The California Court of Appeal, Second Appellate District, affirmed a trial court's order sustaining an insurer's demurrer, without leave to amend, and dismissing an insured's proposed class action. The Court rejected the insured's contention that the insurer breached the policy by offsetting uninsured motorist payments due the insured with the amount the insurer paid the insured under the policy's medical expense coverage. The Court found no ambiguity in the policy, when read as a whole, despite the fact that it included an endorsement titled "MEDICAL EXPENSE – NO EXCESS, NO REIMBURSEMENT."
Plaintiff Lauren Hervey purchased an automobile insurance policy from Mercury Casualty Company. It included medical expense coverage, which was qualified by two different provisions in the policy. Part II of the policy included a condition that required the insured to reimburse Mercury for any medical expense coverage she received from Mercury to the extent she also received payment for some or all of these expenses from a third party (e.g. the individual responsible for her injuries). Part IV of the policy included a similar provision which allowed Mercury to offset valid and collectible medical expense coverage from any payments due to the insured under the policy's uninsured motorist coverage.
Hervey's policy also included a medical expense endorsement. The endorsement was titled "MEDICAL EXPENSE – NO EXCESS, NO REIMBURSEMENT." It deleted the condition from Part II, requiring reimbursement of payments the insured received from third parties. The endorsement also deleted an exclusion in Part II, which excluded coverage for expenses paid, payable or eligible for payment under the terms and conditions of other specified policies. Other than these two changes, the endorsement noted that the remaining terms and conditions of the policy "remain unchanged."
Hervey was injured in an automobile accident with an uninsured motorist. She made claims under the medical expense coverage which Mercury paid. She then made a claim for her injuries under the uninsured motorist coverage. Mercury settled this claim, but offset the uninsured motorist benefits with the amounts it paid Hervey under the medical expense coverage.
Hervey took exception to the offset and filed a class action complaint claiming breach of contract, declaratory relief and unfair competition (Bus. & Prof. Code, § 17200 et seq.) Mercury demurred and moved to strike. The court, taking judicial notice of Hervey's request for production and Mercury's response including the specimen policy and endorsement, sustained Mercury's demurrer without leave to amend. Hervey appealed.
Hervey contended the "NO REIMBURSEMENT" title in large print on the medical expense endorsement, along with the checked box for ""No Reimbursement" next to the medical expense coverage on the declaration page, conveyed that Mercury would not seek reimbursement or offsets of medical expense payments as the result of payments from any other source. She also argued Mercury's retention of its right to seek reimbursement for uninsured motorist coverage should be unenforceable because it was buried in the policy and therefore not conspicuous, plain and clear. Lastly, Hervey argued that the condition in Part II arguably allowed Mercury to obtain reimbursement from any source, and that removal of this condition in the endorsement therefore created an ambiguity Hervey argued she should have been permitted to introduce extrinsic (i.e. parol) evidence to interpret and resolve this ambiguity.
The Court of Appeal rejected these arguments. It concluded parol evidence is not admissible if it contradicts an express term of the policy. Additionally, if Hervey had actually relied on the evidence she sought to introduce – advertising copy, marketing brochures, etc – when she purchased the policy, she would either have alleged that fact or asserted she could amend to plead such reliance. She did neither; nor did she explain how she would or could amend her complaint.
The Court further concluded there was no ambiguity. The heading of the endorsement - "Medical Expense — No Excess, No Reimbursement" - accurately described the subject-matter of the endorsement and was not an operative term or provision itself. Moreover, the Declaration page did not purport to set forth or define the operative terms of the policy. Thus, any ambiguity in the Declaration was resolved by the terms of the policy. If Hervey's understanding was contrary to this explicit language, her subjective intent is irrelevant.
The rule requiring policy endorsements or other limitations to be "conspicuous, plain and clear" applied where the provisions reduce coverage. Here, the Endorsement added coverage. Moreover, the policy terms and the endorsement satisfied the "conspicuous, plain and clear" test in any event. The Endorsement clearly specified it deleted only the provisions dealing with third-party recoveries, and that all other terms and conditions of the policy remained unchanged. The condition Mercury relied on to offset its payments was included in a section of the policy that dealt exclusively with Uninsured Motorist Coverage. The conditions of this section were all in the same size and intensity typeset as the other operative terms of the policy. Nor was this a situation in which the provision would not reasonably be expected. An insured would not normally expect to receive from the same insurer two payments covering the same injury.
The Court therefore affirmed trial court's judgment, and awarded Mercury its costs on appeal.
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This opinion is not final. It may be modified on rehearing, or review may be granted by the California Supreme Court. These events would render the opinion unavailable for use as legal authority.
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