The test of admissibility of extrinsic evidence to explain the meaning of a written instrument is not whether it appears to the court to be plain and unambiguous on its face, but whether the offered evidence is relevant to prove a meaning to which the language of the instrument is reasonably susceptible.

69 Cal.2d at 37.

The district court struggled to reconcile the parol evidence rule as set forth by Justice Traynor, with the rules of interpretation for insurance contracts. The California Supreme Court recently restated the principles of insurance policy interpretation including the importance of mutual intent. The Court held that an interpreter must look to the mutual intent of the parties at the time the contract was formed as expressed in the "clear and explicit" meaning of the written provisions of the contract. AIU Ins. Co. v. FMC Corp., 51 Cal.3d 807, 822-3, 274 Cal.Rptr. 821, 831 (1990). Terms must be interpreted in their " 'ordinary and popular sense' unless used by the parties in a technical sense or a special meaning is given to them by usage." Id. Ambiguities are to be resolved in favor of the insured's understanding at the time the contract was entered. Id. Remaining ambiguities are resolved against the party who caused them, normally the insurer, as the insurer normally drafts the standardized contract form. Id. See e.g., Garcia v. Truck Ins. Exchange, 36 Cal.3d 426, 438, 204 Cal.Rptr. 435 (1984).3 Under California law, therefore, insurance contracts must be interpreted to give terms their ordinary and clear meaning, unless the parties gave them a special meaning. Plaintiffs' contention that the admission of parol evidence to construe the written terms of a standard form insurance contract conflicts with well settled rules of insurance contract construction is not well taken.

Interpreting the INA Bond according to the above stated rules, the term "employee" must be given its "clear and explicit" meaning interpreted in the "ordinary and popular" sense, unless the parties mutually intended it to have a "special meaning." INA offered to prove that UHIC and INA mutually intended that the term "employee" in the broker's blanket bond did not include registered representatives such as Mulhern. The district court permitted INA to introduce parol evidence to prove this special meaning of the term "employee." The district court appropriately was concerned that excluding evidence of the meaning the parties attributed to the word "employee," "merely because the words do not appear ambiguous to the reader could easily lead to the attribution to a written instrument of a meaning that was never intended." P.G. & E., 69 Cal.2d at 40. Admission of this evidence was not error. INA offered to prove that the parties did not intend that registered representatives be covered as "employees" under the broker's blanket bond by providing evidence of industry practice, testimony of UHIC principals, and from UHIC's applications for broker's bonds submitted over the course of several years. This proof of mutual intent was properly admitted. The testimony did not violate the rules of insurance contract interpretation, particularly since the reasonable expectation of the insured, according to the proposed testimony, was that registered representatives were not covered under the bond.

B. SUFFICIENCY OF THE EVIDENCE OF MUTUAL INTENT

Appellants further contend that the evidence of a special meaning of the employees covered was insufficient because there was no proof of INA's intention and INA failed to provide contract language or a written instrument reflecting the parties' mutual intent that registered representatives would not be covered. The latter allegation has been addressed in the preceding section. The sufficiency of the evidence proving the parties' mutual agreement that registered representatives would not be covered is demonstrated from the record.

INA proved that UHIC, through knowledge conveyed to it by its insurance agent Milton Buell, agreed and understood that registered representatives were not covered under the INA bond. Buell testified that he concluded that registered representatives were not covered under a Form 14 bond based upon his conversations with underwriters, including those of INA (R.T. 545:10-16).

Appellants contend that Buell's view was irrelevant because it was simply one layperson's interpretation of the bond as applied to the circumstances here. However, several UHIC managers, except owner John Kirk, Sr., testified that UHIC did not intend that its registered representatives would be covered by the broker's blanket bond. The UHIC officers who testified to their belief that UHIC's registered representatives were not covered under the broker's blanket bond included Russell P. Sanders, Compliance Officer for UHIC from 1973 to 1978, (R.T. 691:16-19; 694:3-14; 697:16-18) and David C. Ruth, Executive Vice-President of UHIC from January 1978 to January 1981, with responsibility for compliance and the procurement of insurance (R.T. 564:9-17; 565:9-10; 566:6-10). It was within the province of the jury to find this testimony convincing and reject that of owner Kirk.

