Opinion
B206519.
6-25-2009
MOUNT ZION BAPTIST CHURCH OF LOS ANGELES, Plaintiff and Appellant, v. STATE FARM GENERAL INSURANCE COMPANY, Defendant and Respondent.
Makarem & Associates, Ronald W. Makarem and Marni B. Folinsky for Plaintiff and Appellant. Robie & Matthai, James R. Robie and Kyle Kveton for Defendant and Respondent.
Not to be published in Official Reports
Appellant Mount Zion Baptist Church of Los Angeles ("Mount Zion" or the "church") had an insurance policy with respondent State Farm General Insurance Company ("State Farm"). When threatened with a third party real estate foreclosure lawsuit, Mount Zion unsuccessfully tendered defense of the case to State Farm. After settling multiple other lawsuits brought by the third party, Mount Zion sued State Farm for breach of contract and breach of the implied covenant of good faith and fair dealing. The trial court determined the issue of coverage based on stipulated facts and exhibits. The trial court concluded that State Farm did not owe Mount Zion a duty to defend against the third partys claims and, therefore, entered judgment in State Farms favor. Mount Zion appeals. Because we agree with the trial court that there was no potential for coverage under the policy, we affirm.
BACKGROUND
1. Mount Zions Insurance Policy with State Farm
At all relevant times, Mount Zion maintained a church liability insurance policy issued by State Farm. The applicable policy provision for purposes of this appeal is the "Option DO — Directors, Officers & Trustees Liability" provision.
Option DO provides in relevant part: "1. We will pay those sums that the insured becomes legally obligated to pay as damages because of `wrongful acts committed by an insured solely in the conduct of their management responsibilities for the church. [¶] 2. This optional coverage does not apply to: [¶] . . . h. damages other than money damages."
Although other exclusions to Option DO coverage may apply to the facts of this case, State Farm agreed that, for purposes of the trial courts determination of coverage, State Farm would rely only on exclusion 2h. State Farm also agreed it would not assert any issue regarding the timeliness of Mount Zions tender of defense to State Farm.
Option DO defines "insured" to include "directors, officers or trustees, collectively and individually, which form your administrative body provided that each individual: [¶] (1) is duly elected by the members of the church to serve on the managing body of that entity; and [¶] (2) acts within the scope of their duties on your behalf." The term "wrongful acts" is defined as "any negligent acts, errors, omissions or breach of duty directly related to the operations of your church." And the term "occurrence" is defined as "a `wrongful act, including any conduct related to any of these, during the policy period, which results in a claim made in writing or suit filed no later than one year from the end of the policy period."
2. Underlying Facts and Lawsuits
The following facts are taken from the parties joint stipulated facts and joint stipulated exhibits, which were filed with the trial court.
Mount Zion is a well known church in South Central Los Angeles that is dedicated to supporting minority-owned businesses. Rev. Hill was the Pastor and President of Mount Zion for over 40 years, until his death on February 24, 2003. Rev. Hill was a member of the board of trustees and an officer of Mount Zion at all times relevant to this case. Between 1998 and 2003, Letha Logan was Secretary and an officer of Mount Zion.
The parties stipulated facts do not indicate the length of Rev. Hills tenure as Pastor and President of Mount Zion. Mount Zion asserts in its briefs, however, that Rev. Hill was pastor for over 40 years. State Farm does not dispute the accuracy of that fact and it is supported elsewhere in the record.
Mount Zions by-laws and constitution were adopted in November 1958 and were in force at all times relevant to this case. The by-laws and constitution provide that the Mount Zion board of trustees shall hold in trust all property belonging to the church and shall take all necessary measures for the protection, management and upkeep of such property. The by-laws and constitution also provide that the board of trustees cannot buy, sell, mortgage, lease or transfer church property without a specific vote of the church authorizing such action.
Rev. Hill failed to abide by Mount Zions by-laws and constitution in the following respects. On April 10, 2002, Rev. Hill transferred to himself as an individual real estate property belonging to Mount Zion located at 921 Edgewood Street (the "property"). Rev. Hill accomplished this property transfer by executing a corporation grant deed, which he signed on behalf of Mount Zion as its President. Letha Logan also signed the deed on behalf of Mount Zion as its Secretary. Ms. Logan also notarized the corporation grant deed. Rev. Hill did not pay Mount Zion any money or valuable consideration for the property. Rev. Hill was not authorized to maintain the property in his own name. He did not request or obtain a specific vote of the church before transferring the property. In fact, no one at Mount Zion, other than Ms. Logan, knew about the property transfer until long after it had occurred. Mount Zion would not have agreed to the property transfer.
