                                RECOMMENDED FOR FULL-TEXT PUBLICATION
                                     Pursuant to Sixth Circuit Rule 206
                                             File Name: 05a0229p.06

                       UNITED STATES COURT OF APPEALS
                                        FOR THE SIXTH CIRCUIT
                                          _________________


                                                     X
                                Plaintiff-Appellee, -
 MERIDIAN LEASING, INC.,
                                                      -
                                                      -
                                                      -
                                                          No. 04-1184
          v.
                                                      ,
                                                       >
 ASSOCIATED AVIATION UNDERWRITERS, INC.,              -
                            Defendant-Appellant. -
                                                     N
                       Appeal from the United States District Court
                  for the Western District of Michigan at Grand Rapids.
                   No. 02-00192—Ellen S. Carmody, Magistrate Judge.
                                           Argued: April 20, 2005
                                    Decided and Filed: May 24, 2005
    Before: SUHRHEINRICH and GILMAN, Circuit Judges; ACKERMAN, District Judge.*
                                            _________________
                                                  COUNSEL
ARGUED: Barry R. Smith, McCARTHY SMITH LAW GROUP, Portage, Michigan, for
Appellant. Jon R. Muth, MILLER, JOHNSON, SNELL & CUMMISKEY, Grand Rapids,
Michigan, for Appellee. ON BRIEF: Barry R. Smith, McCARTHY SMITH LAW GROUP,
Portage, Michigan, for Appellant. Jon R. Muth, Mark P. Hunting, MILLER, JOHNSON, SNELL
& CUMMISKEY, Grand Rapids, Michigan, for Appellee.
                                            _________________
                                                OPINION
                                            _________________
        HAROLD A. ACKERMAN, District Judge. In this case, the District Court, sitting in
diversity, was faced with the task of interpreting the language of an all-risk insurance policy that
allegedly covered damage to an aircraft engine caused by an unusual occurrence during start-up.
The insurer alleged that the policy’s exclusion for wear and tear foreclosed coverage. Applying
California law, the District Court found that the term “wear and tear” was ambiguous, and resolved
the ambiguity by requiring that damage from wear and tear result from the normal and ordinary
operation of the engine. Thus, the District Court granted partial summary judgment for the insured
and reserved for trial the question whether the damage resulted from the normal and ordinary
operation of the engine. After hearing testimony, the District Court resolved the question in the

        *
          The Honorable Harold A. Ackerman, United States District Judge for the District of New Jersey, sitting by
designation.


