Wexler v. Cal. Fair Plan Association

Filed 4/26/21 (unmodified opinion and prior 4/19/21 modification order attached)
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION EIGHT
BROOKE WEXLER, B303100
Plaintiff and Appellant, (Los Angeles County
Super. Ct. No.
v. 19VECV00057)
CALIFORNIA FAIR PLAN ORDER MODIFYING
ASSOCIATION, OPINION
Defendant and Respondent. [NO CHANGE IN
JUDGMENT]
THE COURT:
IT IS ORDERED that the opinion in the above-entitled
matter filed on April 14, 2021, and modified on April 19, 2021, be
modified as follows:
1. On page 4 of the majority opinion, in the first sentence of
the third paragraph, replace “barebones” with “limited”;
2. On page 17 of the majority opinion, delete the last sentence
of the second full paragraph and replace as follows: “FAIR
Plan’s policy is basic to make insurance available and
affordable to homeowners in high risk areas.”;
3. On page 19 of the majority opinion, in the second sentence
of the third full paragraph, delete: “, which is a tool
insurance companies use to invalidate policies and to avoid
paying claims”.
There is no change in the judgment.
____________________________________________________________
GRIMES, Acting P. J. STRATTON, J. WILEY, J.
2
Filed 4/19/21 (unmodified opn. attached)
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION EIGHT
BROOKE WEXLER, B303100
Plaintiff and Appellant, (Los Angeles County
Super. Ct. No.
v. 19VECV00057)
CALIFORNIA FAIR PLAN ORDER MODIFYING
ASSOCIATION, OPINION AND
DENYING PETITION
Defendant and Respondent. FOR REHEARING
[NO CHANGE IN
JUDGMENT]
THE COURT:
IT IS ORDERED that the opinion in the above-entitled
matter filed on April 14, 2021, be modified as follows:
On page 6 of the majority opinion, last paragraph, the last
sentence is deleted: “In other words, the Talbots have
abandoned their dispute with FAIR Plan.”
The petition for rehearing filed by Appellant Brooke Wexler
is denied.
There is no change in the judgment.
____________________________________________________________
GRIMES, Acting P. J. STRATTON, J. WILEY, J.
2
Filed 4/14/21 (unmodified opinion)
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION EIGHT
BROOKE WEXLER, B303100
Plaintiff and Appellant, (Los Angeles County
Super. Ct. No. 19VECV00057)
v.
CALIFORNIA FAIR PLAN
ASSOCIATION,
Defendant and Respondent.
APPEAL from a judgment of the Superior Court of Los
Angeles County, Huey P. Cotton, Judge. Affirmed.
Kerley Schaffer and Dylan L. Schaffer for Plaintiff and
Appellant.
Lewis Brisbois Bisgaard & Smith, Raul L. Martinez, Elise
D. Klein and Celia Moutes-Lee for Defendant and Respondent.
____________________
Brooke Wexler lived with her parents in their home. Her
parents insured the place with a California FAIR Plan
Association owner-occupied dwelling policy. Under “INSURED
NAME,” the FAIR Plan policy listed Wexler’s parents James M.
Talbot and Kimberly A. Talbot. FAIR Plan expressly disclaimed
coverage for unnamed people. The policy does not name Wexler.
Wexler sued FAIR Plan, not for breach of contract, but on bad
faith insurance allegations only. The trial court sustained FAIR
Plan’s demurrer to Wexler’s claim. We affirm.
I
Kimberly and James Talbot own a home in a mountainous
area facing fire danger. They lived together with their seven-
year-old son and their daughter Wexler, whose age is not in the
record. The Talbots alleged smoke from the Woolsey wildfire
damaged their home in 2018. They made claims on their home
insurance policy with FAIR Plan.
The Legislature created FAIR Plan in 1968. FAIR Plan is a
joint reinsurance association to give homeowners in high risk
areas access to basic property insurance. (California FAIR Plan
Assn. v. Garnes (2017) 11 Cal. App. 5th 1276, 1283.)
Wexler, together with the Talbots, sued FAIR Plan on bad
faith insurance allegations founded in their dissatisfaction with
how FAIR Plan handled their claim of smoke damage to the
home’s contents. They attached FAIR Plan documents to their
complaint and said these documents comprised the policy and its
declarations. We describe these documents.
One page was on FAIR Plan letterhead. It lists the Talbots’
address and policy number and is titled “IMPORTANT
RENEWAL POLICY INFORMATION.” This letter urged the
Talbots to contact insurers to see if other insurance was available
2
in the standard market. “The FAIR Plan is an insurer of last
resort and generally provides more limited coverage than does
the standard market.” The letter noted the insurance
marketplace changes regularly, and so property not eligible for
standard market coverage in the past may become eligible. The
letter counseled the Talbots to ask neighbors and insurance
brokers which insurance companies to use and urged the Talbots
themselves to telephone insurance companies.
This letter told the Talbots carefully to consider their
insurance needs and to shop around.
“If you cannot secure a policy with an insurance company
operating in the standard market, you should talk to your broker
about purchasing a Difference in Conditions (DIC) policy in
addition to your FAIR Plan Dwelling Fire policy. A DIC policy
can supplement your FAIR Plan policy by providing important
coverages not in a FAIR Plan policy (e.g. theft, water damage and
liability coverage).”
FAIR Plan advised the Talbots that “[s]electing the amount
and type of insurance coverage appropriate for your needs is your
responsibility. Do your best to make sure that your policy limits
and coverages are sufficient to protect you in the event of a total
loss.”
“Check to see if your property is eligible for our dwelling
replacement cost coverage, which is available at no additional
charge. (This coverage does not increase your policy limits.)”
“For additional premium the FAIR Plan offers numerous
other coverages that broaden or increase the insurance provided
by our basic policy.”
“Review the insurance we have issued to you to make sure
it matches your needs as nearly as possible.”
3
Another page stressed the limited extent of the FAIR Plan
coverage as compared to more typical California homeowners
insurance policies. This page has a comparison chart, which
FAIR Plan cautioned was “NOT ALL-INCLUSIVE”: “For a
complete, specific understanding of all of the similarities and
differences between the FAIR Plan dwelling policy and the
insurance available in the standard market, you should consult
with a licensed insurance broker.”
This chart summarized the limited character of FAIR
Plan’s homeowner coverage. Unlike more typical California
homeowners insurance policies, the FAIR Plan policy did not
insure against all physical loss unless specifically excluded. That
more typical approach yields comprehensive coverage. Rather,
FAIR Plan’s coverage was minimal: it insured the dwelling and
its contents only against damage from fire, lightning, and
internal explosion, with “limited” coverage for smoke damage.
Somewhat broader coverage was optional. In contrast to a typical
homeowners policy, the FAIR Plan policy offered no coverage for
losses from theft, falling objects, weight of ice, snow, or sleet,
water damage, freezing, or sudden accidental damage from
artificially generated electrical current.
FAIR Plan’s coverage was barebones in other ways as well.
FAIR Plan emphasized it provided no liability coverage. It did
not cover personal liability or damage to property of others, and it
excluded medical payments for others. The chart also identifies
other ways in which FAIR Plan’s coverages, limits, and
conditions were less favorable to the homeowner than would be a
more typical homeowners policy.
