Filed 2/27/13 Black Silver Enterprises v. Sequoia Ins. CA4/1
                 NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not
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               COURT OF APPEAL, FOURTH APPELLATE DISTRICT

                                             DIVISION ONE

                                      STATE OF CALIFORNIA



BLACK SILVER ENTERPRISES, INC.,                                     D059682

         Plaintiff and Appellant,

         v.                                                         (Super. Ct. No. 37-2009-00084685-
                                                                    CU-BC-CTL)
SEQUOIA INSURANCE COMPANY,

         Defendant and Respondent.


         APPEAL from a judgment of the Superior Court of San Diego County,

Linda B. Quinn, Judge. Reversed.



         This case involves an insurance coverage dispute between Black Silver

Enterprises, Inc. (Black Silver) and Sequoia Insurance Company (Sequoia). Black

Silver sought coverage under two separate business owners insurance policies for

losses resulting from employee theft at its clothing boutiques. Sequoia concluded

that coverage for Black Silver's loss was limited by a coverage extender to

$10,000 per policy and refused to pay up to the business personal property limits

in the policies. After a bench trial, the court entered judgment in favor of Sequoia
on Black Silver's breach of contract, bad faith and declaratory relief claims. Black

Silver appeals, contending the trial court erred by (1) entering judgment in favor of

Sequoia because the purported coverage limitation was not conspicuous, plain and

clear, and (2) ignoring its objection to expert testimony on the ultimate issues of

the case. We conclude the employee dishonesty coverage limitation is not

conspicuous, plain and clear and reverse the trial court's judgment. This

conclusion moots Black Silver's claim of evidentiary error.

                FACTUAL AND PROCEDURAL BACKGROUND

        Black Silver operates five clothing boutiques in San Diego County.

Between June 2006 and September 2008, Black Silver's employee, Jennifer Chase,

removed a substantial amount of merchandise from the five stores, resulting in a

loss to Black Silver in the amount of $65,000. During this time, Black Silver was

insured by Sequoia under two business owners policies, one effective February 1,

2007 to February 1, 2008, and the other effective February 1, 2008 to February 1,

2009.

        Black Silver notified Sequoia of its loss and made a claim for coverage.

Sequoia responded to the claim by paying $10,000 and explained that coverage

was limited because Black Silver did not purchase "optional coverage" for

employee dishonesty and was covered only up to $10,000 by a coverage extender.

After Black Silver disputed the amount of coverage, Sequoia sent another payment

of $10,000 as a result of the two successive policies. Black Silver also received

payments from another insurance carrier, leaving a balance on its loss of $25,000.

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       Black Silver sued Sequoia, alleging the full amount of its loss was covered

under the two Sequoia policies. It further alleged that the coverage extender for

employee dishonesty was in addition to coverage afforded by other policy

provisions. At trial, Paul Caccamise, the insurance broker who helped Black

Silver secure the Sequoia policies, testified that he understood employee

dishonesty was covered up to the business personal property limits and the

coverage extender provided coverage in excess of those limits.

       Sequoia's coverage expert, GailAnn Stargardter, testified that employee

dishonesty is not covered by standard business owners policies such as Black

Silver's policies. However, an insured has the option to purchase employee

dishonesty coverage in two ways. First, an insured can purchase "optional

coverages," which would be reflected on the policy's declarations page. Second,

Sequoia offered a coverage extender for employee dishonesty up to $10,000.

Based on her review of the policy, Stargardter stated that Black Silver did not elect

to purchase "optional coverage" because if it had done so, the limit would have

been set forth on the declarations page. Instead, Black Silver purchased the

coverage extender, which had a limit of $10,000.

       After a bench trial, the trial court entered judgment in favor of Sequoia,

effectively ruling that Sequoia was not obligated to pay any more under the

policies. This appeal followed.




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                                   DISCUSSION

A. Policy Provisions Concerning Employee Dishonesty

       The parties agree that the general provisions of the Sequoia policies

excluded coverage for employee dishonesty. However, they disagree as to the

effect of the coverage extender. Black Silver contends the coverage extender

provided coverage in addition to the business personal property limits in the

policies, whereas Sequoia maintains it limited coverage to $10,000. In regard to

employee dishonesty, the coverage extender provided the following:

          "As respects coverage under this endorsement, the following
          is added to the Businessowners Coverage Form Section I.A.
          Coverage, Subsection 5. Additional Coverages:

              "Coverage for Employee Dishonesty is provided as
              described in Section I.G. Optional Coverages,
              Subsection 3. Employee Dishonesty of form BP 0003.
              The most we will pay under this coverage is the limit of
              insurance shown for Employee Dishonesty on Page 1 of
              this endorsement. The requirements of ERISA are
              provided by this coverage. The limit provided under
              this endorsement is an additional limit to limits
              provided under similar coverage if provided elsewhere
              in this policy. The deductible applicable to business
              personal property applies to losses under this coverage."

       Accordingly, the coverage extender appears to reference two separate

provisions in the policy that include a coverage limit for employee dishonesty:

(1) optional coverages (section I.G., subsection 3), and (2) page 1 of the

endorsement. Under optional coverages, the policies stated, "The most [Sequoia]

will pay for loss or damage in any one occurrence is the Limit of Insurance for

Employee Dishonesty shown in the Declarations." However, there is no limit

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included on the policies' declarations pages. Instead, the only reference to the

coverage extender is on a page entitled "Coverages Applying to All Locations,"

which is located between the property declarations and liability declarations. That

page listed the "BOP Coverage Extender" followed by "see Form SEQ 1528,"

which is the form number of the coverage extender. Although there are spaces to

indicate the limit and deductible associated with the coverage extender, those

spaces were left blank.

