1 Filed 4/18/13 University Partners v. Maryland Casualty CA3 NOT TO BE PUBLISHED

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
THIRD APPELLATE DISTRICT (Sacramento)

----

UNIVERSITY PARTNERS , LLC, et al., Plaintiffs and Appellants,

v.
MARYLAND CASUALTY COMPANY et al., Defendants and Respondents. C065521 (Super. Ct. No. 07AS03379)

UNIVERSITY PARTNERS , LLC, et al., Plaintiffs and Appellants,

v. ZURICH AMERICAN INSURANCE COMPANY, Defendant and Respondent. C0673982 Plaintiffs University Partners, LLC (University Partners), and its managing member, Thomas Westley, appeal from a judgment of dismissal following orders granting summary adjudication a nd sustaining demurrers of pl aintiffs’ property insurers, Maryland Casualty Company (Maryland), Northern Insura nce Company of New York (Northern), and Zurich Ameri can Insurance Company (Zuric h) (hereafter collectively defendants). Plaintiffs contend issues of fa ct remain on their claims against defendants stemming from the latter’s refusa l to pay the full replacement cost of plaintiffs’ building after it was destroyed by fire. According to plaintiffs, the record contains evidence that, several years before the fire, defendants partic ipated in various misrepresentations made by their agent, defendant Cummi ns Insurance Agency (Cummins), that induced plaintiff to switch from an insurance po licy with guaranteed replac ement cost (GRC) coverage (the Fireman’s Fund policy), that would have provided full replac ement cost of their building, to policies with only replacement cost (RC) coverage, that provided only partial replacement cost.
Plaintiffs do not contend defendants misled them into believing they were receiving GRC coverage, inasmuch as there is no evidence in the record to support such a claim. Instead, plaintiffs c ontend Cummins made certain mi srepresentations as to the nature of the insured premises in the app lication for insurance. In particular, the application falsely stated that the building had a sprinkler system and that it was built of
fire resistant materials. Plaintiffs assert th ese misrepresentations we re made in order to reduce the price of the policy offered by defendants to below that of the Fireman’s Fund policy, thereby inducing plaintiffs to switch c overage. Plaintiffs furt her assert defendants became aware of these misrepresentations bu t failed to adjust the price of the policy accordingly, thereby acquiescing in Cummins’s “price fraud.” We reject plaintiffs’ novel “price fraud” theory. The misrepresentations they allege were not directed at plaintiffs but at defendants in order to induce defendants to provide coverage to plaintiffs at a price below what it would otherwise have been.3 Neither defendants nor Cummins misrepresented to plaintiffs the nature of the policy being provided or the price to be paid for it. Plaintiffs received exactly what they bargained for. Plaintiffs’ claim boils down to this: They were given too good a deal. If the price charged for RC coverage had been based on the true characteris tics of their building, i.e., built of wood with no sprinklers, the price of the insurance would have been higher. Instead, they were given the policy at a re duced rate, which induced them to switch coverage. And, but for that switch, plainti ffs would have retained GRC coverage under the Fireman’s Fund policy and would have re covered the full replacement cost of the building. However, this is not a claim for negligent or intentional misrepresentation but the natural result of free-market competition. In the absence of antitrust considerations, the supplier of a product is not prohibited from selli ng that product at cut-rate prices. Absent misrepresentations to the cu stomer about the nature of the product, one who buys a lower-priced product based on price alone may not later claim he was duped out of buying the higher-priced product which, as it later turns out, might have proven a better
fit. Because this is the essence of plainti ffs’ claim, we affirm the judgment of
dismissal.



