Schaffer v. Hampton Farmers Mutual Fire Ins. Co., (1931) 183 Minn. 101, 235 N.W. 618
(Schaffer).)
12
In Holtorf, the insured owned a farm, and her son was its tenant. (Holtorf, supra,
190 Minn. at p. 45.) Without the insured’s knowledge, her son stored a barrel of gasoline
in the barn, which caused a fire that burned down the barn. (Ibid.) The insured denied
coverage, citing a clause in the insured’s policy that stated the insurer would not be liable
“if the risk shall be increased by means which are within the control of the assured.”
(Ibid.) The Holtorf court rejected the insurer’s position because “the factor which
increased the risk (presence of gasoline in the barn) was not within [the insured’s]
control” (id. at p. 48.) because she “had no knowledge of the presence of gasoline in the
barn, and did not consent to its being there.” (Id. at p. 47.)
Schaffer involved a similar situation. There, the insured leased his farm to tenants
who, without the insured’s knowledge or permission, installed an illegal alcohol still that
started a fire and damaged the insured’s property. (Schaffer, supra, 183 Minn. at p. 102.)
Citing the insured’s policy that the insurer was not liable for risks “‘increased . . . by any
means whatever within the control of the assured,’” the insurer denied coverage for the
fire caused by the tenant’s still. (Ibid.) The Schaffer court disagreed and held that the
insurer could properly deny coverage for an increased risk only if it proved that the
insured knew about the distillery because, if he did, “then its existence . . . could be said
to be within his control.” (Id. at p. 106; see Security Ins. Co. of New Haven v. Dazey 7th
Cir. 1935) 78 F.2d 537, 541 [“Bringing a quantity of kerosene into the house for the sole
purpose of setting it on fire and burning it would not, in our judgment, fall within the
13
purview of the [hazard] clause, unless indeed the insured knew of and co-operated in the
act.”], italics added.)
The Eighth Circuit came to the same conclusion on largely identical facts in
Patriotic Ins. Co. of America v. Franciscus (8th Cir. 1932) 55 F.2d 844 (Franciscus). As
in Schaffer, the insured in Franciscus rented out his property to tenants, who ran an
alcohol distillery in the property that caused a fire. (Franciscus, supra, 55 F.2d at p.
846.) The insured’s policy excluded losses caused by any “‘hazard . . . increased by any
means within the control or knowledge of the insured.’” (Id. at p. 846.) After a multi-
jurisdiction survey, the Eighth Circuit explained that the language “by means within the
control or knowledge” had been considered “in a great many cases, and the
overwhelming weight of authority is that the landlord is not an insurer against the
introduction of increased hazard, but that his liability depends upon his knowledge, or
upon circumstances which, by the exercise of ordinary care and diligence, would result in
such knowledge. [Citations.]” (Id. at p. 847; see Procacci v. U.S. Fire Ins. Co. (App.
Div. 1937) 118 N.J.L. 423, 424-425 [“We take it[,] therefore[,] that the policy was not
invalidated in any event by the increase in hazard, due to the operation of a still, when the
record is innocent of proof that the owner had knowledge of this condition that increased
the hazard, or, by the exercise of ordinary care and diligence, was chargeable with such
knowledge.”].) The Franciscus court held that whether the insured should have
discovered the tenant’s still under the circumstances was a factual issue for the jury to
decide. (Franciscus, supra, 55 F.2d at p. 849.)
14
Similarly, in St. Paul Fire & Marine Ins. Co. v. Bachmann (1932) 285 U.S. 112,
114-115 (Bachmann), the insured’s tenant use of gasoline to operate its illegal moonshine
stills sparked a fire, and the insurer refused coverage on the ground the insured violated
its policy provision that held the insurer was not liable for hazards “increased by any
means within the control or knowledge of the insured.” The United States Supreme
Court held the provision was “not violated[,] unless there [was] increase of hazard within
the knowledge and control of the insured.” (Id. at p. 116, italics added.)
The Eighth Circuit followed Bachmann, observing that it could “find no case
holding that insurance has been forfeited under the increase of hazard clause in the
absence of proof or knowledge on the part of the insured.” (American Mfrs. Mut. Ins. Co.
v. Wilson-Keith & Co. (8th Cir. 1957) 247 F.2d 249, 259.) The court reasoned: “‘“The
expression “control or knowledge,” as used in the policy, is synonymous with “control
and knowledge.” Reasonably interpreted and construed favorably to the insured,
“control” presupposes knowledge. It would be unreasonable to hold that a person had
control of a thing of which he had no knowledge or to say that he had control of a
dangerous substance when he did not know of its danger.” [Citation.]’” (Id. at p. 259.)
The court went on to cite over a dozen authorities that, in the court’s view, supported the
Bachmann court’s interpretation of what constitutes “control or knowledge” in the
context of an increase of hazard clause. (Ibid.; see Goldman v. Piedmont Fire Ins. Co.
(3d Cir. 1952) 198 F.2d 712, 718 (dis. opn. of McLaughlin, J. [“the overwhelming
majority of reported cases categorically support the principle” that an increase of hazard
15
in a fire insurance policy “must not only have been within the control of the insured but
to his knowledge”]).)
The Oregon Court of Appeals relied on Franciscus’s analysis in Farmers Ins. Co.
of Oregon v. Trutanich (1993) 123 Ore. App. 6, 15 (Trutanich), where a tenant’s illegal
methamphetamine lab damaged the insured-landlord’s property. The insurer argued the
landlord’s insurance was void under an Oregon statute that allowed the insurer to deny
coverage if “‘“the hazard is increased by means within the control or knowledge of the
insured.”’” (Id. at p. 14.) Relying on Franciscus, the Trutanich court agreed the
methamphetamine lab was an increase in hazard, but there was “no evidence from which
the jury could find that [the insured] in fact knew of that hazard, or that by exercising
ordinary care or diligence he should have known that [the tenant] would cook
methamphetamine in the house.” (Trutanich, supra, at p. 15.) The court therefore
rejected the insurer’s argument that the insured increased a hazard within his control or
knowledge. (Id. at pp. 14-16.)
