American Way Cellular, Inc. v. Travelers Property Casualty Co.

Filed 5/30/13
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION ONE
AMERICAN WAY CELLULAR, INC., B234188
Plaintiff, Cross-defendant and (Los Angeles County
Appellant, Super. Ct. No. LC084386)
v.
TRAVELERS PROPERTY CASUALTY
COMPANY OF AMERICA,
Defendant, Cross-complainant and
Respondent.
APPEAL from a judgment of the Superior Court of Los Angeles County. Michael
A. Latin, Judge. Affirmed.
Allan Law and James G. Allen for Plaintiff, Cross-defendant and Appellant.
Weston & McElvain, Wynn C. Kaneshiro and Edmond Sung for Defendant,
Cross-complainant and Respondent.
_____________________
American Way Cellular, Inc. (American Way), appeals from a judgment entered
after the trial court granted summary judgment in favor of Travelers Property Casualty
Company of America (Travelers). American Way filed suit against Travelers, alleging
that American Way was entitled to policy benefits following a fire loss at its place of
business located in Van Nuys, California (the premises). The court determined that
Travelers had no obligation to pay benefits to American Way, holding that an
“[e]ndorsement” contained in the policy issued by Travelers “requires as a condition of
insurance that the insured premises contain automatic sprinklers” and it was undisputed
that the premises did not have an automatic sprinkler system. The court found in favor of
Travelers on its cross-complaint for declaratory relief and reimbursement of a $250,000
good faith advance payment against American Way.
American Way contends that the judgment must be reversed because triable issues
of material fact exist with respect to its causes of action for negligence and declaratory
relief, including whether A & J Financial Insurance Services (A & J), the insurance
broker that prepared the insurance application for American Way indicating the premises
were equipped with sprinklers, was an actual or ostensible agent of Travelers. American
Way also argues that it was entitled to coverage because the “provisions requiring
[American Way to] „maintain the protective devices or services listed‟ cannot require
[American Way] to maintain something that does not exist.” We conclude that because
the evidence showed as a matter of law that A & J was not an actual or ostensible agent
of Travelers and the evidence showed that American Way did not maintain a sprinkler
system as required under the policy, American Way failed to meet its burden of showing
that triable issues of material fact exist with respect to its claims for declaratory relief and
negligence. We affirm the judgment.
BACKGROUND
A. The broker agreement between A & J and USASIA Insurance Services, Inc.
A & J is a licensed insurance broker for property insurance. USASIA Insurance
Services, Inc. (USASIA), is an insurance agent of Travelers. USASIA and A & J entered
into a broker agreement on May 21, 2002 (broker agreement). The broker agreement
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referred to A & J as “„BROKER‟” and stated that “BROKER desires USASIA to place
risks of BROKER‟S clients (hereafter referred to a [sic] the „INSURED‟) with and for
acceptance by admitted companies and or non-admitted companies, . . . and [¶] . . .
USASIA agree [sic] to allow BROKER commission on such business, if and when placed
. . . .”
B. The insurance application
Ali Sheibani is the owner of American Way. Sheibani contacted Ali
Derakhshanfar, who was an insurance broker and “principal” of A & J, regarding liability
and property coverage. Derakhshanfar “placed” American Way “with CNA initially,”
and later, Travelers. With respect to the placement with Travelers, a “Commercial
Questionnaire” filled out by A & J contained a blank space next to the words,
“Sprinklers/Smoke Detector”; the commercial questionnaire was faxed to Sheibani. On
September 25, 2007, A & J submitted a commercial insurance application (application)
on behalf of American Way to USASIA with the notation, “Please see the attached
[ACORD] app for above insured. This is a new venture. No losses in the history. Please
give us a quote as soon as possible. If you have any questions feel free to contact us.” In
the box entitled, “FIRE PROTECTION (Sprinklers, Standpipes, CQ/Halon Systems),”
the application indicated that American Way had “SMOKE DETECTORS/FIRE
EXTING./SPRINKLERS.”
On September 27, 2007, USASIA provided a quote from Travelers to A & J,
which stated, “Please refer carrier quote proposal for detail information. It may reflect
reduced and/or restricted coverage and/or limits which are different from your original
request.” On October 11, 2007, A & J requested USASIA to “bind the attached quote
effective today 10/11/07 immediately & give us a binder/invoice at your earliest
convenience.” On the same day, USASIA sent an e-mail correspondence stating, among
other things, “BINDER CONFIRMATION [¶] Policy Period: 10/11/2007 – 10/11/2008
[¶] Assigned Policy Number: 680-6857L078 [¶] . . . [¶] Insurance Company:
Travelers Insurance Company [¶] . . . [¶] The policy will be issued and forwarded to
your attention within next 2–3 weeks.”
