Mosley v. Pac. Specialty Ins. Co.

• Decision Date: 26 May 2020
• Docket Number: E071287
• Citation: 263 Cal.Rptr.3d 28,49 Cal.App.5th 417
• Court: California Court of Appeals Court of Appeals
• Parties: James MOSLEY et al., Plaintiffs and Appellants, v. PACIFIC SPECIALTY INSURANCE COMPANY, Defendant and Respondent.

49 Cal.App.5th 417

263 Cal.Rptr.3d 28

James MOSLEY et al., Plaintiffs and Appellants,

v.PACIFIC SPECIALTY INSURANCE COMPANY, Defendant and Respondent.

E071287

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

Filed May 26, 2020

As Modified on Denial of Rehearing June 24, 2020

OPINION

CODRINGTON J.

I.INTRODUCTION

Plaintiffs and appellants, James and Maria Mosley, rented out a home they own that defendant and respondent, Pacific Specialty Insurance Company (PSIC), insured under a homeowners' policy (the Property). The Mosleys' tenant started growing marijuana in the Property. To support his marijuana-growing operation, the tenant re-routed the Property's electrical system to steal power from a main utility line. The tenant's re-routed electrical system caused a fuse to blow, which started a fire that damaged the Property.

PSIC denied coverage, citing a provision in the Mosleys' policy that excluded any loss associated with "[t]he growing of plants" or the "manufacture, production, operation or processing of ... plant materials."

The Mosleys sued PSIC for denying coverage. The trial court granted summary judgment in PSIC's favor, finding that PSIC properly denied coverage because the Mosleys had control over their tenant's conduct.

Because there is no evidence the Mosleys were aware of their tenant's marijuana growing operation, and because the record is silent as to what the Mosleys could or should have done to discover it, we reverse the judgment. We reverse the trial court's order granting PSIC summary judgment on the Mosleys' first cause of action for breach of contract, 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. We also affirm the trial court's order denying the Mosleys’ motion for summary adjudication on the issue of whether PSIC properly denied coverage.

II.FACTUAL AND PROCEDURAL BACKGROUND

Between April 2016 and April 2017, PSIC insured the Property under an HO-3 Standard Homeowners Insurance policy (the Policy). James Mosley was named as the insured. Paragraph E of the Policy provides in full: "We do not insure for loss 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."

In February 2016, the Mosleys rented the property to Pedro Lopez. Six months later, the property was damaged by fire. It was determined that Lopez had "bootlegged" a main power line into the property's attic to power his energy-intensive marijuana growing operation. Lopez's "illegal power line ... caused the fire."

PSIC denied coverage for the loss caused by the fire. PSIC found that the loss was excluded from coverage under Paragraph E of the Policy because it resulted from Lopez's growing marijuana.

The Mosleys sued PSIC for breach of contract and breach of the covenant of good faith and fair dealing. The parties filed cross-motions for summary judgment. The Mosleys asserted PSIC's refusal to cover the fire loss violated Insurance Code section 2070¹ , because the Policy provides less coverage than required by section 2071. The Mosleys further asserted PSIC breached its obligations under the Policy by interpreting Paragraph E to exclude coverage for the losses caused by the fire. PSIC argued it properly denied coverage because the Policy permissibly excluded coverage for losses that resulted from plant growing, such as Lopez's marijuana-growing operation. PSIC further asserted this exclusion complied with section 2070. Specifically, PSIC argued section 2071 allows exclusions for liability that occur from a hazard "increased by any means within the control or knowledge of the insured," and Lopez's conduct was within the Mosleys control or knowledge, so the Policy provided substantially equivalent coverage to what section 2071 requires.

The trial court denied the Mosleys' motion, granted PSIC's motion, and entered judgment for PSIC. The trial court found that the Policy properly excluded losses stemming from Lopez's conduct under Paragraph E and that the Policy complied with section 2070 by providing the Mosleys with coverage substantially equivalent to that required by section 2071.

III.DISCUSSION

A. Appealability

In their notice of appeal, the Mosleys indicated they appealed only the trial court's "[j]udgment after an order granting a summary judgment motion." In their opening brief, the Mosleys state they also appealed from the trial court's denial of their motion for summary adjudication. PSIC contends the Mosley may not do so because they did not indicate they intended to appeal the denial of their motion for summary judgment in their notice of appeal.

We disagree. Because the Mosleys appealed from a final judgment, we may review any nonappealable order encompassed within the judgment, such as the trial court's denial of the Mosleys' summary judgment motion, even if not identified in the Mosleys' notice of appeal. (See Gavin W. v. YMCA Metropolitan Los Angeles (2003) 106 Cal.App.4th 662, 669, 131 Cal.Rptr.2d 168 [notice of appeal from final judgment allows review of nonappealable order]. We therefore address the trial court's order granting PSIC's motion for summary judgment and its order denying the Mosleys' adjudication motion.

