good morning it please the court i'm jeffrey erlich for the appellate mr your group b and i'm going to do my best to reserve five i think it would be useful to start with two areas where the parties are in agreement first is that in california the scope of the type of holder than the statute prescribes the second area of agreement is the traveller's has conceded that mr you overall claim is a valid one in the sense that they they don't say that he burned down his building they've already paid him the actual cash value or the depreciated value and so what's being litigated in this case is whether in addition to that actual cash value mr u b s entitle to get the replacement cost benefit which is really the difference between what we cost to replace the warehouse that burned down  minus what he's already recovered the actual cash value travelers explained why it wouldn't pay the replacement cost benefit in an e mail to mr u b s adjuster on september thirteenth two thousand and thirteen which is in the record to your forty eight and it said when pursuing replacement cost benefits through the purchase of a building away from the insured premises that building must be used for the same purposes as the building that burned and so the core issue in this appeal is whether that used for the same purpose language the travelers relied on to deny the claim has its source in section twenty fifty one point five and travelers concedes that the text of the statute doesn't include anything like that but it contends that the limitation  is inherent within the meaning of the word replace in the statute and we disagree for four reasons the first would be that if travelers position were correct and you could take the relevant statutory language and you could interchange it with travelers definition and they wouldn't the meaning wouldn't change a bit and you can test it very easily the relevant portion of section two hundred fifty one point five subdivision a directs that now i'm quoting once the property is repaired rebuilt or replaced the insurer shall pay the difference between the actual cash value payment made and the for placement cost so travelers says you should take that language and read it to say once the property is repaired rebuilt or replaced with property that is used for the same purpose as the destroyed property the insurer shall pay the difference between the actual cash value payment made in the for placement cost and those are not equivalent statements because your position that they can't provide anything in the policy other than what the statute says they cannot provide they can deviate from the statute your honor but any deviation has to be only to the advantage of the policyholder not to the detriment so they the statute provides of a minimum that they can see if they want to for market purposes sell more advantageous coverage they can do that but they can't sell coverage that's less advantageous than what the statute provides so as we've explained in detail on pages thirty two to thirty four of our opening brief that under the california rules for statutory construction under your view of those keys is there any limit that you recognize on what would constitute a reasonable replacement structure i knew you're going to ask that i think it's a hard question in that the legislature simply use the word replace rebuild or repair and as we went through to rebuild is not relevant here to refer to read to rebuild repair isn't relevant to read rebuild it needs to basically create a duplicate right and then to replace means something different inherently different because you're not rebuilding it and i don't think it's clear the legislature didn't draw lines or dick delineate how different is acceptable so i think you have to look at the the rest of the meaning of the term replace and as a matter of statutory construction you would come up with what you think is the most reasonable version that the legislature had in mind and so i don't have a hesitation to say that it would be unreasonable to say that if real property it is it issue that it should be replaced with other real property that that's not an unreasonable position where house versus apartment let's talk about that when we have here when i was versus apartment they're both real estate yes ok i'm with you so far both commercial real estate that to the owner sort of the same functional purpose they both provide a stream of rental income and they hopefully will appreciate size the empire state building that's what and if he could have afforded me the policy limit wouldn't really let you get the empire state building but but it the legislature didn't draw any lines and i think for good for good reason they didn't say it there's so let's i mean you understand i know you understand the position of travelers here travelers who saying look there has to be some limit on this otherwise insurance are going to be incentivized to whatever to get rid of this that's non income producing piece of property so they can get into something more lucrative your honor it's a policy argument i understand and first of all the legislature censure construing a statute the legislature didn't seem to concern itself too terribly with that particular policy argument first of all the statutes doesn't say that to get replacement cost value you have to first replace the statute says that insurance companies if they wish can include that requirement if you the guard case that we quite make that clear a more sure so the legislature didn't think as a matter of public policy that that moral hazard was so problematic that it needed to legislate the requirement second of all if you look at this case involves something called an open policy and almost all insurance in california sold open an open policy is you buy the policy and there's no agreement at the time about what the the it's