Opinion
D050683
10-29-2008
VALLEY CASEWORK, INC., Cross-Complainant and Appellant, v. LEXINGTON INSURANCE COMPANY, Cross-Defendant and Respondent.
Not to be Published
I.
INTRODUCTION
Valley Casework, Inc. (Valley) appeals from a judgment of the trial court in favor of cross-defendant Lexington Insurance Company (Lexington). After being sued by a general contractor for reimbursement for water and mold damage repairs, Valley, a company that provides and installs cabinets, sought a declaration of its rights and duties under a general liability insurance policy issued by Crusader Insurance Company (Crusader). At the same time, Valley also sought a declaration of its rights and duties under an insurance policy it purchased from Lexington approximately seven months after completing work on the project that suffered water and mold damage. Crusader and Lexington filed separate motions for summary judgment. The trial court denied Crusaders motion, but granted Lexingtons motion in full, on a number of grounds.
On appeal, Valley raises a number of contentions as to why the trial court erred in granting summary judgment in favor of Lexington. We conclude that the trial courts grant of summary judgment was appropriate, although on a ground different from those the trial court cited. The Lexington policy does not cover the claim at issue because the policy specifically excludes coverage for claims arising from work that Valley completed prior to the inception date of the Lexington policy. We therefore affirm the trial courts grant of summary judgment in favor of Lexington.
II.
FACTUAL AND PROCEDURAL BACKGROUND
A. Factual background
This action arises from an underlying breach of contract case between a general contractor, Development Contractor, Inc. (DCI), and Valley, concerning work Valley completed on a residential development project called "Gateway View." The general contractor entered into a subcontract with Valley, pursuant to which Valley was to furnish and install all cabinetry for Gateway View. The subcontract included an indemnity provision which provided that Valley would defend and indemnify DCI for construction defect claims and property damage arising from Valleys work.
At the time Valley entered into the contract with DCI, Valley held a general liability policy with Crusader. The Crusader policy was effective between February 20, 2002, and February 20, 2003. As of February 20, 2003, Valley had general liability coverage through Lexington.
Valley was covered by Crusader insurance policies from 1997 through 2003.
In May, June, and July 2002, Valley provided and installed cabinets for the Gateway View project. On or near June 10, 2003, DCI informed Valley that residents in one of the units had reported water damage in their kitchen. DCI alleged that Valley had punctured a copper pipe in the Gustafson residence while installing cabinets. DCI further alleged that the puncture had caused a water leak, and resultant mold and mildew.
Valley tendered the claim for the leak and mold contamination to Crusader. Crusader acknowledged receipt of the claim on June 18, 2003, and began an investigation to determine whether the claim was covered under the Crusader policy. On or near October 14, 2003, Crusaders counsel issued a letter to Valley stating that Crusader had no obligation to respond to Valleys claim under the terms of the policy.
Because Crusader took no action, DCI undertook the necessary repairs at its own expense. DCI then filed an action against Valley to recover the costs of the repair work. Valley tendered its defense to Crusader for coverage in connection with the DCI lawsuit. In a reservation of rights letter, Crusader agreed to defend Valley in the DCI lawsuit. In September 2004, Crusader settled the DCI lawsuit for $46,354.00, but reserved its right to seek reimbursement of the settlement amount from Valley.
B. Procedural background
On April 1, 2005, Crusader filed this action against Valley for declaratory relief and reimbursement, seeking to recover the amount it paid to settle the DCI lawsuit. Valley filed a cross-complaint seeking declaratory relief against Crusader, and naming Lexington as an additional cross-defendant. Lexington apparently did not appear in the action, and a default was entered against it. The default was subsequently set aside, and Lexington filed an answer to Valleys cross-complaint on August 2, 2006.
The appellate record does not contain documents evidencing a default. However, both parties refer to Lexingtons default in their recitations of the procedural history of this case. Additionally, although also not in the record, the default was apparently set aside pursuant to stipulation.
On November 1, 2006, Lexington filed a motion for summary judgment. On November 13, Crusader filed its own motion for summary judgment. Valley opposed both motions.
The trial court heard the motions for summary judgment on December 15, 2006. The court continued the hearing to January 19, 2007, and permitted Lexington and Crusader to re-file their objections to Valleys evidence, in order to comply with the Rules of Court. Prior to the January 19 hearing, the trial court entered a tentative ruling denying Crusaders motion for summary judgment and granting Lexingtons. The court then heard argument from the parties, and ultimately affirmed its tentative ruling.