B. Summary Judgment Principles and Standard of Review

"The trial court properly grants a motion for summary judgment ‘if all the papers submitted show that there is no triable issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.’ ( Code Civ. Proc., § 437c, subd. (c).)" ( Mills v. Forestex Co. (2003) 108 Cal.App.4th 625, 639, 134 Cal.Rptr.2d 273.) We independently review the trial court's ruling on the parties' cross-motions for summary judgment, "applying the same three-step analysis required of the trial court. [Citations.] First, we identify the issues framed by the pleadings.... [¶] Second, we determine whether the moving party's showing has established facts which negate the opponent's claim and justify a judgment in movant's favor.... [¶] ... [T]he third and final step is to determine whether the opposition demonstrates the existence of a triable, material factual issue. [Citations.]" ( AARTS Productions, Inc. v. Crocker National Bank (1986) 179 Cal.App.3d 1061, 1064-1065, 225 Cal.Rptr. 203.) "[W]e construe the moving party's affidavits strictly, construe the opponent's affidavits liberally, and resolve doubts about the propriety of granting the motion in favor of the party opposing it." ( Szadolci v. Hollywood Park Operating Co. (1993) 14 Cal.App.4th 16, 19, 17 Cal.Rptr.2d 356.)

C. Breach of Contract Claim

1. PSIC was not entitled to summary adjudication on the Mosleys' Breach of Contract Claim

PSIC moved for summary adjudication on the Mosleys' first claim for breach of contract on the ground that Paragraph E of the Policy excluded loss for the fire damage caused by Lopez's altering the property's electrical system to support his marijuana grow operation. The trial court agreed with PSIC's interpretation.

"The ordinary rules of contract interpretation apply to insurance contracts.

[Citation.] To protect the interests of the insured, coverage provisions are interpreted broadly, and exclusions are interpreted narrowly." ( Stellar v. State Farm Gen. Ins. Co. (2007) 157 Cal.App.4th 1498, 1503, 69 Cal.Rptr.3d 350.) We read the Policy's words " ‘in their ordinary sense,’ " and interpret the Policy de novo, giving no deference to the trial court's interpretation. ( California Casualty Ins. Co. v. Northland Ins. Co. (1996) 48 Cal.App.4th 1682, 1691, 56 Cal.Rptr.2d 434.)

"An insurer may ‘seek[ ] summary judgment on the ground the claim is excluded,’ in which case it has ‘the burden ... to prove that the claim falls within an exclusion. [Citation.]’ [Citation.] To satisfy its burden, an insurer need not ‘disprove every possible cause of the loss’ and once the insurer establishes the claim is excluded, the burden shifts to the insured to show a triable issue of material fact exists." ( Roberts v. Assurance Co. of America (2008) 163 Cal.App.4th 1398, 1406, 78 Cal.Rptr.3d 361.) " ‘[A]n insured has the burden of proving its claim falls within the scope of the policy's basic coverage, even where the insurer brings a motion for summary judgment.’ [Citation.]" ( Gonzalez v. Fire Insurance Exchange (2015) 234 Cal.App.4th 1220, 1230, 184 Cal.Rptr.3d 394.) "Thus, when an insurer meets its initial burden on summary judgment of showing there is no coverage under the policy, the burden shifts to the insured to show a triable issue of material fact as to coverage." ( Medina v. GEICO Indemnity Co. (2017) 8 Cal.App.5th 251, 259-260, 213 Cal.Rptr.3d 502.)

Paragraph E of the Policy excludes losses "resulting from any manufacturing, production or operation, engaged in ... [t]he growing of plants."

It is undisputed that the fire that damaged the property "result[ed] from" Lopez's re-wiring the property's electrical system in order to power his marijuana growing operation. But the parties dispute whether that means the damage "result[ed] from" "the growing of plants."

California courts broadly interpret the term "resulting from" in an insurance contract. ( St. Paul Fire & Marine Ins. Co. v. American Dynasty Surplus Lines Ins. Co. (2002) 101 Cal.App.4th 1038, 1050, 124 Cal.Rptr.2d 818 ; see Acceptance Ins. Co. v. Syufy Enterprises (1999) 69 Cal.App.4th 321, 328, 81 Cal.Rptr.2d 557 [broadly interpreting " ‘arising out of’ " in policy's exclusion]; The Traveler's Property Cas. Co. of America v. Actavis, Inc. (2017) 16 Cal.App.5th 1026, 1045-1056, 225 Cal.Rptr.3d 5 [collecting cases interpreting " ‘arising out of’ " or " ‘arising from’ " broadly]; id. at p. 1045, 225 Cal.Rptr.3d 5 [interpreting " ‘results from’ " and " ‘arising out of’ " in the same way].)

The term "resulting from" "broadly links a...