                                                        1
No. 04-1184                Meridian Leasing, Inc. v. Associated Aviation Underwriters                           Page 2


negative and awarded damages to the insured. The insurer now appeals the District Court’s grant
of partial summary judgment resulting from its interpretation of the policy language. We conclude
that the parties did not intend the term “wear and tear” to carry a specialized meaning, that the
parties intended the policy to cover damage resulting from accidental and fortuitous occurrences,
and that the incident that caused the damage to the insured’s aircraft engine fell within the scope of
coverage. We AFFIRM.
                                                           I.
        This appeal presents an intriguing question of law in the guise of a deceptively simple fact
pattern. Meridian Leasing, Inc. (“Meridian”), the Appellee in this action, owned a Piper Meridian
aircraft (“Aircraft”) that it purchased new in March 2001. On August 10, 2001, James Robins,
Meridian’s owner and the Aircraft’s authorized pilot, attempted to start the Aircraft’s engine. As
Robins was performing this multi-step process, he observed flames emanating from both of the
Aircraft’s exhaust stacks.
         Robins immediately shut down the engine. When this failed to extinguish the flames, Robins
attempted to evacuate the Aircraft. Mechanic inspector David Tesser, who witnessed these events,
ran to the Aircraft and directed Robins to remain in the cockpit. Tesser then instructed Robins to
re-start the engine. This effort succeeded in extinguishing the flames.
        For several seconds as the fire burned, the engine operated at a temperature beyond the range
in which the engine was designed to operate safely. Indeed, although not part of the District Court’s
factual findings, there is evidence in the record that the temperature reached 2,260 degrees
Fahrenheit for a period of 11 seconds, causing the compressor blade tips to melt and splatter molten
metal onto the inside of the engine casing. The excessive internal temperature caused the engine
to suffer extensive damage. Meridian subsequently had the engine repaired at a cost of $224,165.53,
plus $8,326.36 for engine removal and replacement and $5,356.50 for substitute transportation costs.
         Meridian insured the Aircraft under a policy (the “Policy”) issued by Associated Aviation
Underwriters, Inc. (“AAU”), the Appellant in this matter. Coverage F of the Policy provided
“Physical Damage Coverage” on an “All Risk Basis,” Joint Appendix (“J.A.”) at 154, whereby AAU
would “pay for any physical damage loss to the aircraft, including disappearance of the aircraft,”
J.A. at 157. Meridian filed a claim with AAU for the damage to the Aircraft. AAU denied the claim
on the ground that the damage fell within the Policy’s exclusion for wear and tear.
        Meridian brought this suit against AAU in the United States District Court for the Western
District of Michigan, seeking a declaration that the damage to the Aircraft was not wear and tear and
that the Policy therefore covered Meridian’s claim. The District Court had subject matter
jurisdiction over this matter pursuant to 28 U.S.C. § 1332. Shortly thereafter, the case was assigned
to Magistrate Judge Ellen S. Carmody, and the parties consented to the Magistrate    Judge exercising
full judicial authority pursuant to 28 U.S.C. § 636(c) and Fed. R. Civ. P. 73.1 Meridian then moved
for partial summary judgment on the proper interpretation of the Policy’s wear and tear exclusion.
       The District Court found that the Policy did not define the term “wear and tear.” Applying
California law,2 the District Court held that the term must be given its “ordinary and popular”


         1
             We will hereafter refer to Judge Carmody as the “District Court.”
         2
            The Policy apparently did not contain a choice-of-law provision, and the District Court requested briefing
from the parties on the applicable law. Meridian urged application of California law. AAU conceded that Michigan’s
vested rights approach to choice-of-law questions dictated that California law should apply, but nevertheless suggested
that the court follow the “trend” toward applying the law of the forum. Def.’s Br. Choice L. at 4, Meridian Leasing, Inc.
No. 04-1184               Meridian Leasing, Inc. v. Associated Aviation Underwriters                           Page 3