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C. The policies
Travelers issued a commercial property policy to American Way effective
October 10, 2007, to October 10, 2008 (2007 policy). The 2007 policy stated that
Travelers had the right to make inspections at any time, but was not obligated to make
any inspections. The 2007 policy contained a “Protective Safeguards Endorsement For
Sprinklered Locations and Restaurants” (Endorsement), which stated, “As a condition of
this insurance, you are required to maintain the protective devices or services listed . . . .”
The protective devices were listed as “Automatic Sprinkler System, including related
supervisory services.” An exclusion section stated, “We will not pay for loss or damage
caused by or resulting from fire if, prior to the fire, you: [¶] a. Knew of any suspension
or impairment in any protective safeguard listed in the Schedule above and failed to
notify us of that fact; or [¶] b. Failed to maintain any protective safeguard listed in the
Schedule above, and over which you had control, in complete working order. [¶] If part
of an Automatic Sprinkler System is shut off due to breakage, leakage, freezing
conditions or opening of sprinkler heads, notification to us will not be necessary if you
can restore full protection within 48 hours.” The 2007 policy provided that Travelers
“will pay for direct physical loss of or damage to Covered Property at the premises
described in the Declarations caused by or resulting from a Covered Cause of Loss.” The
2007 policy also stated, “Business Income and Extra Expense is provided at the premises
described in the Declarations when the Declarations show that you have coverage for
Business Income and Extra Expense” and “Control of Property [¶] Any act or neglect of
any person other than you beyond your direction or control will not affect this insurance.”
A cancellation provision stated that the policy could be canceled by Travelers upon 30
days‟ notice.
American Way received a copy of the 2007 policy. Upon expiration of the 2007
policy, Travelers issued a renewal policy with effective dates of October 10, 2008, to
May 10, 2009 (2008 policy). The provisions in the 2008 policy were identical to those
contained in the 2007 policy and contained an identical Endorsement. On September 3,
2008, USASIA forwarded a copy of the 2008 policy to A & J, requesting that A & J
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review it and advise USASIA of any errors, omissions, or changes. USASIA did not
receive a response from A & J regarding any errors, omissions, or changes.
D. The fire and subsequent investigation
On October 11, 2008, a fire occurred at the premises, which occupied the
southwest section of a “warehouse-type building.” Travelers retained Pacific Rim
Investigative Services Group, Inc. (Pacific Rim), to investigate the loss and the cause of
the fire. In the meantime, Travelers issued a “good faith” advance payment to American
Way in the amount of $250,000. Pacific Rim concluded that the fire originated in the
interior of the east side of the building where an area was under construction. Pacific
Rim noted that there was no automatic sprinkler system installed in the premises. Fire
protection in the building consisted of an alarm system, which functioned at the time of
the incident, and several fire extinguishers.
E. Travelers’s denial
On November 11, 2008, Travelers sent a letter to American Way stating that the
claim “may not be covered by the policy” and that it was investigating the claim subject
to a full reservation of all rights and defenses. On February 20, 2009, Travelers issued a
denial letter stating that “there was no fire suppression sprinkler system installed in the
building at the time of the loss. We note that your application for insurance represents
that the building is equipped with a sprinkler system.” The letter also stated that
Travelers intended to “collect” the $250,000 good faith advance payment “for the lack of
coverage on this claim.”
F. The complaints and cross-complaints
American Way filed a complaint seeking declaratory relief against Travelers,
USASIA, and A & J. Later, American Way filed a first amended complaint (FAC),
alleging causes of action for declaratory relief and bad faith breach of contract against
Travelers; and negligence and fraud against Travelers, USASIA, and A & J. Travelers
demurred to the FAC. The court overruled Travelers‟s demurrer to the cause of action
for declaratory relief; sustained the demurrer to the causes of action for bad faith and
negligence with leave to amend; and sustained the demurrer to the cause of action for
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fraud without leave to amend. The court sustained A & J‟s demurrer to the cause of
action for negligence with leave to amend; and sustained the demurrer to the cause of
action for fraud without leave to amend. The court sustained USASIA‟s demurrer to the
FAC without leave to amend. American Way did not appeal from the judgment entered
in favor of USASIA.
American Way filed a second amended complaint (SAC), alleging causes of action
against Travelers for declaratory relief, bad faith breach of contract, and negligence; and
a cause of action for negligence against A & J. The SAC alleged that an actual
controversy existed as to whether the fire loss was a covered loss and requested a judicial
determination of the rights and duties of the parties with regard to the 2008 policy and a
declaration as to whether the 2008 policy was in effect at the time of the loss; a
declaration as to whether the loss was covered under the 2008 policy; and a declaration as
to whether Travelers was liable for the loss. It also alleged that Travelers acted in bad
faith in denying coverage on the basis that the premises did not have a sprinkler system.
