St. Mary & St. John Coptic Orthodox Church v. SBC Ins. Servs., Inc.

• Decision Date: 23 November 2020
• Docket Number: A156085
• Citation: 271 Cal.Rptr.3d 773,57 Cal.App.5th 817
• Parties: ST. MARY & ST. JOHN COPTIC ORTHODOX CHURCH, Plaintiff and Appellant, v. SBC INSURANCE SERVICES, INC., Defendant and Respondent.
• Court: California Court of Appeals Court of Appeals

57 Cal.App.5th 817

271 Cal.Rptr.3d 773

ST. MARY & ST. JOHN COPTIC ORTHODOX CHURCH, Plaintiff and Appellant,

v.SBC INSURANCE SERVICES, INC., Defendant and Respondent.

A156085

Court of Appeal, First District, Division 4, California.

Filed November 23, 2020

Cummins & White, LLP, Larry M. Arnold, Margaret R. Miglietta, Newport Beach, for Plaintiff and Appellant.

Stone & Associates, APC, Colette F. Stone, Juliet M. Lompa, Walnut Creek; Hayes, Scott, Bonino, Ellingson, Guslani, Simonson & Clause, LLP, Mark G. Bonino, Emma B. Lloyd, San Carlos, for Defendant and Respondent.

BROWN, J.

This professional negligence dispute involves the interpretation of a vacancy provision in a commercial property insurance policy that states the insurer will not pay for losses resulting from specified perils if the building where the loss occurs was vacant for more than 60 consecutive days before the loss.

St. Mary & St. John Coptic Orthodox Church (St. Mary) experienced water damage 57 days after escrow closed on a residence it had purchased. St. Mary's insurance broker, SBC Insurance Services (SBC), had procured commercial property insurance for the residence with Philadelphia Indemnity Insurance Company (Philadelphia). Philadelphia denied St. Mary's claim under the policy's vacancy provision, but the parties entered into a settlement and loan receipt agreement whereby St. Mary gave Philadelphia the right to control litigation in St. Mary's name against SBC or third parties who might be liable for the loss in exchange for a loan of money to repair and remediate the residence; the loan was to be repaid out of any recovery St. Mary obtained against SBC or other third parties.

Following a bench trial in St. Mary's suit against SBC for professional negligence, the court found that SBC had breached its duty of care, but that St. Mary suffered no damages because the loss was covered under the Philadelphia policy. The court found the vacancy provision to be ambiguous, and concluded that, interpreted according to the reasonable expectations of the insured, the provision did not include time before the insured owned the residence. The court also ruled that St. Mary had not satisfied its factual burden of showing the residence was vacant under the policy's definition. St. Mary challenges these findings on appeal, and we reverse the judgment.

I. FACTUAL AND PROCEDURAL BACKGROUND

SBC is an insurance brokerage firm. St. Mary is a Coptic orthodox church. Wahid Tadros's parents were the driving force behind the founding of St. Mary, and Tadros served as a representative and board member of St. Mary. The Tadros family used SBC or its predecessor company to obtain insurance for their properties and businesses for decades, and, when St. Mary formed, Tadros's mother used SBC to obtain insurance for St. Mary.

A. The Commercial Property Policy

For the time period relevant to the loss underlying this dispute, SBC procured a commercial lines insurance policy for St. Mary with Philadelphia that contained, among other things, "all-risk" coverage for property damage, effective October 26, 2014 to October 26, 2015 (the policy).

The policy is subject to the Commercial Property Conditions, Common Policy Conditions, and the applicable Loss Conditions and additional Conditions in the Commercial Property Coverage Forms. Under the "Loss Conditions" section of the Commercial Property Coverage Form, the policy states:

E. Loss Conditions

* * *

6. Vacancy

If the "building" where "loss" occurs has been vacant for more than 60 consecutive days before that "loss," we will:

a. Not pay for any "loss" caused by any of the following even if they are Covered Causes of Loss:

* * *

(4) Water damage;

* * *

"Buildings" are vacant when they do not contain enough business personal property to conduct customary operations.

The policy also provides that " ‘[b]uildings’ means buildings or structures."

B. The Purchase of the Residence

In the fall or winter of 2014, the Pope of the Coptic Church, who resides in Egypt, requested that St. Mary purchase a house to be used as his papal residence in the western United States. St. Mary also intended to use the residence to accommodate visiting bishops. St. Mary set up a committee to find a suitable residence. In April 2015, the committee asked Tadros to look at a residence on Via Di Salerno in Pleasanton, California (the residence). When Tadros viewed the residence in April 2015, it appeared empty of furnishings and contained no tables, chairs, sofas, beds, or furniture of any kind.