meaning, which required that the wear and tear arise from “ordinary” or “normal” operation of the
Aircraft. Meridian Leasing, Inc. v. Associated Aviation Underwriters, Inc., No. 02-192, slip op. at
10-11 (W.D. Mich. Feb. 14, 2003) (hereinafter “Meridian Leasing I”). Accordingly, the District
Court granted in part and denied in part Meridian’s motion for summary judgment, reserving for trial
the sole question whether the damage to the Aircraft arose from “ordinary” or “normal” usage.
        On September 24, 2003, the District Court held a bench trial. An Opinion and Factual
Findings followed on January 5, 2004. See Meridian Leasing, Inc. v. Associated Aviation
Underwriters, Inc., 297 F. Supp. 2d 972 (W.D. Mich. 2004) (hereinafter “Meridian Leasing II”).
The District Court concluded that the events that caused the damage to the Aircraft were not
“normal” or “ordinary” and awarded Meridian $295,333.45 in damages. AAU timely appealed on
February 5, 2004. The only issue on appeal is whether the District Court erred in interpreting the
wear and tear exclusion so as to require normal or ordinary operation of the Aircraft. This Court has
jurisdiction over the present appeal pursuant to 28 U.S.C. § 1291.
                                                          II.
        We review the District Court’s grant of partial summary judgment de novo. Ability Ctr. of
Greater Toledo v. City of Sandusky, 385 F.3d 901, 903 (6th Cir. 2004). Our review is limited,
however, to the evidence before the lower court at the time of its ruling. Bush v. Rauch, 38 F.3d
842, 846 (6th Cir. 1994). Questions of contract interpretation, such as those that formed the basis
of the District Court’s grant of partial summary judgment, generally are considered to be questions
of law subject to de novo review. Campbell v. Potash Corp. of Sask., Inc., 238 F.3d 792, 797 (6th
Cir. 2001). Accordingly, the existence of ambiguity is a de novo question for this Court. Id.
Nevertheless, “[t]he trial court’s resolution of ambiguity based on extrinsic evidence may not be
overturned unless clearly erroneous.” Id.
        Insurance policies are contracts and are interpreted as such. Palmer v. Truck Ins. Exch., 21
Cal. 4th 1109, 1115, 988 P.2d 568, 572 (1999). Under California law, a court’s primary directive
in interpreting a contract is to give effect to the intent of the parties as it existed at the time of
contracting. Cal. Civ. Code § 1636; Safeco Ins. Co. v. Robert S., 26 Cal. 4th 758, 763, 28 P.3d 889,
893 (2001). A court must look first to the language of the contract to derive the parties’ mutual
intent, so long as the language is clear and explicit and does not involve an absurdity. Cal. Civ.
Code §§ 1638, 1639; Cont’l Heller Corp. v. Amtech Mech. Servs., Inc., 61 Cal. Rptr. 2d 668, 670
(Ct. App. 1997). California law also requires a court to take the whole of the contract together,
giving effect to every part if reasonably practicable to do so. Cal. Civ. Code § 1641; Ticor Title Ins.
Co. v. Rancho Santa Fe Ass’n, 223 Cal. Rptr. 175, 177 (Ct. App. 1986) (“An interpretation which
renders part of the instrument to be surplusage should be avoided.”). A court shall give the words
of a contract their “ordinary and popular” meaning, unless they are used in a technical sense or a
special meaning is given to them by usage, in which case the court shall adhere to the latter meaning.
Cal. Civ. Code § 1644; AIU Ins. Co. v. Superior Court, 51 Cal. 3d 807, 822, 799 P.2d 1253, 1264
(1990). If a contract employs technical terms, a court shall interpret them as they are commonly
understood by persons in the business or profession to which they relate, unless the terms are clearly
used in a different sense. Cal. Civ. Code § 1645; see Rosen v. State Farm Gen. Ins. Co., 30 Cal. 4th
1070, 1073, 70 P.3d 351, 353 (2003) (involving interpretation of “collapse” in insurance contract
that explicitly defined the term).


v. Associated Aviation Underwriters, Inc., 297 F. Supp. 2d 972 (W.D. Mich. 2004) (No. 02-192). Noting that “the only
apparent connection which the state of Michigan has with this dispute is that it is a state in which [Meridian] was able
to obtain personal jurisdiction over [AAU],” the District Court held that the law of California—the state in which the
Policy was executed—governed the court’s interpretation of the contract. Meridian Leasing, Inc. v. Associated Aviation
Underwriters, Inc., No. 02-192, slip op. at 7 (W.D. Mich. Feb. 14, 2003). Neither party disputes this ruling on appeal;
therefore, we will assume that California law governs the interpretation of the Policy.
No. 04-1184           Meridian Leasing, Inc. v. Associated Aviation Underwriters                      Page 4