We interpret these authorities to stand for the proposition that an insured increases
a hazard “within its control” only if the insured is aware of the hazard or reasonably could
have discovered it through exercising ordinary care or diligence. PSIC does not cite, and
we cannot locate, any authority that suggests a landlord-insured is strictly liable for a
hazard created by the insured’s tenant even if the insured is unaware of the hazard.
It is undisputed the Mosleys did not know about Lopez’s marijuana growing
operation or his altering the property’s electrical system. There is likewise no evidence
16
as to whether the Mosleys could have discovered Lopez’s marijuana growing operation
“by exercising ordinary care or diligence.” On this record, we believe whether Lopez’s
conduct was “within the control” of the Mosleys is a fact issue for the jury to decide
because the record is silent as to what, if anything, the Mosleys reasonably could have
done to prevent or discover Lopez’s marijuana growing operation. (See Hodge v.
Travelers Fire Ins. Co. (App. Div. 1951) 16 N.J. Super. 258, 263 [“[I]t has been
recognized that where the evidence presents a factual issue as to the landlord’s
knowledge and exercise of care it should be submitted to the jury for its determination.”];
accord, Schaffer, supra, 183 Minn. at pp. 106-107; see Trutanich, 123 Ore. App. at p. 15
[“[T]here is no evidence from which the jury could find that defendant in fact knew of
that hazard, or that by exercising ordinary care or diligence he should have known that
someone other than [the insured’s tenant] would cook methamphetamine in the house.”].)
Further, the trial court did not consider the issue, but instead apparently accepted PSIC’s
erroneous argument that Lopez’s conduct was within the Mosleys’ control simply
because he was their tenant.
To the extent PSIC’s interpretation of the Policy renders the Mosleys strictly liable
for Lopez’s conduct, the Policy is void under section 2071. By holding the Mosleys
responsible for the damage Lopez caused, irrespective of the Mosleys’ knowledge of his
conduct or their responsibility for it, the Policy subjects the Mosleys to increased
liability—and less favorable coverage that is not “substantially equivalent” to coverage
provided under section 2071.
17
PSIC nonetheless asserts the Policy is valid because PSIC was entitled to add
exclusions not contained in section 2071, such as the plant-growing exclusion. In
support, PSIC relies on Rizzuto v. National Reserve Ins. Co. (1949) 92 Cal.App.2d 143
(Rizzuto), Taylor v. Garrison Property and Casualty Insurance Company (C.D. Cal.
2018) 2018 WL 5094912 (Taylor), and Nationwide Mutual Fire Insurance Co. v.
McDermott (6th Cir. 2015) 603 Fed. App’x 374. None of these cases supports PSIC’s
contention.
In Rizzuto, the insureds’ policy provided fire coverage for their business
establishment “‘while occupied only for barber shop purposes.’” (Rizzuto, supra, 92
Cal.App.2d at p. 144.) The insureds, however, rented out half of the building to a shop
that cleaned and altered clothes. (Ibid.) After a fire damaged the building, the insurer
denied coverage because it had not been “‘occupied only for barber shop purposes’”
given that half of the building was occupied by the clothing shop at the time of the fire.
(Ibid.) The Rizzuto court held that, because the insureds violated the “‘while occupied’”
condition—a condition precedent to any coverage of the insured’s building—the policy
was suspended for the duration of the violation, so the insurer properly denied coverage
for the fire damage. (Id. at pp. 145, 147.)
In Taylor, the insured obtained insurance for their home, which included a
detached building that the insured used for her professional art studio (“‘the Separate
Structure’”). (Taylor, supra, 2018 WL 5094912, at [1].) After a fire caused by a faulty
furnace damaged the Separate Structure, the insured sought coverage for the losses.
18
(Taylor, supra, at [1].) The insured denied coverage on the ground that the insured’s
policy did not cover structures used for “business,” which the insured conceded included
the Separate Structure due to her for-profit art studio. (Id. at [3].) The insured argued,
however, that the policy violated section 2070 because the policy’s “business use
exclusion” reduced the insured’s coverage below that required by section 2071. (Id. at
[5].)
Relying on Rizzuto, the district court disagreed. (Taylor, supra, 2018 WL
5094912, at [5].) The Taylor court observed that the business use exclusion was “most
similar to the increased hazard” clause in section 2071. (Ibid.) The Taylor court
reasoned that Rizzuto “indicates that insurance providers may continue to specify the
character of use of the property insured as a precondition for coverage or a condition
suspending coverage without violating” section 2070. (Taylor, supra, at [5].) Thus, like
the Rizzuto court, the district court in Taylor found that the insurer properly denied
coverage because the insured intentionally used the property in a manner proscribed by
the policy. (Taylor, supra, at [5].) In other words, the insured was not entitled to any
coverage of the Separate Structure because, like the insured in Rizzuto, the insured failed
to use the premises only for certain purposes—a condition precedent for any coverage of
the Separate Structure. As the Taylor court put it, “the Separate Structure is covered
unless it is being used in whole or in part for business, in which case coverage is
suspended.” (Taylor, supra, at [5].)
19
As in Taylor and Rizzuto, the insurer in McDermott properly denied coverage for
fire damage caused by the husband’s illegal marijuana growing operation because the
insured violated her policy terms. (McDermott, supra, 603 Fed. App’x at pp. 374-375.)