A companion page, also on FAIR Plan letterhead, is titled
“DWELLING INSURANCE POLICY DECLARATIONS.” This
4
page says the transaction type is “Dwelling - Renewal Offer.” It
identifies the date of issue and the policy number. Under
“INSURED NAME AND MAILING ADDRESS,” this page listed
James M. Talbot and Kimberly A. Talbot. It did not list Wexler,
whose name does not appear in any FAIR Plan document
concerning the policy.
Under “COVERAGES, LIMITS, PERILS AND
PREMIUMS,” this page identifies $686,446 as the coverage limit
for the dwelling and $456,000 as the coverage limit for “Personal
Property.” This page does not define “Personal Property.” That
definition appears in a document titled “Dwelling Property
Policy.” We come to that document in a moment.
The next page is headed:
“READ YOUR INSURANCE POLICY
Selecting the amount and type of insurance coverage appropriate
for your needs is your responsibility.”
At the bottom, this page states: “This policy is a contract
between us and the Named Insured(s) and any loss payees
identified on this Declarations Page. This policy does not provide
coverage to any person or entity not named here.” The italics are
ours.
As will appear, this last provision is important to our
analysis. We call it the no-coverage-for-unnamed-persons clause.
At oral argument, FAIR Plan’s counsel reported this language is
unique to its policies. We will return to it.
An additional policy page is headed as follows:
“California FAIR Plan Association
SCHEDULE OF ADDITIONAL INFORMATION.”
5
This page again lists “INSURED NAME AND ADDRESS”
and again lists James M. Talbot and Kimberly A. Talbot and
their home address. Wexler’s name does not appear.
The document entitled “Dwelling Property Policy”
contained a section called “DEFINITIONS.” This section
contains this definition: “In this policy, ‘you’ and ‘your’ refer to
the ‘named insured’ shown in the Declarations and the spouse if a
resident of the same household.”
The next page of “Dwelling Property Policy,” with our
italics, made this promise:
“If there is a checkmark next to C - Personal Property
in the Declarations, the following applies:
“Coverage C – Personal Property
“We cover personal property usual to the occupancy as
a dwelling and owned or used by you or members of your
family residing with you while it is on the Described
Location. At your request, we will cover personal property
owned by a guest or household employee while the property
is on the Described Location.”
The Talbots’ Declarations page has a check mark
confirming they had personal property coverage.
Returning to the lawsuit, the trial court sustained
FAIR Plan’s demurrer to Wexler’s claims, ruling she lacked
standing to sue the insurer for bad faith. Wexler appealed.
The Talbots’ claims are not at issue. Indeed, the
Talbots asked the court to dismiss their complaint without
prejudice after the trial court barred their daughter’s claim.
In other words, the Talbots have abandoned their dispute
with FAIR Plan.
6
II
Wexler lacks standing to sue FAIR Plan for bad faith.
A
We independently review an order sustaining a demurrer.
We take the facts as pleaded, but we disregard the legal
conclusions, like whether the Talbots have an insurable interest
in Wexler’s property in the house. (See Gulf Ins. Co. v. TIG Ins.
Co. (2001) 86 Cal. App. 4th 422, 429 (Gulf).)
Despite special features, insurance contracts remain
contracts to which ordinary contract interpretation rules apply.
The fundamental goal of contract interpretation is to effectuate
the parties’ intention. Clear and explicit contractual language
governs. This rule protects not subjective beliefs but objectively
reasonable expectations. The court must interpret language in
context, with regard to its intended function in the policy.
(Harper v. Wausau Ins. Co. (1997) 56 Cal. App. 4th 1079, 1085
(Harper).)
B
We summarize some law concerning insurance bad faith.
Every contract, insurance or otherwise, imposes on each
party a covenant of good faith and fair dealing in its performance
and enforcement. (Foley v. Interactive Data Corp. (1988) 47
Cal. 3d 654, 683 (Foley).) Good faith logically subsumes fair
dealing, so it is accurate and less redundant to call this implied
covenant the duty of good faith.
Because the implied good faith duty is a contract term,
compensation for its breach has almost always been limited to
contract rather than tort remedies. (Foley, supra, 47 Cal.3d at p.
684.) We italicize almost because there is an exception to the
general rule: insurance contracts. The landmark Foley decision
7
traced the development of and rationale for this judicial
exception, which is that, against insurance companies, courts will
enforce the duty of good faith with tort damages and not just
contract damages. (See id. at pp. 684–690.)
These insurance cases were a major departure from
traditional principles of contract law. (Foley, supra, 47 Cal.3d at
p. 690.) Our Supreme Court has confined the reach of this
insurance exception. The Foley decision held, for instance, that
violations of the good faith duty in the employment context did
not give rise to tort damages. (Id. at p. 663.) The court again
fenced in the exception in Cates Construction, Inc. v. Talbot
Partners (1999) 21 Cal. 4th 28, 34–35 (Cates), which denied tort
recovery to developers for a surety’s breach of the good faith duty
in a performance bond.
In developing the insurance exception that plaintiffs could
enforce the good faith duty in tort, the Supreme Court for a time
used the rubric of “special relationship.” The idea was that the
tort duty applied whenever a “special relationship” existed, as
between an insurer and an insured. (See Foley, supra, 47 Cal.3d
at pp. 685–691.) Yet the Foley court, when cabining the
expansion of the insurance exception, quoted critics of the
“special relationship” rubric. One quoted critic charged the
“special relationship” rubric is illusory because it is but a label
and it lacked a principled basis for decision. (Id. at p. 691.)
Another quoted critic said this rubric fails because it is opaque,
imprecise, incomplete, and unjustified. (Id. at p. 692.)
After these rebukes in Foley, the special relationship rubric
disappeared in the later majority opinion in the Cates case. We
thus speak no further of special relationships.
8
C
Only one with the right to sue an insurance company for
contract damages for breach of the insurance policy can also sue
the insurance company for tort damages for breach of the
covenant of good faith. Wexler cannot sue for bad faith because
she had no contractual relationship with FAIR Plan. Wexler was
not a signatory; she was not an additional insured; and she was
not a third party beneficiary. We set forth these three separate
analyses.
1
Wexler was not a signatory to the policy. The policy named
her parents as the contracting parties. They are the signatories
and the named insureds. Wexler is neither. Wexler was not a
party to this contract.
This does not mean Wexler’s things at her parents’ house
were uninsured. Nor does it mean the insurer gains some unfair
advantage by collecting a premium to cover these items. They
were insured—but by Wexler’s parents and for her parents.
FAIR Plan agrees it is on the hook for covered damage to
Wexler’s property in her parents’ house. It is on the hook to her
parents.
This policy states FAIR Plan will indemnify property
owned by “members of your family residing with you.” That is a
benefit Wexler’s parents enjoy. Her parents’ benefit does not
make Wexler a party to the contract.
Wexler points to additional language in this clause that
states (with our italics):
“We cover personal property usual to the occupancy as
a dwelling and owned or used by you or members of your
family residing with you while it is on the Described
9
Location. At your request, we will cover personal property
owned by a guest or household employee while the property
is on the Described Location.”
This italicized wording does not aid Wexler. This provision
presumes “members of your family residing with you” will be in a
familiar kind of long-term relationship with the named insured.