         California has erected a low threshold for finding ambiguity in an insurance contract. “A
policy provision is ambiguous when it can have two or more reasonable constructions.” Safeco, 26
Cal. 4th at 763, 28 P.3d at 849; see also Kilroy Indus. United Pac. Ins. Co., 608 F. Supp. 847, 852
(C.D. Cal. 1985) (“An insurance policy is ambiguous if the meaning of the terms is uncertain or
capable of being understood in more than one manner.”) (internal quotation marks omitted); S. Cal.
Edison Co. v. Superior Court, 44 Cal. Rptr. 2d 227, 232 (Ct. App. 1995) (stating that the question
for the court is whether the contract is “reasonably susceptible” to the meaning urged). Ambiguities
must be resolved “in accordance with the objectively reasonable expectations of the insured.”
Farmers Ins. Exch. v. Knopp, 58 Cal. Rptr. 2d 331, 335 (Ct. App. 1996). This requirement comports
with the statutory provision and longstanding rule of contract interpretation that ambiguities in a
contract must be construed against the party who drafted their terms. Cal. Civ. Code § 1654;
Victoria v. Superior Court, 40 Cal. 3d 734, 739, 710 P.2d 833, 835 (1985). In addition, coverage
clauses are interpreted broadly and exclusions are interpreted narrowly. Garvey v. State Farm Fire
& Cas. Co., 48 Cal. 3d 395, 406, 770 P.2d 704, 710 (1989).
         It is of course axiomatic that extrinsic evidence may be used to interpret a contract when the
terms of the contract are in some respect ambiguous. See, e.g., Morey v. Vannucci, 75 Cal. Rptr. 2d
573, 578 (Ct. App. 1998) (stating that California law requires admission of extrinsic evidence to
resolve ambiguities). California’s leading case on the use of extrinsic evidence in contract
interpretation is Pacific Gas and Electric Co. v. G.W. Thomas Drayage & Rigging Co., 69 Cal. 2d
33, 442 P.2d 641 (1968). In that case, Chief Justice Roger Traynor set forth a very permissive
standard for the use of extrinsic evidence: “The test of admissibility of extrinsic evidence to explain
the meaning of a written instrument is not whether it appears to the court to be plain and
unambiguous on its face, but whether the offered evidence is relevant to prove a meaning to which
the language of the instrument is reasonably susceptible.” Id. at 37, 442 P.2d at 644. Chief Justice
Traynor continued: “A rule that would limit the determination of the meaning of a written instrument
to its four-corners merely because it seems to the court to be clear and unambiguous, would either
deny the relevance of the intention of the parties or presuppose a degree of verbal precision and
stability our language has not attained.” Id.
        The Pacific Gas court noted that many other courts have held that a contract may be
unambiguous on its face. Id. at 38 & n.4, 442 P.2d at 644 & n.4 (citing examples from the Second
Circuit and Williston on Contracts). However, the California Supreme Court explicitly chose to
depart from that authority.
       In this state, . . . the intention of the parties as expressed in the contract is the source
       of contractual rights and duties. A court must ascertain and give effect to this
       intention by determining what the parties meant by the words they used.
       Accordingly, the exclusion of relevant, extrinsic evidence to explain the meaning of
       a written instrument could be justified only if it were feasible to determine the
       meaning the parties gave to the words from the instrument alone.
Id. at 38, 442 P.2d at 664 (footnote omitted).
        Subsequent decisions of other courts have criticized the breadth of the Pacific Gas holding.
For instance, the Ninth Circuit made the following observation:
       California does not follow the traditional rule. Two decades ago the California
       Supreme Court in [Pacific Gas] turned its back on the notion that a contract can ever
       have a plain meaning discernible by a court without resort to extrinsic evidence. The
       court reasoned that contractual obligations flow not from the words of the contract,
       but from the intention of the parties.
No. 04-1184               Meridian Leasing, Inc. v. Associated Aviation Underwriters                          Page 5


Trident Ctr. v. Conn. Gen. Life Ins. Co., 847 F.2d 564, 568–69 (9th Cir. 1988). The court continued:
         Under Pacific Gas, it matters not how clearly a contract is written, nor how
         completely it is integrated, nor how carefully it is negotiated, nor how squarely it
         addresses the issue before the court: the contract cannot be rendered impervious to
         attack by parol evidence. If one side is willing to claim that the parties intended one
         thing but the agreement provides for another, the court must consider extrinsic
         evidence of possible ambiguity. If that evidence raises the specter of ambiguity
         where there was none before, the contract language is displaced and the intention of
         the parties must be divined from self-serving testimony offered by partisan witnesses
         whose recollection is hazy from passage of time and colored by their conflicting
         interests.
Id. at 569.3 Similarly, the Southern District of New York recognized that Pacific Gas represented
a departure from the law of New York. See Hanson v. McCaw Cellular Communications, Inc., 881
F. Supp. 911, 916–17 (S.D.N.Y. 1995) (noting that the California approach differs from the law of
New York and has been “sharply criticized,” but reluctantly applying the standard set forth in
Pacific Gas in interpreting a license governed by California law); see also Bowers v. Jefferson Pilot
Fin. Ins. Co., 219 F.R.D. 578, 583–84 (E.D. Mich. 2004) (noting the variation among states
regarding use of extrinsic evidence in contract interpretation, and citing Pacific Gas). We think that
these authorities illustrate that California has adopted a comparatively expansive approach to
contract interpretation.
        Against this legal backdrop, we turn our inquiry to the specific language of the Policy. Like
most insurance contracts, the Policy contains exclusions as well as coverages. The section of the
Policy titled “Exclusions” provides as follows:
         This policy does not apply:
         ....
         (f) Under coverages F, G and H, to physical damage
         ....
         (ii) caused by and confined to (a) wear and tear, (b) deterioration or (c) mechanical
         or electrical breakdown or failure of equipment, components or accessories installed
         in the aircraft . . . .
J.A. at 158 (bold type in original). Two pages later, under the heading “Limit of the Company’s
Liability,” the Policy states the following:
         With respect to damage to aircraft engines and auxiliary power units insured under
         this policy:
         ....
         (b) damage caused by heat which results from the operation, attempted operation or
         shutdown of the engine shall be considered to be “wear and tear” . . . .
J.A. at 160.
       The District Court concluded, in its February 14, 2003 Opinion and again in its January 5,
2004 Opinion, that the Policy did not define the term “wear and tear.” Meridian Leasing I at 10;
Meridian Leasing II, 297 F. Supp. at 980–81. In reaching this conclusion, the court expressed

