Grebow v. Mercury Ins. ( 2015 )

Filed 10/26/15 (unmodified opn. attached)
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION FIVE
ARTHUR GREBOW et al., B261172
Plaintiffs and Appellants, (Los Angeles County
Super. Ct. No. LC101066)
v.
ORDER MODIFYING OPINION
MERCURY INSURANCE COMPANY, [NO CHANGE IN JUDGMENT]
Defendant and Respondent.
THE COURT:
It is ordered that the opinion filed herein on October 21, 2015 be modified as
follows:
On page 10 in the second full paragraph delete the last sentence beginning with
“accordingly” and add the following sentence: Accordingly, the policy did not cover
the existing conditions of the Grebows’s residence.
On page 10 in the heading 2 change “Prevision” to Prevention.
On page 10, immediately after heading 2. add the following paragraph:
It is arguable—although Mercury did not specifically make the argument—
that had there been a collapse, the exclusion would have precluded coverage, and
therefore the insurer, on that basis, would have no duty to reimburse the Grebows
for their costs for any mitigation or preventative work. But, as we discuss, if the
exclusion did not apply, the insurer had no duty to reimburse the Grebows for such
costs.
There is no change in judgment. The petition for rehearing is denied.
MOSK, J. TURNER, P. J. KRIEGLER, J.
2
Filed 10/21/15 (unmodified version)
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION FIVE
ARTHUR GREBOW et al., B261172
Plaintiffs and Appellants, (Los Angeles County
Super. Ct. No. LC101066)
v.
MERCURY INSURANCE COMPANY,
Defendant and Respondent.
APPEAL from a judgment of the Superior Court of the County of Los Angeles,
Josh Fredericks and Russell Kussman, Judges. Affirmed.
Grebow & Rubin, Arthur Grebow for Plaintiffs and Appellants.
Hager & Dowling, John V. Hager, Christine W. Chambers for Defendant and
Respondent.
INTRODUCTION
Plaintiffs and appellants Arthur and Helen Grebow (the Grebows) appeal from a
summary judgment in favor of defendant and respondent Mercury Insurance Company
(Mercury) for causes of action for breach of contract and tortious breach of insurance
contract. The Grebows experienced significant damage to their rear deck and supporting
structure of their residence. Their general contractor and structural engineer advised
them that the rear of the residence was in the process of falling to the ground and strongly
advised them not to enter the second story of the house until they repaired the damage.
The Grebows spent over $91,000 on such repairs. They then made a claim for
reimbursement of that amount against Mercury, their homeowner’s insurer, because at
least a portion of the house had collapsed and because the expenditure was to avoid
imminent insurable damage and to mitigate damages. Mercury contended that the
Grebows’ claim under their homeowner’s insurance policy was not covered because the
damage to their property did not constitute a “collapse” as defined by the policy. The
definition of a collapse is a “sudden and complete breaking down or falling in or
crumbling into pieces or into a heap of rubble or into a flattened mess.” Mercury also
argued that it had no obligation to reimburse for expenditures to avoid an insurable loss
and there was no mitigation as that term is used in the policy.
The trial court granted a motion for summary judgment in favor of Mercury and
denied the Grebows’s motion for summary adjudication.1 The Grebows filed a timely
appeal. We hold that Mercury is not liable for the reimbursement costs because there was
not a collapse as defined in the policy, the duty to mitigate arises only after a loss from a
collapse, and Mercury had no duty, express or implied, to reimburse the Grebows for
costs to prevent imminent insurable damage.
1
We augment the record with the signed order denying the Grebows’ motion for
summary adjudication and granting Mercury’s motion for summary judgment.
2
STATEMENT OF THE FACTS2
The Grebows owned a residence located in Tarzana, California (the property). In
February 2002, they purchased a Superior Property Homeowners Policy (the policy) from
Mercury that provided coverage for the property. The policy limits were $1,466,000,
with a $2,500 deductible.
In May 2013, the Grebows asked a general contractor to inspect the rear deck of
the house because of recurring watermarks. The contractor discovered severe decay in
the steel beams, which, with steel poles, supported the second floor of the house. He
reported that the supporting beams and poles could not support the upper portion of the
house, and that a large portion of the house would fall.
A structural engineer inspected the property and agreed with the general
contractor’s assessment. The engineer believed the failure of the poles and beams was
caused by decay and corrosion, which were concealed by the deck floor and patio ceiling.
Because of the corrosion, the upper portion of the house was in danger of falling and the
Grebows were advised not to enter the top portion of their house until repair work was
done. On May 17, 2013, the Grebows authorized the purchase of material for shoring
and had it installed the next day. On May 28, 2013, the Grebows entered into a
construction contract. On June 19, 2014, they orally notified Mercury of their claim for
reimbursement of their repair expenses, and on June 20, 2013, sent a written claim for the
reimbursement. Mercury responded that it would investigate, and on October 22, 2013, it
denied the claim. The Grebows spent $91,000 to have the home remediated.
