Trb Investments v. Fireman's Fund Ins.

• Decision Date: 13 November 2006
• Docket Number: No. S136690.,S136690.
• Citation: 50 Cal.Rptr.3d 597,40 Cal.4th 19
• Court: California Supreme Court
• Parties: TRB INVESTMENTS, INC., et al., Plaintiffs and Appellants, v. FIREMAN'S FUND INSURANCE COMPANY, Defendant and Respondent.

50 Cal.Rptr.3d 597

40 Cal.4th 19

TRB INVESTMENTS, INC., et al., Plaintiffs and Appellants, v. FIREMAN'S FUND INSURANCE COMPANY, Defendant and Respondent.

No. S136690.

Supreme Court of California.

November 13, 2006.

Law Office of Timothy L. Kleier, Timothy L. Kleier, Bakersfield; Law Office of Mark A. Ginella and Mark A. Ginella, Valley Center, for Plaintiffs and Appellants.

Law Office of Amy Bach, Amy Bach, Mill Valley; Goldstein, Gellman, Melbostad, Gibson & Harris, Lee S. Harris, San Francisco; Fried & Epstein and Lee M. Epstein, for United Policyholders as Amici Curiae on behalf of Plaintiffs and Appellants.

Hager & Dowling, Jeffery D. Lim, Jessica M. Johnson and John V. Hager, Santa Barbara, for Defendant and Respondent.

MORENO, J.

This case involves a property insurance policy that withdraws coverage for specified perils while the insured premises are vacant. The pertinent exclusion contains an exception stating that buildings "under construction" are not considered vacant. The question before us concerns whether the work being performed on the building at the time of the loss rendered the building "under construction" such that the vacancy exclusion does not apply.

Plaintiffs argue their efforts meant that the structure was "under construction" and therefore covered under the policy when a water heater or waterline ruptured and caused substantial damage to the property. Defendant insurer disagrees with this interpretation of the policy. The Court of Appeal affirmed a grant of summary judgment in favor of the insurer, determining that the word "construction," as utilized in the policy, "envisions the building of a new structure," which did not occur here.

We reverse the Court of Appeal. As used in the insurance policy here, the word "construction" cannot reasonably be understood to be limited only to the erection of a new structure. Rather, the term contemplates all building endeavors, whether classified as new construction, renovations, or additions, which require the substantial and continuing presence of workers at the premises. This standard serves the purposes underlying the vacancy exclusion, which is premised upon the recognition that unoccupied properties face an increased risk of damage, whether from property-related crime such as theft or vandalism or from building damage or loss related to neglect. If, however, a construction project results in the continuous and substantial presence of workers on the property, then the underlying justifications for the vacancy exclusion no longer exist, a point recognized by the inclusion of an "under construction" exception to the general vacancy exclusion.

Given the parties here were unaware of this standard when litigating defendant's summary judgment motion, they failed to elicit key facts that might have bearing on the issue of whether there was a substantial and continuing presence of workers at the building in the period prior to the claimed loss here. Since these facts are not present in the current record, we do not decide whether the activity here satisfies the standard we announce today. Rather, we remand the matter to permit either party to bring a new summary judgment motion based upon the proper standard.

I. Factual And Procedural Background

In June 1999, plaintiffs TRB Investments, Inc., Fran Mar Co., Coldwater Farms, P & R Almond Orchards, Inc., Thomas-Cattani, Inc., and 1731 Chester Group procured a property insurance policy from defendant Fireman's Fund Insurance Company. As originally issued, this policy covered property located on California Avenue in Bakersfield, California. An amendatory endorsement was added to this policy upon its renewal in June 2000. This endorsement included a vacancy exclusion that provides as follows:

"8. Vacancy "If loss or damage occurs to a building that has been vacant for more than 60 consecutive days prior to the occurrence of that loss or damage, we will:

"a. not pay for any loss or damage caused by:

1. Vandalism;

2. Sprinkler leakage, unless you have protected the system against freezing;

3. Building glass breakage;

4. Water damage;

5. Theft, or

6. Attempted theft

"b. Reduce the amount we would otherwise pay for the loss or damage by 15%.

"A building is vacant when it does not contain enough business personal property to conduct customary operations. "Buildings under construction are not considered vacant."

