SAFECO INSURANCE COMPANY OF AMERICA, Plaintiff and Appellant, v. ROBERT S. et al., Defendants and Respondents, 26 Cal. 4th 758

Opinion KENNARD, J. When a homeowners policy expressly covers accidental bodily injury but excludes coverage for bodily injury arising out of an “illegal act,” is the insurer obligated to defend and indemnify its insureds in a wrongful death action brought against them after their teenage son accidentally shot and killed his friend? We conclude that, in the context of the policy as a whole, the insurer does have such an obligation. I On March 10, 1995, 16-year-old Kelly S. and some of his friends were at Kelly’s home when Kelly found a .22-caliber Beretta handgun in his mother’s coat pocket.

Kelly’s father had taught him how to handle a 9-millimeter Beretta. Taking the same precautions he would have taken to unload a 9-millimeter Beretta, Kelly removed the clip from the handle of the .22-caliber Beretta, placed the clip on a table, and pulled back the slide on the gun. Believing the gun to be unloaded, Kelly pulled the trigger. The gun fired, killing his friend, Christopher Mitchell. A petition alleging Kelly’s commission of involuntary manslaughter, a felony (Pen. Code, § 192, subd. (b)), was filed in juvenile court (Welf. & Inst. Code, § 602).

The court sustained the petition, made Kelly a ward of the court, and placed him on probation. Timothy and Christy Mitchell, the parents of Christopher, brought a wrongful death action against Kelly and his parents, who tendered defense of the action to Safeco Insurance Company of America (Safeco) under their homeowners insurance policy. Safeco undertook the defense under a reservation of rights.

Safeco then brought this action in superior court seeking a declaration that it had no duty to defend or indemnify its insureds because the policy excluded coverage for an “illegal act.” Named as defendants were the insureds and the Mitchells. Safeco unsuccessfully moved for

summary judgment, contending that the accidental killing of Christopher fell within the policy exclusion for an “illegal act.” Thereafter Christy Mitchell, joined by the insureds, moved for

summary judgment contending that Safeco as a matter of law had a duty to defend and indemnify. The trial court granted the motion, ruling that the policy’s “illegal act” exclusion could reasonably be interpreted as excluding coverage only for an intentional illegal act. The court found it was “undisputed that Kelly S[.] did not intend to cause harm to Mitchell’s son [and] that [Kelly] did not intend to commit an unlawful or ‘illegal’ act.” Accordingly, the court ruled that the Mitchells’ wrongful death claim was potentially covered by the insureds’ policy, giving rise to Safeco’s duty to defend. Safeco appealed.

The Court of Appeal reversed the trial court’s judgment. Relying on a dictionary definition of “illegal” as meaning “not according to or authorized by law; unlawful,” the Court of Appeal concluded that the illegal act exclusion in the policy precluded coverage for any act in violation of civil or criminal law, whether or not the person committing the act intended to cause harm or to violate the law, but that it did not exclude coverage for ordinary civil negligence. Applying this understanding of the scope of the policy’s illegal act exclusion, the court held that the policy did not provide coverage for

an act causing death that resulted in a juvenile court adjudication of involuntary manslaughter. We granted the separate petitions for review filed by the insureds and Christy Mitchell. II The homeowners policy at issue here covered the period June 30, 1994, through June 30, 1995. The accidental shooting occurred in March 1995. Under the terms of the policy, Kelly and his parents are insureds.

Relevant here are these policy provisions: Safeco agreed to defend and indemnify the insureds in the event of claims brought against any insured for bodily injury caused by “an occurrence,” which the policy defined as an accident resulting in bodily injury during the policy period. Excluded from coverage was liability for bodily injury “arising out of any illegal act committed by or at the direction of an insured.” (Italics added.) The policy did not define the term “illegal act.” We now turn to the task of stating the controlling principles of insurance contract

interpretation and applying them to the policy here. III Insurance policies are contracts and therefore subject to the rules of construction governing contracts. (Bank of the West v. Superior Court (1992) 2 Cal.4th 1254, 1264 [10 Cal.Rptr.2d 538, 833 P.2d 545].) The goal of contractual

interpretation is to determine and give effect to the mutual intention of the parties. (Civ. Code, § 1636; Bay Cities Paving & Grading, Inc. v. Lawyers’ Mutual Ins. Co. (1993) 5 Cal.4th 854, 867 [21 Cal.Rptr.2d 691, 855 P.2d 1263].) A policy provision is ambiguous when it can have two or more reasonable constructions. (Waller v. Truck Ins.