2
The facts are stated in accordance with the standard of review of summary
judgment motions.
3
The relevant policy provisions are as follows:
“SECTION I—PERILS ISSUED AGAINST AND EXCLUDED PROPERTY
We insure for direct physical loss to property . . . .
“SECTION I—EXCLUSIONS
We do not insure, under any coverage, for any loss which would not have occurred
in the absence of one or more of the following excluded events: We do not insure for
such loss regardless of (a) the cause of the excluded event; or (b) other causes of the loss;
or (c) whether other causes acted concurrently or in any sequence with the excluded event
to produce the loss . . . .
[¶] . . . [¶]
“4. Neglect, meaning our failure to use all reasonable means to save and
preserve property at and after the time of the loss.
[¶] . . . [¶]
“13. Corrosion or Electrolysis. . . .
[¶] . . . [¶]
“17. Loss caused by:
“a. wear and tear, marring, scratching, deterioration;
“b. inherent vice, latent defect, mechanical breakdown;
“c. rust . . . .”
“SECTION I—OTHER COVERAGES
[¶] . . . [¶]
“7. Collapse. We insure for direct physical loss to covered property caused by
collapse of a building or any part of a building caused only by one or more of the
following perils:
“a. Perils Insured Against under Coverage C [Personal Property];
“b. hidden decay;
4
“c. hidden insect or vermin damage;
“d. weight of contents, equipment, animals or people;
“e. weight of ice, snow, sleet or rain which collects on a roof; or
“f. use of defective material or methods in constructions,
remodeling, or renovation if the collapse occurs during the
course of the constructions, remodeling or renovation.
Loss to an awning, fence, patio, pavement, swimming pool, tennis court,
underground pipe, flue, drain, cesspool, septic tank, foundation, retaining wall, bulkhead,
pier, wharf or dock is not included under items b., c., d., e., and f. unless the loss is a
direct result of the collapse of a building.
Collapse means sudden and complete breaking down or falling in or crumbling
into pieces or into a heap of rubble or into a flattened mass. Collapse does not include
settling, cracking, shrinking, bulging, expansion, sagging or bowing, nor a substantial
impairment of the structural integrity of a structure or building, nor a condition of
imminent danger of collapse of a structure or building.”
The policy imposed the following relevant conditions:
“SECTION I—CONDITIONS
[¶] . . . [¶]
“2. Your Duties After Loss. In case of a loss to which this insurance may
apply, you must perform the following duties:
“a. give prompt notice to us or our representative;
[¶] . . . [¶]
“c. protect the property from further damage;
“d. prepare an inventory of the loss to the building and damaged
personal property showing the quantity, description and
amount of loss. Attach all bills, receipts and related
documents that jury the figures in the inventory. . . .”
5
In November 2013, the Grebows filed an action against Mercury. They alleged
causes of action for breach of contract and tortious breach of insurance contract. The
Grebows filed a motion for summary adjudication on the coverage issue. Mercury filed a
motion for summary judgment on the ground that as a matter of law there was no
coverage for the Grebows’s claim and thus it had no obligation to reimburse the Grebows
for the Grebows’s expenses. The trial court denied the Grebows’s motion for summary
adjudication and granted Mercury’s summary judgment motion. There is no indication
that evidentiary objections were ruled upon, and no party refers to evidentiary objections
as being an issue on appeal. The trial court denied the Grebows’s motion for new trial.
The Grebows filed a timely notice of appeal, appealing the denial of their motion for
summary adjudication, the granting of Mercury’s summary judgment, and the denial of
the Grebows’s motion for new trial.
DISCUSSION
A. Standard of Review, Rules of Interpretation, and Choice of Law
Our review of the trial court’s ruling on the summary judgment motion is
governed by well established principles. “‘“A trial court properly grants a motion for
summary judgment only if no issues of triable fact appear and the moving party is
entitled to judgment as a matter of law. (Code Civ. Proc., § 437c, subd. (c); see also id.,
§ 437c, subd. (f) [summary adjudication of issues].) The moving party bears the burden
of showing the court that the plaintiff ‘has not established, and cannot reasonably expect
to establish,’” the elements of his or her cause of action. (Miller v. Department of
Corrections (2005) 36 Cal. 4th 446, 460 [30 Cal. Rptr. 3d 797, 115 P.3d 77].)’ (Wilson v.
21st Century Ins. Co. (2007) 42 Cal. 4th 713, 720 [68 Cal. Rptr. 3d 746, 171 P.3d 1082].)