A cancellation endorsement added to the policy, meanwhile, provides that defendant may cancel the policy upon the occurrence of certain specified conditions, one of which is that "[t]he [insured] building has been vacant or unoccupied 60 or more days." This cancellation provision does not apply to "[b]uildings in the course of construction, renovation or addition."

In November 2000, plaintiffs added to the policy the commercial property involved in this dispute, a former bank building located on Chester Avenue in Bakersfield. This property was rented to the Salvation Army beginning on December 1, 2000. This tenant left the premises at the end of 2000, and the building had no tenants after that point up through the time of the damage giving rise to the instant suit. The property lacked "enough business personal property to conduct customary operations" during this span. However, plaintiffs did retain an architectural firm and a general contractor to transform the building into a "leasable shell," in which many of the interior nonsupporting walls would be removed so that the space could be refashioned to suit a particular tenant's needs. In April 2001, plaintiffs began negotiations with Goodwill Industries for a long-term "build to suit" lease. By June 20, 2001, plaintiffs, the contractor, and the tenant agreed in principle to the terms of a lease and to initial floor plans. On or around July 2, 2001, Goodwill entered into a lease agreement for the property.

On June 11 and June 20, 2001, the contractor engaged in "walk throughs" of the building, on the latter date being joined by subcontractors involved with the project. Between June 20 and June 29, 2001, the electrical subcontractor removed the electrical main panel covers, traced the circuitry from these panels, took down the walls around two panels and the subpanels connected to these panels, removed unneeded circuits and floor boxes, removed exposed electrical lines, and turned on and tested the remaining circuits for demolition safety. From June 29 to July 14, 2001, the electrical subcontractor periodically continued to work at the building, tracing other circuit runs, reviewing subpanel locations and functionality, turning on and testing all of the electrical circuits, and assisting the heating, ventilation and air conditioning (HVAC) subcontractor in testing the building's HVAC units. Beginning on July 1, 2001, the HVAC subcontractor also tested, evacuated, and charged the refrigeration system, making several trips to the building to perform this work.

On the morning of Monday, July 16, 2001, workers discovered that a water heater or waterline on the third floor of the Chester Avenue building had burst, causing significant water damage. The line burst occurred sometime between July 14 and July 16, 2001. This damage notwithstanding, plaintiffs completed the planned improvements to the structure in the ensuing months. This work was substantial. The project entailed the "overall complete demolition of [the] structure to shell walls" and the development of a "core space" within the building. The specific changes made to the structure included the installation of "walls, doors, windows, electrical, telephone, and computer wiring, plumbing, HVAC, paint, coverings," and additional restrooms, and the transformation of a basement into classroom space and old bank vaults into usable office space. All told, these improvements cost plaintiffs $1,250,881.09.

Plaintiffs tendered their water damage claim to defendant pursuant to the policy, which had been renewed again in June 2001. On December 7, 2001, defendant denied plaintiffs' claim. After attempts to reach an informal resolution of the dispute failed, plaintiffs filed this lawsuit on May 21, 2003. Defendant, pointing to the vacancy exclusion in the policy, moved for and received summary judgment in its favor. Plaintiffs filed a timely appeal. The Court of Appeal agreed with the superior court, finding that the vacancy exclusion applied and that the premises were not "under construction" at the time of the loss. The Court of Appeal assumed that the work being performed by plaintiffs at the time of the water damage constituted renovations to the building, but concluded that "under construction" did not encompass renovations to an existing structure.

The Court of Appeal offered five justifications for its interpretation of the pertinent policy language. First, the Court of Appeal stated that "the plain meaning of the word construction, in its ordinary and popular sense, does not include steps taken to renovate an existing building." Here, the Court of Appeal cited to dictionaries defining "construction" as "`the act of putting parts together to form a complete integrated object,'" and "`the creation of something new, as distinguished from the repair or improvement of something already existing,'" and defining renovation as "`restoring] to life, vigor or activity,'" and "`cleaning] up, replacing] worn and broken parts in, [and] repairing].'" The Court of Appeal concluded from these definitions that construction "envisions the building of a new structure and requires the putting together of various parts in order to bring the building to a point of readiness for occupancy." In contrast, "A building under renovation is readily able to be occupied but requires some repair and improvements in order to meet the aesthetic or business needs of the occupant." Surveying the work commenced prior to the loss, the Court of Appeal regarded these efforts as mere renovations, insufficient to...