Extending coverage to possessions of family members living
together benefits the policyholder and poses no adverse selection
or moral hazard problem. (Cf. Davis v. Phoenix Ins. Co. (1896)
111 Cal. 409, 415–416 (Davis) [example of moral hazard].)
Shortly we shall take up the topic of moral hazard at greater
length. The key point is no side has voiced any concern about the
problem of moral hazard in this case. That will prove significant.
The italicized sentence about guests and employees gave
the Talbots a beneficial option to gain extended coverage for no
extra charge. This provision is logical and an advantage to the
Talbots. It does not assist Wexler.
2
Wexler was not an additional insured person under this
particular policy. FAIR Plan’s no-coverage-for-unnamed-persons
clause expressly disclaimed coverage for unnamed people like
Wexler.
Other types of insurance policies can have different
provisions. Some policies indeed do expressly name classes of
people as additional insureds. We give two examples from cases
Wexler cites.
First, a car insurance policy might define the insureds to be
the contracting person, relatives of the contracting person, and
any other person the contracting person allows to drive that car.
That was the situation, for instance, in the policy in Northwestern
10
Mutual Insurance Co. v. Farmers’ Insurance Group (1978) 76
Cal. App. 3d 1031, 1038 and footnote 2 (Northwestern). People you
allow to drive your car—so-called “permissive users”—are
additional insureds under that sort of policy.
A second example is Cancino v. Farmers Insurance Group
(1978) 80 Cal. App. 3d 335 (Cancino). Once again, a policy
expressly included additional insureds. Cancino involved an auto
policy that included unnamed people within its coverage by
stating “ ‘[i]nsured means (1) the named insured or a relative, (2)
any other person while occupying an insured motor vehicle . . . .’ ”
(Id. at p. 337, italics added.)
The Talbots’ policy was different from these examples. The
difference is the no-coverage-for-unnamed-persons clause.
Wexler notes she alleges in her amended complaint that
she has standing because she “is an express insured under the
Policy.” The policy attached as an exhibit to her complaint and
incorporated by reference provides otherwise, however, and the
policy controls. (See Hoffman v. Smithwoods RV Park, LLC
(2009) 179 Cal. App. 4th 390, 400.)
Wexler therefore was not an insured, additional or express.
3
Wexler was not a third party beneficiary of the FAIR Plan
contract.
California third party beneficiary law begins with Civil
Code section 1559: “A contract, made expressly for the benefit of
a third person, may be enforced by him at any time before the
parties thereto rescind it.”
Civil Code section 1559 excludes enforcement of a contract
by persons who benefit from the agreement in only an incidental
or remote way. (Lucas v. Hamm (1961) 56 Cal. 2d 583, 590
11
[section 1559 serves “to exclude enforcement by persons who are
only incidentally or remotely benefited”]; Harper, supra, 56
Cal.App.4th at p. 1087 [“ ‘A third party should not be permitted
to enforce covenants made not for his benefit, but rather for
others. He is not a contracting party; his right to performance is
predicated on the contracting parties’ intent to benefit him.’ ”];
see also Hartman Ranch Co. v. Associated Oil Co. (1937) 10
Cal. 2d 232, 244; Murphy v. Allstate Ins. Co. (1976) 17 Cal. 3d 937,
944; accord, Coleman v. Gulf Ins. Group (1986) 41 Cal. 3d 782,
794–795.)
Most recently our Supreme Court grappled with the law of
third party beneficiaries in Goonewardene v. ADP, LLC (2019) 6
Cal. 5th 817, 826–832 (Goonewardene). Writing for a unanimous
court, Chief Justice Cantil-Sakauye upheld the trial court’s order
sustaining a payroll company’s demurrer to an employee’s wage
and hour suit against her employer. The employee had named
the payroll company, which performed payroll services for the
employer. The Goonewardene decision ruled the employee was
not a third party beneficiary of the contract between the
employer and the payroll company. (Id. at pp. 832–834.)
The Goonewardene decision noted courts had “struggled” to
formulate the doctrine of third party beneficiaries.
(Goonewardene, supra, 6 Cal.5th at p. 828.) Indeed, few areas of
contract law “ ‘have consistently raised more thorny theoretical
and practical difficulties for lawyers, judges, and scholars than
the rights of nonparties to enforce contractual promises.’ ” (Ibid.,
quoting Crawford, Chief Justice Wright and the Third Party
Beneficiary Problem (1977) 4 Hastings Const. L.Q. 769, 771–772.)
For doctrinal assistance, the Goonewardene court turned to
the pathbreaking article by the esteemed contract law scholar
12
Professor Melvin Eisenberg. (Goonewardene, supra, 6 Cal.5th at
pp. 828, 830–832, citing Eisenberg, Third-Party Beneficiaries
(1992) 92 Colum. L.Rev. 1358.)
The court set forth a three-part test. The test is this:
carefully examine the express provisions of the contract at issue,
as well as the relevant circumstances of contract formation, to
determine not only (1) whether the third party would benefit
from the contract, but also (2) whether a motivating purpose of
the contracting parties was to provide a benefit to the third party,
and (3) whether permitting a third party to bring its own breach
of contract action against a contracting party would be consistent
with the objectives of the contract and the reasonable
expectations of the contracting parties. All three elements must
be satisfied to permit the third party action to go forward.
(Goonewardene, supra, 6 Cal.5th at p. 830.)
Under this governing formulation, there are two reasons
why Wexler is not a third party beneficiary of the contract
between FAIR Plan and the Talbots.
First, Wexler cannot show a motivating purpose of the
contracting parties was to benefit her. (See Goonewardene,
supra, 6 Cal.5th at p. 830.) Knowing a benefit may flow to
Wexler is not enough. (Ibid.) The contracting parties were her
parents and the insurance company. If a motivating purpose of
the contracting parties had been to benefit Wexler, the policy
would not have included the no-coverage-for-unnamed-persons
clause or it would have named Wexler. This clause expressly
negates what Wexler seeks.
Second, permitting a bad faith action by Wexler also is
unnecessary to effectuate the insurance contract’s objectives. The
Talbots can sue—indeed, here did sue—regarding FAIR Plan’s
13
handling of the family’s insurance claim, a claim Wexler alleges,
and FAIR Plan acknowledges, does cover Wexler’s personal
property. (See Goonewardene, supra, 6 Cal.5th at pp. 830 & 836
[no third party right to enforce contract if unnecessary to
effectuate the contract’s objectives].) As mentioned, FAIR Plan
agrees it is on the hook to Wexler’s parents for covered damage to
Wexler’s property. It agrees it must uphold its promise to the
Talbots to pay for this damage. If Wexler has any real dispute, it
is with her parents and fellow plaintiffs, the Talbots. Yet the
same lawyer represents Wexler and the Talbots, and the papers
contain no hint of acrimony within this family.
Wexler is not a third party beneficiary. Even if we had
doubts regarding Wexler’s status—which we do not—we would
resolve them against Wexler. (See Shaolian v. Safeco Ins.
Co. (1999) 71 Cal. App. 4th 268, 275 (Shaolian) [courts resolve
doubts against the existence of a third party beneficiary].)
