MRI Healthcare Ctr. of Glendale, Inc. v. State Farm Gen. Ins. Co., No. B213985.

• Court: California Court of Appeals
• Writing for the Court: FLIER
• Citation: 187 Cal.App.4th 766,115 Cal.Rptr.3d 27
• Decision Date: 04 August 2010
• Docket Number: No. B213985.
• Parties: MRI HEALTHCARE CENTER OF GLENDALE, INC., Plaintiff and Appellant, v. STATE FARM GENERAL INSURANCE COMPANY, Defendant and Respondent.

187 Cal.App.4th 766
115 Cal.Rptr.3d 27

MRI HEALTHCARE CENTER OF GLENDALE, INC., Plaintiff and Appellant,
v.
STATE FARM GENERAL INSURANCE COMPANY, Defendant and Respondent.

No. B213985.

Court of Appeal, Second District,
Division 8.

Aug. 4, 2010.

115 Cal.Rptr.3d 30

Donahue & Horrow, Michael B. Horrow, El Segundo; Douglas A. Greer; and Alan S. Yockelson for Plaintiff and Appellant.

Chapman, Popik & White, Susan M. Popik, San Francisco; Sedgwick Detert Moran & Arnold and Maria Louise Cousineau, Los Angeles, for Defendant and Respondent.

FLIER, J.

187 Cal.App.4th 769

MRI Healthcare Center of Glendale, Inc. (MHC), appeals from a judgment entered by the superior court after it denied MHC's motion for summary judgment and granted respondent State Farm General Insurance Company's (State Farm) cross-motion for summary judgment. The action arises from State Farm's denial of MHC's claim under a business insurance

187 Cal.App.4th 770

policy for loss as a result of claimed damage to its MRI (magnetic resonance imaging) machine and loss of income after the machine failed to satisfactorily "ramp up" after it was "ramped down."

MHC asserts triable issues of fact precluded the grant of summary judgment to State Farm and MHC is entitled to summary judgment because State Farm has no defense against MHC's claims. State Farm contends (1) the undisputed facts establish that the MRI machine did not sustain "physical loss," nor was the alleged loss the result of an "accident"; (2) rainstorms MHC contends were the predominant cause of the loss were not a legally cognizable cause of the claimed loss; and (3) all potential causes of MHC's loss are specifically excluded under the policy. We affirm.

FACTS

1. The Parties

MHC provided MRI scanning services as its sole business. State Farm issued

115 Cal.Rptr.3d 31

MHC a business policy, effective June 1, 2006, to June 1, 2007. The policy was also in effect during the two prior policy years. The policy provided insurance coverage for business liability, business personal property and loss of income.

2. Factual Background

MHC contends, and State Farm concedes for the limited purpose of appeal, that the facts are as follows. As a result of storms in the spring of 2005, MHC's landlord was required to repair the roof over the room housing MHC's MRI machine. These repairs could not be undertaken unless and until the MRI machine was demagnetized, or "ramped down." Once the machine was ramped down, it failed to ramp back up. This failure purportedly constituted "damage" to the MRI machine and resulted in loss business income to MHC. Because the chain of events was set in motion by the spring 2005 storms, MHC claims the storms were the "efficient proximate cause" of the loss; and, because the storms were covered under the business policy issued to MHC by State Farm, MHC claims it is entitled to recover both the amount it expended to repair the MRI machine and the income loss sustained while the machine was inoperable.

3. Policy Terms

The business policy State Farm issued to MHC provides, in "SECTION I[¶] PROPERTY COVERAGES," "COVERAGE B—[¶] BUSINESS PERSONAL [¶] PROPERTY" (boldface omitted): "When a limit of insurance is

187 Cal.App.4th 771

shown in the Declarations for Coverage B, we will pay for accidental direct physical loss to business personal property at the premises described in the Declarations caused by an insured loss. Business personal property includes the following types of property located in or on the buildings at the described premises ...:[¶] 1. property, used in your business, that you own, lease from others or rent from others, or that is loaned to you; [¶] ... [¶] 3. tenant's improvements and betterments, meaning fixtures, alterations, installations or additions: [¶] a. made a part of the building or structure you occupy but do not own; and [¶] b. you acquired or made at your expense but cannot legally remove." (Italics added.)

"COVERAGE C—LOSS OF INCOME" (boldface omitted) under the policy provides: "If Loss of Income coverage is shown in the Declarations, we will pay: [¶] 1. for the actual loss of 'business income' you sustain due to the necessary suspension of your 'operations' during the 'period of restoration'. The suspension must be caused by accidental direct physical loss to property at the described premises, including personal property in the open ... within 100 feet, caused by an insured loss ...." (Italics added.)

