Opinion
NOT TO BE PUBLISHED
APPEAL from a judgment of the Superior Court of Los Angeles County, No. BC384047 Mel Red Recana, Judge.
Ford & Serviss, LLP, William H. Ford, III and Claudia J. Serviss for Plaintiff and Appellant.
Adler Law Group and Erwin E. Adler for Defendant and Respondent.
MANELLA, J.
Appellants Bernard Subkoski and Celeste Dickenson appeal the judgment entered after demurrer was sustained without leave to amend to their complaint against their insurer, respondent Standard Fire Insurance Company (Standard), for breach of contract, bad faith breach of contract and declaratory relief. Appellants’ complaint was based on Standard’s refusal to provide a defense for a lawsuit brought by the purchaser of a home constructed by appellants on land owned by appellants. Standard demurred, contending there was no potential for coverage. The trial court agreed and after appellants submitted their second amended complaint, concluded that appellants would be unable to assert a cognizable cause of action. We agree with the trial court that there was no potential for coverage under the facts alleged and affirm.
FACTUAL AND PROCEDURAL BACKGROUND
Appellants, husband and wife, owned two properties on Passmore Drive in Los Angeles. They resided on one property (the main property). On the other property (the subject property), appellants built a house, which they sold in 2004 to Kathleen Griffin or to Griffin’s trust. Griffin subsequently brought suit against appellants based on alleged construction defects. Appellants tendered the defense to Standard, which had issued homeowners policies to appellants in 2003, 2004 and 2005. Standard refused tender. Appellants defended and settled the Griffin action and then brought suit against Standard.
The parties inform us that Dickinson died while the appeal was pending.
Griffin and her trust will be jointly referred to as “Griffin.”
A. Griffin’s Complaint
Griffin contended in her complaint that she entered into an agreement with appellants to purchase the subject property on January 28, 2004 and that escrow closed on April 20, 2004. Her complaint alleged that the defendants -- who included appellants, their contractor and their design engineer -- were negligent in preparing the plans and specifications for the house constructed on the subject property and in their construction of the house. Griffin also contended that appellants falsely represented to her that the house was suitable for residence. The complaint alleged that Griffin first became aware of the negligence in the fall of 2004, “when numerous defects and deficiencies began to materialize, ” including cracking and detachment of ceramic tiles and the appearance of electrical problems which “began to pose a danger to all inhabitants [of the home].” The complaint listed five pages of purported defects, primarily related to water leaks and seepage, and alleged that water intrusion and moisture had caused and were continuing to cause damage to various components of the home, including the windows, doors, flooring and walls.
B. Policy Language
The homeowners policy, a copy of which was attached to appellants’ complaint and amended complaints, provided property coverage and liability coverage. As appellants sought coverage for a third party claim for liability, we focus on the provisions falling under “Section II - Liability Coverages.” The policy stated: “If a claim is made or a suit is brought against any insured for damages because of bodily injury or property damage caused by an occurrence to which this coverage applies, even if the claim or suit is false, we will: [¶] a. Pay up to our limit of liability for the damages for which an insured is legally liable...; and [¶] b. provide a defense at our expense by counsel of our choice, even if the suit is groundless, false or fraudulent.”
See Davis v. Farmers Ins. Group (2005) 134 Cal.App.4th 100, 105 [describing “typical” homeowners policy as being “divided into two separate and distinct parts: (1) first party coverage whereby the insurer agrees to indemnify its insured for specific losses to the designated property; and (2) personal liability insurance to the named insureds against third party claims against them.”].
“[O]ccurrence” was defined in the policy as “an accident, including continuous or repeated exposure to substantially the same generally harmful conditions which results, during the policy period, in: [¶] a. bodily injury; or [¶] b. property damage.” “[P]roperty damage” was defined as “physical injury to, destruction of, or loss of use of tangible property.”
There was no allegation of bodily injury in Griffin’s complaint.
There were numerous exclusions to liability coverage set forth in the policy. We focus on the exclusions raised by Standard in its demurrers. Exclusion 1.e. provided that liability coverage did not apply to property damage “arising out of a premise... owned by any Insured... that is not an Insured location.” Exclusion 2.b. stated that liability coverage did not apply to “property damage to property owned by any Insured.”
