W. Heritage Ins. Co. v. Frances Todd, Inc.

• Decision Date: 04 March 2019
• Docket Number: A152428
• Citation: 33 Cal.App.5th 976,245 Cal.Rptr.3d 552
• Court: California Court of Appeals Court of Appeals
• Parties: WESTERN HERITAGE INSURANCE COMPANY, Plaintiff and Appellant, v. FRANCES TODD, INC., et al., Defendants and Respondents.

33 Cal.App.5th 976

245 Cal.Rptr.3d 552

WESTERN HERITAGE INSURANCE COMPANY, Plaintiff and Appellant,

v.FRANCES TODD, INC., et al., Defendants and Respondents.

A152428

Court of Appeal, First District, Division 5, California.

March 4, 2019

Cozen O’Connor, Michael V. Ruocco, Valerie Rojas, Los Angeles; Sparks & Associates, Jeffrey C. Sparks, Redondo Beach; Donohue Fitzgerald, William Hill for Plaintiff and Appellant.

Wood, Smith, Henning & Berman, David S. Webster, Eugene Zinovyev, Concord, for Defendant and Respondents.

NEEDHAM, J.

Plaintiff and appellant Western Heritage Insurance Company (Western Heritage) appeals from a summary judgment entered in favor of defendants and respondents Frances Todd, Inc. dba The Wooden Duck, Eric Todd Gellerman and Amy Francis Ferber (collectively, "defendants"). ( Code Civ. Proc., 437c.)¹ Western Heritage contends the trial court erred in concluding it was barred from bringing a subrogation claim for amounts it paid out under an insurance policy for fire damage. We affirm. Like the trial court, we conclude that defendants reasonably expected their landlord, an insured under the policy, to procure fire insurance. Because Western Heritage was barred from suing its own insured for negligently causing a fire, and because the defendants were implied insureds under the policy, Western Heritage could not sue them in subrogation, even if we assume defendants were negligent.

I. BACKGROUND

The East Shore Commercial Condominiums are located on Second Street in Berkeley and are managed by the East Shore Commercial Condominiums Owners’ Association (the Association). Article 13.1 of the Declaration of Codes, Covenants and Restrictions (CC & Rs) applicable to the property requires the Association to "obtain and maintain a master or blanket policy of all risk property insurance coverage for all Improvements within the Project, insuring against loss or damage by fire or other casualty. ... The policy shall name as insured the Association, the Owners and all Mortgagees of record, as their respective interests may appear." Article 13.3 provides in part, "Any insurance maintained by the Association shall contain [a] ‘waiver of subrogation’ as to the Association, its officers, Owners and the occupants of the Units and Mortgagees. ..." Article 13.4 prohibits an individual owner from obtaining fire insurance while allowing an owner to obtain individual liability insurance. Article 3.1 requires that all "occupants and tenants" comply with the CC & Rs.

The condominium located at 1800 Second Street, part of the East Shore Commercial Condominiums, was owned by William R. de Carion dba Surfwood Properties (de Carion) and was leased to defendants, who owned and operated a furniture manufacturing business. The parties’ relationship was governed by a written lease dated February 1, 2013 (the Lease). Paragraph 5 of the Lease provided, "Lessee shall not commit waste, nor carry on any activity which would destroy or impair the quiet enjoyment of other lessees in the building of which the Premises form a part." Paragraph 6 required the Lessee to keep the Premises in good repair. Paragraph 8(A) required the Lessee to "keep in force a public liability insurance policy covering the leased Premises, including parking areas, if any, included in this Lease, insuring Lessee and naming Lessor as an additional insured. ... Said insurance policy shall have minimum limits of coverage of $ 1,000,000 in the aggregate." (Italics added.) The Lease did not specify which party (Lessor or Lessee) would carry fire insurance.

Paragraph 9(B) of the Lease, entitled "Lessor’s Right to Recover Damage(s)," provided, "Such efforts as Lessor may make to mitigate damages caused by Lessee’s breach of this Lease shall not constitute a waiver of Lessor’s right to recover damages against Lessee hereunder. Nor shall anything herein contained affect Lessor’s right to indemnification against Lessee for any liability arising prior to the termination of this Lease for personal injuries or property damage resulting from the acts or omissions of Lessee, and Lessee hereby agrees to indemnify and hold Lessor harmless from any such injuries or property damages ... except for damages occasioned by Lessor’s intentional or grossly negligent acts."

Paragraph 11 of the Lease provided in relevant part, "Lessee agrees to surrender the Premises at the termination of the tenancy herein created, in substantially the same condition as they were on the Commencement Date, reasonable wear and tear, casualty, and any alterations, improvements, and/or additions which are the property of Lessor under Paragraph 7 excepted." Paragraph 19 allowed either party to terminate the lease when damage due to fire, other casualty or eminent domain rendered ten percent or more of the property "untenantable." In the event the fire, other casualty or taking rendered less than ten percent of the property untenantable, "the Lessor shall proceed to repair the Premises and/or the building and/or the property of which the Premises are a part to the extent of any insurance proceeds received on account of a Casualty. ..."

