Wednesday, May 27, 2020
Court of Appeal
Majority Says Exclusions in Fire Policy Don’t Apply Unless Property Owner Knows That Lessees Are Conducting Operations That Increase the Prospect of Hazard Occurring; Dissenter Says Issue, Not Raised Below, Is Forfeited
By a MetNews Staff Writer
Div. Two of the Fourth District Court of Appeal yesterday reversed a summary judgment in favor of an insurer because it failed to show that its insureds under a fire policy knew or should have known their his tenants were growing marijuana on their premises and had illegally rigged wiring which sapped power from a utility line—with a dissenting justice balking that the issue had not been raised by the policyholders.
Justice Carol D. Codrington wrote the majority opinion, in which Acting Presiding Justice Art W. McKinster joined. Justice Frank J. Menetrez wrote the dissent, in which he accused the majority of deviating from appropriate appellate decisionmaking.
The plaintiffs/appellants were James and Maria Mosley. Their policy was with Pacific Specialty Insurance Company (“PSIC”) which denied coverage in light of this exclusion:
“We do not insure for loss resulting from any manufacturing, production or operation, engaged in:
“1. The growing of plants; or
“2. The manufacture, production, operation or processing of chemical, biological, animal or plant materials.”
The majority agreed with PSIC that the marijuana growing operation came under that exclusion and that the fire had a “minimal causal connection” with that venture because it required extra power, and the fire stemmed from the wiring rigged by the tenants.
The Mosleys argued that the plant-growing proviso was void because it was too far of a deviation from the form fire insurance policy set forth in Insurance Code §2070—which mandates that actual policies provide coverage that is “substantially equivalent.” They also contended that the exclusion in §2070 for a “hazard is increased by any means within the control or knowledge of the insured” does not apply because it is not contained in the actual policy they held.
The plant-growing exclusion is valid, Codrington declared, and the increased-hazard provision is incorporated in the policy. However, she said:
“Because there is no evidence the Mosleys were aware of their tenant’s marijuana growing operation, and because the record is silent as to what the Mosleys could or should have done to discover it, we reverse the judgment.”
The judgment was reversed only as to the first cause of action, for breach of contract; but summary adjudication was affirmed as to the second cause of action, for breach of the implied covenant of good faith and fair dealing.
No Binding Authority
Codrington wrote that “PSIC does not cite, and we have not located, any binding California authority interpreting what constitutes a ‘hazard...increased by any means within the control...of the insured’ under section 2071” and proceeded to examine decisions from other states with similar provisions and an Eighth U.S. Circuit Court of Appeals opinion, concluding:
“We interpret these authorities to stand for the proposition that an insured increases a hazard ‘within its control’ only if the insured is aware of the hazard or reasonably could have discovered it through exercising ordinary care or diligence. PSIC does not cite, and we cannot locate, any authority that suggests a landlord-insured is strictly liable for a hazard created by the insured’s tenant even if the insured is unaware of the hazard.
“It is undisputed the Mosleys did not know about Lopez’s marijuana growing operation or his altering the property’s electrical system. There is likewise no evidence as to whether the Mosleys could have discovered Lopez’s marijuana growing operation ‘by exercising ordinary care or diligence.’ On this record, we believe whether Lopez’s conduct was ‘within the control’ of the Mosleys is a fact issue for the jury to decide because the record is silent as to what, if anything, the Mosleys reasonably could have done to prevent or discover Lopez’s marijuana growing operation.”
Menetrez protested in his dissent that the Mosleys did not argue in the trial court that the increased-hazard provision in §2070 did not spare the insurer of liability unless it could show both that it knew of the tenants’ activities and could have abated them. He asserted:
“The majority opinion works two significant changes in California law, one procedural and one substantive. First, the opinion reverses summary judgment on the basis of an argument that was not raised in the trial court. The opinion reasons that the argument was not forfeited because an appellant can always challenge summary judgment on the ground that the moving party did not carry its initial burden—the appellant need not have presented that argument to the trial court in order to preserve it for appeal. That is a new rule of California appellate procedure.
“Second, the majority opinion alters the coverage of every fire insurance policy in California. It does so by interpreting the word ‘or,’ in a coverage exclusion, to mean ‘and.’ The opinion recognizes that there is no authority in California law for such an interpretation….The opinion consequently bases its interpretation on various out-of-state authorities, primarily federal and Minnesota case law from the 1930s. Moreover, the majority opinion does this without the benefit of briefing by the parties. No party to this appeal has ever advocated the interpretation adopted by the majority opinion, and no party has ever briefed the interpretation’s merits, pro or con.”
Menetrez opined that the “properly preserved arguments raised by the Mosleys on appeal are meritless”—terming them, in a footnote, “frivolous.”
The case is Mosley v. Pacific Specialty Insurance Company, 2020 S.O.S. 2276
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