In addition, under “Section II-Additional Coverages, ” the policy reiterated: “We will not pay for property damage... to property owned by any insured;... arising out of:... any act or omission in connection with a premises owned... by any insured, other than the insured location....”
“[I]nsured location” had multiple definitions. The following are potentially pertinent here: “a. the residence premises” which was further defined as “the one or two family dwelling, other structures, and grounds or that part of any other building where you reside and which is shown as the ‘residence premises’ in the Declarations”; “b. the part of any other premises, other structures, and grounds, used by you as a residence and which is shown in the Declarations or which is acquired by you during the policy period for your use as a residence”; and “f. land owned by or rented to any insured on which a one or two family dwelling is being constructed as a residence for any insured.”
C. Appellants’ Complaints and Standard’s Demurrers
Appellants filed a complaint and first amended complaint (FAC) against Standard asserting claims for breach of contract, breach of the implied covenant of good faith and fair dealing and declaratory relief. The FAC alleged that the homeowners policy issued to appellants by Standard had an effective date of June 11, 2004 through June 11, 2005, and was renewed for an additional year (through June 11, 2006). In November 2004, Griffin advised appellants of her intention to bring suit for alleged defects in the house constructed on the subject property. In March 2006, appellants gave Standard notice of the claim and tendered its defense. Standard refused tender. In April 2006, Griffin filed a complaint based on alleged defects in the house constructed on the subject property which allegedly “resulted in ongoing and progressive property damage.”
Standard demurred to the FAC, contending (1) for any damage that arose prior to the sale of the subject property, the exclusion for damage to property owned by appellants precluded recovery; (2) for any damage that arose after the sale, recovery was precluded because the subject property was no longer an insured location by virtue of the fact that appellants did not reside in it.
Standard further contended that the Insurance Code and public policy precluded coverage for Griffin’s claim for misrepresentation. The trial court did not address this issue and it is not raised on appeal.
The court sustained the demurrer to the FAC. The court explained in its order that the facts alleged established that appellants owned the subject property until it was sold to Griffin on April 20, 2004 (the date escrow closed). It was clear that Griffin’s claim “ar[ose] out of the subject property.” It was not clear when the damages alleged by Griffin “occurred.” However, the court agreed with Standard that if the damages occurred pre-sale, when appellant still owned the property, the claim was excluded from coverage by the owned property exclusion of 2.b. The court further agreed with Standard that under exclusion 1.e. if the damages occurred post-sale and the subject property was no longer an “insured location, ” the claim would be excluded. The court sustained the demurrer to the FAC with leave to amend, indicating that appellants could cure the defect by alleging that they “resided at the subject property at the time the alleged property damage occurred.”
In their second amended complaint (SAC), appellants added the following paragraph: “During a portion of the policy period (June 11, 2003, to June 11, 2004...), [appellants] owned land located at [the address of the subject property] on which a one family dwelling was being constructed as a residence for them.” Appellants also amended the allegations concerning the policy that covered the subject property. The SAC deleted the references to the policies issued in 2004 and 2005 and contended the applicable policy was one issued in 2003 and was in effect from June 11, 2003 to June 11, 2004. The declarations pages from the 2003 policy were attached as an exhibit to the SAC. Both the main property and the subject property were mentioned in the declarations. The declarations identified appellants’ main property by address as the “[r]esidence [p]remises.” The declarations further stated: “Coverages E and F [coverages that fell under Section II-Liability Coverages] include an Additional Residence occupied by the insured at: [the address of the subject property].”
Declarations pages attached to the FAC showed that the subject property was deleted effective June 11, 2004.
Standard demurred once again, contending that appellants failed to state a claim because they had not alleged that they resided at the subject property when the damage occurred or, indeed, that they had ever resided there. In their opposition and at oral argument, appellants contended that the allegation that the home constructed on the subject property was intended to be a residence for them potentially brought the subject property within the definition of an “insured location” contained in paragraph 5.f. (“land owned by or rented to any insured on which a one or two family dwelling is being constructed as a residence for any insured”). The court concluded, however, that post-sale damages could not be covered because the subject property could not be an insured location under the policy once it was transferred to Griffin. The court sustained the demurrer without leave to amend. Appellants’ claim was dismissed. This appeal followed.