       Next, the coverage extender referenced page 1 of the endorsement. That

page is located about 60 pages into the policy. It stated the "Limit of Insurance"

for "Employee Dishonesty / ERISA" was $10,000.

B. Analysis

       Black Silver contends the trial court erred in entering judgment in favor of

Sequoia because the purported limitation in the coverage extender was not

conspicuous, plain and clear. We agree.

       Where, as here, "the material facts are not disputed, interpretation of the

policy presents solely a question of law." (Haynes v. Farmers Ins. Exchange

(2004) 32 Cal.4th 1198, 1204 (Haynes).) " ' "[I]t is the duty of the appellate

court . . . to make its own independent determination of the meaning of the

language used in the [instruments] under consideration." ' " (State Farm Mut. Auto.

Ins. Co. v. Partridge (1973) 10 Cal.3d 94, 100.)

       We begin with the premise that "[u]nquestionably, California insurers may

rely on endorsements to modify printed terms of a form policy." (Haynes, supra,

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32 Cal.4th at p. 1208.) However, "to be enforceable, any provision that takes

away or limits coverage reasonably expected by an insured must be 'conspicuous,

plain and clear.' [Citation.] Thus, any such limitation must be placed and printed

so that it will attract the reader's attention. Such a provision also must be stated

precisely and understandably, in words that are part of the working vocabulary of

the average layperson." (Id. at p. 1204.) "The burden of making coverage

exceptions and limitations conspicuous, plain and clear rests with the insurer."

(Ibid.)

          "A policy provision is ambiguous when it is susceptible to two or more

reasonable constructions. [Citation.] Language in an insurance policy is

'interpreted as a whole, and in the circumstances of the case, and cannot be found

to be ambiguous in the abstract.' [Citation.] 'The proper question is whether the

[provision or] word is ambiguous in the context of this policy and the

circumstances of this case. [Citation.]" (E.M.M.I. Inc. v. Zurich American Ins.

Co. (2004) 32 Cal.4th 465, 470.) "Moreover, insurance coverage is ' " 'interpreted

broadly so as to afford the greatest possible protection to the insured,

[whereas] . . . exclusionary clauses are interpreted narrowly against the insurer.' " '

[Citation.]" (MacKinnon v. Truck Ins. Exchange (2003) 31 Cal.4th 635, 648

(MacKinnon).)

          Here, the employee dishonesty coverage limitation Sequoia seeks to apply

is not conspicuous. The limitation is not identified on the policies' declarations

pages. Instead, the "BOP Coverage Extender," in which the limitation appears, is

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listed on a page nestled between the property declarations and liability

declarations only with a reference of "see Form SEQ 1528." Although there are

spaces to indicate the limit and deductible, those spaces were left blank.

       Based on our review of the policies, there is nothing in the declarations

pages to alert the insured to any specific limitations in the coverage extender. A

reference to a "Form SEQ 1528" is not sufficient as it does not identify the subject

matter of the coverage extender or reveal to the reader that the coverage extender

modifies the policy or sets forth limits apart from those on the declarations pages.

In order to ascertain the limits of the coverage extender, the insured must delve

about 60 pages into the policies to get to the first page of the coverage extender.

We see no reason why the limits set forth on the first page of the coverage

extender could not have been placed within the policies' declarations, where an

insured would likely look for policy limits. Regardless, we may have reached a

different result as to conspicuousness if, at a minimum, the declarations pages

alerted the reader to look for additional limits of insurance in the coverage

extender, rather than leaving the space for the "Limit" blank.

       Also troubling is that the employee dishonesty provision in the coverage

extender is not plain and clear. To the contrary, the provision is ambiguous and

susceptible to two or more interpretations. The provision first states that coverage

for employee dishonesty is as provided in the policies' "optional coverages"

section. The "optional coverages" section directs the reader to the declarations

pages for the limit of insurance. As we already discussed, the declarations pages

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contain no such limit. However, they do include business personal property limits.

Given that there was no employee dishonesty limit identified on the declarations

pages and the space for the "Limit" next to the reference to the coverage extender

was left blank, the insured could reasonably conclude the business personal

property limits applied.

       Continuing with the confusion, the employee dishonesty provision in the

coverage extender next refers the reader to page 1 of the endorsement for the limit

of insurance. That page sets forth a limit of $10,000. The coverage extender,

however, continues by stating, "The limit provided under this endorsement is an

additional limit to limits provided under similar coverage if provided elsewhere in

this policy." Again, an insured could conclude from this ambiguous language

combined with the reference to "optional coverages" that the coverage extender

provided $10,000 of coverage in addition to the business personal property limits

in the policies. (MacKinnon, supra, 31 Cal.4th at p. 648 [coverage should be

interpreted broadly to afford the greatest possible protection to the insured].)

       While the coverage extender uses words that the average person could

understand, in order to be "plain and clear," a limitation must be precise and

understandable. (Haynes, supra, 32 Cal.4th at p. 1204.) Based on the foregoing

discussion, we find the coverage extender in this case was not "plain and clear"

with regard to its limit on coverage for employee dishonesty because it was neither

precise nor understandable.



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       In sum, we conclude the employee dishonesty provision in the coverage

extender provided $10,000 in coverage in addition to the business personal

property limits in the policies.

                                   DISPOSITION

       The judgment is reversed insofar as it fails to award Black Silver the

balance of its claim. The matter is remanded to the trial court for consideration of

any additional issues raised by this court's disposition, including a determination

of the unreimbursed balance of Black Silver's claim, and for entry of a new

judgment consistent with this opinion.

       Black Silver is entitled to costs on appeal.



                                                                MCINTYRE, J.

WE CONCUR:

BENKE, Acting P. J.

AARON, J.




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