### F ACTS AND 

### P ROCEEDINGS Prior to July 27, 2005, Westley was the managing member of University Partners, LLC, the successor in interest of 300 University Avenue, Ltd. (University Partners). University Partners owned a building located at 300 Univer sity Avenue in Sacramento (Building). On that date, the Building was destroyed by fire. Prior to May 30, 2001, the Building was insured under a policy issued by Fireman’s Fund Insurance Company and obtai ned from defendants John O. Bronson, a4 California corporation, and one of its em ployees, Paul F. Bystrowski (hereafter collectively Bronson). Although the Fireman’s Fund policy contained a coverage limit of $2,431,000, it included a policy amendment fo r GRC coverage, which provided that, in
the event of a covered loss of the Buildin g, the insurer would pay the full amount required to rebuild the structure withou t regard to the coverage limit.
Prior to the renewal date of the Fire man’s Fund policy, University Partners approached Cummins to determine if it could obt ain equivalent coverage at a lower price. Bronson had previously prepared a one-p age document titled “Evidence of Property Insurance” (the Evidence Form) that briefly listed the cove rage provided in the Fireman’s Fund policy. However, the Ev idence Form misstated the co verage limit as $2,341,000, rather than $2,431,000, and indicated the policy provided RC coverage rather than GRC coverage. University Partners was unaware of any misstatements in the Evidence Form and provided it to Cummins. The actual Fi reman’s Fund policy was not provided. University Partners informed Cummins the Building was of frame construction and did not tell Cummins the Building contained sprinklers. Cummins submitted to Zurich an applic ation for insurance that erroneously described the Building as containing sprink lers and being built with fire resistant materials. The application was not signed by plaintiffs. Cummins al so provided Zurich
with the Evid ence Form. Zurich prepared a written offer of insurance through its subsidiary, Northern,
based on the information contained in the application and the Evidence Form. The premium price was $1,600 per year, which was well below the renewal price for the Fireman’s Fund policy. Cummins forwarded th e offer to plaintiffs with a cover letter indicating the coverage duplicated that of th e Fireman’s Fund policy. In fact, however, the offer was for RC coverage ra ther than GRC coverage. It also contained a coverage limit of $2,341,000 rather than the $2,431, 000 limit of the Fireman’s Fund policy.5 Cummins was unaware before the fire that the Fireman’s Fund po licy provided GRC
coverage. University Partners agreed to the offered policy (the Northern policy). However, when University Partners contacted Brons on to cancel the Fireman’s Fund policy, Bronson indicated it had previously rated the coverage of the Fire man’s Fund policy with Zurich and found the Zurich pr ice to be $300 higher than that of the Fireman’s Fund policy. Bronson suggested that University Part ners might want to ve rify the accuracy of the Northern policy. Westley thereafter c ontacted Cummins and as ked why University Partners was receiving such a favorable price. Westley asked if the coverage was the same as the Fireman’s Fund policy and Cummins indicated it was. We stley also asked if the size of the Building was correct and was told it was. Westley asked if the policy contained RC coverage and was told it did. Cummins explained the reason for the price difference was an error regarding the nature of the insured Building. Westley informed Cummins that it woul d not cancel the Fireman’s Fund policy until the price issue for the No rthern policy was resolved. Westley further informed Cummins that the only reason University Pa rtners was agreeing to switch coverage was because the Northern policy co ntained the same coverage fo r less money. Cummins later informed University Partners that they had made arrangements with Zurich to stand by the quoted price. Plaintiffs agreed to retain the Northern policy and cancel the Fireman’s Fund policy. The Northern policy rema ined in effect from May 30, 2001 to May 30, 2002, when it was replaced by an equivalent policy issued by Maryland (t he Maryland policy). The Maryland policy remained in effect until the fire. Over the years, the coverage limit on the Maryland policy increase d such that, by May 30, 2005, it had reached $2,999,000.