We review the trial court’s decision de novo, liberally construing the evidence in support
of the party opposing summary judgment and resolving doubts concerning the evidence
in favor of that party. (Yanowitz v. L’Oreal USA, Inc. (2005) 36 Cal. 4th 1028, 1037 [32
Cal. Rptr. 3d 436, 116 P.3d 1123].)” (State of California v. Allstate Ins. Co. (2009) 45
6
Cal. 4th 1008, 1017-1018.) Both parties had sought a determination as a matter of law on
the issue of coverage. A denial of a motion for new trial after a summary judgment is
reviewed de novo. (Wall Street Network, Ltd. v. New York Times Co. (2008) 164
Cal. App. 4th 1171, 1176.) The policy provides for the application of California law to any
dispute.
The California Supreme Court has established the following rules of
interpretation: “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., at § 1638.)”’” (MacKinnon v. Truck Ins.
Exchange (2003) 31 Cal. 4th 635, 647-648 (MacKinnon).) Although “‘“insurance
contracts have special features, they are still contracts to which the ordinary rules of
contractual interpretation apply.” [Citation.]’” (Rosen v. State Farm General Ins. Co.
(2003) 30 Cal. 4th 1070, 1074 (Rosen).) “‘If possible, we infer th[e] intent solely from
the written provisions of the insurance policy. [Citation.] If the policy language “is clear
and explicit, it governs.” [Citation.]’ [Citation.]” (Id. at pp. 1074-1075.)
A provision in an insurance policy is deemed ambiguous when it is capable of at
least two reasonable constructions. (County of San Diego v. Ace Property & Casualty
Ins. Co. (2005) 37 Cal. 4th 406, 415 (Ace); MacKinnon, supra, 31 Cal.4th at p. 648.)
“‘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.’ [Citation.]”
(MacKinnon, supra, 31 Cal.4th at p. 648.) “Courts will not strain to create an ambiguity
where none exists.” (Waller v. Truck Ins. Exchange, Inc. (1995) 11 Cal. 4th 1, 18-19.)
7
Any ambiguity in an insurance policy is construed against the insurer in order to protect
the insured’s reasonable expectation of coverage. (Ace, supra, 37 Cal.4th at p. 415.)
Coverage of an insurance policy should be interpreted broadly and the exclusions
narrowly to afford the greatest protection. (MacKinnon, supra, 31 Cal.4th at p. 648.) To
prevail, the insurer must establish that its interpretation of the policy is the only
reasonable one. (Palp, Inc. v. Williamsburg National Ins. Co. (2011) 200 Cal. App. 4th
282, 290; see MacKinnon, supra, 31 Cal.4th at p. 648.)
B. Analysis
1. Coverage for a Collapse
The policy insures “for direct physical loss to covered property caused by collapse
of a building or any part of a building caused only by one or more of the following perils:
[¶] . . . [¶] b. hidden decay; . . .” “Collapse” is defined as “sudden and complete
breaking down or falling in or crumbling into pieces or into a heap of rubble or into a
flattened mass.” The policy adds that “collapse” does not include “settling, cracking
shrinking, bulging, expansion, sagging or bowing, nor a substantial impairment of the
structural integrity of a structure or building, nor a condition of imminent danger of
collapse of a structure or building.”
The Grebows assert that the deck supporting the rear portion of the residence is a
part of the building, that there was a collapse of that deck as that term is used in the
policy because certain elements of the structure had become detached, and the collapse
was due to hidden decay. Thus, the Grebows claim the insurance policy applied.
Mercury contends that the clear language of the insurance policy is inconsistent with the
Grebows’s claims.
There is a split of authorities over the scope of collapse coverage when the policies
leave the term “collapse” undefined. “Insurance companies reacted by defining
‘collapse’ and elaborating the provisions in an attempt to make the scope of coverage
clearer. This effort has met with limited success, as courts continue to grapple with
8
disputes regarding the nature and scope of coverage. Consequently, the split in authority
continues. One line of case law holds that ‘collapse’ requires a complete falling down or
flattening to rubble before the loss becomes insured. The other lines of cases (which has
been termed the ‘modern’ and ‘majority’ view) holds that the building need not entirely
or even partially fall down in order for damage to rise to the level of a collapse. Rather,
the property is deemed to have collapsed if the damage materially impairs the basic
structure or substantial integrity of the building.” (5 New Appleman on Insurance Law
(Library ed. 2015) § 45.06[1], pp. 45-34 to 45-35, fns. omitted (New Appleman); see 10A
Couch on Insurance (3d ed. 2005) § 148:54, pp. 148-93 to 148-96.)
