad. Without attempting to interpret
the relevant language of the policy, the trial court solely looked to
California Insurance Code, section 19, which defines the word person as: “any
person, association, organization, partnership, ...” Thereafter, the
trial court entered judgment in Plaintiffs’ favor and awarded $500,000 in
damages.
CIGA appealed. The Court of Appeal reversed. The court noted that an insurer
owes a duty to defend any claim for which there is a potential for coverage
under the policy. If coverage depends on an unresolved dispute over a
factual question, the very existence of that dispute would establish a
possibility of coverage and thus a duty to defend. However, where the only
potential for coverage turns on resolution of a question of law, there is no
duty to defend.
CIGA argued that clear and explicit language of the insurance policy
indicated that POS could not be deemed a “person”, and therefore, there could
be no covered claim. The Second District agreed. The Court held that it was
bound to read the policy language not in isolation, but in the context of the
entire policy. Analyzing how the word “person” was used throughout the policy,
demonstrated that it consistently was used to refer only to natural
persons. Further, the words “person” and “organization” were repeatedly
used separately and distinctly. Therefore, the Court held that they must be
given separate and distinct meanings.
The Court of Appeal also disagreed with the trial court’s reliance on
Insurance Code, section 19. The Court held that section 19 was intended to
govern the construction and interpretation of the Insurance Code. Section 19
provided no authority for the trial court to ignore an obligation to determine
the intent of the parties and the plain meaning of the policy language. The
Second District found that the clear meaning of the policy language revealed
that a covered claim for wrongful eviction could not include a claim brought by
an organization such as POS.
The judgment in favor of Mirpad was reversed and the matter remanded to the
trial court with directions to vacate its’ order; and to enter a new order
granting CIGA’s motion; and to thereafter enter judgment in CIGA’s
favor.
Comment
This case reiterates that a court in determining the plain meaning of policy
language, must not only interpret that language in its “ordinary and popular
sense”, but also in the context of its usage in the policy itself.
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