really worth you just have a proper a polic but there's also a value policy and a value policy the parties agree at the time the property is insured of what the value is and section twenty fifty eight of the insurance code deals with replacement cost of a value policy chosen to replace his warehouse with a comic book collection that he thought was going to preach but i don't have to defend that position because he bought real estate and where out of my office is an include in claremont there is an old warehouse called the packing house it was a citrus packing house it's been repurposed now it has restaurants an art gallery office space neat buildings structures a repurposed all the time and so to say that th legislature dictated that it that in order to get the replay to scott replacement cost benefit you have to replace with something whose tenants are using the property the same way is really i don't think it's tenable and it's not that the statute applies both to real property and even to personal property anything you replace for a replacement cost would be subject to two thousand and fifty one point five i think it's worth noting that if you look at travelers policy which is laid out on page seventeen of the red brief this provision this same use provision that there really relying on so heavily for a public policy standpoint it doesn't restrict what kind of property can be replaced this provision is in the last summer mint conditions and it says we will determine the value of covered property in the event of a covered loss or damage is as follows and then you read down the paragraph one says the replacement cost subject to these limitations below and then you skip a bit and then see it says we will not be moved work on a replacement cost basis than the lesser of these three i did my sections which is the policy limit for the second the cost to replace the damaged property with other property of comparable material used for the same purpose and third is the amount actually spent so the policy itself doesn't actually have this used for the same purpose that defines whether a replacement is traveler's position is that you have to rely soley on the meaning of the word the definition of the word replace which in its briefs it's not even saying that replace that one reasonable way to interpret the statute as the way it does it says that's the only possible way that replaces inherently has this same use limitation that's travelers position and that's not a reasonable position counsel before you reserve what was the actual cash value the fair market value travelers paint your client in the warehouse four hundred ninety one thousand was the actual cash value payment  worried that what was the policy limit that was available i'd off the top of my head i don't know the limit your honor but the there's no dispute about the replacement cost benefit it's eight hundred fifty one thousand nine hundred thirty nine that's in the record you know we look at these records if these numbers aren't on the records in the record of the case then obviously we can't consider there in the record and there in my opening brief all right ok so in any event he paid more for the apartment complex then he received from travelers in saying it was within the available policy program limit yes traveler simply said you cannot replace an apartment building use an apartment building to replace a warehouse and that nothing nothing because they said they won't recognise the apartment building as a replacement based on their definition of the word replacement and i think it i would say that if you look at the versus farmer's decision that travelers really relies heavily on conway actually held that the word replace is ambiguous that it has multiple reasonable meaning so it clearly undercuts travelers position that there is only one reasonable meeting as a matter of law and that meaning implies the same use requirement when i walked into the court house you have this lovely space in front of that's a library and today most legal research isn't done in libraries so if if you had the inclination enough clout with the g s a you might have them replace that library with a daycare center with a gym whatever you wanted it wouldn't violate the  replace the library with some other something else or you could replace it with a court room i'm saying it wouldn't violate linguistically when i say that mr yoo goopy replaced his warehouse after it was destroyed with an apartment building that doesn't it's not a non sequitur it's not the same as if i were to say he replaced it with a melody there is no category error here or there sufficiently similar usually when you invoke g s a with judges it does not bring about a good  morning panel karen agnes for the appellee one thing we didn't touch upon this morning that i'm going to go to some of the comments that were made by counsel is the waiver issue the waiver issue is pretty front and center in this in this matter the first time there was any argument about section two thousand and fifty one point five invalidating a provision in the child's policy was in the opening brief while before this court the argument in the district court was what the argument the district court well that's tricky too because that changed a lot before the district court the argument in the district court up until the summary judgment motion was filed was that they had not been able to repair or replace the property it was impossible and they should recover the replacement cost benefits anyways  purely a legal issue it's not purely a legal issue because there's been no discovery as to the purchase of the of the new apartment complex and the validity of that purchase and when he started to look for the purchase of that when the escrow process started whether during deposition testimony the plaintiff and now appellant in this