Specifically, by failing to report the operation to her insurer, the insured violated a
provision in her policy that required her to inform the insurer of “‘any change which may
affect the premium risk under th[e] policy,” including “changes . . . in the occupancy or
use of the resident premises.’” (Id. at p. 377.) By failing to do so, the insurer was
entitled to deny coverage under a policy provision that allowed the insurer to void the
policy if the insured “‘omitt[ed] any material fact . . . during the policy period.’” (Ibid.) 2 Rizzuto, Taylor, and McDermott do not control here. In all three cases, the
insureds intentionally used the covered buildings in a way that violated their respective
fire policies and, accordingly, they were not entitled to any coverage because they
personally breached their insurance contracts. That fact alone—which is not present
here—permitted the insurers in all three cases to deny coverage. Further, in Rizzuto, the
insured increased a hazard indisputably within its control and knowledge. (Rizzuto,
supra, 92 Cal.App.2d at p. 148.) The Rizzuto court found there was “ample evidence” to
support the trial court’s finding that the insured’s renting half the building to the cleaning
shop “materially increased” a hazard risk because it was “self-evident” that the cleaning
2 Although we find Taylor and McDermott are distinguishable, we also decline to follow them because Taylor is a trial court decision currently on appeal and McDermott is unpublished. (See America Inc. Online v. Superior Court (2001) 90 Cal.App.4th 1, 6 fn. 2 [court was “hardly inclined” to consider unpublished “out-of-state decisions”].)
20
shop’s services “produced a fire hazard materially higher than that attending a barber
shop.” (Ibid.)
By contrast, the Mosleys did not breach their insurance contract with PSIC.
Unlike the insureds in Rizzuto, Taylor, and McDermott, the Mosleys did not use the
Property in a prescribed way that would have allowed PSIC to suspend their insurance
and deny all coverage. More importantly, contrary to PSIC’s assertion and the trial
court’s finding, there was no evidence Mosleys knowingly increased a risk of fire hazard.
In addition, a fact issue remains as to whether Lopez’s hazard-increasing conduct was
within their control. If it was, then PSIC properly denied coverage. But by denying the
Mosleys coverage for Lopez’s conduct, regardless of the Mosleys’ control over or
knowledge of it, the Policy did not provide “substantially equivalent” coverage to that
required under section 2071. We therefore reverse the trial court’s order granting
summary judgment to PSIC and affirm the trial court’s order denying the Mosleys’
motion for summary judgment.
We affirm the trial court’s order denying the Mosleys’ motion for summary
judgment for an additional reason. As the trial court correctly observed, the Mosleys’
motion for summary judgment failed to address both of their claims. Their separate
statement in support of the motion “only addresse[d] (1) [their] first cause of action for
breach of contract . . . and (2) the issue that defendant had a duty under the policy to pay
the losses incurred by [the Mosleys].” The trial court therefore properly denied the
Mosleys’ summary judgment motion because it did not address their second cause of
21
action. (Jameson v. Desta (2013) 215 Cal.App.4th 1144, 1165 [holding party must
address all of the plaintiff’s theories of liability to be entitled to summary judgment].) In
any event, as we explained below, we conclude PSIC is entitled to summary adjudication
on that cause of action.
2. Forfeiture
At oral argument, counsel for PSIC argued the Mosleys forfeited any argument
that Lopez’s conduct was not within their “control or knowledge” because they did not
address the issue in the trial court and their opening brief only addressed it in passing
without argument or citations to the record.
PSIC raised the “control or knowledge” issue in their moving papers. PSIC told
the trial court that it “must determine whether PSIC’s exclusion for plant growing
operations substantially complies with the language of [s]ection 2071 and provides the
insured with coverage that is substantially equivalent to that provided in the statute.”
PSIC argued the Policy did provide such coverage because, under the standard form
policy, “PSIC is not liable for a loss occurring due to an increased hazard.” Relying on
McDermott, PSIC argued that the Mosleys’ “loss would be excluded under the increased
hazard provision in Section 2071 and is also excluded under PSIC’s express exclusion for
marijuana grow operations,” so the Policy provided substantially equivalent coverage to
that required by section 2071.” PSIC reiterated these arguments in its opposition to the
Mosleys’ summary judgment motion.
22
In both its moving papers and in opposition to PSIC’s motion for summary
judgment, the Mosleys argue Paragraph E’s exclusion was not enforceable because it
results in the Policy providing less favorable coverage than the standard form fire policy
would provide. The Mosleys therefore argued the exclusion was void as a matter of law.
At the hearing on the motions, both parties agreed that their cross-motions for
summary judgment presented the same issues. PSIC’s counsel explained, “the issue
before the Court truly is purely a legal question. There are no disputed facts as to the
cause of the loss or the application of this exclusion to the loss, assuming it’s enforceable.
The sole issue before the this Court is plaintiff’s claim that the exclusion in the [P]olicy is
unenforceable per se because the coverage it affords under the [P]olicy is less favorable
than what is provided under [section 2071].” (Italics added.)
PSIC’s counsel further explained that, “[t]here’s no dispute the [P]olicy
exclusions, if it would be enforceable, would apply to this loss, and there’s also no
dispute the marijuana growing operation going on at the property increased the hazard of
fire . . . . No one is claiming that did not increase the risk of the hazard of fire. There’s
also no dispute that this growing operation was under the control of the insured.”
PSIC’s counsel then argued, “[u]nder standard form policy, there is a provision
providing that an insurer is not liable for a loss occurring while the hazard is increased by
any means within the control or knowledge of the insured . . . . [T]he insurance company
is not liable for loss occurring while the hazard is increased by any means within the
control or knowledge of the insured . . . . The question for the Court is [whether] the
23
policy that we have [is] as favorable as the one that exists under 2017 which excludes
coverage for fire losses that are caused by insured’s conduct that increases the risk of
first. Unfortunately that’s what we have. There’s no dispute that but for this growing
operation, this fire wouldn’t have occurred.” PSIC’s explained that the “[s]tandard form
policy doesn’t say that the hazard has to be unlawful conduct by an insured. It’s anything
an insured does that increases the risk of fire beyond what a reasonable person would be
doing in a residential home which is, among other things, a marijuana grow operation.”