As here, insurance companies have inserted “ever more explicit language in
attempts to narrow the scope of [collapse] coverage.” (New Appleman, supra,
§ 45.06[2][b] at p. 45-41.) “For the most part, courts have found such provisions to be
unambiguous and enforced them to exclude damage to a building unless and until some
part of the building has actually fallen down or been reduced to rubble.” (Id. at p. 45-41.)
The policy includes clauses such as “sudden and complete breaking down or
falling in or crumbling into pieces or into a heap of rubble or into a flattened mass” and
excluding “substantial impairment of the structure or building” and “a condition of
imminent danger of collapse of a structure or building.” (See 5 New Appleman, supra, at
§ 45.06[2][b] at p. 45-41 for comparable language.) This language renders the collapse
clause unambiguous.
The undisputed facts show there was no “sudden and complete breaking down or
falling in or crumbling into pieces or into a heap of rubble or into a flattened mass,” one
of which is required by the policy for there to be a collapse. Also, the Grebows contend
there was a “substantial impairment of the structure or building” and a “condition of
imminent danger of collapse of a structure or building,” but there are exclusions in the
policy for such circumstances.
In Rosen, supra, 30 Cal. 4th 1070, the Supreme Court held that under an insurance
policy with similar language to the one in issue here, the policy did not cover an
imminent collapse—just an actual collapse. In that case, the insurance policy defined
9
“collapse” as “actually fallen down or fallen to pieces.” (Id. at p. 1073.) Here, the clause
is “falling in or crumbling into pieces or into a heap of rubble or into a flattened mass.”
There is no significant distinction between these two provisions. The court in Rosen
concluded that when the policy language was clear it could not rewrite the coverage to
conform to public policy or the insured’s expectations. (Id. at pp. 1077-1080.)
The Grebows rely on Panico v. Truck Ins. Exchange (2001) 90 Cal. App. 4th 1294.
In that case, as many as six ceiling tiles fell into the insured’s storeroom damaging
property. Because the record was not clear on the size of the hole created as a result of
the tiles falling, the court reversed what was the equivalent of a nonsuit, saying that there
was enough evidence to make it reasonable to infer that a substantial portion of the
structure fell making it a collapse of a part of the building. Here, no portion of the
Grebows’s home or deck had collapsed.
In addition, in the instant case, there is an exclusion in the policy for a loss caused
by “corrosion,” “wear and tear,” “deterioration” or “rust.” The uncontradicted evidence
was that portions of the structure were replaced due to deterioration of the poles caused
by rust. Thus, various exclusions applied. Accordingly, the policy did not cover what
happened to the Grebows’s residence.
2. Reimbursement for Mitigation and Prevision of Imminent Loss
The Grebows claim they are entitled to be reimbursed for their costs as mitigation.
They rely on the clause in the insurance policy that provides, “In case of a loss to which
this insurance may apply, you must perform the following duties: [¶] . . . [¶] c. protect
property from further damage, make reasonable and necessary repairs required to protect
the property, and keep an accurate record of your repair expenses.” Mercury argues that
what the Grebows claim is mitigation is not covered because the clause applies after a
loss occurs.
The mitigation clause is unambiguous. The duty to mitigate arises “[i]n case of a
loss to which this insurance may apply.” Here, the only loss to which the insurance may
apply is a collapse, which as defined by the policy did not occur. (See 3 New Appleman,
10
supra, § 20.06[4], p. 20-47 [“Because the duty to preserve or protect property is
tantamount to a duty to mitigate damages, the duty on the part of the insured applies only
after a covered loss occurs”].)
To read the policy as the Grebows do would mean that virtually all maintenance
calculated to prevent ultimately an insurable loss would have to be reimbursed by the
insurer. The parties could not possibly have intended that Mercury insured for
deterioration or wear and tear thus converting their homeowner’s insurance policy into a
maintenance agreement. (Murray v. State Farm Fire & Casualty Co. (1990) 219
Cal. App. 3d 58, 62.) Indeed, the policy excludes losses caused by wear and tear and
deterioration, rust, or corrosion.
The Grebows argue that Mercury has an obligation to reimburse them for expenses
to prevent an imminent insurable loss. Such an obligation has arisen from “sue and
labor” clauses.3 Our Supreme Court in Young’s Market Co. v. American Home Assur.
Co. (1971) 4 Cal. 3d 309, at pages 313-314 (Young’s Market) discussed the “sue and
labor” clause as follows: “The ‘sue and labor’ clause appearing in most marine and
inland marine insurance policies is of ancient lineage, its forebears extending back—
according to a leading case on the subject—at least into the seventeenth century.