The SAC alleged that Travelers had a duty to conduct inspections of the premises, write
the policy, insure the premises, and procure the policy requested by American Way. It
alleged that at the time the 2007 and 2008 policies were written, Travelers knew of
American Way‟s coverage requirements; made affirmative representations to American
Way that it was adequately covered according to its needs; and knew that the premises
did not contain a fire sprinkler system, but negligently wrote an insurance policy “based
upon [its] own independent inspections, which TRAVELERS now alleges provided no
coverage to [American Way].”
Travelers demurred to the SAC‟s bad faith and negligence causes of action. The
trial court sustained Travelers‟s demurrer to the SAC‟s bad faith cause of action without
leave to amend but overruled it as to the cause of action for negligence.
Travelers filed a cross-complaint against American Way, alleging causes of action
for declaratory relief and reimbursement. A & J filed a cross-complaint against USASIA
and Travelers, alleging causes of action for indemnity, contribution, and declaratory
relief. Travelers filed a cross-complaint against A & J, alleging causes of action for
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indemnity and contribution. A & J subsequently dismissed its cross-complaint against
USASIA without prejudice.
G. Travelers’s motion for summary judgment
On January 31, 2011, Travelers filed a motion for summary judgment against
American Way on Travelers‟s cross-complaint and American Way‟s SAC; and against
A & J on its cross-complaint against Travelers. In support of its motion for summary
judgment, Travelers submitted the following evidence. Allyson Delgado, a general
adjuster employed by Travelers, declared that after Travelers was notified of the fire, it
issued a “good faith” advance payment to American Way in the amount of $250,000.
Subsequently, Travelers was informed by Pacific Rim that there was no automatic
sprinkler system installed in the premises. The 2008 policy contained the Endorsement
that required American Way to have an operating fire sprinkler system on the premises.
On November 11, 2008, Travelers sent American Way a reservation of rights letter.
In A & J‟s response to request for admissions, it admitted under oath that it was
“not acting as an agent of TRAVELERS for the purpose of procuring insurance for
[American Way]” and it “acted as an insurance broker for [American Way] for the
purposes of procuring insurance at” the premises. In response to interrogatories, A & J
stated that Hilda Castellanos, a principal of American Way, informed an employee of
A & J that the premises were “equipped with a sprinkler system . . . [and based upon] the
information obtained from [American Way], [A & J] prepared the application package
and submitted it to USASIA.” And in Derakhshanfar‟s deposition, he testified that A & J
“only represent[ed] the insured”; that A & J had never represented or been an agent of
Travelers; that A & J had never represented to anyone that it was an agent of Travelers;
and that in obtaining commercial property insurance, A & J went “through [a] general
agent.” He also testified that the broker agreement between A & J and USASIA was
terminated by USASIA because of American Way‟s lawsuit against USASIA. An e-mail
from USASIA to Travelers stated that USASIA terminated its relationship with A & J
because A & J incorrectly stated on American Way‟s application that the premises were
equipped with automatic sprinklers. A notice filed by A & J with the Department of
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Insurance listed various life and health insurance companies that had appointed A & J
their agent but did not list Travelers.
Also, in Sheibani‟s deposition he stated that Derakhshanfar was “a broker. He just
sell[s] insurance, different insurance.” Sheibani stated that no one from Travelers “ever
[came] out”; Travelers never called him; “[t]here was no correspondence from Travelers
during the application process”; and other than bills and the denial letter, he did not
receive any correspondence from Travelers. He also stated that he had received a copy of
the 2007 policy and the “renewal policy” in the mail.
In support of its opposition to Travelers‟s motion for summary judgment,
American Way attached the declaration of Sheibani. Travelers objected to statements
contained in Sheibani‟s declaration on the basis that the statements were inadmissible
hearsay, failed to establish Sheibani‟s personal knowledge, were based upon speculation
or improper opinion testimony, or were irrelevant. The trial court sustained most of the
objections, admitting the remainder as follows.