After argument from the Mosleys’ counsel, PSIC’s counsel continued, “[t]he
purpose of this exclusion is that the insurance company in this case has identified certain
types of conduct that an insured can engage in that will increase the risk of first. Under
[section] 2071, we are allowed to exclude those risks. We can use the broad and, frankly,
fairly ambiguous language that appears in the standard form and get into an argument
with every insured who wants to grow marijuana in their home did this or not increase the
risk of fire.”
After brief additional argument from counsel, the trial court stated it would take
the matter under submission. The trial court then issued (1) an order granting PSIC’s
motion for summary judgment and (2) an order denying the Mosleys’ motion for
summary judgment. In granting PSIC’s motion, the trial court found “as a matter of law
that the fire coverage in the subject Policy is substantially equivalent to or more favorable
to plaintiffs than the coverage in the standard form policy in Ins[urance] C[ode] [section]
24
2071.” The trial court therefore found that, “[b]ecause the exclusion is valid and
enforceable, there is no merit to plaintiffs breach of contract claim.”
In denying the Mosleys’ summary judgment motion, the trial court explained,
“[w]hile California Insurance Code 2070 begins by stating that fire policies shall be on
the standard form 2071, it provides for an exception when a policy provides coverage
against perils other than fire, provided that the fire coverage is substantially equivalent to
or more favorable to the insured than that contained in the standard form.” The trial court
then found, “[s]ection 2071 states that the insurer shall not be liable for loss when the
hazard is increased by any means within the control or knowledge of the insured: such
occurred in this case.” The trial court therefore concluded the Mosleys “fail[ed] to
establish that the subject exclusion is not substantially equivalent to or more favorable to
them than the standard form, or that it is otherwise inconsistent with 2071.”
In short, PSIC argued—and the trial court found—that the Policy provided the
Mosleys coverage that was substantially equivalent to or more favorable than the
standard fire insurance form. Based on that finding, the trial court granted PSIC’s motion
for summary judgment and denied the Mosleys’ cross-motion for summary judgment.
Because the trial court’s orders turned on its conclusion that Lopez’s conduct was within
the Mosleys’ control or knowledge, we necessarily must address that issue. (See Aguilar
independent judgment in reviewing order granting summary judgment and applies the
same analysis as the trial court].)
25
The fact that the Mosleys did not oppose PSIC’s argument that Lopez’s conduct
was within their control or knowledge does not mean the trial court properly granted
summary judgment on that basis. A party is entitled to summary judgment only if it
meets its initial burden of showing there are no triable issues of fact and the moving party
is entitled to judgment as a matter of law. (See Code Civ. Proc., § 437c, subd. (o)(2).)
This is true even if the opposing party fails to file any opposition. (Thatcher v. Lucky
Stores, Inc. (2000) 79 Cal.App.4th 1081, 1086-1087.) “The court’s assessment of
whether the moving party has carried its burden—and therefore caused a shift—occurs
before the court’s evaluation of the opposing party’s papers. [Citations.] Therefore, the
burden on the motion does not initially shift as a result of what is, or is not, contained in
the opposing papers. And because a reviewing court employs the same three-step process
in the course of its de novo review of a summary judgment [citation], this conclusion
applies with equal force on appeal.” (Y.K.A. Industries, Inc. v. Redevelopment Agency of
City of San Jose (2009) 174 Cal.App.4th 339, 367-368.)
Accordingly, “[i]f the defendant [moving for summary judgment] fails to meet this
initial burden [of production], it is unnecessary to examine the plaintiff’s opposing
evidence; the motion must be denied.” (Zoran Corp. v. Chen (2010) 185 Cal.App.4th
799, 805.) For the reasons explained above, we conclude PSIC failed to meet its initial
burden because an issue of fact remains as to whether Lopez’s conduct was within their
“control or knowledge.” PSIC’s motion for summary judgment therefore should have
been denied—regardless of what the Mosleys did or did not argue in their opposition—
26
because the burden never shifted to them. (See Denton v. City & County of San
Francisco (2017) 16 Cal.App.5th 779, 794 [“[E]ven without opposition, a court may not
grant a motion for summary judgment unless it first determines that defendants have met
their initial burden of proof.”]; accord, Reilly v. Inquest Technology, Inc. (2013) 218
Cal.App.4th 536, 551 fn. 3 [“Reilly suggests the issue of whether the Act applied was
waived due to Inquest’s failure to oppose the summary adjudication motion. Not so. To
prevail on the motion, the burden fell on Reilly to submit evidence sufficient to establish
each element necessary to sustain a judgment in his favor.”].)
D. Breach of Implied Covenant of Good Faith and Fair Dealing Claim
The trial court granted PSIC summary judgment on the Mosleys’ claim for breach
of the implied covenant of good faith and fair dealing in part because the court found
there was a genuine coverage dispute between the parties. We conclude the trial court
did not err in so finding.
“[T]here are at least two separate requirements to establish breach of the implied
covenant: (1) benefits due under the policy must have been withheld; and (2) the reason
for withholding benefits must have been unreasonable or without proper cause.” (Love v.
Fire Ins. Exchange (1990) 221 Cal.App.3d 1136, 1151.) An insurer is not liable for
breaching the implied covenant if there is “‘a genuine issue as to [the insurer’s] liability
under California law.’ [Citation.]” (Opsal v. United Services Auto. Assn. (1991) 2
Cal.App.4th 1197, 1205-1206.) “‘[A] court can conclude as a matter of law that an
insurer’s denial of a claim is not unreasonable, so long as there existed a genuine issue
27
as to the insurer’s liability.’ [Citation.]” (Fraley v. Allstate Ins. Co. (2000) 81
Cal.App.4th 1282, 1292.)