(Reliance Insurance Company v. The Escapade (5th Cir. 1960) 280 F.2d 482, 488-489,
fn. 11.) Such a clause makes express the duty implied in law on the part of the insured to
labor for the recovery and restitution of damaged or detained property (Winter, Marine
Insurance (3d ed. 1952) p. 393) and it contemplates a correlative duty of reimbursement
separate from and supplementary to the basic insurance contract. ‘Its purpose is to
encourage and bind the assured to take steps to prevent a threatened loss for which the
underwriter would be liable if it occurred, and when a loss does occur to take steps to
diminish the amount of the loss. Under this clause the assured recovers the whole of the
3
“Sue and Labor clauses tend to cover the insured against the cost of preventing
imminent loss, to the extent that such a loss would have been covered by the policy if it
had occurred.” (Abraham, Peril and Fortuity in Property and Liability Insurance (2001)
36 Tort Ins. L.J. 777, 791; see Ins. Code, § 1994.)
11
sue and labor expense which he has incurred . . . and without regard to the amount of the
loss or whether there has been a loss or whether there is salvage, and even though the
underwriter may have paid a total loss under the main policy.’ (White Star S. S. Co. v.
North British & Merc. Ins. Co. (E.D.Mich. 1943) 48 F. Supp. 808, 813; see Reliance
Insurance Company v. The Escapade, supra, 280 F.2d 482, 488-489, fn. 11; 15 Couch on
Insurance 2d (1966) § 55:123, p. 552; Vance on Insurance (2d ed. 1930) § 255, pp. 864-
865.)” In other words, the sue and labor clause applies when a party takes steps to
prevent an imminent loss that would be covered if it occurred, such as a collapse. The
mitigation clause in the policy here is not the same as the usual sue and labor clause,
which provides for preventative work by the insured “‘[i]n case of actual or imminent
loss or damage.’” (Young’s Market, supra, 4 Cal.3d at p. 311; see also 3 New Appleman,
supra, § 20.06[2], pp. 20-46 to 20-47.) As noted, the mitigation clause here only applies
after the loss occurs.
The Grebows contend that in any event there is a common law duty of the insured
to prevent an imminent insurance loss and a corresponding duty of the insurer to
reimburse the insured for such mitigation costs. This is an issue that has conflicting
authorities.
The Grebows refer to the language in Southern Cal. Edison Co. v. Harbor Ins. Co.
(1978) 83 Cal. App. 3d 747, at page 759, which states the insured “was under a duty to
prevent and mitigate insurable loss . . . . The effect of the sue and labor clause in that
regard was only to make express that implied duty.” (Italics added.) According to the
Grebows, this means they had a duty to prevent an insurable loss—the collapse—and
should be compensated for such preventive work. The court added that the “fulfillment
of the duty to mitigate does not necessarily give rise to the obligation of reimbursement;
only mitigation expenses which are for the primary benefit of the insurer in this case are
recoverable under a sue and labor clause.” (Ibid.) The court held that there was no
coverage under an express sue and labor clause because, although the work done may
have prevented or mitigated loss to the structure, that work was not primarily for the
benefit of the insurer, and the claim for reimbursement for in essence a design defect was
12
excluded from one of the policies and the damage took place prior to the date the policy
became operative. (Id. at p. 760.) To the extent the enigmatic reference to an “implied
duty” can be read to support the Grebows’s position, it was dictum.
In Young’s Market, supra, 4 Cal. 3d 309, also cited by the Grebows, the insured
transported liquor, which was confiscated by state authorities. The insured sought from
its insurer its legal expenses incurred to prevent the confiscation. The policy excluded
the risk of government seizure or confiscation. As the loss would not have been covered,
the preventive measures were not reimbursable. The court said in regard to “multiple
perils” insurance policy, a sue and labor clause “makes express the duty implied in law on
the part of the insured to labor for the recovery and restitution of damages or detained
property . . . and it contemplates a correlative duty of reimbursement separate from and
supplementary to the basic insurance contract.” (Id. at p. 313, italics added.)
As in Southern Cal. Edison Co. v. Harbor Ins. Co., supra, 83 Cal.App.3d at page
759, to the extent the court’s statement in Young’s Market, supra, 4 Cal.3d at page 313,
can be read to suggest there is some implied duty of reimbursement for preventive acts by
the insured, the statement was dictum in that the court in Young’s Market held that the
sue and labor clause did not apply because the loss would not have been insurable.
Moreover, the court’s discussion was in the context of a policy that contained an express
sue and labor clause, which, as the court noted, generally was associated historically with
marine insurance. Such a clause is not in the Mercury policy.
