Cal. Fair Plan Ass'n v. Garnes, A143190

• Decision Date: 26 May 2017
• Docket Number: A143190
• Court: California Court of Appeals Court of Appeals
• Parties: CALIFORNIA FAIR PLAN ASSOCIATION, Plaintiff and Respondent, v. Marlene GARNES, Defendant and Appellant.

11 Cal.App.5th 1276

218 Cal.Rptr.3d 246

CALIFORNIA FAIR PLAN ASSOCIATION, Plaintiff and Respondent,

v.Marlene GARNES, Defendant and Appellant.

A143190

Court of Appeal, First District, Division 2, California.

Filed May 26, 2017

As Modified on Denial of Rehearing June 14, 2017

Hereford Kerley, Law Office of Dylan Schaffer, Kerley Schaffer, J. Edward Kerley, Oakland, Dylan L. Schaffer, Pleasant Hill, for Defendant and Appellant.

Kamala D. Harris, Attorney General, Kathleen A. Kenealy, Chief Assistant Attorney General, Paul D. Gifford, Senior Assistant Attorney General, Joyce E. Hee, Supervising Deputy Attorney General, Robert E. Asperger, Deputy Attorney General for Dave Jones, Insurance Commissioner of the State of California as Amicus Curiae on behalf of Defendant and Appellant.

Amy Bach, Mill Valley, Daniel Wade for United Policyholders as Amicus Curiae on behalf of Defendant and Appellant.

Lewis Brisbois Bisgaard & Smith, Raul L. Martinez, Elise D. Klein, Los Angeles, for Plaintiff and Respondent.

STEWART, J.

In 2011, Marlene Garnes's family home in Richmond, California was seriously damaged by a kitchen fire. She had purchased a fire insurance policy for the property, with a policy limit of $425,000 (the Policy), from California FAIR Plan Association (FAIR), California's insurer of last resort. The dispute in this case and the issue on appeal is how much coverage Garnes is entitled to under the Policy. She claims she should receive the amount it will cost her to repair the house, less an amount for depreciation, the net amount of which the parties agree would be $320,549. FAIR contends the Policy, and the Insurance Code, allow it to pay her the lesser of that amount or the fair market value of the house, which at the time of the fire was $75,000. The answer to this question depends on interpretation of sections 2051, 2070 and 2071 of the Insurance Code,¹ including the phrases "total loss to the structure," "partial loss to the structure" and "actual cash value" in section 2051, and whether sections 2070 and 2071 permit insurers to provide less favorable coverage than that prescribed by section 2051. Applying our independent judgment to these questions of statutory interpretation, we conclude that Garnes is correct. Section 2051 of the Insurance Code provides that under an open fire insurance policy that pays "actual cash value," as does the Policy here, the "measure of the actual cash value recovery ... shall be determined" in one of two ways, depending on whether there has been a "total loss to the structure" or a "partial loss to the structure." For a "partial loss to the structure," the measure prescribed is "the amount it would cost the insured to repair, rebuild, or replace the thing lost or injured less a fair and reasonable deduction for physical depreciation" or "the policy limit, whichever is less." (§ 2051, subd. (b)(2).) Construed in accord with its plain meaning, this provision, coupled with sections 2070 and 2071, sets a minimum standard of coverage that requires FAIR to indemnify Garnes for the actual cost of the repair to her home, minus depreciation, even if this amount exceeds the fair market value of her home. Further, the legislative history and the Insurance Commissioner's interpretation of this statute also support this interpretation. FAIR's arguments are based on interpretations of these sections that cannot be squared with their plain language, and the contention that requiring recovery of repair costs less depreciation where they exceed fair market value is bad policy. The latter argument is for the Legislature, not this court. The law supports Garnes's interpretation. Therefore, we reverse the trial court's judgment and remand this matter for further proceedings consistent with this opinion.

BACKGROUND

FAIR is an insurance industry placement facility and joint reinsurance association created by the Legislature in 1968 to ensure that homeowners who live in high risk or otherwise uninsurable areas have access to basic property insurance. (St. Cyr v. California FAIR Plan Assn. (2014) 223 Cal.App.4th 786, 792–793, 167 Cal.Rptr.3d 507 ; §§ 10090–10091.) It is composed of insurers licensed to write and engaged in writing basic property insurance within this state, and it is charged with assisting persons in securing basic property insurance and administering a program to equitably apportion that insurance, and the risks and benefits it entails, among California insurers. (§§ 10091, subd. (a), 10094.)