Thus, to succeed on a claim for breach of the implied covenant, the insured must
show that “the insurer acted unreasonably or without proper cause.” (Jordan v. Allstate
Ins. Co. (2007) 148 Cal.App.4th 1062, 1072.) The insured must show the insurer’s
conduct “demonstrates a failure or refusal to discharge contractual responsibilities,
prompted not by an honest mistake, bad judgment or negligence but rather by a conscious
and deliberate act, which unfairly frustrates the agreed common purposes and disappoints
the reasonable expectations of the other party thereby depriving that party of the benefits
of the agreement.” (Careau & Co. v. Security Pacific Business Credit, Inc. (1990) 222
Cal.App.3d 1371, 1395.) Accordingly, “an insurer does not act in bad faith when it
mistakenly withholds policy benefits, if the mistake is reasonable or is based on a
legitimate dispute as to the insurer’s liability.” (Century Surety Co. v. Polisso (2006) 139
Cal.App.4th 922, 949.) “An insurer which denies benefits reasonably, but incorrectly,
will be liable only for damages flowing from the breach of contract, i.e., the policy
benefits.” (Morris v. Paul Revere Life Ins. Co. (2003) 109 Cal.App.4th 966, 977.)
We conclude PSIC acted reasonably in denying the Mosleys coverage. As our
discussion above shows, there is no clear, controlling California law that establishes
whether PSIC properly denied coverage—an issue that turns on whether Lopez’s conduct
was within the Mosleys’ control, which remains to be determined. Under the unique
circumstances presented and the lack of guiding California precedent, we think PSIC
28
reasonably interpreted Paragraph E as permissibly excluding coverage for the damage
Lopez caused. On this record, PSIC cannot be liable for bad faith. We affirm the trial
court’s order granting PSIC summary judgment on the Mosleys’ second claim for breach
of the covenant of good faith and fair dealing.
IV.
DISPOSITION
The judgment is reversed. The trial court’s order granting PSIC summary
judgment on the Mosleys’ first cause of action for breach of contract is reversed, but we
affirm the trial court’s order granting summary adjudication on the Mosleys’ second
cause of action for breach of the implied covenant of good faith and fair dealing. The
trial court’s order denying the Mosleys’ motion for summary judgment is otherwise
affirmed. The matter is remanded with directions to the trial court to enter an order
granting summary adjudication in PSIC’s favor on the Mosleys’ second cause of action.
Each side shall bear their own costs on appeal.
CERTIFIED FOR PUBLICATION
CODRINGTON J. I concur:
McKINSTER Acting P. J.
29
[Mosley et al., E071287]
MENETREZ, J., Dissenting.
The majority opinion works two significant changes in California law, one
procedural and one substantive. First, the opinion reverses summary judgment on the
basis of an argument that was not raised in the trial court. The opinion reasons that the
argument was not forfeited because an appellant can always challenge summary
judgment on the ground that the moving party did not carry its initial burden—the
appellant need not have presented that argument to the trial court in order to preserve it
for appeal. That is a new rule of California appellate procedure.
Second, the majority opinion alters the coverage of every fire insurance policy in
California. It does so by interpreting the word “or,” in a coverage exclusion, to mean
“and.” The opinion recognizes that there is no authority in California law for such an
interpretation. (Maj. opn., ante, at p. 11 [“we have not located[] any binding California
authority interpreting” the exclusion in question].) The opinion consequently bases its
interpretation on various out-of-state authorities, primarily federal and Minnesota case
law from the 1930s. Moreover, the majority opinion does this without the benefit of
briefing by the parties. No party to this appeal has ever advocated the interpretation
adopted by the majority opinion, and no party has ever briefed the interpretation’s merits,
pro or con.
I would not reach the policy interpretation issue on which the majority opinion is
based, because the issue was not raised in the trial court and has not been briefed on
1
appeal. Instead, I would address the arguments raised by appellants only to the extent
that appellants preserved them by presenting them in the trial court first. Because the
properly preserved arguments raised by appellants are meritless, I would affirm. I
therefore respectfully dissent.
I.
Pacific Specialty Insurance Company (PSIC) issued a homeowner’s policy for a
home owned by James and Maria Mosley. Years later, the Mosleys rented the home to a
tenant who used it to operate an indoor marijuana-growing operation. In connection with
that operation, the tenant modified the home’s electrical wiring in order to bypass the
meter and steal electricity from the grid. The illegal wiring caused a fire, damaging the
home.
The Mosleys submitted a claim under their policy, but PSIC denied the claim
because of the policy’s exclusion of coverage for damage resulting from “any
manufacturing, production or operation, engaged in: 1. The growing of plants; or 2. The
manufacture, production, operation or processing of chemical, biological, animal or plant
materials.” The Mosleys retained a public adjuster to assist them in pursuing their
insurance claim, but the public adjuster agreed with PSIC that coverage was excluded.
Undaunted, the Mosleys sued PSIC for breach of contract and bad faith.
PSIC moved for summary judgment on the ground that the claim was properly
denied under the exclusion for plant-growing operations. PSIC’s motion also addressed
Insurance Code section 2070, which requires that all fire insurance policies in California
2
provide coverage that “is substantially equivalent to or more favorable to the insured than
that contained in” the standard form fire insurance policy of Insurance Code
section 2071.1 The standard form policy contains an exclusion for any “loss occurring
. . . while the hazard is increased by any means within the control or knowledge of the
insured.” (§ 2071.) PSIC argued that the illegal wiring increased the hazard and was
within the control or knowledge of the Mosleys, bringing the loss within the scope of that
exclusion. (“What occurs in [p]laintiffs’ home is certainly under their control.”) Thus,
because coverage would have been excluded under the standard form policy, the actual
policy provided substantially equivalent coverage, so its exclusion of coverage was valid
and enforceable.