There are other authorities that support the Grebows’ position. One authority,
without case citation, says that “an insured may be reimbursed for the reasonable
expenses incurred if it takes action and prevents a covered loss from occurring.” (3 New
Appleman, supra, § 20.06[4], p. 20-47.) One court in a widely-quoted statement said, “It
would be a strange kind of argument and an equivocal type of justice which would hold
that the defendant would be compelled to pay out, let us say, the sum of $100,000 if the
plaintiff had not prevented what would have been inevitable, and yet not be called upon
to pay the smaller sum which plaintiff actually expended to avoid a foreseeable
disaster. . . . [¶] It is folly to argue that if a policy owner does nothing and thereby
13
permits the piling up of mountainous claims at the eventual expense of the insurance
carrier, he will be held harmless of all liability, but if he makes a reasonable expenditure
and prevents a catastrophe he must do so at his own cost and expense.” (Leebov v.
United States Fidelity & Guaranty Co. (Pa. 1960) 165 A.2d 82, 84.)
Appleman on Insurance said that to preclude reimbursement for preventive acts
“tends to undermine the purpose of the provision to encourage insureds to take prompt
and reasonable steps to prevent losses for the benefit of insurers. If there is no coverage
for preventive efforts, an insured might decide to delay saving property until it has been
damaged in order to trigger coverage. The insurer might have to pay for the insured’s
increased loss under these circumstances. The better holding is to allow recovery of
expenses incurred to prevent a covered loss, as long as the policyholder believes the loss
is imminent.” (5 New Appleman, supra, § 45.02[4], p. 45-18; see 12 Couch on Insurance
3D (3d ed. 2005) § 178:10, pp. 178-16 to 178-18; see also Note, Allocation of the Costs
of Preventing an Insured Loss (1971) 71 Colum. L.Rev. 1309, 1328 (Note)
[“Close analysis demonstrates that there is no compelling reason why claims for
prevention costs cannot be allowed in non-marine insurance cases when based on a quasi-
contractual theory of recovery. [P]revention cost recovery should be limited to
extraordinary cases—cases where extensive measures need to be undertaken, or where
the cost to the insured is uncommonly high, or where the personal risk to the insured is
great. For the courts to permit reimbursement in such cases not only meets normal
standards of basic fairness, but promotes important societal values as well—a basic
consideration in shaping any law”].)
There are, however, conflicting authorities. As noted by one authority (albeit
dated), “Most courts, however, have not allowed an insured to recover prevention costs
from the insurer without an express recovery provision.” (Note, supra, 71 Colum. L.Rev.
at p. 1316.)
In rejecting a claim for reimbursement for preventive measures, the court in Swire
Pacific Holdings, Inc. v. Zurich Insurance Company (Fla. 2003) 845 So. 2d 161, 169 said,
“The reasoning suggested by [the insured] is certainly logical, to the effect that the
14
preventive measures may have conferred a benefit upon the insurance company. If the
Sue and Labor clause had been worded differently or if it had included language
concerning the prevention of loss, the conclusion may have been different. However, we
must address the specific contract and specific facts before us to render our analysis.”
Similarly, in W.M. Schlosser Co. v. Insurance Co. of North America (Md. 1992) 600
A.2d 836, 839-840, the court in rejecting a claim for reimbursement for preventive
measures, also disagreed with the conclusion of some courts that “‘concepts of fairness
and equity justify the construction of an insurance policy to provide coverage where none
exists. [¶] This is not to say the court ignores the exigent circumstances involved or the
obvious good faith efforts of the plaintiff. We, however, are no[t] empowered, in the
guise of good faith and peculiar circumstances, to alter the terms of an otherwise
unambiguous contract. The intention of the parties is the gravamen under ordinary
contract principles.’”
After considering the various authorities, we conclude that absent a provision that
provides for reimbursement, the insurer has no obligation to reimburse an insured for
costs to prevent an imminent insurable occurrence from occurring. Here, we are not
dealing with mitigation after insurable damage occurs. The policy does not provide for
reimbursement to prevent imminent insurable occurrence. The policy provides, “We
insure for direct physical loss to property . . . .” There is an exclusion for “neglect”
which is defined as “meaning your failure to use all reasonable means to save and
preserve property at and after the time of a loss.” There is nothing about neglect before
the loss or about reimbursement. There is nothing in the coverage provision of the policy
that refers to reimbursement for preventive measures. As noted, the mitigation provision
applies when a covered loss has occurred.