Exchange, Inc. (1995) 11 Cal.4th 1, 18 [44 Cal.Rptr.2d 370, 900 P.2d 619].) An ambiguity “‘is resolved by interpreting the ambiguous provisions in the sense the promisor (i.e., the insurer) believed the promisee understood them at the time of formation. [Citation.] If application of this rule does not eliminate the ambiguity, ambiguous language is construed against the party who caused the uncertainty" to exist. [Citation.]’ [Citation.] ‘This rule, as applied to a promise of coverage in an insurance policy, protects not the subjective beliefs of the insurer but, rather, “the objectively reasonable expectations of the insured.” ’ ” (Montrose Chemical Corp. v.

Admiral Ins. Co. (1995) 10 Cal.4th 645, 667 [42 Cal.Rptr.2d 324, 913 P.2d 878].) “Any ambiguous terms are resolved in the insureds’ favor, consistent with the insureds’ reasonable expectations.” (Kazi v. State Farm Fire & Casualty Co. (2001) 24 Cal.4th 871, 879 [103 Cal.Rptr.2d 1, 15 P.3d 223].) The homeowners policy here excluded coverage “arising out of any illegal act committed by or at the direction of an insured.” (Italics added.) The phrase “illegal act” is susceptible of two reasonable meanings.

As mentioned earlier, the Court of Appeal, relying on a dictionary definition, construed the term broadly, as meaning any act prohibited by law. But the term can also be interpreted more narrowly as meaning a violation of criminal law. This is the construction Safeco urges us to adopt.

Certain thesauruses do treat the term “illegal” as synonymous with “criminal.” (See, e.g., Burton, Legal Thesaurus (1980) p. 257 [stating that “against the law” and “criminal” are synonyms of “illegal”]; Webster’s Collegiate Thesaurus (1976) p. 414 [stating that “criminal” is a synonym of “illegal”].) If we were to adopt this meaning in the context of the policy here, we would have to treat the policy’s clause excluding coverage for an “illegal act” as the equivalent of a clause excluding coverage for a “criminal act.” The policy before us, however, contains not a criminal act exclusion but an illegal act exclusion.

Had Safeco wanted to exclude criminal acts from coverage, it could have easily done so. Insurers commonly insert an exclusion for criminal acts in their liability policies. (Croskey & Kaufman, Cal. Practice Guide: Insurance Litigation (The Rutter Group 2000) ¶¶ 7:331.5, 7:2256, pp. 7A-86, 7I-23 (rev. #1, 2000).) Because Safeco chose not to have a criminal act exclusion, instead opting for an illegal act exclusion, we cannot read into the policy what Safeco has omitted.

To do so would violate the fundamental principle that in interpreting contracts, including insurance contracts, courts are not to insert what has been omitted. (Code Civ. Proc., § 1858; Jensen v. Traders & General Ins. Co. (1959) 52 Cal.2d 786, 790 [345 P.2d 1]; Jacobson v.

Simmons Real Estate (1994) 23 Cal.App.4th 1285, 1294 [28 Cal.Rptr.2d 699].) We now consider the Court of Appeal’s construction of the term “illegal” as meaning violation of any law, whether civil or criminal. (See, e.g., Webster’s 9th New Collegiate Dict. (1989) p. 599 [“not according to or authorized by law; unlawful”]; Webster’s New World Dict. (2d college ed. 1982) p. 699 [“prohibited by law; against the law; unlawful; illicit; also, not authorized or sanctioned, as by rules”]; Black’s Law Dict. (5th ed. 1979) p. 673, col. 2 [“against or not authorized by law”]; see Evid.