The Mosleys’ opposition to PSIC’s summary judgment motion did not argue that
PSIC failed to carry its initial burden in any respect. In particular, the Mosleys did not
argue that PSIC failed to carry its initial burden of showing that the existence of the
marijuana growing operation or the illegal electrical wiring was within the Mosleys’
knowledge or control. Nor did the Mosleys argue that the actual policy’s exclusion for
plant growing operations did not apply to their claim, or that the standard form policy’s
increased hazard exclusion did not apply, or that there were disputed issues of fact as to
any of those issues. Instead, the Mosleys argued that (1) PSIC could not rely on the
exclusion for plant growing operations as a basis to deny coverage because that exclusion
1 Subsequent statutory references are to the Insurance Code unless otherwise specified.
3
was not part of the standard form policy, and (2) PSIC could not rely on the increased
hazard exclusion in the standard form policy because that exclusion was not part of the
actual policy.
The trial court granted PSIC’s motion. It concluded that the exclusion in the
actual policy was “valid and enforceable” and that the actual policy provided coverage
that was “substantially equivalent to or more favorable to plaintiffs than” the coverage
provided by the standard form policy. The court also denied the Mosleys’ cross-motion
for summary judgment, and it accordingly entered judgment for PSIC.
II.
The majority opinion reverses on the following grounds: (1) The standard form
policy’s increased hazard exclusion applies only to increased hazards that are “within the
control or knowledge of the insured” (§ 2071); (2) as used in the exclusion, “or” actually
means “and,” so the exclusion applies only if the increased hazard was within the
insured’s control and the insured knew or should have known that the hazard existed; (3)
PSIC did not introduce evidence that the Mosleys knew or should have known about the
marijuana growing operation and illegal electrical wiring; so (4) PSIC failed to carry its
initial burden of introducing evidence that the increased hazard exclusion applies. (Maj.
opn., ante, at pp. 11-17.)
The pivotal substantive step in the analysis is (2), the conclusion that “or” means
“and.” That conclusion affects every fire insurance policy in California, because it is an
interpretation of an exclusion in the standard form policy of section 2071, and every fire
4
insurance policy in California must provide coverage that is substantially equivalent to,
or at least as favorable to the insured as, the standard form policy. (§ 2070.)
But the pivotal procedural step in the majority opinion’s analysis comes earlier: It
is the decision to address the issue at all. In the trial court, the Mosleys did not argue that
PSIC failed to carry its initial burden of introducing evidence that the increased hazard
exclusion applies. Nor did the Mosleys argue that “or” means “and.” In fact, to this day
the Mosleys have never argued that “or” means “and.”2
“Ordinarily the failure to preserve a point below constitutes a [forfeiture] of the
point. [Citation.] This rule is rooted in the fundamental nature of our adversarial system:
The parties must call the court’s attention to issues they deem relevant.” (North Coast
Business Park v. Nielsen Construction Co. (1993) 17 Cal.App.4th 22, 28.) “The same
policy underlies the principles of ‘theory of the trial.’ ‘A party is not permitted to change
his position and adopt a new and different theory on appeal. To permit him to do so
would not only be unfair to the trial court, but manifestly unjust to the opposing party.’
[Citation.] The principles of ‘theory of the trial’ apply to motions [citation], including
2 Again, in the trial court the Mosleys argued only that (1) PSIC could not rely on the plant-growing operation exclusion because it was not contained in the standard form policy, and (2) PSIC could not rely on the increased hazard exclusion because it was not included in the actual policy. The Mosleys’ arguments on appeal are largely extended versions of those same arguments. The arguments are frivolous. PSIC can rely on the plant-growing operations exclusion in the actual policy as long as (1) it meets the general requirements for an exclusion to be valid and enforceable (Regional Steel Corp. v. Liberty Surplus Ins. Corp. (2014) 226 Cal.App.4th 1377, 1394), and (2) coverage would also have been excluded under the standard form policy (Century-National Ins. Co. v. Garcia (2011) 51 Cal.4th 564, 567-569, 573).
5
summary judgment motions. [Citation.] . . . It would be manifestly unjust to the
opposing parties, unfair to the trial court, and contrary to judicial economy to permit a
change of theory on appeal.” (Id. at p. 29.) The forfeiture rule and its application to
summary judgment appeals are established beyond question in California case law. (See,
e.g., Venice Coalition to Preserve Unique Community Character v. City of Los Angeles
(2019) 31 Cal.App.5th 42, 54 (Venice Coalition); Jimenez v. 24 Hour Fitness USA, Inc.
(2015) 237 Cal.App.4th 546, 567 (Jimenez); NBCUniversal Media, LLC v. Superior
181 Cal.App.4th 584, 596 (Kendall); DiCola v. White Brothers Performance Products,
Inc. (2008) 158 Cal.App.4th 666, 675-677 (DiCola).)
The majority opinion declines to apply the forfeiture rule for three reasons, none
of which has merit. First, the opinion describes at length the extent to which (1) PSIC
argued in its summary judgment motion that the increased hazard exclusion applied, and
(2) the trial court determined that it applied. (Maj. opn., ante, at pp. 22-25.) But none of
that shows that in opposition to summary judgment the Mosleys argued either that the
increased hazard exclusion did not apply, that PSIC had failed to carry its initial burden,
or that there was a disputed issue of fact on the issue. The Mosleys needed to present
those arguments to the trial court in order to preserve the arguments for appeal. PSIC did
not preserve the arguments for the Mosleys by arguing the contrary position, and the trial
court did not preserve the arguments for the Mosleys by agreeing with PSIC.