There is no implied obligation to reimburse an insured for costs to prevent an
imminent insurance damage. “Implied terms are not favored in the law, and should be
read into contracts only upon grounds of obvious necessity. (Frankel [v. Board of Dental
Examiners (1996)] 46 Cal.App.4th [534,] 545.) A court may find an implied contract
provision only if (1) the implication either arises from the contract’s express language or
15
is indispensable to effectuating the parties’ intentions; (2) it appears that the implied term
was so clearly within the parties’ contemplation when they drafted the contract that they
did not feel the need to express it; (3) legal necessity justifies the implication; (4) the
implication would have been expressed if the need to do so had been called to the parties’
attention; and (5) the contract does not already address completely the subject of the
implication. [Citations.]” (In re Marriage of Corona (2009) 172 Cal. App. 4th 1205, 1222
(Corona); see Abers v. Rounsavell (2010) 189 Cal. App. 4th 348, 361-362 [“‘We do not
have the power to create for the parties a contract that they did not make and cannot
insert language that one party now wishes were there.’ [Citation.] Courts may find an
implied term in a contract only under ‘limited circumstances’ on grounds of ‘“obvious
necessity”’ ‘where the term is “indispensable to effectuate the expressed intention of the
parties”’]; Ben-Zvi v. Edmar Co. (1995) 40 Cal. App. 4th 468, 473 [declining to imply
additional requirements into exclusive distributorship to give manufacturer flexibility to
meet changing market conditions].)”]; see also Rosen, supra, 30 Cal.4th at p. 1080 [court
should not “rewrite the coverage provision” to “compel the insurer to give more than it
promised and would allow the insured to get more than it paid for”].)
Civil Code section 1655 provides in part: “Stipulations which are necessary to
make a contract reasonable . . . are implied, in respect to matters concerning which the
contract manifests no contrary intention.” Civil Code section 1656 provides: “All things
that in law or usage are considered or incidental to a contract, or as necessary to carry it
into effect, are implied therefrom, unless some of them are expressly mentioned therein,
when all other things of the same class are deemed to be excluded.” The Grebows do not
show how those sections would apply here. (See Corona, supra, 172 Cal.App.4th at p.
1223.)
To imply an obligation to reimburse an insured for preventive acts would result in
uncertainty as to when such an obligation can be enforced. For example, if an insured
has a hole in his or her roof, should he or she be able to obtain reimbursement for
preventing water damage by fixing the roof? If a tree is leaning ominously toward a
house, is the cost of removing the tree reimbursable? All maintenance is geared towards
16
preventing an insurable loss. To have to litigate the point at which maintenance becomes
a reasonable step to prevent an imminent insurable loss is an undesirable way to deal with
insurance coverage. Moreover, if insurers are responsible for such reimbursement, they
will either raise the cost of insurance or attempt to insert even more explicit clauses
precluding such exposure.
When an insured can prevent an insurable loss from occurring, he or she does so
because he or she would rather have the house and property in it than insurance proceeds
or reconstruction. The homeowner generally would rather stay in the house than have it
reduced to rubble and not have to replace personal possessions. In marine insurance, a
ship and its cargo do not belong to the master, and the insured can replace them quickly.
But a homeowner has a considerable personal incentive to take corrective action to avoid
the destruction of the house. (Note, supra, 71 Colum. L.Rev. at pp. 1324-1325.)
Some have suggested that even if there is no implied term for reimbursement,
doctrines such as quasi-contract or unjust enrichment are applicable. (See W.M.
Schlosser Co. v. Insurance Co. of North America, supra, 600 A.2d 839-840; Note, supra,
71 Colum. L.Rev. at pp. 1316-1328.) But, “it is well settled that an action based on an
implied-in-fact or quasi-contract cannot lie where there exists between the parties a valid
express contract covering the same subject matter.” (Lance Camper Manufacturing
Corp. v. Republic Indemnity Co. (1996) 44 Cal. App. 4th 194, 203; see Klein v. Chevron
U.S.A., Inc. (2012) 202 Cal. App. 4th 1342, 1389; California Medical Assn. v. Aetna U.S.
Healthcare of California, Inc. (2001) 94 Cal. App. 4th 151, 173; see also Hedging
Concepts, Inc. v. First Alliance Mortgage Co. (1996) 41 Cal. App. 4th 1410, 1420 [“When
parties have an actual contract covering a subject, a court cannot—not even under the
guise of equity jurisprudence—substitute the court’s own concepts of fairness regarding
that subject in place of the parties’ own contract”].) Here the subject of the insurers’
duties is covered by an insurance contract. Unjust enrichment and restitution are based
on quasi-contract. (See Federal Deposit Ins. Corp v. Dintino (2008) 167 Cal. App. 4th
333, 346; Durell v. Sharp Healthcare (2010) 183 Cal. App. 4th 1350, 1370; McBride v.
Boughton (2004) 123 Cal. App. 4th 379, 388.) As noted, generally the homeowners would
17
do the preventive work for their own benefit. Just because the insurer may benefit also
does not mean it was unjustly enriched. (See Marina Tenants Assn. v. Deauville Marina
Development Co. (1986) 181 Cal. App. 3d 122, 134 [“the ‘mere fact that a person benefits
another is not of itself sufficient to require the other to make restitution therefor’”]; see
also Meister v. Mensinger (2014) 230 Cal. App. 4th 381, 398; Southern Cal. Edison Co. v.