Sheibani‟s declaration at paragraph 6, as admitted, stated, “I never indicated, nor
was I ever asked whether the premises which I occupied and which were insured by
Travelers were sprinklered. Had I been asked I would have confirmed that they were not
sprinklered. Even a cursory inspection of the premises would make anyone writing
insurance on my premises aware that there were no sprinklers on the premises or in the
building which my premises were located.” Paragraph 9, as admitted, stated, “Following
the loss of my business premises Travelers . . . paid the sum of two hundred and fifty
thousand dollars ($250,000.00) as an interim payment pending their final determination
as to the amount of the loss. . . . On December 17, 2008 (2 months after the loss)
Travelers sent me a bill for $650.00 which Travelers claimed was an additional (earned)
premium due Travelers for the audit of the 10/10/07–10/10/08 policy periods, which sum
I paid.” Paragraph 10 stated, “On February 3, 2009, Travelers sent me revised
declarations premiums for the policy period 10/10/08–10/10/09 charging an additional
premium of $854.00 and amending my insurance by adding endorsements.” Paragraph
11 stated, “On February 23, 2009 Travelers forwarded the correspondence attached as
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Exhibit 4 hereto confirming that my policy was still in force and requiring that I pay the
$2,205.25 then due on the policy.” Paragraph 12 stated, “In fact, the policy remained in
effect until 05/10/2009, when it was cancelled due to „non-payment of premium.‟”
Paragraph 16 stated, “I was never aware of any agreement between USASIA and A & J.
A & J held themselves out as the representative of an agent for Travelers Insurance and
assured me that Travelers was paying them for procuring the insurance contract on my
premises. Once my coverage was placed with Travelers Insurance by A & J all of my
communications relative to that insurance and relative to the renewal of that insurance
and claims under that Policy were conducted between me and Travelers Insurance
employees. Neither I nor anyone from American Way . . . has advised A & J, USASIA,
or Travelers that the business premises which were insured by Travelers were
sprinklered.”
H. The trial court’s order granting Travelers’s motion for summary judgment
On April 20, 2011, the trial court granted Travelers‟s motion for summary
judgment against American Way and A & J “in its entirety.” The court determined that
Travelers met its burden of negating essential elements of American Way‟s causes of
action for declaratory relief and negligence by establishing that the 2008 policy required
a functioning sprinkler system as a condition of coverage and that the evidence showed
that no sprinkler system existed at the premises. In addition, the court held that Travelers
demonstrated that it owed “no legal duty to [American Way] to investigate and verify
information provided to it by [A & J].” And the court found that Travelers produced
evidence that it was not liable for A & J‟s negligence “because A & J functioned as an
insurance broker, not agent, of [Travelers].” The court determined that American Way
failed to meet its burden of showing that triable issues of material fact existed with
respect to its claims for declaratory relief and negligence. The court stated, “[American
Way] has failed to show triable issues of material fact exist as to whether A & J, though
not an agent, acted as an ostensible agent for [Travelers] thus creating liability.” The
court also held that Travelers was entitled to judgment against A & J, which failed to file
opposition to Travelers‟s motion for summary judgment.
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The trial court entered judgment in favor of Travelers and against American Way
in the amount of $305,205, which included $250,000 in damages and prejudgment
interest. The trial court also entered judgment in favor of Travelers and against A & J,
ordering that A & J take nothing by way of its cross-complaint against Travelers. The
court ordered Travelers to recover costs of suit from American Way and A & J.
American Way appeals. A & J and USASIA are not parties to this appeal.
DISCUSSION
A. Standard of review
“„The standard for deciding a summary judgment motion is well-established, as is
the standard of review on appeal.‟ [Citation.] „A defendant moving for summary
judgment has the burden of producing evidence showing that one or more elements of the
plaintiff‟s cause of action cannot be established, or that there is a complete defense to that
cause of action. [Citations.] The burden then shifts to the plaintiff to produce specific
facts showing a triable issue as to the cause of action or the defense. [Citations.] Despite
the shifting burdens of production, the defendant, as the moving party, always bears the
ultimate burden of persuasion as to whether summary judgment is warranted. [Citation.]‟
[Citation.] [¶] „On appeal, we review de novo an order granting summary judgment.
[Citation.] The trial court must grant a summary judgment motion when the evidence
shows that there is no triable issue of material fact and the moving party is entitled to
judgment as a matter of law. [Citations.] In making this determination, courts view the
evidence, including all reasonable inferences supported by that evidence, in the light most
favorable to the nonmoving party. [Citations.]‟ [Citation.]” (Hypertouch, Inc. v.
ValueClick, Inc. (2011) 192 Cal. App. 4th 805, 817–818, fn. omitted.)
B. American Way failed to meet its burden of showing that triable issues of
material fact exist with respect to its claim for negligence
American Way contends that triable issues of material fact exist with respect to its
claim for negligence, including whether A & J was an actual or ostensible agent of
Travelers. We conclude that because the evidence showed as a matter of law that A & J
was not an actual or ostensible agent of Travelers, the trial court properly determined that
10
American Way failed to meet its burden of showing that triable issues of material fact
exist with respect to its claim for negligence.