         3
           We note that the Trident decision was itself criticized by a panel of the California Court of Appeals, which
characterized the decision as an “unfortunate and, in our view, inaccurate characterization of California law.” Banco
Do Brasil, S.A. v. Latian, Inc., 285 Cal. Rptr. 870, 893 n.53 (Ct. App. 1991).
No. 04-1184           Meridian Leasing, Inc. v. Associated Aviation Underwriters                Page 6


reluctance to give broad construction to the limitation language, which, the court posited, would
result in exclusion of coverage for any damage caused by heat. Had this been AAU’s intention, the
District Court noted, it could have explicitly stated so in the Policy. Instead, the court found, the
Policy left the term “wear and tear” undefined, and the limitation had the effect of excluding
“coverage for damage caused by heat which results from (or is properly characterized as) ‘wear and
tear.’” Meridian Leasing I at 10. Having identified an ambiguity, the District Court then consulted
various on-line dictionaries for the “ordinary and popular” meaning of “wear and tear.” As a result
of this exercise, the court held that “wear and tear” does not encompass all damage, but only damage
that results from “normal” or “ordinary” usage. Id. Accordingly, the District Court resolved the
perceived ambiguity by interpreting the heat limitation as to require “normal” or “ordinary”
operation or attempted operation of the engine. Id. at 11.
        We take issue with one aspect of the District Court’s ruling. By declaring that the Policy
does not define wear and tear, and suggesting that the heat limitation excluded only heat damage that
is properly characterized as wear and tear, we think that the District Court effectively rendered the
heat limitation superfluous. If the Policy expressly excludes wear and tear, and the subsequent heat
limitation applies only to damage that would otherwise be considered to be wear and tear, we fail
to see what purpose the heat limitation would serve. The District Court’s suggested reading of the
heat limitation therefore runs afoul of the principle of California law requiring an interpreting court
to give effect to every part of a contract if reasonably practicable to do so. See Cal. Civ. Code
§ 1641. We do not believe, however, that the District Court’s reading of the heat limitation was
necessary to its ultimate finding of ambiguity.
        With respect to the District Court’s broader holding that the Policy was ambiguous, we are
in agreement. Our finding of ambiguity flows from the primary mandate of any court interpreting
a contract under California law: to give effect to the mutual intent of the parties as it existed at the
time of contracting. Cal. Civ. Code § 1636. To this end, a court must give terms their “ordinary and
popular” meaning unless they are used in a technical sense or are given a special meaning by usage.
Id. § 1644. An interpreting court may not focus on the perceived ambiguity of a term or expression
in the abstract, but must interpret a policy holistically and in the context of the circumstances of the
case. Waller v. Truck Ins. Exch., Inc., 11 Cal. 4th 1, 18, 900 P.2d 619, 627 (1995). “The proper
question is whether the word is ambiguous in the context of this policy and the circumstances of this
case. The provision will shift between clarity and ambiguity with changes in the event at hand.”
Bay Cities Paving & Grading, Inc. v. Lawyer’s Mut. Ins. Co., 5 Cal. 4th 854, 868, 855 P.2d 1263,
1271 (1993) (internal citations and quotation marks omitted).
        Section 1644 of the California Civil Code was the focus of the California Supreme Court’s
recent decision in E.M.M.I. Inc. v. Zurich American Insurance Co., 32 Cal. 4th 465, 84 P.3d 385
(2004), an insurance coverage dispute arising from the theft of a jewelry salesman’s vehicle
containing two bags of jewelry while the salesman was inspecting the vehicle’s exhaust pipe. The
salesman’s employer had insured the jewelry under a so-called “jeweler’s block” insurance policy,
but the policy excluded from coverage any jewelry stolen from a vehicle except when the insured’s
representative was “actually in or upon the vehicle at the time of the theft.” Id. at 469, 84 P.3d at
388. The insurer denied coverage on the theory that “actually in or upon” was a legal term of art
that required strict construction and did not extend, as the insured had argued, to instances where
the insured was merely in close proximity to the vehicle. California’s Supreme Court rejected this
argument, however, noting that “neither the phrase ‘actually in or upon’ nor the term ‘upon’ was
enclosed in quotation marks.” Id. at 471–72, 84 P.3d at 390. There was nothing in the policy, the
court found, that indicated or suggested that the parties intended the exception to the vehicle theft
exclusion to carry a specialized or technical meaning. Id. Accordingly, the court found that the term
“upon” was ambiguous, and resolved the ambiguity in favor of the insured.
No. 04-1184              Meridian Leasing, Inc. v. Associated Aviation Underwriters                          Page 7