Five months later, on September 18, 2002, Rev. Hill used the property as collateral so that minority-owned business EAI International, Inc. ("EAI") could secure a government contract to perform dredging at the Larkspur Ferry Terminal in Marin County (the "government contract" or "government project"). In order to secure the government contract, EAI needed a surety for the required performance and payment bonds. Rev. Hill agreed to act as that surety. For purposes of both the performance and payment bonds, Rev. Hill executed Affidavits of Individual Surety, through which he represented he was the sole owner of the property. In connection with the performance bond, payment bond and individual surety affidavits, Rev. Hill also executed a lien against the property in favor of the United States government (the "lien on real property"). Letha Logan notarized the affidavits and the lien on real property. Rev. Hill did not seek authorization from Mount Zion before encumbering the property. Mount Zion would not have consented to the lien on real property.
Toward the end of 2002, EAI contracted with a company called Manson Construction Company ("Manson") to perform a portion of the work under the government contract. Although Manson completed its work on the government project, EAI failed to pay Manson in full.
Rev. Hill passed away on February 24, 2003. Two days later, on February 26, 2003, Letha Logan executed a grant deed transferring the property from Rev. Hill as an individual back to Mount Zion. Ms. Logan signed Rev. Hills name on the grant deed and notarized the deed. The lien on real property (in favor of the United States) was still on the property when it was transferred back to Mount Zion. Beside the lien on property, Mount Zion had no obligations toward Manson.
Following these events, Manson filed a series of lawsuits.
a. Mansons March 2003 lawsuit against EAI (the Contra Costa action)
In March 2003, Manson sued EAI in Contra Costa superior court, seeking payment for the work Manson had done on the government project. About a year later, in April 2004, the Contra Costa superior court entered a default judgment against EAI and in favor of Manson in the amount of $675,334.54. EAI filed for bankruptcy and never satisfied the default judgment against it and in favor of Manson.
b. Mansons April 2003 lawsuit against Mount Zion and the United States of America (Case No. CV 03-3221)
Soon after filing its lawsuit against EAI (but before judgment had been entered against EAI), Manson sued Mount Zion and the United States of America in Los Angeles superior court. Through that lawsuit, Manson sought primarily to foreclose on the property, have the property sold, and have the proceeds of the foreclosure sale applied to the amount allegedly due to Manson for its work on the government project (i.e., $522,800 plus interest and costs). The United States removed that case to federal court (the Central District of California), where the case was assigned case number CV 03-3221. In August 2003, the district court dismissed the case without prejudice. In its order of dismissal, the district court held not only that Manson was required to comply with the provisions of the Miller Act (then, 40 U.S.C. § 270(a)-(d)), which Manson had failed to do, but also that the lawsuit was premature because, at that time, no court had adjudicated EAIs liability to Manson.
c. Mansons October 2003 lawsuit against EAI and the estate of Rev. Hill (Case No. C 03-4503)
In October 2003, following the dismissal of its April 2003 lawsuit, Manson filed a Miller Act complaint in federal court (this time in the Northern District of California) against EAI and the estate of Rev. Hill "for recovery on Miller Act payment bond (40 USC §§ 1331, 1333) secured by real property." In that lawsuit, Manson sought to recover the $522,800 (representing the balance due on its contract with EAI) plus interest and costs. Mansons Northern District case was assigned case number C 03-4503.