American Way alleged that Travelers had a duty to conduct inspections of the
premises, write the policy, insure the premises, and procure the policy requested by
American Way. It alleged that Travelers knew of American Way‟s coverage
requirements; made affirmative representations to American Way that it was adequately
covered; and knew that the premises did not contain a fire sprinkler system, but
negligently wrote an insurance policy “based upon [its] own independent inspections,
which [Travelers] now alleges provided no coverage to [American Way.]”
But an insurer does not have the duty to investigate the insured‟s statements made
in an insurance application and to verify the accuracy of the representations. (Mitchell v.
United National Ins. Co. (2005) 127 Cal. App. 4th 457, 476.) Rather, it is the insured‟s
duty to divulge fully all he or she knows. (Ibid.) And “[i]nsurance companies and
brokers have no affirmative duty to advise their insureds to procure particular or different
kinds of coverage than they obtained.” (Ray v. Valley Forge Ins. Co. (1999) 77
Cal. App. 4th 1039, 1049.) Further, the 2008 policy stated that Travelers had the right to
make inspections but was not obligated to do so. And the evidence showed that A & J
filled out the application based on information it received from American Way, then
submitted it to USASIA. In turn, Travelers relied on the representations in the
application when it issued the policies. Although American Way argues on appeal that
Travelers negligently issued the policies knowing that the premises were not equipped
with sprinklers, American Way did not present admissible evidence that Travelers made
an independent investigation or otherwise knew that the premises were not equipped with
sprinklers. Rather, Sheibani declared that he had “never indicated” or been asked if the
premises were equipped with sprinklers and that a cursory inspection of the premises
would have revealed the lack of sprinklers. And he testified in deposition that other than
bills and the denial letter, he did not receive any correspondence from Travelers and that
no one from Traveler‟s called him or ever “[came] out.”
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Thus, in order to succeed on a theory of negligence against Travelers, American
Way must show that A & J, which wrote the application indicating that the premises were
equipped with automatic sprinklers, acted negligently as the agent of Travelers. “An
insurer, as a principal, may be vicariously liable for the torts of its agent if the insurer
directed or authorized the agent to perform the tortious acts, or if it ratifies acts it did not
originally authorize. [Citation.] Layered atop the principal/agent relationship of the
insurer to its agent is the insurer‟s fiduciary duty to conduct itself with the utmost good
faith for the benefit of its insured. [Citation.]” (Desai v. Farmers Ins. Exchange (1996)
47 Cal. App. 4th 1110, 1118–1119.) “Statutorily, an agent is defined as one who is
„authorized, by and on behalf of an insurer, to transact all classes of insurance‟ except for
life insurance ([Ins. Code,] §§ 31, 1621) while a broker is „a person who, for
compensation and on behalf of another person, transacts insurance other than life with,
but not on behalf of, an insurer.‟ ([Ins. Code,] §§ 33, 1623.)” (Krumme v. Mercury Ins.
Co. (2004) 123 Cal. App. 4th 924, 928–929.) “„An “insurance broker” is one who acts as
a middleman between the insured and the insurer, soliciting insurance from the public
under no employment from any special company, and, upon securing an order, placing it
with a company selected by the insured or with a company selected by himself or herself;
whereas an “insurance agent” is one who represents an insurer under an employment by
it. A broker is, in essence, employed in each instance as a special agent for a single
purpose, while the very definition of agent indicates an ongoing and continuous
relationship. . . . [B]rokers and insureds are ordinarily involved in what can be viewed as
a series of discrete transactions, while agents and insureds tend to be under some duty to
each other during the entire length of the relationship.‟ [Citations.]” (Id. at p. 929.)
“„An individual cannot act as an insurance agent in California without a valid
license issued by the commissioner of insurance. (Ins. Code, § 1631.) In addition to
possessing a license, an insurance agent must be authorized by an insurance carrier to
transact insurance business on the carrier‟s behalf. This authorization must be evidenced
by a notice of agency appointment on file with the Department of Insurance. (Ins. Code,
§ 1704, subd. (a).)‟ [Citation.] Unlike an agent, a broker does not act for the insurer, and
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the insurer is not liable for the broker‟s acts or omissions.” (Krumme v. Mercury Ins.
Co., supra, 123 Cal.App.4th at p. 929; Rios v. Scottsdale Ins. Co. (2004) 119 Cal. App. 4th
1020, 1026 [insurance broker “has no binding authority and is as a matter of law not a
general agent for the insurer”].)