In October 2011, Garnes's home in the Iron Triangle neighborhood in Richmond was damaged by a fire. She submitted a claim to her insurer, FAIR, seeking indemnity for the costs required to repair her home, less depreciation. FAIR declined to pay the amount she requested and instead paid her the $75,000 it determined represented the fair market value of her property in 2011. When the parties were unable to agree, FAIR filed an action against Garnes² seeking declaratory relief regarding the interpretation of section 2051. FAIR alleged it had issued Garnes a policy that covered the damage to her home, that the cost to repair and rebuild the home was estimated to be more than $350,000 and that the home's fair market value in its undamaged condition before the fire was $75,000. It further alleged that Garnes claimed she was entitled to the cost to repair her home, that FAIR had paid her the fair market value of $75,000 for her home³ and that the parties disputed whether the damage resulted in a total loss or a partial loss within the meaning of section 2051. FAIR contended the loss was total because the cost to repair exceeded the home's fair market value, and that Garnes was entitled only to the fair market value of the home under section 2051. According to FAIR, Garnes contended she suffered only partial loss, which entitled her under section 2051 to recover the lesser of the policy limit and the cost to repair or replace less depreciation. FAIR sought a declaration that damage to Garnes's home constituted a total loss within the meaning of the Policy and section 2051 and that Garnes, therefore, was entitled only to the actual cash value, meaning fair market value, of her Richmond home.

Garnes filed an answer contesting FAIR's interpretation of section 2051 and alleging that the Policy, as written, violates sections 2051, 2070, 2071, 10091 and 10094. She sought a declaration that "total loss" under section 2051means total loss to the structure and that FAIR was violating its statutory obligations. She also filed a cross-complaint against FAIR asserting claims for breach of contract and the covenant of good faith and fair dealing; FAIR filed an answer denying her allegations.

In August 2012, FAIR filed a motion for summary judgment on its complaint against Garnes. It argued that the Policy limits Garnes to the actual cash value of the home where the cost to repair the damage exceeds the home's fair market value, and that the Policy complies with sections 2051 and 2071.

FAIR based its motion on a handful of undisputed facts. These included that FAIR issued the Policy providing coverage for Garnes's dwelling, that the dwelling was damaged by fire within the policy period, that Garnes submitted a claim for the cost of repairing the damage, less depreciation, of $320,549.24, and that the appraised fair market value of the home before the fire was determined to be $75,000. FAIR also set forth the relevant terms of the Policy, which stated that if the cost to replace or repair a damaged dwelling exceeded its actual cash value, which the Policy referred to as "Total Loss," FAIR would pay the actual cash value, but in any other case, which the Policy described as "Partial Loss," FAIR would pay the lesser of the cost to repair less reasonable depreciation or the actual cash value.

In opposition to FAIR's motion, Garnes offered the following additional facts: The Policy has a limit of $425,000, Garnes's father purchased the Richmond home in the 1950s, it was Garnes's childhood home and Garnes intended to repair and move back into it, but FAIR had refused to pay an amount sufficient to repair it. Garnes also stated that FAIR never changed its policy form to comply with the amendments to section 2051 enacted by the Legislature in 2004, despite having been warned by the Insurance Commissioner, and had refused to pay her the amount required by section 2051, subdivision (b).

Garnes contended that the 2004 amendments to section 2051 were part of the Homeowners' Bill of Rights, which was designed to protect consumers of insurance who suffer loss of homes or other structures, that the bill required insurers to amend their policies to comply with section 2051 by July 1, 2005, and that FAIR did not amend its policies. She argued that the Policy, by seeking to limit recovery for partial losses to fair market value, was "in clear contradiction with section 2051." She further argued that the court should look to the Insurance Code, not the Policy, to determine the extent of FAIR's liability for her fire loss.

In a one-page tentative ruling that it subsequently adopted as its order, the trial court granted FAIR's motion for summary judgment, adopting FAIR's interpretation of the statutes. The parties thereafter stipulated to certain rulings that resolved the remaining issues, and the court entered judgment in favor of FAIR on all claims.

This appeal followed. After the parties submitted their briefs, we received and granted requests to file amicus curiae briefs from the Insurance Commissioner (Commissioner), who is charged with enforcing the Insurance Code and other laws regulating the business of insurance in this state (§§ 12906, 12921), and from United Policyholders, a national non-profit organization that seeks to promote and protect the interests of insurance consumers.⁴

DISCUSSION

The facts here are not in dispute. The parties agree that Garnes purchased from FAIR an insurance policy with a limit of $425,000⁵ covering fire damage...