In sum, Wexler cannot sue for bad faith because she was
not a named signatory, not an additional insured, and not a third
party beneficiary. She lacked a contractual relationship with
FAIR Plan and so lacked standing.
C
Wexler claims she must be allowed to proceed because
the policy is ambiguous, and we are to construe ambiguities
against the insurer: on one hand, the policy extends
coverage to her possessions in her parents’ home, and the
Declarations page confirms the personal property coverage;
on the other hand, that same page contains the no-coverage-
for-unnamed-persons clause.
These provisions are unambiguous. They afford coverage to
the Talbots—and only the Talbots—for the specified contents in
14
their home, including contents owned or used by family members
residing there. The no-coverage-for-unnamed-persons clause
does not absolve FAIR Plan of its duty to cover this property.
D
Wexler incorrectly claims precedent supports her. We
survey her six citations.
1
Hatchwell v. Blue Shield of California (1988) 198
Cal. App. 3d 1027, 1029 held a spouse who was not a party to an
insurance contract lacked standing to bring a bad faith action for
wrongful denial of benefits to her insured husband. This holding
supports FAIR Plan, not Wexler.
2
Northwestern, supra, 76 Cal.App.3d at page 1038 and
footnote 2 concerned an auto policy that included the disputed
person as an additional insured because that person was both a
permissive user and a relative—two statuses that were material
in that case. By contrast, the no-coverage-for-unnamed-persons
clause here excludes additional insureds. The Northwestern
holding is irrelevant.
3
Cancino, supra, 80 Cal. App. 3d 335 concerned an insurance
policy that expressly identified a category of additional insureds.
As noted, the Cancino policy covered “any other person while
occupying an insured motor vehicle.” (Id. at p. 337, italics added.)
The no-coverage-for-unnamed-persons clause in this case
distinguishes it from the Cancino policy. Cancino’s holding does
not apply here.
To rephrase this point, Cancino “recognized a distinction
between the ‘parties’ to the insurance contract—who will
15
generally also be named insureds—and ‘insureds’ who are neither
parties to the insurance contract nor specifically named therein.
A person can be deemed an ‘insured’ by virtue of fitting into an
expressly defined category of those for whose benefit the policy
was created. This distinction does not assist [Wexler].” (Seretti
v. Superior Nat. Ins. Co. (1999) 71 Cal. App. 4th 920, 928–929
(Seretti).)
Wexler was neither a party to the insurance contract nor
an additional insured. Cancino does not support Wexler’s cause.
4
Harper, supra, 56 Cal. App. 4th 1079 concerned a
fundamentally different insurance policy from the one here.
Harper involved a broad commercial policy that insured generally
against liability, not a limited owner-occupied dwelling policy of
last resort that insured against only fire, lightning, internal
explosions, and, to a limited degree, smoke. (Id. at p. 1083.)
The Harper policy provided liability protection for a
corporation called L.A. City Tower, Inc. Geneva Harper slipped
and fell outside L.A. City Tower. Harper sued L.A. City Tower,
which prevailed because Harper could not establish it reasonably
could have discovered the dangerous condition. Harper then sued
Wausau Insurance Company, a subsidiary of which sold L.A. City
Tower insurance extending medical coverage to people who
suffered bodily injury “[o]n ways next to premises you own or rent
. . . . We [Wausau] will make these payments regardless of fault.”
The only exclusion from this coverage was people employed by or
connected to L.A. City Tower. (Harper, supra, 56 Cal.App.4th at
p. 1084, italics added; id. at pp. 1082–1084.)
The Harper court confronted an open issue in California
where the authority from other jurisdictions was split. (Harper,
16
supra, 56 Cal.App.4th at p. 1089.) The difficulty that divided the
authorities was that an injured person (there, Harper) was
asking the courts to find the insured’s liability insurer liable
when the insured itself was not liable. This might seem
paradoxical. But the Harper court quoted an insurance law
treatise explaining the purpose of this particular policy language
was to create a fund so injured people could recover. (Id. at p.
1090.) This same treatise also noted, however, that insurers
could limit coverage so as to make it inapplicable to activities
away from the premises or as to persons not on the premises, if
not injured by an act of the insured. (Shaolian, supra, 71
Cal.App.4th at p. 273.) So the result would depend on how the
insurance policy was written.
Here the insurance policy was written in a decisively
different way from the Harper policy. The Harper policy
extended medical payment coverage to people injured while
walking by the insured’s premises, without regard to whether the
insured was to blame. That coverage was broad. FAIR Plan’s
coverage, by contrast, is narrow. It has no liability or medical
payments coverage. And coverage is limited to people named in
the policy. Wexler is not named. Wexler is not covered.
FAIR Plan’s slender coverage makes sense. By design,
FAIR Plan is an insurer of last resort. To make basic insurance
available and affordable to homeowners in high risk areas, FAIR
Plan is barebones.
In sum, the Harper holding does not support Wexler
because the policy here is nothing like the one in Harper.
5
In a string cite in a footnote and without further comment,
Wexler cites San Diego Housing Commission v. Industrial
17
Indemnity Co. (1998) 68 Cal. App. 4th 526, which held a bad faith
cause of action should not have gone to the jury. (Id. at pp. 532,
544–545.) This holding is not germane.
6
Wexler cites a provision of a treatise, which in turn cites
one case. This provision reads as follows:
“Privity of contract with the insurer is essential to an
implied covenant action against the insurer. Thus, persons
entitled to benefits under a policy have standing to sue for bad
faith if those benefits are wrongfully withheld. This includes the
contracting parties (persons named as insureds) as well as others
entitled to benefits as ‘additional insureds’ or as express
beneficiaries under the policy. But persons not entitled to
benefits under a policy cannot maintain an implied covenant
action . . . .” (Croskey et al., Cal. Practice Guide: Insurance
Litigation (The Rutter Group 2020) ¶ 12:55 (Rutter Group), citing
Seretti, supra, 71 Cal.App.4th at p. 929.)
This treatise provision supports FAIR Plan. When the
treatise states persons entitled to benefits have standing to sue,
those persons are the Talbots. The treatise continues that the
group with standing “includes the contracting parties (persons
named as insureds) as well as others entitled to benefits as
‘additional insureds’ or as express beneficiaries under the policy.”
(Rutter Group, supra, at ¶ 12:55.) As we have explained, Wexler
is neither an additional insured nor a third party beneficiary.
Wexler lacks standing.
Additionally, the cited Seretti holding went the wrong way
for Wexler. (See Seretti, supra, 71 Cal.App.4th at p. 931 [“In
accordance with the overwhelming weight of authority, we affirm
the trial court’s ruling on appellants’ lack of standing as
18
shareholders to assert a claim against the corporation’s insurer”
(italics added)].)
In logic as well as holding, Seretti is contrary to Wexler’s
case. The logic of the Seretti opinion was that the plaintiffs lost
because they “were not parties to the insurance contract; they
were not specifically named insureds; and to the extent they fit
into the general category of those for whom the policy was
created to benefit—employees, officers, and directors of Post
Sound—they were specifically excluded.” (Seretti, supra, 71
Cal.App.4th at p. 929, italics added.) The no-coverage-for-
unnamed-persons clause specifically excluded Wexler from the
Talbots’ policy in precisely the same way.