American Way‟s attempt to raise a triable issue of fact on the basis of agency fails.
Travelers produced evidence that A & J was an insurance broker and not an agent of
Travelers. In its response to a request for admissions, A & J admitted under oath that it
was not acting as Travelers‟s agent when it procured insurance for American Way and
that it acted as an insurance broker for American Way in procuring insurance for the
premises. Further, the broker agreement between A & J and USASIA stated that A & J
was a representative of American Way and was not acting as the agent or representative
of USASIA or its insurance companies. And Derakhshanfar testified in deposition that
A & J “only represent[ed] the insured”; that A & J had never represented or been an
agent of Travelers; that A & J had never represented to anyone that it was an agent of
Travelers; and that in obtaining commercial property insurance, A & J went “through [a]
general agent.” Further, Sheibani described Derakhshanfar as a “broker.” And Travelers
was not listed as an appointed agent of A & J in the notice filed with the Department of
Insurance.
American Way also failed to show a triable issue of fact as to whether A & J was
an ostensible agent of Travelers. “Ostensible authority is such as a principal,
intentionally or by want of ordinary care, causes or allows a third person to believe the
agent to possess.” (Civ. Code, § 2317.) “Before recovery can be had against the
principal for the acts of an ostensible agent, three requirements must be met: The person
dealing with an agent must do so with a reasonable belief in the agent‟s authority, such
belief must be generated by some act or neglect by the principal sought to be charged and
the person relying on the agent‟s apparent authority must not be negligent in holding that
belief. [Citations.] Ostensible agency cannot be established by the representations or
conduct of the purported agent; the statements or acts of the principal must be such as to
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cause the belief the agency exists.” (J.L. v. Children’s Institute, Inc. (2009) 177
Cal. App. 4th 388, 403–404.)
In support of its argument that a triable issue of material fact exists as to whether
A & J was an ostensible agent of Travelers, American Way cites to portions of Sheibani‟s
declaration that the trial court had ruled were inadmissible. But American Way does not
contend that the court‟s evidentiary rulings were erroneous, other than arguing that the
court “improperly ignored . . . Sheibani‟s declaration by sustaining objections based upon
lack of personal knowledge and relevance,” and we conclude it has forfeited such an
argument. (See Mansell v. Board of Administration (1994) 30 Cal. App. 4th 539, 545–546
[court need not furnish argument or search record for support for appellant‟s unsupported
contention but may treat as forfeited].) Therefore, we consider only the admissible
portions of Sheibani‟s declaration. Sheibani declared that he was not aware of the broker
agreement between USASIA and A & J and that A & J held itself out “as the
representative of an agent for Travelers Insurance and assured me that Travelers was
paying them for procuring the insurance contract on my premises.” But as stated, the
principal, and not the agent, must make statements or commit acts causing the person
relying on the apparent agency to believe the agency exists. (J.L. v. Children’s Institute,
Inc., supra, 177 Cal.App.4th at pp. 403–404.) American Way has made no showing that
Travelers made any statements or committed acts causing American Way to believe an
agency relationship existed between A & J and USASIA or A & J and Travelers. Rather,
Sheibani testified in deposition that other than bills and the denial letter, he did not
receive any correspondence from Travelers and that no one from Travelers called him or
ever “[came] out.” We conclude that American Way failed to raise a triable issue of
material fact as to whether A & J was the ostensible agent of Travelers.
Accordingly, American Way failed to meet its burden of showing that triable
issues of material fact exist with respect to its claim for negligence.
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C. American Way failed to meet its burden of showing that triable issues of
material fact exist with respect to its claim for declaratory relief
American Way contends that triable issues of material fact exist with respect to its
claim for declaratory relief and that it was entitled to coverage because the “provisions
requiring [American Way to] „maintain the protective devices or services listed‟ cannot
require [American Way] to maintain something that does not exist.” We disagree and
conclude that American Way failed to meet its burden of showing that triable issues of
material fact exist with respect to its claim for declaratory relief.
Code of Civil Procedure section 1060 provides that any person may bring an
action for a declaration of his or her rights and duties, including a determination of any
question of construction or validity arising under a contract in cases of actual controversy
relating to the legal rights and duties of the respective parties. “„The fundamental basis
of declaratory relief is the existence of an actual, present controversy over a proper
subject.‟” (City of Cotati v. Cashman (2002) 29 Cal. 4th 69, 79.)