Code, § 160 [“ ‘Law’ includes constitutional, statutory, and decisional law”].) That construction, however, is so broad as to render the policy’s liability coverage practically meaningless. For instance, a violation of “any law” would include the law governing negligence, which holds individuals responsible for the failure to exercise ordinary care resulting in injury to another. (Civ. Code, § 1714 [“Every one is responsible ... for an injury occasioned to another by his want of ordinary care or skill . . . .”].) The duty to exercise ordinary care is imposed by law. (See Sharon P. v.

Arman, Ltd. (1999) 21 Cal.4th 1181, 1188-1889 [91 Cal.Rptr.2d 35, 989 P.2d 121].) A violation of that duty is therefore a violation of law. Broadly construed, a violation of any law, whether civil or criminal, is an illegal act. An insured’s negligent act, being a violation of law and therefore an illegal act, would thus not be covered under Safeco’s policy excluding coverage for an insured’s illegal acts.

But the homeowners policy that the insureds here bought from Safeco expressly provided that Safeco would defend and indemnify them for bodily injury caused by “an occurrence,” which the policy defines as “an accident . . . which results, during the policy period, in bodily injury or property damage.” Because the term “accident” is more comprehensive than the term “negligence” and thus includes negligence (Black’s Law Dict., supra, at p. 14, col. 2), Safeco’s homeowners policy promised coverage for liability resulting from the insured’s negligent acts.

That promise would be rendered illusory if, as discussed above, we were to construe the phrase “illegal act,” as contained in the policy’s exclusionary clause, to mean violation of any law, whether criminal or civil. When reasonably practical, contracts are to be interpreted in a manner that makes them reasonable and capable of being carried into effect, and that is consistent with the parties’ intent. (Civ. Code, § 1643; see Palmer v. Truck Ins.

Exchange (1999) 21 Cal.4th 1109, 1115 [90 Cal.Rptr.2d 647, 988 P.2d 568].) The Court of Appeal attempted to give the policy a practical and workable construction by drawing a distinction between negligence involving the failure to exercise ordinary care, which the court viewed as falling outside the illegal act exclusion, and gross negligence involving a punishable public offense, which the court considered to be within the policy’s exclusion.

After stating that the exclusion was not limited to liability arising out of a criminal conviction or criminal act, the Court of Appeal stated that “while the failure to exercise ordinary care may result in the imposition of an obligation to provide compensation for any loss caused by one’s negligence, such failure to exercise ordinary care is not ‘illegal.’ ” It then concluded that the “specific act at issue in the present case, involuntary manslaughter, falls into an entirely different category, involving as it did gross negligence and the commission of a punishable, public offense.” We disagree with that analysis.

It is not clear how the Court of Appeal defined the word “illegal” as it is used in the exclusionary clause. If the Court of Appeal construed the exclusionary clause as excluding every offense, that is, every crime, it defines the word “illegal” as meaning “criminal.” As we have seen, that definition is inappropriate here because it rewrites the policy by inserting what has been omitted. Drawing a distinction, as the Court of Appeal did, between negligent acts and grossly negligent acts exceeds the bounds of construction by rewriting the policy.

The word “illegal” is not a synonym for “gross negligence.” As we noted earlier, “ambiguous terms are resolved in the insureds’ favor, consistent with the insureds’ reasonable expectations.” (Kazi v. State Farm Fire & Casualty Co., supra, 24 Cal.4th at p. 879.) An insured should not be expected to know the subtle legal distinctions between the concepts of ordinary negligence and gross negligence. Such distinctions are not objectively within the reasonable expectations of the insured.

Also, to draw a distinction between negligent and grossly negligent acts, as the Court of Appeal did, would be at odds with Insurance Code

section 533. Under that provision, an “insurer is not liable for a loss caused by the wilful act of the insured; but he is not exonerated by the negligence of the insured . . . .” (Ibid., italics added.) The statute does not distinguish between ordinary and gross negligence. Therefore, an insurer intending to exclude from a homeowner’s policy coverage for gross negligence would have to say so in express terms, instead of, as here, using the ambiguous phrase “illegal act.” The “ ‘burden rests upon the insurer to phrase exceptions and exclusions in clear and unmistakable language.’ ” (State Farm Mut. Auto. Ins.

