Wexler v. Cal. Fair Plan Ass'n

Decision Date14 April 2021
Docket NumberB303100
Citation277 Cal.Rptr.3d 398,63 Cal.App.5th 55
CourtCalifornia Court of Appeals Court of Appeals
Parties Brooke WEXLER, Plaintiff and Appellant, v. CALIFORNIA FAIR PLAN ASSOCIATION, Defendant and Respondent.

Kerley Schaffer and Dylan L. Schaffer, Pleasant Hill, for Plaintiff and Appellant.

Lewis Brisbois Bisgaard & Smith, Raul L. Martinez, Elise D. Klein and Celia Moutes-Lee, Los Angeles, for Defendant and Respondent.

WILEY, J.

Brooke Wexler lived with her parents in their home. Her parents insured the place with a California FAIR Plan Association owner-occupied dwelling policy. Under "INSURED NAME," the FAIR Plan policy listed Wexler's parents James M. Talbot and Kimberly A. Talbot. FAIR Plan expressly disclaimed coverage for unnamed people. The policy does not name Wexler. Wexler sued FAIR Plan, not for breach of contract, but on bad faith insurance allegations only. The trial court sustained FAIR Plan's demurrer to Wexler's claim. We affirm.

I

Kimberly and James Talbot own a home in a mountainous area facing fire danger. They lived together with their seven-year-old son and their daughter Wexler, whose age is not in the record. The Talbots alleged smoke from the Woolsey wildfire damaged their home in 2018. They made claims on their home insurance policy with FAIR Plan.

The Legislature created FAIR Plan in 1968. FAIR Plan is a joint reinsurance association to give homeowners in high risk areas access to basic property insurance. ( California FAIR Plan Assn. v. Garnes (2017) 11 Cal.App.5th 1276, 1283, 218 Cal.Rptr.3d 246.)

Wexler, together with the Talbots, sued FAIR Plan on bad faith insurance allegations founded in their dissatisfaction with how FAIR Plan handled their claim of smoke damage to the home's contents. They attached FAIR Plan documents to their complaint and said these documents comprised the policy and its declarations. We describe these documents.

One page was on FAIR Plan letterhead. It lists the Talbots’ address and policy number and is titled "IMPORTANT RENEWAL POLICY INFORMATION." This letter urged the Talbots to contact insurers to see if other insurance was available in the standard market. "The FAIR Plan is an insurer of last resort and generally provides more limited coverage than does the standard market." The letter noted the insurance marketplace changes regularly, and so property not eligible for standard market coverage in the past may become eligible. The letter counseled the Talbots to ask neighbors and insurance brokers which insurance companies to use and urged the Talbots themselves to telephone insurance companies.

This letter told the Talbots carefully to consider their insurance needs and to shop around.

"If you cannot secure a policy with an insurance company operating in the standard market, you should talk to your broker about purchasing a Difference in Conditions (DIC) policy in addition to your FAIR Plan Dwelling Fire policy. A DIC policy can supplement your FAIR Plan policy by providing important coverages not in a FAIR Plan policy (e.g. theft, water damage and liability coverage)."

FAIR Plan advised the Talbots that "[s]electing the amount and type of insurance coverage appropriate for your needs is your responsibility. Do your best to make sure that your policy limits and coverages are sufficient to protect you in the event of a total loss."

"Check to see if your property is eligible for our dwelling replacement cost coverage, which is available at no additional charge. (This coverage does not increase your policy limits.)"

"For additional premium the FAIR Plan offers numerous other coverages that broaden or increase the insurance provided by our basic policy."

"Review the insurance we have issued to you to make sure it matches your needs as nearly as possible."

Another page stressed the limited extent of the FAIR Plan coverage as compared to more typical California homeowners insurance policies. This page has a comparison chart, which FAIR Plan cautioned was "NOT ALL-INCLUSIVE": "For a complete, specific understanding of all of the similarities and differences between the FAIR Plan dwelling policy and the insurance available in the standard market, you should consult with a licensed insurance broker."

This chart summarized the limited character of FAIR Plan's homeowner coverage. Unlike more typical California homeowners insurance policies, the FAIR Plan policy did not insure against all physical loss unless specifically excluded. That more typical approach yields comprehensive coverage. Rather, FAIR Plan's coverage was minimal: it insured the dwelling and its contents only against damage from fire, lightning, and internal explosion, with "limited" coverage for smoke damage. Somewhat broader coverage was optional. In contrast to a typical homeowners policy, the FAIR Plan policy offered no coverage for losses from theft, falling objects, weight of ice, snow, or sleet, water damage, freezing, or sudden accidental damage from artificially generated electrical current.