E
Wexler’s complaint pleaded her parents had no insurable
interest in the property she had in their house. We disregard
legal conclusions in a complaint; they are just a lawyer’s
arguments. (See Gulf, supra, 86 Cal.App.4th at p. 429.) Whether
an interest is insurable is a question of law. (See Ins. Code, § 281
[giving legal definition of insurable interest].)
Wexler’s position on insurable interest is all wrong. She
urges an unprecedented and incorrect expansion of the insurable
interest doctrine, which is a tool insurance companies use to
invalidate policies and to avoid paying claims. A sound view of
this legal doctrine reveals the Talbots obviously had an insurable
interest in Wexler’s property in their home. It is perverse for
Wexler as a plaintiff to suggest otherwise, for expanding this
doctrine would hurt claimants like her to the advantage of
insurance companies everywhere.
Wexler cites no case squarely on point. The California
precedents we have found go against Wexler. (See, e.g., State
19
Farm Mutual Automobile Ins. Co. v. Price (1966) 242 Cal. App. 2d
619, 624 [mother had insurable interest in son’s car]; Osborne v.
Security Ins. Co. (1957) 155 Cal. App. 2d 201, 204–206 (Osborne)
[same].)
Many decisions from other jurisdictions also go against
Wexler. (See, e.g., Georgia Mutual Ins. Co. v. Nix (Ga.Ct.App.
1966) 113 Ga. App. 735, 737 [149 S.E.2d 494, 496] [father has
insurable interest in son’s car]; MemberSelect Ins. Co. v. Flesher
(Mich.Ct.App. 2020) 332 Mich. App. 216, __ [__ N.W.2d __, __]
[2020 WL 1968631 at *6] (MemberSelect) [parent’s interest in
adult child’s welfare creates an insurable interest]; Hedrick v.
Kelley (Mo.Ct.App. 1987) 734 S.W.2d 529, 532–533 (Hedrick)
[rejecting insurer’s insurable interest argument where mother
and daughter lived in same house]; Stauder v. Associated General
Fire Co. (Ohio Ct.App. 1957) 105 Ohio App. 105, 108–110 [151
N.E.2d 583, 585–586] [father had an insurable interest in
children’s clothing]; cf. Central Manufacturers’ Mutual Ins. Co. v.
Friedman (Ark. 1948) 213 Ark. 9, 11–14 [209 S.W.2d 102, 103–
104] [father prevails against insurance company concerning loss
of son’s property]; Balzer v. Globe Indemnity Co. (N.Y. 1924) 206
N.Y.S. 777, 778–779 [211 A.D. 98, 99–101] [son recovers on his
policy for theft of mother’s jewelry]; but see Sayah v.
Metropolitan Property & Casualty Ins. Co. (Neb. 2007) 273 Neb.
744, 747–749 [733 N.W.2d 192, 196] [parents had no insurable
interest in son’s car].)
None of these holdings is on all fours. We therefore look to
the purpose of the doctrine to guide our thinking.
At the outset, we summarize our analysis of statutory
purpose. The insurable interest doctrine aims to suppress
gambling and to curb moral hazard by refusing to enforce
20
insurance policies that are contrary to public policy. But nothing
about the circumstances of this case suggests that the Talbots
were gambling: that they bought the FAIR Plan policy to
increase their personal risk, the way a gambler does when
chancing a bet in Las Vegas. Nor is there a reason to fear moral
hazard. The outlandish notion the Talbots might burn their
daughter’s home-stored property to collect an insurance payoff
has no support. Lacking any relevance in purpose, then, the
insurable interest doctrine does not invalidate the Talbots’
insurance contract as contrary to public policy. To the contrary,
California public policy strongly supports this kind of insurance
for California families living in areas exposed to wildfire. In sum,
the insurable interest doctrine entirely favors the trial court
result, which we affirm.
We now explain more fully. In doing so, we inspect the
foundations of a doctrine one scholar calls “erratic, ambiguous,
and inconsistent.” (Loshin, Insurance Law’s Hapless Busybody:
A Case Against the Insurable Interest Requirement (2007) 117
Yale. L.J. 474, 487 (Hapless Busybody).) We seek, not a new
understanding, but knowledge of the original basis for the
doctrine and thus of the legislative intent behind our old
California statute.
The insurable interest doctrine is venerable: its taproot
goes deep into the earth of English common law. The place to
start is 18th century London.
In Georgian England, people needed no connection to some
ship or celebrity to buy insurance on ships or celebrities. This
common law freedom led to unadorned gambling. Imagine, for
instance, buying life insurance on Jane Austen or Henry Fielding,
during their lifetimes, just as a lark. Or perhaps it would be fun
21
to buy an accident policy on some ocean vessel. In revulsion,
Parliament passed statutes in 1746 and 1774 to outlaw “gaming
or wagering” of this sort. Thus was born the doctrine of insurable
interest. (Hapless Busybody, supra, at pp. 479–480; cf. Amory v.
Gilman (Mass. 1806) 2 Mass. 1, 3–6 [describing common law and
Parliament’s reaction].)
Long ago, the United States imported the insurable
interest doctrine from England. Massachusetts took this step in
1815. (See Lord v. Dall (Mass. 1815) 12 Mass. 115.) Pre-Erie,
the Supreme Court of the United States also adopted and
continued developing the doctrine as federal common law. (E.g.,
Grigsby v. Russell (1911) 222 U.S. 149, 155, 156, 157 (Grigsby)
(Holmes, J.) [referring to English law].)
California passed its version of the insurable interest
doctrine in 1872 by adding section 2546 to the Civil Code, which
our Legislature recodified in 1935 as section 281 of the Insurance
Code. (See Stats. 1935, ch. 145, p. 503.)
So the source of law for our decision today is section 281 of
the Insurance Code, which is a century and a half old.
This California statute defines insurable interest: “[e]very
interest in property, or any relation thereto, or liability in respect
thereof, of such a nature that a contemplated peril might directly
damnify the insured, is an insurable interest.” (Ins. Code, § 281,
italics added.)
A dictionary definition of “damnify” is “to cause loss or
damage to.” (The Random House Dictionary of the English
Language (2d ed. unabridged 1987) p. 504.) What kind of loss
counts? The law of insurance can comprehend what every parent
understands. (Cf. MemberSelect, supra, 2020 WL 1968631 at *5–
22
*6 [“the interest of a parent in an adult child’s welfare” means
the child’s “loss” creates an insurable interest for the parent].)
When construing this statute, our job is to effectuate its
purpose. (E.g., Apple Inc. v. Superior Court (2013) 56 Cal. 4th
128, 135.) “The dominant mode of statutory interpretation over
the past century has been one premised on the view that
legislation is a purposive act, and judges should construe statutes
to execute that legislative purpose. This approach finds lineage
in the sixteenth-century English decision Heydon’s Case, which
summons judges to interpret statutes in a way ‘as shall suppress
the mischief, and advance the remedy.’ ” (Katzmann, Judging
Statutes (2014) p. 31, italics added.)
The insurable interest doctrine aims to suppress two
mischiefs: gambling and moral hazard. Gambling has a common
meaning; it needs no further explanation at the moment,
although we do return to it. Moral hazard is more arcane; we
define it shortly.