The jury also heard testimony from Charles Frey, an underwriter with Fireman's Fund, that UHIC had previously obtained a position schedule bond from Fireman's Fund covering UHIC's registered representatives, but that this coverage was dropped effective January 31, 1977, and only the Form 14 Broker's Bond was continued. Each of the bond applications prepared by UHIC for Fireman's Fund required a list of employees, persons or positions covered. The position schedule bond listed all of UHIC's registered representatives by name, and Frey testified that a copy of each person's NASD application and a credit report were obtained to assist the underwriters in evaluating the risks. Buell echoed Frey's testimony by testifying that UHIC had previously obtained a position schedule bond covering registered representatives and that UHIC dropped that bond without continuing coverage naming its registered representatives.

Finally, INA demonstrated that the Form 14 bond renewal applications which UHIC completed prior to obtaining the INA bond at issue here required UHIC to specify the employees to be covered.4 The list of employees submitted with the INA application included officers, managers, and clerical staff of UHIC. It did not include registered representatives and did not list Mulhern individually. Trial Exhibits 1020, 1024 and 1027. The list only contained the names of UHIC's approximately 20 officers, managers and clerical employees. Id. By contrast, the number of registered representatives ranged up to 200 and would have involved substantially increased coverage.

Buell's testimony that he obtained an understanding from numerous underwriters, including underwriters of INA, that registered representatives were not covered by the Form 14 Broker's Bond thus did not stand alone. Further, there was no evidence that his understanding was incorrect. Buell's testimony was probative not only of UHIC's intent but also of custom and usage among fidelity bond underwriters that registered representatives were not routinely covered by the Form 14 Broker's Bond. Moreover, Buell's role as insurance agent to UHIC makes him a direct witness in this case to UHIC's understanding, not simply an expert on fidelity bonds. The jury could conclude from all of this testimony that by UHIC's own practice and understanding, as well as by industry practice, registered representatives were not covered by a broker's bond but only by a position schedule bond.

Although the evidence of UHIC's intent was more extensive, there was also sufficient evidence before the jury of INA's intent. The jury could infer INA's intent from industry custom and from Buell's testimony that his understanding of industry custom was based on discussions with INA underwriters among others. Further evidence of INA's intent could be deduced from the application section of the fidelity bond, which identified no registered representatives as covered employees. Finally, subsequent to UHIC obtaining the Form 14 broker's blanket bond from INA at issue here, INA provided a premium quote to UHIC for a position schedule bond. If INA had understood its Form 14 bond to cover registered representatives, this quote would have been unnecessary. Subsequent act evidence is admissible to show an earlier intent. See United States v. Ayers, 924 F.2d 1468, 1472 (9th Cir.1991); Eaves v. Penn, 587 F.2d 453 (10th Cir.1978).

In short, the evidence was sufficient for a reasonable jury to conclude that INA and UHIC mutually intended that registered representatives would not be covered under the INA bond. For the same reasons, it was not error to refuse UHIC's motion for a directed verdict on the ground that INA failed to prove a mutual intent of the parties.

Appellants also challenge the court's jury instructions regarding Buell's agency. Their argument pertains to the jury's potential use of Buell's testimony to conclude that the registered representatives were independent contractors rather than employees. However, at the beginning of Buell's testimony, the trial court gave the jury a detailed limiting instruction. He instructed the jury that Buell's testimony only pertained to the issue of whether the parties mutually intended that registered representatives be covered by the Form 14 bond. Moreover, the jury determined that the registered representatives were employees and not independent contractors. Thus, assuming arguendo that the jury instructions on agency were erroneous, they do not appear to have prejudiced appellants in any way. The jury was instructed not to consider Buell's testimony as to the employee/independent contractor question, and the jury found for appellants on this issue in any event. The court, therefore, does not need to determine whether or not the particular instructions on agency were correct.

AFFIRMED.