Daily Development for Wednesday, October 12, 2005
by: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri

INSURANCE; DEFINITIONS; “PERSON:” In insurance policy providing coverage for wrongful eviction, a “person” wrongfully evicted must be a human being, and not a business.

 Mirpad v. California Insurance Guarantee Assoc.,   34 Cal. Rptr. 3d 136 (Cal. App. 9/19/05)

Mirpad was the owner of commercial property, and paid for a liability policy related to that ownership issued by a predecessor of CIGA. 

Mirpad’s managing agent evicted an existing tenant on the premises and the tenant and one of its principles sued Mirpad for wrongful termination and eviction.  Mirpad tendered defense of the lawsuit to its insurer, which denied coverage.  Mirpad then defended the suit at a cost of in excess of $500,000 and sued the successor insurer for damages.

There was no question in the case that if the policy covered the alleged injury, there was a duty to defend.  The case law clearly established such a duty except where the existence of a duty depends upon an issue of law.  The question here, of course, was a legal one - whether the policy covers the claim at all.

The liability policy contained a provision for “personal Injury and Advertising Injury Liability.”  Pursuant to that coverage, the insurer promised to “pay those sums to which this insurance applies, that the insured becomes legally obligated to pay as damages because of personal injury.”  “Personal injury” was defined elsewhere in the policy to include “. . . injury other than bodily injury arising out of one or more of the following offenses: (1) false arrest, detention or imprisonment; (1) malicious prosecution; (3) wrongful eviction from, wrongful entry into, or invasion of the right of private occupancy of: (a) a room; (b) a dwelling; or ( c) premises; that a person occupies by or on behalf of its owner, landlord or lessor. . . “

The insurer took the position that coverage under the above language was available only when the alleged wrongful eviction was of a human being, and not a business entity.  As the alleged wrongful  eviction in this case was of a corporate entity, the insurer maintained, there was no coverage as a matter of law, and therefore no duty to defend.

The trial court, relying on the Webster’s Dictionary definition of “person,” disagreed, and found coverage based upon the notion that the word “person” as used in the policy included either a natural person or a corporate entity.  The court of appeals here reversed, finding that the term “person,” in the policy, as a matter of law, meant only a natural person, and not a business entity.. 

The court stated that it “must read the quoted term [“person”] not in isolation, but in the context of the entire policy.”  At another point it stated that its approach was consistent with the “principle that a court, in determining the plain meaning of a 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.” It noted that the policy consistently used the term to refer only to natural persons, while corporate and other business entities were referred to as “organizations.”  It commented that if it were to view “person” as to include “organizations,” then the policy’s use twenty times  of the phrase “person or organization” would be superfluous and the single reference to “organization” in twelve other places might be ambiguous.

The court further noted that the “wrongful eviction” language in the policy referred to places where people live.  The policy used the terms “room,” “dwelling,” or “premises.”  It stated that the word “premises” “is the more general of thee three terms, but, as noted, settled rules of contruction compel us to conclude that it is of the same class as the other two.”

Comment 1:   The case is most likely correct, although one certainly can quibble with elements of the analysis.  Is it really true, for instance, that an “organization” cannot occupy a “room?”  Does the term “room” exclusively connote a dwelling place?  If it does not, then the phrase “room, dwelling or premises” may have a different meaning than suggested.  Perhaps the use of the three terms was to identify that a single room in a multi-tenant building could be the subject of a wrongful eviction action, as could either a dwelling or some other premises other than a dwelling.  But the frequent use throughout the policy of “person or organization” also was convincing to the editor as it was to the court.  When the drafters of the policy provided coverage for the wrongful eviction of a person they probably had in mind a natural person, not a business entity. 

Comment 2: Of course, the ordinary rules of construction don’t govern insurance policies - the classic contracts of adhesion.  What the drafters intended in their back room at the home office is not necessarily controlling.   Nevertheless, these policy language must have  some standard meaning.  This case just means that clients have to pay their lawyers to read policy language carefully to be sure they’re getting the coverage they expect.   For lawyers, then, “it’s a good thing.”

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