6
Second, the majority asserts that “[b]ecause the trial court’s orders turned on its
conclusion that [the tenant’s] conduct was within the Mosleys’ control or knowledge, we
necessarily must address that issue. (See Aguilar v. Atlantic Richfield Co. (2001) 25
Cal.4th 826, 860 [appellate court exercises independent judgment in reviewing order
granting summary judgment and applies the same analysis as the trial court].)” (Maj.
opn., ante, at p. 25.) Thus, the opinion reasons that because an order granting summary
judgment is subject to independent review on appeal, we must address any issues on
which the order was based. That reasoning represents a misunderstanding of independent
review.
In general, the standard of review ‘“prescribes the degree of deference given by
the reviewing court to the actions or decisions under review.”’ (San Francisco Fire
Fighters Local 798 v. City and County of San Francisco (2006) 38 Cal.4th 653, 667.)
When we review a ruling independently, we give it no deference. (Rideau v. Stewart
Title of California, Inc. (2015) 235 Cal.App.4th 1286, 1295.) But our review is still
limited to the arguments that the appellant (1) presents on appeal and (2) preserved by
presenting them in the trial court. (See, e.g., Laabs v. Southern California Edison Co.
(2009) 175 Cal.App.4th 1260, 1271, fn. 5 [even on independent review of an order
granting summary judgment, our review is limited to the arguments raised on appeal by
the appellant]; Nealy v. City of Santa Monica (2015) 234 Cal.App.4th 359, 372 [same];
Mark Tanner Construction, Inc. v. HUB Internat. Ins. Services, Inc. (2014) 224
Cal.App.4th 574, 583-584 [same]; Venice Coalition, supra, 31 Cal.App.5th at p. 54 [even
7
on independent review of an order granting summary judgment, our review is limited to
arguments the appellant preserved by raising them in the trial court]; Jimenez, supra, 237
Cal.App.4th at p. 567 [same]; NBCUniversal, supra, 225 Cal.App.4th at p. 1237 [same];
Kendall, supra, 181 Cal.App.4th at p. 596 [same]; DiCola, supra, 158 Cal.App.4th at p.
676 [same]; Saville v. Sierra College (2005) 133 Cal.App.4th 857, 873 [“Plaintiff’s duty
was to direct the court’s attention to any different factual basis of liability on which he
could rely. Plaintiff failed to do this, and forfeiture is appropriate. Indeed, if this were
permitted procedure, parties opposing and losing summary judgment motions could
attempt to embed grounds for reversal on appeal into every case by their silence”].)
Thus, independent review of a summary judgment ruling does not mean that we
decide the summary judgment motion ourselves, starting from scratch and independently
of the arguments presented in the trial court and on appeal. Nor does it mean that we
“necessarily must address” every issue on which the trial court’s ruling depended. (Maj.
opn., ante, at p. 25.) Rather, it means that in evaluating the arguments that the appellant
raises on appeal and preserved by presenting them in the trial court, we give no deference
to the trial court’s ruling. The majority opinion’s reasoning is thus legally erroneous—
independent review does not mean what the opinion claims it means.
The majority opinion makes a similar mistake when it cites Y.K.A. Industries, Inc.
v. Redevelopment Agency of City of San Jose (2009) 174 Cal.App.4th 339 (Y.K.A.
Industries) for the proposition that when reviewing an order granting summary judgment,
we follow the same three-step process as the trial court, namely, examining the pleadings
8
to identify the issues, the motion to see if the initial burden was carried, and the
opposition to see if there are triable issues of fact. (Maj. opn., ante, at p. 26.) Analysis of
a summary judgment motion, whether in the trial court or on appeal, must always fit that
three-step structure, but that does not mean that we must analyze each step regardless of
what the appellant argues on appeal or argued in the trial court. For example, in DiCola,
supra, 158 Cal.App.4th 666, the Court of Appeal expressly declined to address the
appellant’s argument that the respondents had not carried their initial burden, because the
appellant had not presented that argument in the trial court. (Id. at p. 676.) The court
explained, “Though this court is bound to determine whether defendants met their
threshold summary judgment burden independently from the moving and opposing
papers, we are not obliged to consider arguments or theories, including assertions as to
deficiencies in [respondents’] evidence, that were not advanced by plaintiffs in the trial
court.” (Ibid.) That is, even though we review the order independently, and even though
our analysis must fit the usual three-step structure (pleadings, initial burden, opposition),
our review is still limited to arguments that the appellant raises on appeal and preserved
by presenting them in the trial court.
Third, the majority opinion reasons that because PSIC failed to carry its initial
burden in support of its summary judgment motion, the motion should have been denied
“regardless of what the Mosleys did or did not argue in their opposition,” so we must
reach the issue even though the Mosleys did not raise it in the trial court. (Maj. opn.,
ante, at pp. 26-27.) That is, the moving party’s failure to carry its initial burden on
9
summary judgment is an exception to the forfeiture rule and may be raised on appeal
even if it was not presented in the trial court. The opinion relies principally upon
Thatcher v. Lucky Stores, Inc. (2000) 79 Cal.App.4th 1081 (Thatcher) as support for that
line of reasoning, but such reliance is misplaced. In Thatcher, the trial court granted
summary judgment solely on the basis that no opposition was filed, consistent with a
local rule providing that failure to file opposition to a motion could be deemed an
admission that the motion was meritorious. (Id. at p. 1084.) The Court of Appeal
affirmed because the motion was in fact meritorious, but the court also held that the local
rule was invalid as applied to summary judgment motions because such motions cannot
be granted by default. (Id. at pp. 1083, 1086.) Rather, the court explained, a trial court
cannot grant summary judgment without first determining that the moving party has
carried its initial burden. (Id. at p. 1086.)