DISCUSSION
A. Duty of Insurer and Standard of Review
“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. [Citation.]” (Horace Mann Ins. Co. v. Barbara B. (1993) 4 Cal.4th 1076, 1081.) “‘[T]he duty to defend is broader than the obligation to indemnify. The former arises whenever an insurer ascertains facts that give rise to the possibility or the potential of liability to indemnify. Unlike the duty to indemnify which arises only when the insured’s underlying liability is established, the duty to defend must be assessed at the very outset of a case.”’ (Total Call Internat. Inc. v. Peerless Ins. Co. (2010) 181 Cal.App.4th 161, 167 (Total Call), quoting Pardee Construction Co. v. Insurance Co. of the West (2000) 77 Cal.App.4th 1340, 1350-1351, italics omitted.) “The insurer is excused from its defense obligation only when ‘the third party complaint can by no conceivable theory raise a single issue which could bring it within the policy coverage.’” (Fire Ins. Exchange v. Superior Court (2010) 181 Cal.App.4th 388, 391-392, quoting Gray v. Zurich Insurance Co. (1966) 65 Cal.2d 263, 276, fn. 15.) “Even a single claim that does not predominate, but for which there is potential coverage, will trigger the insurer’s duty to defend. [Citation.]” (181 Cal.App.4th at pp. 391-392.) The absence of a duty to defend can be established if “the insurer shows that ‘the underlying claim [could not] come within the policy coverage by virtue of the scope of the insuring clause or the breadth of an exclusion.’” (Total Call, supra, at p. 167, quoting Montrose Chemical Corp. v. Superior Court (1993) 6 Cal.4th 287, 301.)
“‘Because a demurrer both tests the legal sufficiency of the complaint and involves the trial court’s discretion, an appellate court employs two separate standards of review on appeal. [Citation.]... Appellate courts first review the complaint de novo to determine whether or not the... complaint alleges facts sufficient to state a cause of action under any legal theory, [citation], or in other words, to determine whether or not the trial court erroneously sustained the demurrer as a matter of law. [Citation.]’” (Total Call, supra, 181 Cal.App.4th at p. 166, quoting Cantu v. Resolution Trust Corp. (1992) 4 Cal.App.4th 857, 879.) “‘Second, if a trial court sustains a demurrer without leave to amend, appellate courts determine whether or not the plaintiff could amend the complaint to state a cause of action. [Citation.]’” (Total Call, supra, at p. 166, quoting Cantu v. Resolution Trust Corp., supra, 4 Cal.App.4th at p. 879, fn. 9.) Where a claim has been asserted against an insurer for breach of duty to defend and the insurance policy and the third party complaint are incorporated into the insureds’ complaint, we may rely on those documents in assessing the tenability of the breach of duty to defend claim. (Total Call, supra, at p. 166.) The proper interpretation of policy provisions is a question of law, which we independently determine. (Rosen v. Nations Title Ins. Co. (1997) 56 Cal.App.4th 1489, 1497.)
B. The Trial Court Did Not Err in Sustaining the Demurrer without Leave to Amend
1. Issues Presented
The only damage asserted in Griffin’s complaint was damage to the components of the house constructed on the subject property. Appellants did not dispute in the trial court and do not dispute now that to the extent any such damage occurred when they owned the subject property -- prior to the transfer to Griffin -- the damage was excluded from coverage under the owned property exclusion of paragraph 2.b., which provides that personal liability coverage does not apply to “property damage to property owned by any Insured.” Moreover, appellants contended in the SAC that the policy in effect from June 11, 2003 to June 11, 2004 was the sole relevant policy. Appellants continue to focus on the 2003 policy, and do not contend that any other policy potentially provides coverage.
As stated in appellants’ brief, the property owned exclusion “[h]as [n]o [a]pplication [t]o [t]his [c]laim” because Griffin’s complaint “did not claim any ‘pre-sale’ property damage to the subject residence.” (Fn. omitted.)