Because the tentative ruling did not set forth the factual or legal bases for granting Lexingtons motion, the parties requested that the court provide the grounds on which the court granted the motion.
On February 14, 2007, the trial court issued a minute order in which the court reiterated what it had said in its tentative ruling, with no further legal analysis. On March 1, 2007, the parties appeared ex parte to again request clarification of the factual and legal bases for the courts grant of summary judgment in favor of Lexington. At the ex parte hearing, the trial court orally clarified its reasoning. The trial court stated that it based its ruling on its determinations that (1) the claim "occurred" prior to the inception of the Policy; (2) Valley failed to timely notify Lexington of the DCI action; (3) Valley failed to cooperate with Lexington in defending the DCI action; (4) Valley voluntarily paid the settlement amount; and (5) Lexington did not consent to the settlement of the claim. The trial court entered judgment on May 25, 2007.
Valleys notice of appeal was filed prematurely, since judgment had not been entered at the time Valley filed the notice. This court granted Valleys request to extend the time for submitting a copy of the judgment.
III.
DISCUSSION
The Policy includes an endorsement that excludes work completed prior to the inception date of the Policy. According to Lexington, because Valley admits that it completed its work on the Gateway View project no later than July 22, 2002, and the effective date of the Policy is February 20, 2003, all of Valleys work on the Gateway View project is excluded under the terms of the policy.(!AOB 35)! We agree that the claim at issue here is clearly excluded under the designated work exclusion contained in the Policy; this court may affirm the trial courts ruling on this ground.
Although the trial court did not rely on this ground in granting summary judgment, we may nevertheless affirm the trial courts judgment on any ground presented in the record. (See ASP Properties Group, L.P. v. Fard, Inc. (2005) 133 Cal.App.4th 1257, 1268 ["[W]e may affirm a trial court judgment on any [correct] basis presented by the record whether or not relied upon by the trial court. [Citation.] [Citation.]"].)
The endorsement provides that the policy excludes coverage for "ALL WORK COMPLETED PRIOR TO INCEPTION DATE OF OUR POLICY." Valley alleges in its cross-complaint (and does not dispute elsewhere) that it delivered and installed cabinets for the Gateway View project in May, June, and July of 2002 only. The inception date of the Lexington Policy is February 20, 2003. Valley had thus completed its work on the Gateway View project prior to the inception date of the Policy. Therefore, any claim arising out of Valleys work on the Gateway View project is excluded under the clear terms of the Policy.
Valley responds that this endorsement was not included in a specimen policy that Lexington sent to Valley prior to Valleys purchase of the Policy, and suggests that there is at least a material issue of fact as to whether the exclusion in the endorsement is "even part of the Policy." Specifically, Valley maintains that the endorsement was "no part of the policy that Valley Casework thought it was purchasing," and that the exclusion was "not part of the specimen policy provided by Lexington to Valley Casework to induce Valley Casework to purchase the Policy." Citing Davis v. United Services Automobile Association (1990) 223 Cal.App.3d 1322, 1332 (Davis) and Haynes v. Farmers Insurance Exchange (2004) 32 Cal.4th 1198 (Haynes ), Valley goes on to argue that because it "had no knowledge of the reduction in coverage from the specimen to the `actual Policy, it is not bound by the exclusions contained in the `actual Policy." We disagree.
"It is a general rule a party is bound by contract provisions and cannot complain of unfamiliarity of the language of a contract. [Citation.] Thus an insured has a duty to read his policy. [Citations.]" (Fields v. Blue Shield of California (1985) 163 Cal.App.3d 570, 578 (Fields).) Valley had a duty to read the Policy upon receiving it. Valley never indicated to Lexington that the policy it received differed from the specimen policy, nor did Valley ask Lexington to amend the Policys terms after it reviewed those terms.