Harbor Ins. Co., supra, 83 Cal.App.3d at p. 760.)
3. Estoppel
The Grebows assert that after they reported to Mercury the recommendations of
the contractor and engineer that it was necessary to take action immediately to avoid a
collapse and submitted a claim for reimbursement, Mercury did not communicate a
position until four months later when it denied the claim. Actually, the work on the
house had begun before any claim was made.
The Grebows cite Reliance Insurance Company. v. The Escapade, supra, 280 F.2d
482. That case involved a hull policy, covering a yacht and included a “sue and labor
clause,” as well as a warranty that prevented the yacht from being chartered without the
permission of the insured—a pleasure use warranty. (Id. at p. 484.) The agent knew
about the breach of the warranty that would void the policy, but did not inform the
insured of that defense. Instead the agent refused to accept abandonment and declined to
take action pursuant to the policy, thereby placing responsibility for salvage on the
insured, and the agent directed salvage of the stranded yacht, ordered cleaning up and
preventive work done on the yacht in a shipyard. Thus, the insurer required that the
insured mitigate his loss and salvage. The insured claimed mitigation expenses. (Id. at
pp. 484-486.) The court held that the insurer was estopped from denying insured’s claim
for damage to the yacht because the insurer ordered the insured to do work without
disclosing the defense based of the insured’s breach of the warranty clause that the yacht
could not be chartered or hired out without the insured’s approval. (Id. at p. 490.) The
court suggested that the insurer at least implied there would be coverage if the insured
18
mitigated losses and the insured relied upon the insurance agent’s requirement of
preventive work. (Ibid.)
Reliance Insurance Company. v. The Escapade, supra, 280 F.2d 482 has no
applicability here because Mercury did not demand anything of the Grebows or suggest
that the claim would be covered if the Grebows mitigated prospective damages. Also in
that case the damages had already occurred. Mercury took no action upon which the
Grebows could or did rely. So estoppel is not applicable.
4. Tortious Breach of Contract
The Grebows’ claim for tortious breach of contract is based on the contention that
Mercury breached an implied covenant of good faith and fair dealing that is included in
insurance contracts. (Wilson v. 21st Century Ins. Co. (2007) 42 Cal. 4th 713, 720.) As
stated by the court in Love v. Fire Ins. Exchange (1990) 221 Cal. App. 3d 1136, 1151, in a
claim against an insurance carrier, “there are at least two separate requirements to
establish breach of the implied covenant: (1) benefits due under the policy must have
been withheld; and (2) the reason for withholding benefits must have been unreasonable
or without proper cause.” (See Tilbury Constructors, Inc. v. State Comp. Ins. Fund
(2006) 137 Cal. App. 4th 466, 475.) We have held that the Grebows were not entitled to
benefits. Thus, the requirements for a breach of the implied covenant of good faith and
fair dealing have not been met. As the Supreme Court held in Waller v. Truck Ins.
Exchange, Inc., supra, 11 Cal.4th at page 35, there can be no claim under an implied
covenant of good faith and fair dealing or for bad faith unless the policy benefits are due
under the contract. We have held they are not. The trial court properly granted Mercury
a summary judgment and denied the Grebows’s motion for summary adjudication.
5. New Trial Motion
The Grebows moved for a new trial on the grounds that there was an error of law
and that there were triable issues of fact. The Grebows essentially reargued the issues
that were raised in the summary adjudication and summary judgment motions. They
19
introduced no new facts. The Grebows claim they were entitled to reimbursement
because there was a possibility of coverage. But the trial court ruled, and we have held,
there was no possibility of coverage. As noted, we review a denial of a motion for new
trial after a summary judgment de novo. The trial court could not grant a new trial unless
its original ruling, as a matter of law, was erroneous. (Donlen v. Ford Motor Co. (2013)
217 Cal. App. 4th 138, 147; Ramirez v. USAA Casualty Ins. Co. (1991) 234 Cal. App. 3d
391, 397.)4 Thus, we affirm the denial of the motion for new trial.
DISPOSITION
The summary judgment in favor of Mercury and denial of the Grebows’s motion
for summary adjudication and new trial are affirmed. Each party shall bear its or their
own costs.
CERTIFIED FOR PUBLICATION
MOSK, J.
We concur:
TURNER, P. J.
KRIEGLER, J.
4
The Grebows’ appeal on the motion for new trial may be affirmed based on an
inadequate record. We also affirm the order on the merits.
20