The Pep Boys v. Old Republic Ins. Co.
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This is a coverage dispute between Pep Boys and their insurers, Old Republic Insurance, Executive Risk Indemnity, and Fireman’s Fund Insurance, over the interpretation of their insurance policies' annual aggregate limits. The policies were for terms longer than 12 months. The core issue was whether the policies contained two separate annual periods for the purposes of the annual aggregate limits of liability.
The Court of Appeal of the State of California, First Appellate District, Division Four, held that for Old Republic and Fireman’s Fund's policies, which had similar language, the phrase "each annual period" within the policy term created two separate aggregate limits of liability, one for the first 12 months and another for the remaining period. The court reasoned that both the language of the policies and the parties' reasonable expectations supported this interpretation. The court noted that the policies' language could not be applied literally because it would either dilute the benefits or create a gap in coverage, neither of which were the insured's intention when extending the policies.
However, the court agreed with the trial court that the American Excess policy, which had different language, had only one period for the purpose of that policy’s annual aggregate limits. The court noted that American Excess's policy unambiguously set its limits for the entire duration of the policy, not based on annual periods within the policy term.
In conclusion, the court reversed the trial court's judgment in part, ruling in favor of Pep Boys for Old Republic and Fireman’s Fund's policies, and in favor of American Excess regarding its policy.
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