Unpublished Disposition, 921 F.2d 281 (9th Cir. 1990)

MEMORANDUM^* 

United Pacific Insurance Company ("UPIC") appeals a jury verdict awarding Ted Will compensatory and punitive damages for UPIC's denial of a claim submitted by Will. UPIC contends that the district court erred in ruling that the Dry Chemical Fire Extinguishing Warranty contained in the policy was unenforceable. We reverse and remand.

While we review findings of fact under the "clearly erroneous" standard, we review the application of contract law principles to those facts de novo. L.K. Comstock & Co. v. United Eng'rs & Constructors, 880 F.2d 219, 221 (9th Cir. 1989). Further, the determination of whether contract language is ambiguous is a matter of law and thus reviewed de novo. Id. (quoting In re U.S. Fin. Sec. Litig., 729 F.2d 628, 632 (9th Cir. 1984)). Therefore, whether the dry chemical warranty is enforceable is a question of law subject to de novo review.

An examination of the dry chemical warranty reveals that it can be interpreted in two ways. One interpretation is that the insured must maintain the fire extinguishing system in complete working order at all times. Another interpretation is that the insured must use due diligence in maintaining the system. As a result, we find that the warranty was ambiguous.

Under California law, any ambiguity or uncertainty in an insurance provision is to be resolved against the insurer. Crane v. State Farm Fire & Cas. Co., 5 Cal. 3d 112, 115, 485 P.2d 1129, 95 Cal. Rptr. 513, 514 (1971). Construing the dry chemical warranty provision against UPIC, we conclude that the warranty requires the insured to use due diligence in maintaining the fire extinguishing system. The district court, however, ruled that the dry chemical warranty provision was completely unenforceable. The court reasoned that the warranty was not only ambiguous, but also unclear because it failed to define due diligence and was missing words.

Because the warranty was ambiguous, the district court should have construed the warranty as requiring due diligence. After making such a construction, we cannot conclude that the warranty is so incomprehensible as to be unenforceable. In fact, Will was aware of a requirement to service the system as evidenced by his contract with a servicing company. We therefore remand the case for a new trial for the fact finder to determine whether Will exercised due diligence in maintaining the system.

On remand, section 10.313 of the Uniform Fire Code, adopted by Ventura County prior to the fire and prior to the effective date of Will's policy, may be used as evidence to determine the meaning of "due diligence." Although this code section is not an implied in law provision of the insurance contract,¹  it may be considered by the jury in determining whether Will acted reasonably under the particular circumstances of this case. See Cal.Evid.Code Sec. 669 (West Supp.1990) (codifying common law rebuttable presumption of failure to exercise due care for violation of an ordinance).²  The decision of the district court is REVERSED AND REMANDED.