        The instant case is closely analogous to E.M.M.I. Where the term “wear and tear” first
appears in the Exclusions section of the Policy, there are no quotation marks to denote that the
expression is a term of art or carries a specialized meaning. Whereas other terms in the exclusion,
such as “physical damage” and “aircraft,”    appear in bold typeface to indicate that they are defined
in the Definitions section of the Policy,4 the term “wear and tear” appears in an undistinguished
typeface. Indeed, “wear and tear” is nowhere defined in the Definitions section of the Policy, as one
would expect it to be if AAU and Meridian had intended the term to convey a special meaning.
Under these circumstances, we find nothing to indicate that the parties understood “wear and tear”
to convey a meaning other than its ordinary and normal meaning.
        We are likewise mindful of the type of insurance at issue here, which we believe sheds
further light on the parties’ mutual intent. All-risk insurance coverage, which Coverage F purports
to provide, is a type of coverage that traditionally provides indemnification for “fortuitous and
extraneous” events. See Andrew C. Hecker & M. Jane Goode, Wear and Tear, Inherent Vice,
Deterioration, etc.: The Multi-Faceted All-Risk Exclusions, 21 Tort & Ins. L.J. 634, 634 (1986)
[hereinafter “Hecker & Goode”]; see also Kilroy Indus., 608 F. Supp. at 857 (“Under all-risk
insurance policies, losses which are not fortuitous are not covered because the risk feature inherent
in insurance is lacking.”). “This so-called fortuity requirement was designed to assure that an
insurer would not be required to reimburse its insured for certain and inevitable losses.” Hecker &
Goode at 635. Wear and tear exclusions have long been a feature of all-risk insurance contracts.
See id. at 644 (noting that wear and tear has been “continually cited as one of the all-risk
exclusions”); see also Mellon v. Fed. Ins. Co., 14 F.2d 997, 1002 (D.C.N.Y. 1926) (involving an
exclusion for wear and tear). Courts frequently interpret wear and tear exclusions to connote the
popular meaning of the expression, and may imply adjectives such as “ordinary” and “natural” to
limit the breadth of exclusions. See, e.g., Cyclops Corp. v. Home Ins. Co., 352 F. Supp. 931, 936
(W.D. Pa. 1973) (“We do not find that the modifiers ‘ordinary’ or ‘natural’ add anything to the
commonly understood meaning of ‘wear and tear.’ . . . We find the use of the modifiers ‘natural’ or
‘ordinary’ to be a typical lawyer’s redundancy.”).
       Under all-risk insurance policies covering machinery, coverage typically extends to damage
caused by “accidents.” Hecker & Goode at 644. The requirement of an accident is substantially
equivalent to the fortuity requirement. Id. Hence, in the instant Policy, where Coverage F insures
against “any physical damage loss to the aircraft,” J.A. at 157, “physical damage” is expressly
defined as “direct and accidental physical loss of or damage to the aircraft,” J.A. at 161 (emphasis
added). Stated another way, the express purpose of Coverage F of the Policy is to indemnify against
accidental damage to the Aircraft.
       Where an insurance policy employs broad coverage language, California law demands that
the exclusionary language be exacting.
         [A]n insurer cannot escape its basic duty to insure by means of an exclusionary
         clause that is unclear. As we have declared time and again[,] any exception to the
         performance of the basic underlying obligation must be so stated as clearly to apprise
         the insured of its effect. Thus, the burden rests upon the insurer to phrase exceptions
         and exclusions in clear and unmistakable language. The exclusionary clause must
         be conspicuous, plain and clear. This rule applies with particular force when the
         coverage portion of the insurance policy would lead an insured to reasonably expect
         coverage for the claim purportedly excluded.