Although "[the] duty to read is insufficient to bind a party to unusual or unfair language unless it is brought to the attention of the party and explained" (Fields, supra, 163 Cal.App.3d at p. 578), Valley has not argued that the language of the designated work exclusion is unusual or unfair, and there is no apparent reason to consider the designated work exclusion to be unusual or unfair. Although the designated work exclusion in the Policy may not be a part of the standard commercial general liability form, it is nevertheless recognized as a potential exclusion that an insurer may add to the standard form. (See Croskey etal., Cal. Practice Guide: Insurance Litigation (The Rutter Group 2007) § 7:1485.8d.) Further, the provision does not appear to be unfair, since it is not unreasonable for an insurer to exclude coverage for work the insured completed before the insurer and insured had an insurance relationship. Again, Valleys only complaint with regard to Lexingtons reliance on the exclusion is that the exclusion at issue was not included in the specimen copy Valley received. As we discuss below, that argument is unavailing.
Noting that a specimen policy it reviewed prior to purchasing the Policy does not include the same endorsements that were ultimately included in the Policy, Valley suggests that it cannot be bound by any of the endorsements that were not attached to the specimen policy. However, a specimen policy is merely a sample policy—it is not itself a binding contract between the parties. "As we have explained: `Policies "are usually issued on standard forms containing terms and conditions drafted by the [insurer]. Often, the insurer is willing to modify or change the standard forms by `endorsements . . . . Sometimes, the policy issued is entirely nonstandard and drafted for the particular risk undertaken" — a so-called "manuscript" policy. [Citations.] These standard forms are often employed industrywide. [Citation.] A specimen policy is an example of a standard policy of a particular insurance company. [Citation.]" (Dart Industries, Inc. v. Commercial Union Ins. Co. (2002) 28 Cal.4th 1059, 1074, fn. 5, italics added (Dart Industries).)
There is no reason to expect that a standardized sample policy will reflect all of the terms that may be included in an issued policy. (See Dart Industries, supra, 28 Cal.4th at pp. 1073-1074 [specimen policies, like standardized policies, do not provide "the precise language of an insurance policy," however they may be useful in establishing contents of a policy].) Indeed, insurers rely on the representations made by applicants in their insurance applications in order to determine which risks they are willing to cover. Although a specimen copy may provide a general guide as to coverage, each insurance policy is bound to be individually tailored to an applicant.
Valley asserts that it "had no knowledge of the reduction in coverage from the specimen to the `actual Policy," and that it thus should not be "bound by the exclusions contained in the `actual Policy." Valleys use of quotations with regard to the word "actual" highlights the problem with Valleys position. Although Valley would like to rely on the terms of the specimen policy, the only insurance contract that Valley and Lexington entered into is the Policy, i.e., the "actual Policy." As we previously discussed, a specimen policy is not itself an enforceable contract between the parties, but rather, is a sample of the type of enforceable policy that could be issued. Thus, there could not have been a reduction in insurance coverage in this case. The Policy at issue here was Valleys first insurance contract with Lexington, not a renewal policy, and thus, coverage could not have been "reduced" from a prior level. The situation here is therefore distinguishable from that in Davis, supra, 223 Cal.App.3d 1322, on which Valley relies.
Davis involved an insurer that attempted to avoid coverage under an exclusion it inserted into a renewal policy. The insurers only notice to the insured of that change in coverage was a general notice that changes had been made to the policy. (Davis, supra, 223 Cal.App.3d at p. 1332.) The Davis court rejected the insurers position, stating:
"It is a long-standing general principle applicable to insurance policies that an insurance company is bound by a greater coverage in an earlier policy when a renewal policy is issued but the insured is not notified of the specific reduction in coverage. [Citations.] [Citation.] `[E]xceptions and limitations on coverage the insured could reasonably expect must be called to the subscribers attention clearly and plainly before the exclusion will be interpreted to relieve the insurer of the liability for performance. [Citation.]" (Davis, supra, 223 Cal.App.3d at p. 1332.)
The Davis court concluded that the insurer had failed to provide clear, conspicuous notice of the new exclusions, and therefore, that the new exclusions were ineffective. Davis clearly speaks to what an insurer must do when it renews a policy, but reduces coverage. It is inapplicable here because this case does not involve the renewal of a policy or a reduction in coverage.