case testified owning in the high twenty's of properties so there's there's no discovery done on whether or not the apartment complex was replacing the damage covered property or something else that was going on because the first time it was ever alleged that the apartment complex was a replacement was in the m s j opposition and that's when attached to a declaration was one document closing invesco statement or a bio statement that was the first document ever provided that showed anything revoked regarding the purchase the property resident initial disclosures a resident any of the proceedings and so but when you get to the waiver argument you know you paid for what the actual cash value of four hundred ninety one thousand dollars for the property which is the market value of the property at the time of the total loss they paid for boarding up and showing the property because it was  state they paid for twelve months for the loss of income and loss of rent and none of that was disputed before the district court but they paid an additional premium in order to get this replacement coverage correct they did and so they got your positions they're entitled to nothing for that coverage because they didn't replace the warehouse with something that's cracked and you're not are you contending that they had to rebuild at that site no no and that's that's been well let it get already so that then i'm jumping out a little now but you know we keep going back to twenty fifty one point five in the definition of a place if you actually look at twenty fifty one point structure and replacing the covered property of the damaged property you will be putting up a functionally similar property to the one that stands and that's the one that was insured do you agree with you can't write their own you can't write  actually that's the if you get past a waiver which i think is a i want to raise because it was something said in the reply brief that i didn't have a chance to address but if you get past the waiver issue and you're on twenty fifty one point five the very starting point is whether or not there's anything that contradicts that statute i don't think there is that number two is this discussion about how you interpret replace replace ambiguous and one of the key things that was brought up just now at this hearing is what's the  reasonable interpretation you can't have it without some other reasonable interpretation and so there is a question of where does the scope end thing here he says that it ends with the policy limits in that travelers interpretation it was supported by a court decision in texas who looked at this an appellate court decision and it looked at this and the california court conway talked about a functional similarity that's why you can buy another house because they they both provide passive income one is residential one is commercial that's the distinction you're not the one know the risk associated with very different apartments you've got people living in there and coming in and out of it whereas in a commercial warehouse you have in theory storage of some kind of property or property or whatever you might have but you don't have the same liabilities associated with a apartment complex that you do with a commercial warehouse and actually now i'm blanking if there was fitzhugh or the two other cases but one of them actually does a pretty good job of explaining not just the difference between residential and commercial but the active right abilities that go on on on having just a stor no there's no way replace can be read to just allow anything and there are policy that you're aware of travelers where you could have to buy anything i don't think so i think that would go against the whole idea of  was paid out four hundred ninety one thousand is not in dispute that that was the value this ideal of replacement cost was allowed if your property had depreciated but it's going to cost more to put your property back to the way it was right this is looking at your ok that's ok and the law i think ideas on that point about it being ok about the size so it's not time travelers view to fair market value it doesn't need to be the same points or minus fair market value that's correct and in fact so l three points i'd like to cover first when counsel said that as long as their policy is not in direct conflict with the statute it's ok that is a misstatement of law if you look at the blue brief on page twenty we cite the century national case california supreme court case that says you can't conflict with the public statute and additionally you can't include terms that even if they don't directly conflict operate in a way that makes the scope of the coverage less advantageous so so you can have coverage is not as good a second point to have to make as counsel went on and said in a warehouse is a lower risk than an apartment building because apartment buildings have people in all this issue the question here is not an underwriting risk standpoint travelers didn't have to insure the replacement property mystery goopy didn't have to buy another policy with travellers the issue is simply whether he could replace one property real estate with another piece of real estate you don't have to get into the insurance underwriting with respect to waiver i think it is a legal issue it's a question of statutory interpretation and i think the court should exercise its discretion to construe the statute because in the insurance standpoint the carrier has an obligation of good faith and fair dealing even after litigation is commenced to comply with the statute to adjust the claim in conformity with the statute which travelers is saying is because mr you goopy didn't raise the statute to it that it's somehow you shouldn't look at the statute and it's not responsible for what the statute says i don't think that's a reasonable