FAIR Plan's coverage was limited in other ways as well. FAIR Plan emphasized it provided no liability coverage. It did not cover personal liability or damage to property of others, and it excluded medical payments for others. The chart also identifies other ways in which FAIR Plan's coverages, limits, and conditions were less favorable to the homeowner than would be a more typical homeowners policy.

A companion page, also on FAIR Plan letterhead, is titled "DWELLING INSURANCE POLICY DECLARATIONS." This page says the transaction type is "Dwelling - Renewal Offer." It identifies the date of issue and the policy number. Under "INSURED NAME AND MAILING ADDRESS," this page listed James M. Talbot and Kimberly A. Talbot. It did not list Wexler, whose name does not appear in any FAIR Plan document concerning the policy.

Under "COVERAGES, LIMITS, PERILS AND PREMIUMS," this page identifies $686,446 as the coverage limit for the dwelling and $456,000 as the coverage limit for "Personal Property." This page does not define "Personal Property." That definition appears in a document titled "Dwelling Property Policy." We come to that document in a moment.

The next page is headed:

"READ YOUR INSURANCE POLICY

Selecting the amount and type of insurance coverage appropriate for your needs is your responsibility. "

At the bottom, this page states: "This policy is a contract between us and the Named Insured(s) and any loss payees identified on this Declarations Page. This policy does not provide coverage to any person or entity not named here. " The italics are ours.

As will appear, this last provision is important to our analysis. We call it the no-coverage-for-unnamed-persons clause . At oral argument, FAIR Plan's counsel reported this language is unique to its policies. We will return to it.

An additional policy page is headed as follows:

"California FAIR Plan Association

SCHEDULE OF ADDITIONAL INFORMATION."

This page again lists "INSURED NAME AND ADDRESS" and again lists James M. Talbot and Kimberly A. Talbot and their home address. Wexler's name does not appear.

The document entitled "Dwelling Property Policy" contained a section called "DEFINITIONS." This section contains this definition: "In this policy, ‘you’ and ‘your’ refer to the ‘named insured’ shown in the Declarations and the spouse if a resident of the same household."

The next page of "Dwelling Property Policy," with our italics, made this promise:

"If there is a checkmark next to C - Personal Property in the Declarations, the following applies:

"Coverage C – Personal Property

"We cover personal property usual to the occupancy as a dwelling and owned or used by you or members of your family residing with you while it is on the Described Location. At your request, we will cover personal property owned by a guest or household employee while the property is on the Described Location."

The Talbots’ Declarations page has a check mark confirming they had personal property coverage.

Returning to the lawsuit, the trial court sustained FAIR Plan's demurrer to Wexler's claims, ruling she lacked standing to sue the insurer for bad faith. Wexler appealed.

The Talbots’ claims are not at issue. Indeed, the Talbots asked the court to dismiss their complaint without prejudice after the trial court barred their daughter's claim.

II

Wexler lacks standing to sue FAIR Plan for bad faith.

A

We independently review an order sustaining a demurrer. We take the facts as pleaded, but we disregard the legal conclusions, like whether the Talbots have an insurable interest in Wexler's property in the house. (See Gulf Ins. Co. v. TIG Ins. Co. (2001) 86 Cal.App.4th 422, 429, 103 Cal.Rptr.2d 305 ( Gulf ).)

Despite special features, insurance contracts remain contracts to which ordinary contract interpretation rules apply. The fundamental goal of contract interpretation is to effectuate the parties’ intention. Clear and explicit contractual language governs. This rule protects not subjective beliefs but objectively reasonable expectations. The court must interpret language in context, with regard to its intended function in the policy. ( Harper v. Wausau Ins. Co. (1997) 56 Cal.App.4th 1079, 1085, 66 Cal.Rptr.2d 64 ( Harper ).)

B

We summarize some law concerning insurance bad faith.

Every contract, insurance or otherwise, imposes on each party a covenant of good faith and fair dealing in its performance and enforcement. ( Foley v. Interactive Data Corp. (1988) 47 Cal.3d 654, 683, 254 Cal.Rptr. 211, 765 P.2d 373 ( Foley ).) Good faith logically subsumes fair dealing, so it is accurate and less redundant to call this implied covenant the duty of good faith.

Because the implied good faith duty is a contract term, compensation for its breach has almost always been limited to contract rather than tort remedies. ( Foley , supra , 47 Cal.3d at p. 684, 254 Cal.Rptr. 211, 765 P.2d 373.) We italicize almost because there is an exception to...

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