Co. v. Jacober (1973) 10 Cal.3d 193, 202 [110 Cal.Rptr. 1, 514 P.2d 953].) Safeco would have us give effect to the policy’s illegal act exclusion in this case, despite the absence of any satisfactory definition of the word “illegal,” because any insured would reasonably expect that an accidentally caused death resulting in a conviction for involuntary manslaughter would fall within the policy’s “illegal act” exclusion. Safeco’s view leaves the exclusionary clause without meaning until after an event has occurred.

This violates the rule that expectations of the insured are examined at the time the contract is made. (Civ. Code, §§ 1636, 1649; Montrose Chemical Corp. v. Admiral Ins. Co., supra, 10 Cal.4th at p. 666.) Moreover, an insured’s objectively reasonable expectations are measured not by an insured’s knowledge of the nuances of criminal law, but by what an insured would expect to be covered by the policy. The proper inquiry is: Would reasonable insureds expect their homeowners policy to protect them against liability for accidental injury or death occurring in their home? The answer is yes.

In short, because the illegal act exclusion cannot reasonably be given meaning under established rules of construction of a contract, it must be rejected as invalid. (Civ. Code, § 1653.) Finally, we reject Safeco’s contention that Civil Code

section 1668 relieves it of any duty to indemnify the insureds for liability resulting from Kelly’s accidental killing of Christopher Mitchell.

Section 1668 provides: “All contracts which have for their object, directly or indirectly, to exempt anyone from responsibility for his own fraud, or willful injury to the person or property of another, or violation of law, whether willful or negligent, are against the policy of the law.”

Section 1668 applies to contractual exemptions from liability, not to indemnity contracts. (State Farm Fire & Casualty Co. v. Eddy (1990) 218 Cal.App.3d 958, 967 [267 Cal.Rptr. 379]; Lemat Corp. v. American Basketball Assn. (1975) 51 Cal.App.3d 267, 278-279 [124 Cal.Rptr. 388].) An insurance policy is an indemnity contract. (Ins. Code, § 22.) Thus,

section 1668 simply does not apply here. For the reasons given above, we conclude that the Mitchells’ wrongful death action is within the liability coverage of the homeowners policy at issue here. Disposition The judgment of the Court of Appeal is reversed with directions to enter judgment affirming the judgment of the trial court. George, C. J., Werdegar, J., and Chin, J., concurred. The concurring and dissenting opinion is mistaken in its reliance on 20th Century Ins. Co. v.

Stewart (1998) 63 Cal.App.4th 1333 [74 Cal.Rptr.2d 492]. (Conc. & dis. opn. of Baxter, J., post, at pp. 768-769.) That case involved a criminal act exclusion (63 Cal.App.4th at p. 1336), a policy provision that is not before us in this case. In addition, the death in 20th Century occurred after the insured placed one bullet in a revolver and pulled the trigger three times. The third time the insured pulled the trigger he was pointing the gun at the victim; it fired and killed the victim.

The Court of Appeal, after noting that the case did not involve negligence, mistake, or inadvertence, concluded that the insured’s conduct “could be considered to have been committed with implied malice and therefore have constituted second degree murder.” (Id. at p. 1339.) Here, there is no evidence that Kelly S. acted with implied malice when, after taking steps that he believed would unload the gun, he accidentally shot and killed Christopher Mitchell.

The concurring and dissenting opinion discusses at length the effect of the “Severability of Insurance” clause in the policy on the illegal act exclusionary clause. (Conc. & dis. opn. of Baxter, J., post, at pp. 772-777.) It acknowledges, however, that there is a significant division of authority among the courts that have addressed this question. (Id. at pp. 772-775 & fn. 3.) Our conclusion makes it unnecessary to address this additional issue, a matter that plaintiffs did not raise or address in their briefs to this court and that Safeco only alluded to in its answering brief and discussed in abbreviated form in its response to one of the amicus curiae briefs.