Both the Northern and the Maryland policies prov ided RC coverage. As noted earlier, the Building was destroyed by fire on July 27, 2005. At the time, the cost to replace the Building was $4,864,6 13, well above the Maryland policy limit.6 University Partners therefore decided not to rebuild and was paid $3,010,914 under the Maryland policy. Plaintiffs made arrangements with Intern ational Adjusting Service (International) to adjust their insurance clai m. International contacted Zurich, claiming $1,478,172 in unpaid replacement cost. Zurich refe rred the matter to legal counsel.
Plaintiffs initiated this action against Maryland, Cummins, Bronson, and two Cummins employees, Dick Dotters and Debbie Cummins. The first amended complaint contained eight causes of action: (1) neglig ent inducement to enter into the Maryland policy, (2) negligent adjustment of the policy limits, (3) breach of oral contract to adjust the policy limits, (4) breach of express or im plied contract to adjust policy limits, (5) negligent misrepresentation of the terms of the Fireman’s Fund policy, (6) declaratory relief, (7) fraudulent inducemen t to enter into the Northern policy, and (8) a separate claim for damages on behalf of We stley. Plaintiffs later adde d Northern as a defendant.
Bronson demurred to the first amended co mplaint, asserting the fifth, sixth and eighth causes of action fail to state a claim against them. The trial court sustained the
demurrers without leave to amend. The court concluded there were no material misrepresentations in the Ev idence Form and no reasonable insured or in surance agent would have relied on it without reading the insurance policy itself. According to the court, the Evidence Form does not invite the in sured to rely on it but rather refers the insured to the insurance policy. Furthermore, according to th e trial court, even if the Evidence Form invited plaintiffs to rely on it, plaintiffs had ample opportunity over the next several years to review the Northern and Maryland polic ies to discover that it did not include GRC coverage like that in the Fi reman’s Fund policy. Finally, the court concluded the sixth cause of action is moot by virtue of the court’s ruling regarding the fifth cause of action, and Westley did not oppose the demurrer to the eighth cause of action. The court thereafter entered judgment of dismissal in favor of Bronson.7 Plaintiffs appealed, and we affi rmed. In an unpublished opinion ( University
Partners v. John O. Bronson (July 29, 2009, C058893) ( University Partners I )), we concluded plaintiffs had no viable claim agai nst Bronson. On the fifth cause of action for negligent misrepresentation of the terms of the Fireman’s Fund policy, we concluded plaintiffs’ reliance on the Evid ence Form in applying for replacement insurance was not reasonable and they had a duty instead to ex amine the terms of the Fireman’s Fund policy
themselves. We further concluded there wa s no evidence to sugg est the Evidence Form was prepared with intent to influence plaintiffs to sw itch coverage. Finally, we concluded plaintiffs had ample opp ortunity to obtain GRC covera ge before the fire if that is what they wanted. Because plaintiffs rais ed no arguments on appeal as to the sixth and eighth causes of action, we affirmed the tria l court’s order sustaining demurrers to those
claims as well. On January 8, 2009, the trial court gr anted summary adjudication on the fifth cause of action for all remaining defendants. Plaintiffs do not challenge that ruling on appeal. On January 22, 2009, Nort hern and Maryland moved fo r summary adjudication of the second, third and fourth causes of action. On May 18, 2009, th e trial court granted the motion. Again, plaintiffs do not challenge that ruling on appeal. On February 5, 2010, Mary land and Northern moved fo r summary judgment or, in the alternative, summa ry adjudication on all remaining claims. While this motion was pending, plaintiffs added Zurich as a defendant. On June 7, 2010, the trial court issued its order granting the motion for summary adjudi cation of Northern and Maryland. On June 23, the trial court entered judgment of di smissal in favor of No rthern and Maryland. Plaintiff appeals from th at order (C065521). On November 10, 2010, pl aintiffs filed a second am ended complaint, in which they added a cause of action for civil cons piracy. Zurich demu rred to the second amended complaint. On February 1, 2011, the trial court sustained Zurich’s demurrers8 without leave to amend and entered judgment of dismissal. Plaintiffs appeal from that judgment (C067398). We have consolidated these two appeals for all purposes.