As we explain, we conclude that the Endorsement was a condition precedent to
coverage. “„A condition precedent refers to an act, condition or event that must occur
before the insurance contract becomes effective or binding on the parties . . . .‟
[Citation.] In general, „conditions neither confer nor exclude coverage for a particular
risk but, rather, impose certain duties on the insured in order to obtain the coverage
provided by the policy.‟ [Citation.]” (North American Capacity Ins. Co. v. Claremont
Liability Ins. Co. (2009) 177 Cal. App. 4th 272, 289–290.) Thus, in North American the
Court of Appeal determined that a “contractors warranty endorsement” which required
the insured to secure a written hold harmless agreement and a certificate of insurance
from subcontractors established a precondition of coverage as to work done by the
subcontractors. (North American, at pp. 290–291.) Likewise, in the instant matter the
Endorsement‟s requirement of automatic sprinklers was a condition of coverage.
Because we have found no California cases interpreting protective safeguards
endorsements similar to the one at issue, we find guidance in cases from other
jurisdictions that hold the insured‟s failure to comply with similar endorsements
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precluded coverage. (See United Capitol Ins. Co. v. Kapiloff (4th Cir. 1998) 155 F.3d
488, 496 [insured‟s failure to maintain automatic sprinklers, fire alarm, and burglar alarm
as required under protective safeguards endorsement precluded coverage]; Goldstein v.
Fidelity & Guar. Ins. Underwriters (7th Cir. 1996) 86 F.3d 749, 753–754 [insurer not
estopped from enforcing protective safeguards endorsement that required insured to
maintain sprinklers as a condition of coverage]; Mangiacotti v. U.S. Liability Ins. Co.
(Mass.App., Aug. 31, 2004, No. 03-P-454) 2004 WL 1933611 [insured‟s failure to
maintain functional smoke detectors as represented in application and required under
protective safeguards endorsement precluded coverage]; Tuscany Bistro, Inc. v. Sirius
America Ins. Co. (N.J. Super.Ct.App.Div., Aug. 12, 2011, No. L-994-05) 2011 WL
3517000 [insured‟s failure to maintain fire alarm connected to a central station as
represented in application and required under protective safeguards endorsement
precluded coverage]; Indian Harbor Ins. Co. v. Randolph Partners, LLC–740 Series
(N.D. Ill., Aug. 10, 2010, No. 08 C 629) 2010 WL 3155974 [insured‟s failure to maintain
central station burglar and fire alarm as required under protective safeguards endorsement
precluded coverage].)
Applying these authorities, we conclude that American Way was precluded from
coverage because it failed to maintain an automatic sprinkler system under the terms of
the Endorsement. The Endorsement stated, “As a condition of this insurance, you are
required to maintain the protective devices or services listed . . . .” The protective
devices were listed as “Automatic Sprinkler System, including related supervisory
services.” It was undisputed that the premises were not equipped with automatic
sprinklers. Yet American Way‟s application indicated that it had “SMOKE
DETECTORS/FIRE EXTING./SPRINKLERS.” As noted, Travelers did not have a duty
to investigate the insured‟s responses but properly could rely on the representations made
in the application in issuing coverage.
American Way‟s reliance on Holz Rubber Co., Inc. v. American Star Ins. Co.
(1975) 14 Cal. 3d 45 (Holz) does not advance its cause. In that case the endorsement at
issue stated, “„This policy being written at a reduced rate based on the protection of the
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premises by an automatic sprinkler system, it is a condition of this policy that, so far as
the sprinkler system and the water supply therefor are under the control of the insured,
due diligence shall be used by the insured to maintain them in complete working order,
and that no change shall be made in the said system or in the water supply therefor
without the consent in writing of this company and/or the Pacific Fire Rating Bureau.‟”
(Holz, at p. 51, fn. 4.)
In Holz, some of the buildings owned by the insured were equipped with
automatic sprinkler systems. During the period of coverage, a fire loss occurred at a new
building under construction, with a sprinkler system laying outside the building ready to
be installed. Our Supreme Court determined that the term “„maintain‟ . . . describes only
the insured‟s duty with respect to the sprinkler system in existence when the policy was
first issued,” and the terms of the endorsement did not anticipate the possibility of new
construction or stock being stored in the new building prior to installation of the
sprinklers. (Holz, supra, 14 Cal.3d at p. 56.) The court noted that the express terms of
the policy granted “„blanket‟” coverage and coverage of stock stored in buildings during
construction. (Holz, at pp. 57–58.) In holding the insurer liable, the court construed
ambiguities against the insurer and viewed the policy in its entirety, determining that the
sprinkler endorsement was reasonably susceptible to the interpretation that the insured
was permitted to use newly constructed buildings for the storage of stock prior to
installation of sprinklers, its only duty being to use due diligence in installing a sprinkler
system. (Holz, at p. 60.)