Following entry of the default judgment against EAI in the Contra Costa action, however, Manson and the estate of Rev. Hill stipulated to the entry of judgment against the estate of Rev. Hill in the amount of $600,000 in Mansons Northern District case. Under their agreement, the estate of Rev. Hill agreed to pay Manson $30,000 in cash. The parties agreed that Manson would attempt to recover the remaining $570,000 "ONLY from exercising its rights to foreclose against the property." On March 30, 2005, the district court entered judgment on the parties stipulation for entry of judgment.
d. Mansons January 2006 lawsuit against Mount Zion and the United States of America (Case No. CV 06-00181)
In January 2006, Manson again sued Mount Zion and the United States of America, this time filing suit in federal court (the Central District of California) (the "underlying action"). As discussed below, this is the lawsuit that Mount Zion tendered to State Farm for a defense. Mansons January 2006 complaint was captioned "Complaint to Foreclose on Real Property Security for Obligations under Miller Act Payment Bond" and was assigned case number CV 06-00181. As the caption suggests, in this lawsuit, Manson asked the court (i) to adjudge that any rights Mount Zion or the United States might have in the property be subject to the lien on real property to the extent of $570,000 (i.e., the remaining amount due Manson under the stipulated judgment against the estate of Rev. Hill), and (ii) to adjudge that the lien on real property be foreclosed, the property sold, and that proceeds of the sale be applied to the amount owed to Manson for its work on the government project. Manson also sought to recover costs and fees associated with the sale of the property. This lawsuit was similar to the lawsuit Manson filed against Mount Zion and the United States in 2003.
Manson named two other defendants to this lawsuit as well. But they are not relevant here.
Again, however, the district court dismissed without prejudice Mansons case against Mount Zion and the United States. This time, in its order of dismissal, the district court noted that the Northern District had already determined the liability of Rev. Hills estate under the Miller Act. The court questioned whether Mansons lawsuit in the Central District was necessary or proper and whether Manson should have brought the case in the name of the United States as may be required under the Miller Act. Manson did not object to a dismissal without prejudice because it was seeking to initiate enforcement proceedings of the judgment in its favor issued in the Northern District. Thus, on April 28, 2006, the district court dismissed the underlying action without prejudice.
Apparently, at some later time, however, Manson again sued Mount Zion in the Central District of California, which case was assigned case number CV 06-3187. The record does not include this subsequent complaint and it appears State Farm has never seen it either. Manson and Mount Zion agreed to settle that case, along with their claims arising against each other in Mansons 2003 complaint against Mount Zion (case no. CV 03-3221) and Mansons Northern District case against EAI and the estate of Rev. Hill (case no. C 03-4503). According to their settlement agreement, Mount Zion paid Manson $312,500 in exchange for a release of the lien on real property. Their settlement agreement does not mention the underlying action (i.e., Mansons January 2006 federal complaint against Mount Zion, case number CV 06-00181), which not only was dismissed by the district court but, as discussed below, is the case Mount Zion tendered to State Farm for defense.
3. Mount Zions Lawsuit Against State Farm
Finally, we come to the instant lawsuit. In late 2005 (a couple months before Manson filed the underlying action), Mount Zion notified State Farm that Manson was planning to file a lawsuit against the church. Mount Zion provided State Farm with a copy of Mansons proposed complaint and exhibits. On January 6, 2006, State Farm denied coverage for Mount Zions tender of the underlying action. After Manson filed its complaint on January 10, 2006, Mount Zion sent a copy of the filed complaint to State Farm. State Farm reiterated its denial of coverage.
On March 24, 2006, Mount Zion sued State Farm in Los Angeles superior court for breach of contract and breach of the implied covenant of good faith and fair dealing. Mount Zion alleged that State Farm breached its insurance contract with Mount Zion by failing to conduct a prompt and full investigation of Mansons claims against Mount Zion and of the circumstances giving rise to those claims. Mount Zion also alleged that State Farm breached its obligations to defend and indemnify, acted with conscious disregard of Mount Zions rights, and denied coverage without reasonable cause.
The parties agreed that the trial court would decide, based on stipulated facts and exhibits, whether there was a potential for coverage under the church policy for the underlying action. The trial court held that State Farm had no duty to defend against those claims. Mount Zion requested a statement of decision, which the trial court filed on January 23, 2008. In its statement of decision, the trial court held (i) that neither Rev. Hill nor anyone at Mount Zion committed a "wrongful act" as that term is defined in Option DO that caused harm to Manson, and (ii) that the underlying action did not seek "damages" as that term is used in Option DO. The court entered judgment that same day.
DISCUSSION
1. Standard of Review and Rules of Insurance Policy Interpretation
We review the trial courts interpretation of an insurance policy de novo. (Oak Park Calabasas Condominium Association v. State Farm Fire and Casualty Co. (2006) 137 Cal.App.4th 557, 561 (Oak Park).)