         4
           The Definitions section of the Policy makes clear that special meaning attaches to terms in the Policy that
appear in bold typeface.
No. 04-1184           Meridian Leasing, Inc. v. Associated Aviation Underwriters               Page 8


MacKinnon v. Truck Ins. Exch., 31 Cal. 4th 635, 648, 73 P.3d 1205, 1213 (2003) (internal citations
and quotation marks omitted). Thus, in E.M.M.I., the California Supreme Court took particular note
of the fact that under a jeweler’s block insurance policy, “all risks of loss or damage to jewelry may
be insured, subject to certain exceptions.” E.M.M.I., 32 Cal. 4th at 469–70, 84 P.3d 385, 388–89.
        The jeweler’s block insurance policy in E.M.M.I., we think, is closely analogous to the all-
risk insurance policy here. Both policies broadly purport to cover all risks of loss not expressly
excluded. It is therefore of critical importance that AAU express its exclusions with a clarity that
will leave no doubt in the mind of the insured as to the types of occurrences that are not afforded
coverage. But where, as here, a policy broadly purports to indemnify against accidental damage to
an aircraft, excluding damage caused by wear and tear, and gives no indication that wear and tear
carries a specialized meaning that encompasses the type of unusual incident that occurred here, we
think that California law requires a construction consistent with the reasonable expectations of the
insured. See Safeco, 26 Cal. 4th at 763, 28 P.3d at 849. To this end, we do not believe that Meridian
reasonably would have expected the wear and tear exclusion to preclude coverage for the damage
that occurred on August 10, 2001, particularly given the District Court’s finding that the damage did
not result from the “normal” or “ordinary” operation of the aircraft. Meridian Leasing II, 297 F.
Supp. at 982–83.
        Furthermore, AAU was on notice that its wear and tear exclusion was susceptible to an
interpretation requiring ordinary or normal operation of the engine. In Carlson Cos. v. Associated
Aviation Underwriters, No. 89-819, 1989 WL 124372 (Minn. Ct. App. Oct. 24, 1989), an unreported
case involving precisely the same Policy language under consideration here, the Minnesota Court
of Appeals found ambiguity in the term “wear and tear” and interpreted the term in accordance with
its common usage. Although that decision is nonprecedential under Minnesota law, we nevertheless
find Carlson to be probative of the fact that AAU knew at the time of contracting with Meridian that
the limitation language of the Policy was ambiguous.
        AAU relies upon Arawak Aviation, Inc. v. Indemnity Insurance Co., 285 F.3d 954 (11th Cir.
2002), a case that involved an airplane engine on which the pilot neglected to secure the oil cap
properly before flight. The subsequent loss of oil caused excessive heat, which damaged the engine.
Like the instant case, Arawak involved a wear and tear provision that excluded from the scope of
coverage “damage caused by heat that results from the operation, attempted operation, or shutdown
of the engine.” Id. at 956. On appeal to the Eleventh Circuit, the insured argued that the words
“caused by” were ambiguous because they could be interpreted to admit of the possibility that the
pilot’s negligence was the efficient cause of the damage. In light of the possibility that the damage
was “caused by” the pilot’s negligence, the appellant argued, Florida law compelled the Eleventh
Circuit to construe the ambiguity in favor of the insured. The Eleventh Circuit acknowledged that
it must first determine whether the specific policy language was ambiguous before considering
whether Florida law permitted application of the efficient-cause doctrine. Id. The court found no
ambiguity, however, because application of the efficient-cause doctrine to the policy would create
a perverse incentive for policyholders to forgo proper maintenance of their aircraft in order to ensure
maximum insurance coverage. Id. In the face of such a result, the court concluded that the only
reasonable interpretation of the exclusionary language was a narrow reading.
       The Arawak case is distinguishable in several important respects. Looking beyond the
simple fact that Arawak involved Florida law, rather than California law, the Arawak court was
concerned with whether the insured’s reading of “caused by” yielded an interpretation to which the
contract was susceptible. Unlike the instant case, the insured in Arawak never argued that the
damage sustained was not wear and tear. Instead, the insured argued that the damage to the engine
was not “caused by” heat, but rather, by the pilot’s negligence. Thus, Arawak was not, as here, a
dispute over the proper characterization of damage under the terms of an insurance policy.
No. 04-1184           Meridian Leasing, Inc. v. Associated Aviation Underwriters                 Page 9