### D ISCUSSION In its ruling granting summa ry adjudication to Northern and Maryland on the first (negligent misrepresentation) and seventh (i ntentional misrepresentation) causes of action, the trial court concluded those insurers provided plaintiffs exactly what they and Cummins requested, RC coverage, and the insu rers made no representations that they would provide the same covera ge as the Fireman’s Fund policy. The court further concluded plaintiffs failed to present sufficient evidence that the insurers are vicariously liable for any representations made by Cummi ns as their agent. Finally, the court concluded plaintiffs are es topped by our prior ruling in University Partners I from claiming that any alleged misrepresentation caus ed them not to have GRC coverage at the time of the fire. Having so concluded, the court also granted summary adjudication on the sixth cause of action, seeking declarat ory relief, and the eighth cause of action, seeking relief on behalf of Westley individually. With the elimination of all other claims against the insurers, those deriva tive claims also disappear.
Plaintiffs take issue with each of the th ree bases relied upon by the trial court in support of summary adjudication on the misr epresentation claims. They contend the misrepresentations they allege are not lim ited to whether the Northern and Maryland policies provided GRC coverage. They also c ontend they are not collaterally estopped by our prior decision from claimi ng defendants’ actions caused them not to have GRC coverage at the time of the accident. Finally, plaintiffs argue there is sufficient evidence that Cummins was acting as defendants’ agent in connection with the ma tters at issue. As we shall explain, because we find plai ntiffs have not established any actionable misrepresentations on the part of either defendants or Cummins, we need not consider9 plaintiffs’ estoppel and agency arguments. Even assuming pl aintiffs are not estopped to claim that misconduct by either defendants or Cummins caused them not to have GRC coverage at the time of the fire, and assumi ng Cummins was acting as defendants’ agent for purposes of the claims asserted herein, plaintiffs have not established that either Cummins or defendants made any misrepresentations to plaintiffs that caused plaintiffs to replace their GRC coverage with RC coverage.
Plaintiffs contend there is sufficient ev idence in the record to support their misrepresentation claims based on both conspi racy and aider and ab ettor theories. The misrepresentation they allege does not conc ern the nature of the policy being provided by Northern and Maryland. Plai ntiffs do not argue defendants conspired or aided and abetted Cummins in misrepresen ting to plaintiffs that the Northern and Maryland policies provided GRC coverage. Instead, plaintiffs contend Cummins enga ged in “price fraud” when Cummins misrepresented th e nature of the insured prem ises as having sprinklers and being made of fire resist ant materials. According to plaintiffs, Cummins did so in
order to induce defendants to o ffer their insurance at a rate below that of the Fireman’s Fund policy, thereby in turn inducing plaintiffs to switch in surance. Plaintiffs further assert defendants participated in this price fraud when they agreed to sell the Northern policy to University Partners at this reduc ed price after learning that the Building had been misrepresented in the app lication. Plaintiffs contend: “[A] trier of fact could reasonably conclude that Cummins was engaged in a deceptive practice known commonly in the insuran ce industry as ‘twisting,’ and th at [defendants], with knowledge of this fact, joined Cummins in this fraud ulent plan and conspired with it to actively conceal it.” According to pl aintiffs: “Twisting is the deceptive practice of making misrepresentations of the terms, including price, of an insu rance policy to a customer, or allowing the use of these misrepresentations , for the purpose of inducing the customer into purchasing it.”10 Assuming plaintiffs are corre ct that there is sufficien t evidence of defendants’ complicity in Cummins’s actions, either as a co-conspirator or an aider and abettor, the hole in plaintiffs’ argument is that there is no evidence of any misrepresentation by
Cummins directed at plaintiffs . “ ‘The elements of fraud, which give rise to the tort action for deceit, are (a) misrepresentati on (false representation, concealment, or nondisclosure); (b) knowledge of falsity (or “s cienter”); (c) intent to defraud, i.e., to induce reliance; (d) justifiable reli ance; and (e) resulting damage.’ ” ( Lazar v. Superior
Court (1996) 12 Cal.4th 631, 638.) In order to satisfy these elements, it is not enough that there were misrepresentations. Those misr epresentations must ha ve been directed at the victim for the purpose of inducing the vic tim to rely to his or her detriment. In this instance, neither defendants nor Cummins made any misrepresentations to plaintiffs regarding the terms of the Northern or Maryland policies. The price quoted, although artificially low, was the price char ged. Although there is evidence Cummins misrepresented to plaintiffs th at the policy coverage was the sa me as that in the Fireman’s Fund policy, this was based on a misundersta nding, shared by all the parties, that the Fireman’s Fund policy provided RC coverage. Thus, in representing that the Northern policy provided the same coverage as th e Fireman’s Fund policy, Cummins was representing that the Northern policy pr ovided RC coverage, which was true. Plaintiffs’ fraud theory is based on mi srepresentations by Cummins regarding the nature of the Building being insured. Howe ver, these were misrepresentations made by Cummins to defendants, not plaintiffs. Plainti ffs knew the