We know about these twin goals from the old case law on
insurable interests. The Supreme Court of the United States, in
its first insurable interest decision, wrote that, for all valid life
insurance policies, “there must be a reasonable ground, founded
upon the relations of the parties to each other, either pecuniary
or of blood or affinity, to expect some benefit or advantage from
the continuance of the life of the assured. Otherwise the contract
is a mere wager, by which the party taking the policy is directly
interested in the early death of the assured.” (Warnock v. Davis
(1882) 104 U.S. 775, 779, italics added.)
This final sentence identifies the twin goals. Warnock’s
“mere wager” language condemned gambling, while its fear of a
23
“direct” interest favoring “the early death of the assured” was
aversion for moral hazard.
Moral hazard is the incentive that insurance can give an
insured to increase risky or destructive behavior covered by the
insurance. (E.g., May Dept. Stores Co. v. Federal Ins. Co. (7th
Cir. 2002) 305 F.3d 597, 601 (Posner, J.) [abrogated on other
grounds by Americold Realty Trust v. ConAgra Foods, Inc. (2016)
__ U.S. __ [136 S. Ct. 1012], as recognized in RTP LLC v. ORIX
Real Estate Capital, Inc. (7th Cir. 2016) 827 F.3d 689, 691–692].)
Economists began writing about “moral hazard” in the
1960s, and this usage has gained currency since then. (Baker,
On the Genealogy of Moral Hazard (1996) 75 Tex. L.Rev. 237,
237–238, 267–268, 272–275.) The phrase is useful here; it
precisely encapsulates the relevant meaning.
A classic illustration of moral hazard is the novel Double
Indemnity, first published in 1936. James M. Cain painted this
hazard in his Los Angeles noir masterpiece: the corrupt
insurance salesman falls for an unhappy wife, and the two plot
against her unloved and well-insured husband. Cain wrote for
the ages: “there’s many a man walking around today that’s
worth more to his loved ones dead than alive, only he don’t know
it yet.” (Cain, Double Indemnity (Vintage Books 1978) p. 11.)
The malign incentive of moral hazard is not just fiction.
The cases prove it. (E.g., Ramey v. Carolina Life Ins. Co. (S.C.
1964) 244 S.C. 16 [135 S.E.2d 362] (Ramey) [wife insures
husband’s life without his knowledge and then gives him
arsenic]; cf. O’Hara v. Carpenter (Mich. 1871) 23 Mich. 410, 415
[“all reasonable men would concede that it was indiscreet and
dangerous to contract with him on a basis which might quiet his
24
vigilance and bribe his integrity by such pecuniary
considerations, as might incline him to desire a loss to occur”].)
Thus the insurable interest rule: no insurance policy can
be allowed to create a profitable temptation to commit murder or
other wrongdoing. A contrary rule would open “ ‘ “a wide door by
which a constant temptation is created to commit for profit the
most atrocious of crimes.” ’ ” (Ramey, supra, 244 S.C. at p. 27
[135 S.E.2d at p. 367], italics omitted.)
The logic of this rule is national. Together with sister
states, California subscribes to it. (See Davis, supra, 111 Cal. at
p. 416 [“To permit such a recovery would greatly tend to the
destruction of like property under like circumstances, and open
the door and tempt men to enter therein for fraudulent
purposes.”].)
With his signature style and his penetrating insight,
Justice Holmes likewise drove home these two goals: suppress
moral hazard and discourage wagering. Holmes wrote that “[a]
contract of insurance upon a life in which the insured has no
interest is a pure wager that gives the insured a sinister counter
interest in having the life come to an end.” (Grigsby, supra, 222
U.S. at p. 154, italics added.)
Holmes elaborated.
Concerning moral hazard, Holmes explained the evil of
inducing a potential murderer to collect life insurance by taking
someone else’s life. To allow a recovery like that “may prove a
sufficient motive for crime [that] is greatly enhanced if the whole
world of the unscrupulous are free to bet on what life they
choose.” (Grigsby, supra, 222 U.S. at p. 155.)
Concerning gambling, Holmes observed English authorities
created the doctrine because “such wagers came to be regarded as
25
a mischievous kind of gaming.” (Grigsby, supra, 222 U.S. at p.
156.)
Gambling suppression was and remains a traditional
objective of the insurable interest doctrine in California. (See
Osborne, supra, 155 Cal.App.2d at p. 205 [“The object to be
obtained by this rule, the reason for its being, is avoidance of
wagering contracts.”].)
In sum, twin goals steer the insurable interest doctrine. To
repress gambling and to arrest moral hazard, the insured must
have an insurable interest in the object of the insurance
contract—or else the insurable interest doctrine bars enforcing
the contract as contrary to public policy.
This fundamental understanding of the insurable interest
doctrine makes it plain the Talbots had an insurable interest in
Wexler’s property stored in their house while Wexler lived there
with them.
The Talbots were not gambling. They did not buy the FAIR
Plan policy as some casino opportunity, the way someone in 1956
might have tried to buy life insurance on Elvis right after his big
Ed Sullivan show. Rather, the Talbots shared the quotidian and
legitimate insurance interest of tapping into a pool and using the
law of large numbers to reduce personal risk. The transaction
beneficially reduced social risk as a whole. (See Posner & Weyl,
An FDA for Financial Innovation: Applying the Insurable
Interest Doctrine to Twenty-First-Century Financial Markets
(2013) 107 Nw. U. L.Rev. 1307, 1308–1319, 1322–1323.) This
insurance policy was a social good, not a social bad.
Neither did the Talbots’ policy create moral hazard. The
Talbots did not propose to FAIR Plan that it should extend
coverage for their daughter’s belongings. This was FAIR Plan’s
26
idea. It was on FAIR Plan’s form policy. No one suggests the
Talbots bought this policy to game the system in the hopes of
destroying their daughter’s things for an insurance check. (See
Hedrick, supra, 734 S.W.2d at p. 533 [the term insurable interest
should be broadly construed when close family members reside in
the same house and the policy was obtained in good faith].)
There is irony to Wexler’s misunderstanding of the
insurable interest doctrine. The doctrine is a defense to benefit
insurance companies against policyholders’ claims. (Ins. Code, §
280 [“If the insured has no insurable interest, the contract is
void.”]; Jenkins v. Hill (1939) 35 Cal. App. 2d 521, 524; see also
Countrywide Home Loans, Inc. v. Tutungi (1998) 66 Cal. App. 4th
727, 732; Rutter Group, supra, at ¶ 6:202 [the insurer is the only
party that may challenge whether the insured has an insurable
interest].)
The effect of Wexler’s attempted expansion, if successful,
would have been to disadvantage policyholders in other disputes.
Insurance companies would gain. Wexler’s position on insurable
interest is paradoxical. It is also incorrect as a matter of law.
Wexler cites the Davis case, which concerned a plaintiff
who possessed property under a contract for which he had in part
paid the purchase price, and which upon his completion of the
contract would entitle him to a conveyance of the legal title. This
enjoyment and expenditure gave him an insurable interest in the
property. (Davis, supra, 111 Cal. at p. 414.) It is not apparent
how this holding pertains to this case.
Wexler also cites Burns v. California FAIR Plan
Association (2007) 152 Cal. App. 4th 646, 654, which held the
holder of a life estate and the holder of the remainder interest
could not both recover the full value of the insured house that
27
burned down. That would be double recovery. Each holder
indeed did have an insurable interest in the house. (Id. at p.