An April 17, 2015 appraisal report reflects the house as being vacant. Attached to the report are photographs of the residence furnished with only one chair, which is consistent with the condition of the residence when Tadros viewed it.

Late on the afternoon of May 27, 2015, Tadros, who assumed responsibility for procuring insurance for the residence, called Erika Berumen, SBC's commercial account manager, to obtain insurance coverage as required by St. Mary's mortgage lender. Tadros told Berumen that St. Mary purchased a residence and needed to get insurance for the house. Berumen inquired whether the residence was for the priest to live in, and Tadros responded, "[N]o, that the house was to be used as a papal residence in the western United States, and sometimes to be used by visiting bishops." Tadros and Berumen discussed that the Coptic Pope was set to visit in October 2015. Berumen did not ask when the first visit by a bishop or priest would occur. After her call with Tadros, Berumen exercised broad discretion in procuring insurance for the residence, including placing the residence under St. Mary's existing commercial policy rather than a homeowner's policy, and she filled out and submitted an insurance application without Tadros's review.

St. Mary purchased the Via di Salerno residence following the close of escrow on May 29, 2015. Philadelphia extended coverage for the residence under the policy, effective May 28, 2015.

C. The Loss and Coverage Denial

On July 24, 2015, Tadros learned that water was coming from the inside of the residence. He called SBC's commercial lines manager, Greg Kapphahn, to report the damage, and Kapphahn inquired about the damage to the residence and furnishings. Tadros replied that there were no furnishings, as no one was living in the residence and it was empty. Kapphahn said, "Do you mean the house was vacant?" He told Tadros there may be a problem because the policy had a vacancy clause, and Tadros inquired what a vacancy clause was.

SBC reported the water damage (the loss) to Philadelphia, counting 57 days between policy inception and the date of the loss. Philadelphia denied the claim, stating the policy afforded no coverage for water damage where the residence was vacant for 60 consecutive days before the loss. St. Mary challenged the denial and also indicated that it would seek to hold SBC liable.

St. Mary asserted in a letter to Philadelphia: 1) the residence was not vacant and contained enough "business personal property"—a refrigerator, range/oven, dishwasher, disposal, microwave, washer/dryer, full HVAC system, window treatments, plants, a chair, and toilet paper—to conduct customary operations of periodic visitation of clergy and to sell the home; and 2) the condition of the residence prior to St. Mary's ownership could not be considered in assessing vacancy.

Around mid-July 2016, St. Mary and Philadelphia entered into an agreement in compromise of the disputed claim. Philadelphia agreed to loan St. Mary $49,543.80 to remediate the damage to the residence, $372,215.44 to repair the residence, and $40,000 to cover loss of use of the residence, subject to the express understanding that the payments were not payments under the policy. In exchange, St. Mary consented to Philadelphia's pursuit of a lawsuit against SBC at Philadelphia's sole expense in St. Mary's name. The loan was repayable solely to the extent of any net recovery from SBC or any third party related to the loss. The loan was set to expire on June 6, 2017, but a number of months later, the parties agreed to extend the date retroactively to February 28, 2018.

D. The Litigation and Judgment

St. Mary filed this litigation against SBC, and the case proceeded to a bench trial. Following posttrial briefing, the trial court issued a proposed statement of decision in favor of SBC. St. Mary submitted objections, which the court overruled, and the court issued a statement of decision.

The trial court found that SBC owed St. Mary a duty of care, breached that duty, and SBC's actions were a substantial factor giving rise to Philadelphia's coverage denial and damages.¹ The court found St. Mary's damages from the loss were $49,543.80 for remediation, $40,000 for loss of use, and $372,215.44 for repairs, and it found that Philadelphia had loaned this money to St. Mary.

For a number of reasons, however, the court concluded that St. Mary could not recover damages from SBC because St. Mary's claim was covered under the policy. First, the trial court found that St. Mary had not satisfied its burden to show the residence was vacant during the 60-day vacancy period. Second, the trial court found the vacancy exclusion was ambiguous as applied with respect to the 60-day vacancy period. Specifically, the court found that nothing in the vacancy provision informed St. Mary that the vacancy provision could include days that elapsed when St. Mary did not own the residence, and the reasonable expectations of the insured dictated that it could not. Thus, the court concluded that St. Mary's claim was covered under the policy. The court also rejected St. Mary's attempt to establish additional loss of use damages, finding that its evidence was too speculative and that St. Mary did not provide sufficient evidence of such damages. The court entered judgment in favor of SBC on December 21, 2018, and St. Mary timely appealed.

II. DISCUSSION

St. Mary raises a number of issues in this appeal, including whether the policy's...