        Even if the Eleventh Circuit had reached the question whether “wear and tear” was
ambiguous, we think it would have encountered a materially distinct set of circumstances. In
Arawak, the insurance policy contained two relevant exclusionary clauses. The first clause stated,
in relevant part, the following: “Wear and tear. We will not cover wear and tear or depreciation.”
Id. at 956. The second clause went on to state, in relevant part, as follows: “Wear and tear to
engines. We will not cover the following types of damage to your aircraft’s engines or auxiliary
power units: damage caused by heat that results from the operation, attempted operation, or
shutdown of the engine.” Id. The second exclusionary clause stands on its own. A court need only
determine that damage was caused by heat to find that coverage was properly denied. By contrast,
the Policy in the instant case casts the heat limitation as a subset of wear and tear when it states that
“damage caused by heat which results from the operation, attempted operation or shutdown of the
engine shall be considered to be ‘wear and tear.’” J.A. at 160. In this manner, AAU’s Policy shifts
the inquiry back to the exclusion for wear and tear. As we have already noted, the Policy does not
indicate with a sufficient degree of precision that the term “wear and tear” is meant to carry a
specialized meaning. We therefore find that the Arawak policy’s use of self-contained, independent
exclusionary clauses achieves a degree of precision lacking in the instant case.
                                                  III.
         Accordingly, we find a lack of evidence that the parties intended “wear and tear” to carry
a specialized meaning, coupled with significant circumstantial evidence tending to show that the
parties never intended the wear and tear provisions of the Policy to exclude coverage for the type
of event that occurred on August 10, 2001. Under the circumstances of this case, we hold that the
District Court did not err in finding the language of the Policy to be ambiguous with respect to the
scope of coverage afforded and construing the ambiguity in favor of the objectively reasonable
expectations of Meridian. The interpretation advocated by AAU stretches “wear and tear” beyond
any semblance of its ordinary meaning and is at odds with the requirement that exclusions must be
interpreted narrowly. Such a broad interpretation would overlook evidence that the parties never
intended to give “wear and tear” a special meaning and would be contrary to the traditional purpose
of all-risk insurance. By interpreting the limitation so as to require “ordinary” or “normal” operation
or attempted operation of the engine, the District Court followed established precedent in
interpreting wear and tear exclusions. See Cyclops Corp., 352 F. Supp. at 936.
       Our holding is also in keeping with the requirement of California law that we interpret the
Policy as a whole, giving effect to every part of the contract. Cal. Civ. Code § 1641. We do not
believe that requiring the wear and tear to result from the ordinary and normal operation of the
engine renders the heat limitation superfluous. An interpretation requiring ordinary and normal
engine operation leaves intact the heat limitation because the Policy’s limiting language captures
damage from heat generated through normal operation of the engine, which one might not ordinarily
consider to be wear and tear.
       For the foregoing reasons, the District Court’s finding of ambiguity in the terms of the Policy
and resolution of that ambiguity by requiring wear and tear to result from the ordinary and normal
operation of an aircraft engine is hereby AFFIRMED.