"Interpretation of an insurance policy is a question of law and follows the general rules of contract interpretation. [Citation.] `The fundamental rules of contract interpretation are based on the premise that the interpretation of a contract must give effect to the "mutual intention" of the parties. "Under statutory rules of contract interpretation, the mutual intention of the parties at the time the contract is formed governs interpretation. (Civ. Code, § 1636.) Such intent is to be inferred, if possible, solely from the written provisions of the contract. (Id., § 1639.) The `clear and explicit meaning of these provisions, 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., § 1644), controls judicial interpretation. (Id., § 1638.)" [Citations.]" (MacKinnon v. Truck Ins. Exchange (2003) 31 Cal.4th 635, 647-648.)
"It is by now a familiar principle that a liability insurer owes a broad duty to defend its insured against claims that create a potential for indemnity. (Gray v. Zurich Insurance Co. (1966) 65 Cal.2d 263 (Gray).) As we said in Gray, `the carrier must defend a suit which potentially seeks damages within the coverage of the policy. (Id. at p. 275, italics in original.) Implicit in this rule is the principle that the duty to defend is broader than the duty to indemnify; an insurer may owe a duty to defend its insured in an action in which no damages ultimately are awarded. (Id. at p. 278; [citations].)" (Horace Mann Ins. Co. v. Barbara B. (1993) 4 Cal.4th 1076, 1081.) An insurer owes no duty to defend, however, if there is no potential for coverage. (Lomes v. Hartford Financial Services Group (2001) 88 Cal.App.4th 127, 132 (Lomes).)
2. "Damages"
As noted above, Option DO provides that State Farm "will pay those sums that the insured becomes legally obligated to pay as damages . . . " Exclusion 2h of Option DO provides that Option DO coverage does not apply to "damages other than money damages." State Farms duty to defend is triggered when there is a potential for coverage. (Gray, supra, 65 Cal.2d at p. 275.) We agree with the trial court and State Farm that, because the complaint Mount Zion tendered to State Farm sought only foreclosure, Option DO does not apply. Consequently, there was no potential for coverage and State Farm had no duty to defend.
Our Supreme Court has interpreted the phrase "legally obligated to pay as damages" as that phrase is used in insurance policies such as that at issue here. (Certain Underwriters at Lloyds of London v. Superior Court (2001) 24 Cal.4th 945 (Lloyds ).) In Lloyds, the Court held that "the insurers duty to indemnify the insured for `all sums that the insured becomes legally obligated to pay as damages under the standard comprehensive general liability insurance policy is limited to money ordered by a court." (Id. at p. 960.) As noted, Option DO includes the same language analyzed in Lloyds. Moreover, as also noted, exclusion 2h of Option DO unambiguously provides that State Farm will not indemnify for any damages other than money damages.
Although State Farm addresses Lloyds, Mount Zion does not.
The trial court here could not have ordered or otherwise awarded money damages in the underlying action against Mount Zion. The underlying action was one for foreclosure only. And, as the stipulated facts established, Mount Zion had no obligations to Manson and, therefore, Manson could not have asserted any other claims against Mount Zion. Manson could not and did not sue Mount Zion for damages. Thus, under Lloyds and exclusion 2h, there was no potential for coverage here and State Farm had no duty to defend.
Mount Zion argues that, despite the fact the underlying complaint sought only foreclosure, exclusion 2h does not apply because foreclosure is the "functional equivalent" of money damages. For its argument, Mount Zion relies on Cutler-Orosi Unified School Dist. v. Tulare County School Districts Liability/Property Self Insurance Authority (1994) 31 Cal.App.4th 617 (Cutler-Orosi ). Like Lloyds, Cutler-Orosi addressed the meaning of the phrase "all sums which the insured shall become obligated to pay as damages." The Cutler-Orosi court addressed that phrase in the context of a lawsuit seeking equitable relief under the Voting Rights Act of 1965 (42 U.S.C. § 1973 et seq.). In particular, the court determined whether "damages" included either costs associated with complying with a mandatory injunction or the required reimbursement of attorney fees under the Voting Rights Act. The court held that those items did not constitute damages and that, therefore, the insurer had no duty to defend the lawsuit. (Cutler-Orosi, supra, 31 Cal.App.4th at p. 621.)