Paragraph 3 of the policy, under "LOSSES NOT INSURED" (boldface omitted), further states: "We do not insure under any coverage for any loss caused by one or more of the items below: [¶] a. conduct, acts or decisions, including the failure to act or decide, of any person, group, organization or governmental body whether intentional, wrongful, negligent or without fault; [¶] b. faulty, inadequate, unsound or defective: [¶] (1) planning, zoning, development, surveying, siting; [¶] (2) design, specifications, workmanship, repair, construction, renovation, remodeling, grading, compaction; [¶] (3) materials used in repair, construction, renovation or remodeling; or [¶] (4) maintenance; [¶] of part or all of any property (including land, structures or improvements of any kind) on or off the described premises; [¶] c. weather conditions. [¶] But if accidental direct physical loss results from items 3.a., 3.b. or 3.c., we will pay for that resulting

115 Cal.Rptr.3d 32

loss unless the resulting loss is itself one of the losses not insured in this Section."

Paragraph 4 of the policy, under "LOSSES NOT INSURED" (boldface omitted) states that "[w]e do not insure under any coverage for any loss consisting of the items in paragraphs 1., 2. or 3. This exclusion does not apply if the loss is caused by a peril which is not otherwise excluded."

PROCEDURAL HISTORY

1. Allegations of Complaint

In August 2007, MHC filed the present action against State Farm for breach of the duty of good faith and fair dealing and breach of contract.

187 Cal.App.4th 772

Among other things, the complaint alleges that "once an MRI [machine] is shut down, the process of 'ramping' it back up is unpredictable." The complaint further alleges that an engineer's report made before the MRI machine was shut down warned of a risk that ramping the MRI machine up after it has been ramped down could be "difficult if not impossible" due to the "inherent nature" of the MRI machine and "the length of time that the magnet ha[s] been ramped (14 years)." MHC alleges that repairs to the MRI machine began on August 23, 2006, they were completed on October 20, 2006, and the MRI machine was eventually successfully ramped up again by mid-December 2006. MHC alleges State Farm denied MHC's first-party claim for business interruption insurance, property damage and loss of business income and MHC was thus damaged.

State Farm answered the complaint in October 2007.

2. Cross-motions for Summary Judgment

A. MHC's Motion

In August 2008, MHC filed a motion for summary judgment or, in the alternative, summary adjudication (summary judgment), asserting that no triable issue of fact existed as to MHC's causes of action for breach of contract and breach of the covenant of good faith and fair dealing, and MHC was entitled to judgment as a matter of law.

i. Evidence in Support of Motion

MHC attached declarations, including that of the building owner's managing agent who stated that the building's roof was severely damaged from storms in 2005 and it was necessary to remove and replace the roof of the entire building with a new one. The agent stated that he accepted a proposal to tear off the existing "built up" roof and replace it with a "torch down" roof system; the initial plans called for all layers of the existing roof to be removed and all existing skylights, including a skylight that formed part of the roof above the MRI machine, to be raised onto "2X blocking."

An MRI machine specialist working for Masterplan attested that he serviced the machine and participated in the ramping down and ramping up of the machine. He stated the nature of the MRI machine required it to be kept in an "RF" room shielded with copper to keep out electrical or radio wave interference. MHC's facility was designed and constructed so that the roof of the building was part of the ceiling of the RF room. In order to remove the old roof and install a new roof safely, it was necessary to "ramp down" or demagnetize the MRI machine. The Masterplan specialist stated

187 Cal.App.4th 773

that "[t]he age of the equipment led to a costly repair" and that "[p]arts required were external to the magnet and required by the specialized test equipment used by this magnet." (Italics added.) He declared,

115 Cal.Rptr.3d 33

"the machine, which had been working properly prior to the ramp down, required extensive maintenance to be brought back to an operating condition."

B. State Farm's Motion

State Farm filed a cross-motion for summary judgment. Rather than a judgment in MHC's favor, State Farm requested that judgment be entered in State Farm's favor. The insurer contended that any loss MHC suffered from the ramping down of its MRI machine was not a loss payable under the State Farm business policy. It argued there was never any "accidental direct physical loss" to MHC's property or to the premises; therefore, there was no loss payable under the first-party business policy.

i. Evidence in Support of Motion

State Farm proffered evidence of the following facts that were essentially undisputed by MHC.

MHC's principal, Christina Valenzuela, reported to State Farm that a rainstorm in March 2005 had caused extensive damage to the roof which the landlord was repairing. Years earlier, MHC had renovated and customized its portion of the building so it could install and operate the MRI machine. MHC had cut a hole in the roof of the building in order to bring the MRI machine into the building, and it also modified the roof structure by installing a skylight and copper barrier to keep outside...