The situation here is not like the one in Holz. There was no evidence that
American Way intended to install automated sprinklers in new construction as did the
insured in Holz. Rather, Sheibani adamantly declared that he had never told anyone that
the premises were installed with sprinklers and that anyone looking at the premises could
see that they were not equipped with sprinklers. Yet American Way‟s application
indicated that the premises were equipped with automatic sprinklers. Unlike Holz, there
was no ambiguity within the terms of the Endorsement that must be construed against
Travelers.
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Nevertheless, American Way urges that an interpretation of the policy in its
entirety compels the conclusion that the premises were covered for fire loss. American
Way contends that the use of the term “maintain . . . does not require that American Way
install a new fire sprinkler system where none previously existed.” We disagree and
conclude that the Endorsement required American Way to have a functioning, operational
sprinkler system during the period of coverage. We are not persuaded that the policies
were intended to cover insureds who had not equipped their properties with automatic
sprinklers in the same fashion as those whose properties were equipped with automatic
sprinklers. (See Brookwood, LLC v. Scottsdale Ins. Co. (E.D. La., Aug. 17, 2009,
No. 08-4793) 2009 WL 2525756 [“„maintain‟ [means] that the insured is required to have
a functioning, operational burglar alarm system”].) And as noted, American Way‟s
application stated that automatic sprinklers existed on the premises and the policies were
issued with that understanding.
In support of its argument that it is entitled to coverage based on a reading of the
policy in its entirety, American Way cites to provisions in the policy that stated Travelers
“will pay for direct physical loss of or damage to Covered Property at the premises
described in the Declarations caused by or resulting from a Covered Cause of Loss”;
“Business Income and Extra Expense is provided at the premises described in the
Declarations”; and “Control of Property [¶] Any act or neglect of any person other than
you beyond your direction or control will not affect this insurance.” American Way also
cites to a cancellation provision that states that the policy can be canceled by Travelers
upon 30 days‟ notice. American Way contends that the policy does not refer to automatic
sprinklers in its limitations or exclusions provisions, contending that the policy taken as a
whole must be interpreted to include coverage of unsprinklered premises. We disagree
and conclude that the Endorsement was a condition of coverage that American Way did
not satisfy. And consistent with our conclusion, the 2008 policy contains an exclusion
stating that Travelers would not pay for fire loss if, prior to a fire, American Way knew
of a suspension or impairment of the sprinkler system or failed to maintain the sprinkler
system in working order. Finally, “„[i]f there is a conflict in meaning between an
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endorsement and the body of the policy, the endorsement controls.‟ [Citation.]”
(Aerojet-General Corp. v. Transport Indemnity Co. (1997) 17 Ca1.4th 38, 50, fn. 4.)
American Way also contends that other issues of material fact exist that defeat the
motion for summary judgment. American Way claims that a dispute exists as to whether
Travelers provided notice that the premises needed to be equipped with automatic
sprinklers and that a lack of sprinklers would give Travelers the right to cancel the
policies. But the Endorsement gave clear notice of the requirement of an automatic
sprinkler system and American Way did not produce admissible evidence that it did not
receive the Endorsement. Rather, Sheibani testified in deposition that he had received a
copy of the policies in the mail.
American Way further argues that it is disputed whether A & J, USASIA, or
Travelers was responsible for the representation in the application that the premises were
equipped with automatic sprinklers. We disagree. Although Sheibani declared neither he
nor anyone else at American Way advised A & J, USASIA, or Travelers whether the
premises were sprinklered, the evidence showed that the application form was filled out
by A & J, which had been advised by Hilda Castellanos, a principal of American Way,
that the premises were equipped with a sprinkler system; A & J prepared the application
package and submitted it to USASIA based on the information obtained from American
Way; and USASIA severed its relationship with A & J based on A & J‟s
misrepresentation to Travelers that the premises were equipped with automatic sprinklers.
That Sheibani did not know that a principal at American Way had provided incorrect
information to A & J does not raise a triable issue of material fact. In any event,
regardless of how the incorrect information was transmitted to Travelers, as relevant to a
coverage determination, the policy containing the Endorsement required American Way
to maintain an automatic sprinkler system, which it did not.
Accordingly, we conclude that American Way failed to raise triable issues of
material fact as to the causes of action for negligence and declaratory relief and that the
trial court did not err in granting Travelers‟s motion for summary judgment.
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DISPOSITION
The judgment is affirmed. Travelers Property Casualty Company of America is
entitled to costs on appeal.
CERTIFIED FOR PUBLICATION.
MALLANO, P. J.
We concur:
ROTHSCHILD, J.
CHANEY, J.
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