Mount Zion agrees that "costs of suit and administrative costs do not constitute money damage[s]." Nonetheless, Mount Zion argues that, because Cutler-Orosi mentions in passing the "functional equivalent" of money damages, Cutler-Orosi supports the claim that State Farm owed a duty to defend Mansons foreclosure lawsuit. (Id. at p. 629.) We do not agree. First, that case was decided before Lloyds, in which the Supreme Court held "damages" as used in an insurance policy such as that at issue here and in Cutler-Orosi means money awarded by a court. Thus, to the extent Cutler-Orosis interpretation of that same term conflicts with the Supreme Courts interpretation, Cutler-Orosi is not persuasive. Second, we do not believe the Cutler-Orosi holding necessarily conflicts with Lloyds. Cutler-Orosi held that the equitable relief at issue there and its attendant costs and fees did not constitute damages for purposes of insurance coverage. (Id. at pp. 621, 629-630.) That holding does not conflict with Lloyds, but in fact is consistent with it.
Although, at one point in its decision, the Cutler-Orosi court noted that none of the damages available under the Voting Rights Act are the "functional equivalent of a form of monetary indemnification or recoupment," that point was not essential to the courts holding. (Id. at p. 629.) If we applied Cutler-Orosi in the manner Mount Zion requests, our decision would conflict with Lloyds, which we decline to do. Moreover, if the parties had intended to include as a covered item the "functional equivalent" of money ordered by a court, they could have included such language in the policy. They did not and we cannot rewrite the parties policy. (Lloyds, supra, 24 Cal.4th at pp. 960, 967-968.)
Mount Zion also suggests that, because Manson settled its complaint against Mount Zion for money (specifically, $312,500), it is clear Manson not only sought money but would get money out of the underlying action one way or another. Thus, Mount Zion argues there was always a potential for coverage and State Farm therefore had a duty to defend. We disagree. First, if we followed this reasoning, we would violate the decision in Lloyds. Second, most lawsuits—including, for example, those seeking only declaratory or injunctive relief—may be settled for some amount of money. Thus, if we were to adopt Mount Zions reasoning, there would always be the potential for coverage under any policy using this language and, therefore, always a duty to defend. We decline to interpret the policy in such a way.
Mount Zion also argues that the civil cover sheet in the underlying action was extrinsic evidence supporting its position that there was a potential for coverage. On the civil cover sheet, the box next to "MONEY DEMANDED IN COMPLAINT" is checked and "$570,000 principal" is typed in next to it. Mount Zion asserts this form demonstrates that Manson sought to obtain money through the underlying action. While we do not disagree with the statement that Manson was ultimately seeking money, we do not agree that the civil cover sheet can change what Mansons complaint alleged and what the trial court could have awarded in the underlying action. We agree with State Farms analysis that the civil cover sheet serves administrative and clerical purposes. It cannot create a request for money damages when none exists in the complaint. (See Wall v. National Railroad Passenger Corp. (9th Cir. 1983) 718 F.2d 906, 909 [checking jury demand box on civil cover sheet insufficient to request jury trial].)
3. Management Responsibilities
We also conclude the judgment should be affirmed on a separate and independent ground. Under Option DO, State Farm is obligated to indemnify Mount Zion for damages caused by "wrongful acts" committed by an officer, director or trustee "solely in the conduct of their management responsibilities for the church." Option DO further requires that the officer, director or trustee be acting "within the scope of their duties" on behalf of the church. We conclude that, when Rev. Hill transferred the property to himself and undertook the various obligations with respect to the government contract, Rev. Hill was not acting within the scope of his management responsibilities or duties to the church.
Although Rev. Hill purported to be acting as President of Mount Zion when he signed the corporation grant deed transferring the property to himself, he clearly was not. The stipulated facts establish that, each step of the way, Rev. Hill was acting contrary to his management responsibilities and duties to Mount Zion. Mount Zion agrees that, as pastor for over 40 years, Rev. Hill either was familiar with or should have been familiar with Mount Zions by-laws and constitution. Nonetheless, not only did Rev. Hill fail to obtain the required authorization before transferring and encumbering the property, he did not tell anyone other than Ms. Logan about his unauthorized use of the property. Mount Zion stipulated that it would not have authorized the transfer or the lien on property.