652.) But that conclusion did not imply the insurers were liable
for more than the full value of the house: “the nature of
insurance does not provide for recovery in excess of the value of
the property destroyed where there is but one loss.” (Id. at p.
653.) This case has no issue about double recovery. The Burns
holding has no bearing on this appeal.
Wexler cites another holding with no relation to this case,
California Food Service Corp. v. Great American Insurance Co.
(1982) 130 Cal. App. 3d 892, 896–897. The decision held a binding
letter of intent gave a buyer an insurable interest in restaurant
premises damaged by fire.
In conclusion, Wexler lacks standing to sue FAIR Plan for
bad faith.
III
Wexler bore the burden of showing it is reasonably possible
she can amend her complaint to state a cause of action. (Blank v.
Kirwan (1985) 39 Cal. 3d 311, 318.) Wexler did not brief this
issue on appeal and thereby forfeited it. And in the trial court,
Wexler simply stated she should be afforded leave to amend
without making any showing on this point. The trial court
properly sustained the demurrer to Wexler’s cause of action
without leave to amend.
28
DISPOSITION
We affirm the judgment and award costs to California
FAIR Plan Association.
WILEY, J.
I CONCUR:
GRIMES, Acting P. J.
29
Stratton, J., Dissenting.
Everyone check your homeowners insurance policy. Be
especially vigilant if you live in the quarter of California
households which are multigenerational, or are one of the 40
percent of California parents whose adult children have moved
back home. Those other adults in your household have probably
accumulated personal property of their own. According to the
majority, if you, as the homeowner and a named policyholder, try
to protect your family members by paying a premium for a policy
that purports to provide coverage for the personal property of
resident family members, you are benefitting the insurance
company, not your family members. If your family member’s
personal property is damaged, you will not be able to recover for
that damage because you do not have an ownership interest in
that property. Your family member will not be able to recover
because the insurance company, which did not request or require
you to identify the family member by name, will be able to deny
coverage because you did not identify the family member by
name. The insurance company gets to keep your premiums,
which is a pretty sweet deal for the insurer but not for you or
your family member.
Here the Talbots and their adult daughter Brooke Wexler
alleged the Talbots purchased a fire insurance policy that
expressly insured against damage to and loss of possessions of
other resident family members. Wexler was residing at the
property when the Woolsey fire blew through the neighborhood,
causing smoke damage to the Talbots’ and Wexler’s possessions.
1
The Talbots and Wexler each made claims against the
policy for damage to their respective possessions.1 Insurer FAIR
Plan disallowed both claims. The First Amended Complaint
(FAC) alleges FAIR Plan denied their claims for smoke damage
based on the opinion of defendant SGD, an outside adjusting firm
which is neither a licensed contractor nor qualified to determine
the extent of fire damage to a California dwelling or the
appropriate method of repairs in the event of fire damage.
As a result, the Talbots and Wexler sued FAIR Plan and
SGD, alleging, among other things, breach of the covenant of
good faith and fair dealing. The FAC alleges that Wexler had an
insurable interest in personal property which was damaged or
destroyed by the Woolsey fire. It also alleged the Talbots had no
insurable interest in Wexler’s damaged personal property. The
FAC alleges “Wexler is an express insured under the Policy and
as such has standing to sue FAIR Plan for breach of the implied
covenant of good faith and fair dealing.”
The majority allows the Talbots to proceed with their cause
of action against the insurer, but bars Wexler from proceeding
with hers because she is neither an insured nor a beneficiary of
the policy. In effect, the majority says, “Don’t worry, the Talbots
can enforce the policy on behalf of Wexler.” To say Wexler is
neither an insured nor a beneficiary of the policy ignores the
express language of the insurance policy and turns insurance law
on its head.
First, the majority states the policy expressly limits
coverage to the named insureds only. I disagree. The policy
1 The parties have not challenged Wexler’s capacity to sue as
an adult.
2
expressly provides coverage to resident family members who have
personal property located in the premises which are the subject of
the policy. The majority relies on the Declarations page to
support its mistaken conclusion that the policy itself limits
coverage. Preliminarily, the majority is correct that at the
beginning of the Declarations page, the Policy lists the named
insureds: James M. Talbot and Kimberly A. Talbot. At the end
of the Declarations page is this statement: “This policy is a
contract between us and the Named Insured(s) and any loss
payees identified on this Declarations Page. This policy does not
provide coverage to any person or entity not named here.”
The Declarations page, which displays a chart for
“Coverages, Limits, Perils and Premiums.” Section C under
“Selected Coverages” sets a limit of $456,000 for coverage of
personal property. There is also a box for a checkmark next to
each category of items eligible for coverage. The box next to
personal property is checked. Thus the Declarations page has
expanded the homeowner’s coverage to include personal property
and has done so before the disclaimer at the end of the page.
The scope of covered personal property is defined in the
policy itself (or, as FAIR Plan entitled it, the “Agreement”), which
follows the Declarations page. Under “Agreement,” it states, “We
will provide the insurance described in this policy in return for
the premium and compliance with all applicable provisions of this
policy.” It continues, “If there is a checkmark next to C-Personal
Property in the Declarations, the following applies: We cover
personal property usual to the occupancy as a dwelling and
owned or used by you or members of your family residing with
you while it is on the Described Location. At your request, we
3
will cover personal property owned by a guest or household
employee while the property is on the Described Location.”
Under long-standing California law, “A person can be
deemed an ‘insured’ by virtue of fitting into an expressly defined
category of those for whose benefit the policy was created.”
(Seretti v. Superior Nat. Ins. Co. (1999) 71 Cal. App. 4th 920,
928-929, relying on Cancino v. Farmers Ins. Grp. (1978)
80 Cal. App. 3d 335.) The Talbots’ policy provision contains just
such an express category of persons who benefit from the policy—
resident family members with personal property on the
premises—and Wexler is just such a person.
The majority nevertheless holds that the disclaimer of
coverage at the end of the Declarations page trumps expansion of
coverage on the same page and requires that a resident family
member be identified by name to be covered for the loss of her
personal property. I disagree. At most it creates an ambiguity.
When the Declarations page does not purport to define or set
forth the operative terms of a policy provision, “any ambiguity ‘is
resolved by’ the terms of the policy.” (Hervey v. Mercury Casualty
Co. (2010) 185 Cal. App. 4th 954, 965; accord George v. Automobile
Club of Southern California (2011) 201 Cal. App. 4th 1112, 1129.)2
Thus, if the bare use of the phrase “personal property” on the
Declarations page creates an ambiguity about whose personal
property is covered, it is resolved by the terms of the policy itself,
2 More generally, ambiguities are to be resolved against the
insurer. “The ‘tie-breaker’ rule of construction against the
insurer stems from the recognition that the insurer generally
drafted the policy and received premiums to provide the agreed
protection. (Minkler v. Safeco Ins. Co. of America (2010)
49 Cal. 4th 315, 321.)
4
which expressly provides coverage for resident family members
who have personal property on the premises. Therefore, I would
hold Wexler is an insured for purposes of personal property
coverage.