Standard also limited the issues it raised for consideration. In demurring to the SAC, Standard did not contend that the damages asserted by Griffin were not “property damage” or that the alleged negligence that caused the damage was not an “occurrence” under the policy. Nor did it raise any issue as to whether the damage occurred after the 2003 policy expired. Rather, Standard contended that the exclusionary language of the policy contained in paragraph 1.e. precluded coverage for post-sale damage, as the subject property did not constitute an “insured location” following its sale. There is no dispute that the trial court sustained the demurrer based on a finding that this exclusion precluded coverage. As appellants contend, the applicability of the exclusion is “the crux of the matter.” Accordingly, we turn to the determinative issue: whether the exclusion contained in paragraph 1.e. precludes coverage.
The trial court noted in its order sustaining the demurrer to the FAC that there was some question whether “the policy was in effect.” Griffin alleged the damages “materialize[d]” in the fall of 2004, several months after the 2003 policy expired.
2. Exclusionary Provision
As noted above, exclusion 1.e., provides that personal liability coverage does not apply to property damage “arising out of a premise... owned by any insured... that is not an insured location.” Thus, an incident arising out of property “owned” by appellants that did not meet the definition of “insured location” would fall under this exclusion and would not be subject to coverage.
a. The Griffin Claim Arose Out of Property “Owned” by Appellants
Preliminarily, we note that, as Standard contends and appellants do not dispute, the exclusion for property “owned” by the insured that is not an “insured location” applies both to property the insured “owned” at the time the injury occurred and to property previously owned by the insured, but belonging to a third party at the time the injury occurred. This was established in Preston v. Goldman (1986) 42 Cal.3d 108. There, the Supreme Court addressed a nearly identical exclusion precluding coverage for property damages “‘arising out of any premises, other than an insured premises, owned, rented or controlled by any Insured.’” (Id. at p. 120.) At issue was whether a couple who sold a home several years earlier was liable for injuries to a child who fell into a pond constructed during the couple’s ownership of the property. The plaintiff asserted that the insurance policy in effect at the time of the child’s injury provided liability coverage to the couple. The court concluded otherwise, explaining that the exclusion applied not only to property owned by the insured when the damage-causing accident occurred, but also to “any property over which the insured may have at any time had control.” (Id. at pp. 120-121, italics added.) The court reasoned that “[a]s a matter of ‘[a]ccepted popular, as well as legal definition, ’... a renter or homeowner, and his insurer, would not ordinarily intend or reasonably expect coverage for the accident such as the one involved here under policy terms similar to those relied upon here.” (Id. at p. 121, quoting Maples v. Aetna Cas. & Surety Co. (1978) 83 Cal.App.3d 641, 650.) Preston has been followed by state and federal courts alike. (See Devin v. United Services Auto. Assn. (1992) 6 Cal.App.4th 1149, 1161 [finding Preston “convincing and controlling” in finding no potential for coverage to homeowners under policy in effect when purchasers of former home asserted claims based on condition of property, and policy contained exclusion for claims arising out of premise owned by insured that was not an insured premise]; State Farm Fire & Cas. Co. v. Thomas (1991) 756 F.Supp. 440, 444 [finding “[t]he California Supreme Court’s decision in [Preston] leaves no room for [the homeowners’] position, ” where homeowners sought liability coverage for claims asserted by purchasers of allegedly defective former home, and policy contained similar exclusion].) Because there is no dispute that appellants at one time owned the subject property, the remaining issue is whether it was an “insured location.” If it was, the exclusion of paragraph 1.e. did not apply. If it was not, the language of paragraph 1.e. precluded coverage.
Generally, when the issue is the reach of an insurance policy’s exclusionary provision, courts interpret the provision following certain accepted rules of construction. (See, e.g., Montrose Chemical Corp. v. Admiral Ins. Co. (1995) 10 Cal.4th 645, 666, quoting Civ. Code, §§ 1638, 1644 [“Under statutory rules of contract interpretation, the mutual intention of the parties at the time the contract is formed governs its interpretation. [Citation.] Such intent is to be inferred, if possible, solely from the written provisions of the contract. [Citation.] The ‘clear and explicit’ meaning of these provisions, interpreted in their ‘ordinary and popular sense, ’ controls judicial interpretation unless ‘used by the parties in a technical sense, or unless a special meaning is given to them by usage.’ [Citation.]”]; Waller v. Truck Ins. Exchange (1995) 11 Cal.4th 1, 18 [“A policy provision will be considered ambiguous when it is capable of two or more constructions, both of which are reasonable. [Citation.] But language in a contract must be interpreted as a whole, and in the circumstances of the case, and cannot be found to be ambiguous in the abstract.”]; MacKinnon v. Truck Ins. Exchange (2003) 31 Cal.4th 635, 648 [exclusionary provisions “‘“‘are interpreted narrowly against the insurer.’”’”].) As the meaning of this particular language of the exclusion at issue has already been determined by the Supreme Court, we need not engage in that exercise.