As this court explained in Lomes, supra, 88 Cal.App.4th at page 134, a "corporation does not act through individual directors, but, rather, through its board of directors. [Citations.] An individual director has no authority to take action on behalf of the corporation without the consent of the Board of Directors." In Lomes, the plaintiff sought insurance coverage for harmful statements he had made about the corporation for which he was a director. This court held that, because there was no evidence the corporation had authorized the director to make such statements, he had acted outside the scope of his duties to the corporation. (Ibid.) Consequently, the insurer had no duty to defend. (Id. at p. 129.) The facts here are even more compelling because the stipulated facts establish not only that Rev. Hill never sought authorization for his actions, but also that the church would not have given its authorization.
Mount Zion argues Rev. Hill was acting within his management responsibilities and duties to the church when he transferred the property. Mount Zion claims Rev. Hill transferred the property and encumbered it all in an effort to further the churchs mission of supporting minority-owned businesses. Even assuming Rev. Hill was acting within his management responsibilities and duties to the church, however, Mount Zion still cannot prevail against State Farm. If Rev. Hill undertook these actions on behalf of the church and, therefore bound the church to the encumbrances he placed on the property, Mount Zion cannot ask State Farm to answer for those obligations. (See August Entertainment, Inc. v. Philadelphia Indemnity Insurance Co. (2007) 146 Cal.App.4th 565, 575-578 (August Entertainment); Oak Park, supra, 137 Cal.App.4th at pp. 565.) Contrary to Mount Zions position, although the underlying action was not a breach of contract case, the principles enunciated in August Entertainment and Oak Park apply here.
Mounts Zion relies on Barnett v. Firemans Fund Insurance Co. (2001) 90 Cal.App.4th 500 (Barnett) for the proposition that an officer such as Rev. Hill can act within the scope of his duties to the corporation even if his actions harm the corporation. We are not persuaded, however, because Barnett is factually distinguishable and not on point with this case. In Barnett, two officers of an insured corporation made disparaging statements about the corporation. The statements were made, however, in an effort to further the corporations interests by urging the corporation to comply with state law. (Id. at pp. 505, 511.) Here, however, Rev. Hill in effect misappropriated church property. Although, as Mount Zion claims, Rev. Hill may have used that property in a way that furthered a church goal, he was not authorized to do so and the church did not condone his actions. As explained above, the facts of this case are much more akin to those in Lomes.
4. Negligence
We are also not persuaded by Mount Zions claim that Rev. Hill acted negligently in transferring and encumbering the property. Option DO provides coverage only for "wrongful acts," which are defined as "any negligent acts, errors, omissions or breach of duty directly related to the operations of your church."
Mount Zion makes repeated conclusory statements that Rev. Hill acted negligently. Such statements are inappropriate and unhelpful. (See Placer County Local Agency Formation Com. v. Nevada County Local Agency Formation Com. (2006) 135 Cal.App.4th 793, 814 ["We need not address points in appellate briefs that are unsupported by adequate factual or legal analysis."].) The only purported "support" Mount Zion offers for its negligence argument is its claim that, in transferring the property, Rev. Hill allegedly followed the advice of a man named Ozzie Hunt. Allegedly, Mr. Hunt introduced Rev. Hill to EAI and assisted Rev. Hill in completing the paperwork for the property transfer and subsequent sureties and lien. We are not persuaded. First, these claims are unsupported. Mount Zion cites to its own trial brief—which is not evidence—as support for its Ozzie Hunt argument. Second, Rev. Hills alleged motive or mistaken belief behind his acts do not make his intentional acts negligent. (August Entertainment, supra, 146 Cal.App.4th at pp. 579-580 [although the advice on which the insured relied "`may have been mistaken, or even negligent . . . does not convert [the insureds] intentional act in refusing to further honor the collective bargaining agreement into a negligent one."].)
Thus, we conclude there are three independent reasons why there was no potential for coverage and, therefore, no duty to defend. First, the underlying action could not and did not seek "damages." Second, Rev. Hill was not acting within his management responsibilities or duties to the church. And, third, Rev. Hill did not act negligently. Because these issues dispose of the appeal, we do not address the parties remaining arguments.
DISPOSITION
The judgment is affirmed.
We concur:
MALLANO, P. J.
ROTHSCHILD, J.