The majority is unconcerned with Wexler’s inability to
assert her own interests because it mistakenly believes that the
Talbots can recover on behalf of Wexler. The Talbots cannot
make a claim to recover the value of Wexler’s property unless
they suffered a pecuniary loss because of the damage. The FAC
alleges they have no insurable interest in Wexler’s property. 3 It
is bedrock California insurance law that “No person may recover
on a policy of insurance unless that person has an insurable
interest in the property insured.” (California Food Service Corp.
v. Great American Ins. Co. (1982) 130 Cal. App. 3d 892, 897.)
Indeed, our Insurance Code provides: “If the insured has no
insurable interest, the contract is void.” (Ins. Code, § 280.) The
3 Notably the majority calls this allegation a “legal
conclusion” it can ignore. If the FAC had quoted the statutory
definition of “insurable interest” set out in Insurance Code
section 281 (“Every interest in property, or any relation thereto,
or liability in respect thereof, of such a nature that a
contemplated peril might directly damnify the insured, is an
insurable interest.”), would that have been sufficient? It sounds
like the majority wants the FAC to restate in plain language
what insurable interest means—to wit, the insured had an
ownership interest in the property, damage to which resulted in a
direct and certain pecuniary loss. (Alexander v. Security-First
Nat. Bank of Los Angeles (1936) 7 Cal. 2d 718; Burns v. California
FAIR Plan Assn. (2007) 152 Cal. App. 4th 646, 651.) If that is a
real problem, Wexler should be given an opportunity to amend
her complaint.
5
Code provides further that the parties cannot agree otherwise:
“Every stipulation in a policy of insurance for the payment of loss
whether the person insured has or has not any interest in the
property insured, or that the policy shall be received as proof of
such interest, is void.” (Ins. Code, § 287.) There is nothing in the
FAC to support the majority’s belief that Wexler’s personal
property is “family property” and so the Talbots can recover for
its loss. To analyze around the concept of insurable interest is
not only strained, but it ignores a keystone of California
insurance law. The current definition of insurable interest is
clear and does not turn on the insured’s intent. Nor can it be
reasonably understood to protect only the insurer. As the
majority acknowledges by way of example, the ability to insure
against the death of another person can put that person in
danger of being killed for insurance proceeds.
In sum, FAIR Plan has charged the Talbots a premium for
personal property coverage for family members which the Talbots
cannot pursue because they lack an insurable interest; it then
has argued that the owner of the personal property cannot seek
recovery herself. The majority sees no problem with this. I do.
(See Ins. Code, § 790.03, subd. (h)(1) [an unfair business practice
is “Misrepresenting to claimants pertinent facts or insurance
policy provisions relating to any coverages at issue.”].) That
FAIR Plan may have told the Talbots to read the entire policy is
not a substitute for explaining that the disclaimer at the end of
the Declarations page absolves it of coverage expressly provided
for in the policy itself. (See Haynes v. Farmers Ins. Exchange
(2004) 32 Cal. 4th 1198, 1211 [“ ‘Precision is not enough.
Understandability is also required.’ ”].)
6
Nevertheless, if Wexler is not an insured, she is a third
party beneficiary of the contract. The majority’s second holding
that Wexler did not satisfy the three-factor test for determining
whether a party is a third party contract beneficiary is too
narrow. Goonewardene v. ADP, LLC (2019) 6 Cal. 5th 817
(Goonewardene) is our Supreme Court’s most recent explanation
of the third-party beneficiary doctrine. There are still three
elements to the doctrine: “(1) whether the third party would in
fact benefit from the contract, . . . (2) whether a motivating
purpose of the contracting parties was to provide a benefit to the
third party, and (3) whether permitting a third party to bring its
own breach of contract action against a contracting party is
consistent with the objectives of the contract and the reasonable
expectations of the contracting parties.” (Id. at p. 830.)
It is indisputable Wexler would benefit from the contract
under the allegations of the FAC. She would receive recompense
for the damage to her property. As to the second factor,
“motivating purpose” is a new term, but the Goodewardene Court
explains that “this opinion uses the term ‘motivating purpose’ in
its iteration of this element to clarify that the contracting parties
must have a motivating purpose to benefit the third party, and
not simply knowledge that a benefit to the third party may follow
from the contract. To avoid any possible confusion, however, we
emphasize that our intent-to-benefit caselaw remains pertinent
in applying this element of the third party beneficiary doctrine.”
(Goodewardene, supra, 6 Cal.5th at p. 830.)
One of the cases cited with approval in Goodewardene on
the intent-to-benefit standard is Murphy v. Allstate Ins. Co.
(1976) 17 Cal. 3d 937. This case is useful as it explains: “A third
party beneficiary may enforce a contract expressly made for his
7
benefit. (Civ. Code, § 1559.) And although the contract may not
have been made to benefit him alone, he may enforce those
promises directly made for him.” (Murphy, at p. 943.) This
certainly suggests that resident family member coverage is not
voided just because its addition to the contract may not have
been the primary motivation of the named insureds. The
provision is express and under Murphy, Wexler would have the
right to enforce it.
Factually, any assumptions about whether the Talbots had
a motivating purpose to benefit Wexler are not based on any
allegations in the complaint, which control on a demurrer. There
are no allegations in the FAC that the Talbots “decided” not to
include Wexler’s name. The majority refers to the insurance
policy itself, which shows Wexler is not a named insured, but that
fact does not reveal the Talbots’ motivation or thought processes.
Even assuming Wexler’s name could somehow have been added
to the policy, it would be a question of fact as to why the Talbots
did not add it. Given the express coverage language, why would
they have believed they needed to add her name? She perfectly
fit the category of resident family member beneficiaries.
Moreover, the policy states that personal property of
resident family members is covered, but coverage for the personal
property of guests and employees must be requested by the
named insured. This certainly suggests no further action is
required to obtain family member coverage. I conclude the
majority improperly strays outside the four corners of the FAC to
add its own factual suppositions about the Talbots’ motivating
purpose in paying for the policy.
Along the same lines, there is no obligation under
California law to repair destroyed property with insurance
8
proceeds. (Burns v. California FAIR Plan Assn. (2007)
152 Cal. App. 4th 646, 650–651.) Under the majority’s reasoning,
the Talbots could have recovered on a claim for Wexler’s property
and then not made Wexler whole for her loss, possibly sparking
another law suit, this time intra-family. In all events, without an
insurable interest in Wexler’s property, the Talbots had no
rightful control over whether and how Wexler sought
recompense.
Finally, if the FAC’s allegation that the Talbots purchased
and paid for this coverage to unnamed resident family members
is not sufficient to survive a demurrer on the issue of their
“motivating purpose,” at the very least, Wexler should be given
leave to amend to add facts relevant to the analysis.
As to the third element of the third party beneficiary
analysis, the question is whether permitting an action by the
third party beneficiary is necessary to effectuate the contract’s
objective. (Goonewardene, supra, 6 Cal.5th at pp. 830, 836.)
Given the Talbot’s lack of insurable interest in the damaged
property, permitting an action by Wexler is the only way to
effectuate the contract’s objective.
I conclude this disposition relies on a strained reading of
the policy language and is contrary to California’s public policy,
which holds insurers to their promises. Accordingly, I dissent.
STRATTON, J.
9