Haynes, supra, 32 Cal.4th 1198, is also inapplicable. The Haynes court was addressing an obscure provision in an "E-Z Reader Car Policy" that purported to limit the coverage for permissive users of an insured vehicle. (Id. at p. 1202.) According to the court, "While the insurer has every right to sell insurance policies by methods of mechanization, and present-day economic conditions may well justify such distribution, the insurer cannot then rely upon esoteric provisions to limit coverage. If it deals with the public upon a mass basis, the notice of noncoverage of the policy, in a situation in which the public may reasonably expect coverage, must be conspicuous, plain and clear. [Citation.]" (Id. at p. 1208.) The Haynes court went on to explain,
"The cases Farmers cites therefore do not insulate the permissive user limitation from the general requirement that, as a coverage reduction, it must be conspicuous. As has been explained in detail, Farmers `does not meet its stringent obligation to alert a policyholder to limitations on anticipated coverage by hiding the disfavored language in an inconspicuous portion of the policy. [Citation.]" (Id. at p. 1211.)
In the present case, although the designated work exclusion was not included in the specimen policy provided to Valley, this does not necessarily establish that Valley anticipated that the Policy would provide coverage for prior work. In fact, Valleys pleadings suggest that Valley believed it would be covered under the Crusader policy for claims arising out of the period prior to the inception date of the Lexington Policy. Valley would thus have had no need for coverage for prior work under the Lexington policy.
At oral argument, counsel for Valley suggested that there remains a triable issue of fact as to whether Lexington should be estopped from relying on the designated work exclusion on the ground that the specimen policy that it provided to Valley did not include a designated work exclusion endorsement. In support of this assertion, Valley suggested that the evidence in the record supports its assertion that Lexington represented to Valley that the policy Valley was purchasing would be "identical to" the specimen policy.
The record does not support Valleys factual contention. The only portion of the record that Valley identified as raising a triable issue of fact on this issue—apart from the copy of the specimen policy itself—is a portion of the declaration of Ronald Raymond, Valleys president. However, the trial court sustained Lexingtons evidentiary objections to the relevant paragraph in the Raymond declaration that refers to representations regarding the specimen policy, and Valley has not challenged this ruling on appeal. There is thus no basis on which this court can consider Raymonds statement regarding the specimen policy. (See Yanowitz v. LOreal USA, Inc. (2005) 36 Cal.4th 1028, 1037 [on appeal from summary judgment, reviewing court must consider ""all the evidence set forth in the moving and opposing papers except that to which objections were made and sustained""]; Wall Street Network, Ltd. v. New York Times Co. (2008) 164 Cal.App.4th 1171, 1182, fn. 5 [party forfeits any challenge to summary judgment evidentiary rulings on appeal by failing to raise any contention regarding the rulings].) Valley has pointed to no other evidence in the record that would support its contention that there remains a triable issue of fact as to whether Lexington misrepresented the terms of the policy Valley purchased by providing a specimen policy that did not include the designated work exclusion.
Further, Valley does not claim that the designated work exclusion was not conspicuous, plain, or clear. Valley was apprised of the exclusion in the "FORMS SCHEDULE" at the beginning of the document. Endorsement number 5 is a "DESIGNATED WORK EXCLUSION." Valley was thus on notice that certain work would be excluded from coverage pursuant to endorsement number 5. Further, the description of the excluded work is plain and clear—all work completed prior to the policys inception date was excluded. This exclusion was not hidden, and it was simple, understandable, and easy to read. There is no basis for not enforcing this exclusion on the ground that the specimen copy Lexington provided to Valley before Valley purchased the Policy did not contain this particular exclusion.
Another impediment to Valleys position is that there is no legal basis for considering Valleys contention that it should not be bound by the terms of the Policy since Valley has not challenged the validity of the designated work exclusion by seeking reformation of the contract. In fact, Valleys declaratory relief claim presumes that the designated work exclusion is an enforceable part of the Policy. Valley does not dispute the terms of the Policy, and there are no material facts that remain to be determined regarding the terms of the Policy. There is thus no merit to Valleys contention that a material issue of fact remains, based on the fact that the designated work exclusion was not included in a specimen policy that Lexington provided to Valley prior to Valleys purchase of the Policy.
For example, Valley seeks relief that includes "a declaration the `manifestation language alleged by Crusader in its complaint is unenforceable because it is repugnant to the `prior work exclusion in the Lexington Policy . . . ."
We can determine, as a matter of law, that the Policy—which Valley at no time challenged or sought to amend after receiving it — includes an enforceable exclusion for work completed prior to the Policys inception. As a result, we must affirm the trial courts grant of summary judgment in favor of Lexington.
IV.
DISPOSITION
The judgment of the trial court in favor of Lexington is affirmed.
WE CONCUR:
BENKE, Acting P. J.
NARES, J.