Thatcher’s holding is irrelevant, because here the trial court did not grant
summary judgment by default. The Mosleys filed opposition, the trial court considered
it, and the trial court determined that PSIC had carried its initial burden and that there
were no disputed issues of material fact.3
3 The other cases cited in the majority opinion on this point are no more helpful than Thatcher, supra, 79 Cal.App.4th 1081. In Y.K.A. Industries, supra, 174 Cal.App.4th 339, the appellant argued in the trial court that the respondent did not carry its initial burden on summary judgment, and the Court of Appeal reversed on the basis of an argument that the appellant raised both in the trial court and on appeal. (Id. at pp. 351, 365-366.) In Zoran Corp. v. Chen (2010) 185 Cal.App.4th 799, the court did not discuss forfeiture or waiver at all; it reversed summary judgment because there were disputed issues of material fact. (Id. at p. 802.) In Denton v. City and County of San Francisco (2017) 16 Cal.App.5th 779, the trial court granted summary judgment by default—the [footnote continued on next page]
10
Thatcher does not hold that the moving party’s failure to carry its initial burden on
summary judgment is an exception to the general rule that arguments not presented in the
trial court are forfeited. Moreover, the majority opinion’s application of such an
exception in this case is particularly inequitable. PSIC’s summary judgment motion on
its face appeared to be complete and well supported. The motion cogently argued that the
undisputed facts showed that all of the Mosleys’ causes of action failed as a matter of
law, and the motion was accompanied by supporting evidence. The Mosleys filed written
opposition and did not argue that PSIC had failed to carry its initial burden. The trial
court did not take any shortcuts. It evaluated the arguments and evidence presented by
the parties, determined that PSIC had carried its initial burden, rejected the Mosleys’
meritless arguments in opposition, and accordingly granted the motion. Given the
majority opinion’s approach, however, the trial court was required to do much more than
that in order to avoid reversal—it had to locate out-of-state authorities from the 1930s
that no party has ever cited (even on appeal), synthesize them into an interpretation of
section 2071 that no party has ever advocated (even on appeal), and use that
interpretation to support an argument that the Mosleys did not make, namely, that PSIC
plaintiff was never “given any fair opportunity to oppose” the motion, and it did not appear that “the moving papers were ever reviewed” by the trial court. (Id. at pp. 782, 792, 795.) The Court of Appeal reversed because the trial court abused its discretion by denying a request for a continuance of the summary judgment hearing and also by denying a subsequent motion for new trial. (Id. at p. 794.) And in Reilly v. Inquest Technology, Inc. (2013) 218 Cal.App.4th 536, the Court of Appeal concluded that summary adjudication was properly granted and that the appellant’s argument against that ruling was barred by the doctrine of invited error. (Id. at pp. 551-553.) [footnote continued on next page]
11
had failed to carry its initial burden. This case thus presents a clear illustration of the
reasons for the forfeiture rule: “It would be manifestly unjust to the opposing parties,
unfair to the trial court, and contrary to judicial economy to permit a change of theory on
appeal.”4 (North Coast Business Park v. Nielsen Construction Co., supra, 17
Cal.App.4th at p. 29.)
For all of the foregoing reasons, I respectfully dissent. The properly preserved
arguments raised by the Mosleys on appeal are meritless, so I would affirm the judgment
in favor of PSIC. MENETREZ J.
4 Even on appeal, the Mosleys raise the argument in such a cursory fashion that, in my view, they have forfeited it again. The argument consists of the following two sentences, which appear on the second-to-last page of the argument section of the Mosleys’ opening brief: “Even if the increased risk condition had been a part of the policy, PACIFIC could not have used it as a ground for its motion for summary judgment as PACIFIC produced no evidence that the insured, James Mosley, had any knowledge of the rental of the property, or any control of the property. The increase of hazard condition applies only to such knowledge or control of the named insured.” Those two sentences are not accompanied by any citation to the record or to legal authority. “[F]ailure to provide legal authorities to support arguments forfeits contentions of error.” (Ewald v. Nationstar Mortgage, LLC (2017) 13 Cal.App.5th 947, 948.) Failure to cite the record may likewise result in forfeiture. (Professional Collection Consultants v. Lauron (2017) 8 Cal.App.5th 958, 970.) And failure to support a point with reasoned argument constitutes yet another basis for forfeiture. (Nelson v. Avondale Homeowners Assn. (2009) 172 Cal.App.4th 857, 862; In re Marriage of Falcone & Fyke (2008) 164 Cal.App.4th 814, 830 [“We are not bound to develop appellants’ argument for them. [Citation.] The absence of cogent legal argument or citation to authority allows this court to treat the contention as waived”].)
12
AI Brief
AI-generated · verify before citing
Holding. The court held that an insurer cannot deny coverage under an 'increase of hazard' clause unless the insured knew or, through the exercise of ordinary care, should have known of the hazard created by a tenant. Because the record lacked evidence regarding the insureds' knowledge or ability to discover the tenant's marijuana operation, summary judgment for the insurer was improper.
Issues
Whether a fire loss resulting from a tenant's marijuana-growing operation is excluded under a policy provision excluding losses from the 'growing of plants.'
Whether an insurance policy's 'increase of hazard' exclusion is enforceable if it imposes strict liability on a landlord for a tenant's conduct without regard to the landlord's knowledge or control.
Whether the trial court erred in granting summary judgment to the insurer on the breach of contract claim.
Whether the trial court erred in denying the insureds' motion for summary judgment.
Disposition. Affirmed in part, reversed in part.
Quotations verified verbatim against the opinion
“The term “resulting from” “broadly links a factual situation with the event creating liability, and connotes only a minimal causal connection or incidental relationship.””
“We interpret these authorities to stand for the proposition that an insured increases a hazard “within its control” only if the insured is aware of the hazard or reasonably could have discovered it through exercising ordinary care or diligence.”
“To the extent PSIC’s interpretation of the Policy renders the Mosleys strictly liable for Lopez’s conduct, the Policy is void under section 2071.”