Western Heritage issued an insurance policy (No. SCP 0955130) to Eastshore for the commercial properties on Second Street, effective May 28, 2013 to May 28, 2014 (the Policy). Each of the owners of the condominiums, including de Carion, was a named insured on the Policy. On April 12, 2014, a fire erupted in the condominium owned by de Carion which damaged that and other nearby property. Western Heritage has paid for damage caused by the fire under the Policy. On April 16, 2015, Western Heritage filed a complaint in subrogation against defendants, alleging two causes of action for negligence and breach of the Lease. It alleged the fire was caused by the negligence of defendants, who knew about faulty wiring in advance of the fire and who maintained flammable staining materials inside the warehouse.²

On December 5, 2016, defendants brought a motion for summary judgment against Western Heritage. They argued they were implied co-insureds under the Policy, and that Western Heritage consequently could not bring a subrogation action against them. On February 7, 2017, Western Heritage filed a first amended complaint in subrogation (to which the motion was stipulated to apply), alleging a single cause of action for negligence. It opposed the motion for summary judgment, arguing that defendants were not implied insureds given the language of the lease between de Carion and defendants, and that in any event, defendants had no contractual relationship with the Association, who was the only named insured for the fire loss.

On June 1, 2017, the trial court granted summary judgment. In a detailed order, it concluded that the question was whether the Lease contemplated that the Western Heritage policy would be for defendants’ benefit. It found the Lease provisions in this case to be "strikingly similar" to those in Parsons Manufacturing Corp. v. Superior Court (1984) 156 Cal.App.3d 1151, 203 Cal.Rptr. 419 ( Parsons ). "As in Parsons , fairly interpreting all of the pertinent lease provisions in context with one another, the lease can only be interpreted to place on the lessor (de Carion dba Surfwood Properties) the burden of insuring from fire losses to the leased premises (as distinguished from the lessee’s personal property) against lessor and lessee negligence." Subrogation was thus inappropriate.

II. DISCUSSION

A. Summary Judgment

Summary judgment is available when there is no triable issue as to any material fact and the moving party is entitled to judgment as a matter of law. ( § 437c, subd. (c).) A defendant moving for summary judgment bears the burden of establishing that " ‘one or more elements of’ the ‘cause of action’ in question ‘cannot be established,’ or that ‘there is a complete defense’ thereto." (Id ., subd. (o)(1); Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 850, 107 Cal.Rptr.2d 841, 24 P.3d 493.) Once the defendant meets its burden, the burden shifts to the plaintiff to set forth "specific facts" showing that a triable issue of fact exists. ( § 437c, subd. (p)(2) ; Aguilar , at p. 849, 107 Cal.Rptr.2d 841, 24 P.3d 493.) "If a party moving for summary judgment in any action ... would prevail at trial without submission of any issue of material fact to a trier of fact for determination, then he should prevail on summary judgment." ( Aguilar at p. 855, 107 Cal.Rptr.2d 841, 24 P.3d 493.)

The interpretation of a contract is a question of law subject to de novo review where the interpretation does not turn on the credibility of extrinsic evidence. ( Ibid . ; Johnson v. Greenelsh (2009) 47 Cal.4th 598, 604, 100 Cal.Rptr.3d 622, 217 P.3d 1194 ; Parsons v. Bristol Development Co. (1965) 62 Cal.2d 861, 865, 44 Cal.Rptr. 767, 402 P.2d 839.) "[T]o the extent the evidence is not in conflict, we construe the [contract], and we resolve any conflicting inferences, ourselves." ( Schaefer’s Ambulance Service v. County of San Bernardino (1998) 68 Cal.App.4th 581, 586, 80 Cal.Rptr.2d 385.)

On appeal, we independently review an order granting summary judgment. ( State Farm General Ins. Co. v. Wells Fargo Bank, N.A. (2006) 143 Cal.App.4th 1098, 1105, 49 Cal.Rptr.3d 785 ( State Farm ).)³

B. Equitable Subrogation—General Principles

" ‘Subrogation is defined as the substitution of another person in place of the creditor or claimant to whose rights he or she succeeds in relation to the debt or claim.’ [Citation.] It provides a ‘ " ‘method of compelling the ultimate payment by one who in justice and good conscience ought to make it—of putting the charge where it justly belongs.’ " ’ " ( State Farm , supra , 143 Cal.App.4th at p. 1105, 49 Cal.Rptr.3d 785.)

" ‘In the case of insurance, subrogation takes the form of an insurer’s right to be put in the position of the insured in order to pursue recovery from third parties legally responsible to the insured for a loss which the insurer has both insured...