b. The Griffin Claim Arose Out of Property that Was Not an “Insured Location”
In order for Griffin’s claim to fall within the 1.e. exclusion, it must have arisen from property owned by appellants which was not an “insured location.” “[I]nsured location” had multiple definitions under the policy, including: “a. the residence premises” which was further defined as “the one or two family dwelling, other structures, and grounds or that part of any other building where you reside and which is shown as the ‘residence premises’ in the Declarations”; “b. the part of any other premises, other structures, and grounds, used by you as a residence and which is shown on the Declarations or which is acquired by you during the policy period for your use as a residence”; and “f. land owned by or rented to any insured on which a one or two family dwelling is being constructed as a residence for any insured.”
At the time Griffin was allegedly damaged, the subject property did not meet the definition of “insured location” contained in paragraph f. because, it was no longer “being constructed.” Appellants contend it fell under the definitions of “[i]nsured location” in paragraphs a. and/or b. because it was shown on the declarations pages of the 2003 policy, which expired in June 2004. To meet the definition of insured location under a. or b., the subject property must not only have been listed on a declarations page, it must also have been a location “where [appellants] reside” or a location “used by [appellants] as a residence.” Appellants have never alleged that the subject property was being used by them as a residence at any time, before or after the property was sold to Griffin.
Appellants raised this provision in opposition to the demurrer and quote it in their brief, but raise no legal argument with respect to it.
Appellants contend, however, that a potential for coverage arose from the allegation in the Griffin FAC that appellants “occupied the Subject Property and failed to maintain [it] and/or performed improper repairs which caused further damage to the Subject Property and the improvements thereon.” Appellants apparently suggest we read this allegation to assert that they lived on the subject property after the sale. We do not believe this reading of the Griffin complaint is reasonable. The Griffin FAC went on to allege that on or about April 20, 2004, “escrow closed on the Subject Property” and “[t]itle of the Subject Property was taken in the name of [Griffin].” The FAC thereafter alleged that “at all relevant times, [Griffin] has resided and resides at the Subject Property” and “at all relevant times, [Griffin] used and uses the Subject Property as her principal place of business.” Fairly read, Griffin’s FAC alleged that appellants built a house defectively, failed to maintain it, and sold it to Griffin in April 2004 without disclosing its latent defects. Griffin thereafter occupied the house and discovered the defects months after the sale closed. Nothing in Griffin’s FAC suggests that appellants resided in the house after she became its owner.
Appellants alternatively contend that for purposes of a demurrer, the statement in the declarations pages -- that the subject property was an “[a]dditional [r]esidence occupied by the insured” -- must be accepted as true. The declarations pages can, at best, be seen as the parties’ attempt to describe the subject property at the time the policy was written. It was not written in contemplation of a sale to a third party, and does not purport to attest to whether appellants were residing there after the sale to Griffin. In view of Griffin’s allegations that she resided on the premises “at all relevant times, ” the trial court reasonably concluded that after the home was sold to Griffin, she -- not appellants -- resided there. The court was not required to assume that appellants and Griffin both resided at the property after escrow closed and the property was transferred to Griffin. Moreover, appellants were expressly invited to address their residency at the subject property in a second amended complaint. When given leave to amend their complaint to include an allegation that they resided on the property at any point in time, they declined to do so.
Under the plain language of exclusion 1.e., Standard was not obliged to defend or indemnify appellants for liability for property damage that arose from a property they owned which was not an insured location. Because the subject property qualified as one “owned” by appellants under the Supreme Court’s interpretation, but did not meet the definition of “insured location, ” any claim arising from the property was not covered by Standard’s policy.
DISPOSITION
The judgment is affirmed. Standard is awarded its costs on appeal.
We concur: WILLHITE, Acting P. J., SUZUKAWA, J.