nature of the insured property. If, as plaintiffs allege, Cummins purposely misrepresented the ch aracteristics of the Building, this was for th e purpose of inducing defendants to offer insurance at a reduced rate. The potential danger to an insured in such misreprese ntations is that the insurer might later deny coverage upon learning the tr ue facts. However, that did not occur here. On the contrary, when defendants learned the true facts, they agreed to se ll the insurance11 to plaintiffs at the reduced price and, after the fire, provided plaintiffs the full benefit of the policy. What plaintiffs’ argument boils down to is that they were sold insurance at rates lower than normal. In other words, they received a windfall from the deal. If the circumstances had been as all the parties und erstood them to be, i.e., that the Fireman’s Fund policy provided RC coverage, plaintiffs received the full benefit of what they bought without having had to pay the full price for it. Plaintiffs contend they were in fact harm ed by the deal because, but for the change in policy, they would have re covered the full replacement va lue of the Buil ding under the Fireman’s Fund policy. Plaintiffs argue it was only because of th e unusually low price for the Northern policy th at they decided to switch. Thus, they argue, the fact they were offered an artificially low pr ice due to Cummins’s misrepre sentations about the Building was a proximate cause of their loss. We are aware of no prohibition against a seller of products or services offering them at below-market rates, or even belo w the seller’s cost. This may not make good business sense, but it is certainly not a fra ud against the purchaser who is benefited thereby. It would be as if a consumer w ho purchased one automobile over another based solely on price and was later injured in an accident was permitted to sue the seller on a theory that the higher -priced automobile was in fact sa fer and he would not have been injured if he had been driving it at the time of the accident. This is not fraud but freemarket competition. As long as there were no misrepresentations about the nature of the product being purchased, e.g., th e safety features of the auto mobile or the breadth of the insurance coverage, there is no actionable fraud in undercutting the price of a competitor. Plaintiffs appear to ack nowledge as much wh en they assert: “Plaintiffs are not suggesting that [defendants] normally cannot charge any price [they wish] for [their] insurance policies. Ev en though in the busine ss to [sell] insurance policies, if Northern and Maryland want to give up over $3,000 a year, and over $ 15,000 over the length of the12 [Northern and Maryland policies], [they] norma lly [have] the right to do so.” However, plaintiffs go on to argue: “It is when [Zurich], with actual knowledge of Cummins’ fraudulent plan and its pur pose, makes the conscious decision to facilitate the commission of the tort by allowing Cummins to continue inducing University into purchasing the [Northern] policy, is Zurich subject to liability for aiding and abetting
Cummins’ fraud.” Once again, plaintiffs are attempting to assert a claim against defendants based on their complicity in a plan to mislead themselves into offering insurance at a reduced price. The only ones harmed in that regard were defendants. It is only because of the fortuity that the Fireman’s Fund policy contai ned GRC coverage, a fact not known to any of the parties herein, that plaintiffs we re harmed by the switch in coverage.
Plaintiffs nevertheless cont end defendants had a duty to disclose all material facts relating to the policy of insurance and they faile d to satisfy that duty when they neglected to inform plaintiffs of the fraud perpetrated by Cummins. We fail to see where plaintiffs are going with this argument. Plaintiffs we re in fact informed by Cummins that it had
misstated the nature of the in sured premises, at least as to the building materials. Plaintiffs therefore knew the price they were quoted was lower than what would have
been the case if the true fact s had been used. Plaintiffs al so knew they were being sold the Northern policy at this lower price notw ithstanding the error. Finally, as explained above, the only possible fraud co ncerned the misrepresentations directed at defendants by Cummins, not misrepresentations directed at plaintiffs. We conclude the trial court properly granted summary adjudi cation to Northern and Maryland on plaintiffs’ misrepresenta tion claims. And th ose being the only remaining claims against Northern and Mary land, the court properly granted summary adjudication on the derivative claims.
Plaintiffs nevertheless contend defenda nts are guilty of bad faith in handling plaintiffs’ claim. Plaintiffs argue “a reas onable juror could conclude that Maryland,13 through Zurich . . . , did not attempt to effect a prompt, fa ir, and equitable settlement of University [Partners’] Octobe r 2, 2006 claim once liability had become reasonably clear. Instead, on November 22, 2006, it referred the investigation to legal counsel, implying that this referral was to reasonably investig ate the claim, when in fact it was for the purpose of forcing University [Partners] into litigation.” Assuming plaintiffs adequately alleged a claim for bad faith, the problem with their argument is that it pr esupposes liability became “rea sonably clear” to defendants before the matter was referred to legal counsel. However, the liability to which plaintiffs refer is the purported obligatio n of Maryland to provide pl aintiffs the benefit of GRC coverage. However, the Maryland policy pr ovided only RC coverage. Maryland paid plaintiffs the full benefit of RC coverage. As explained, above, Maryland’s liability for the additional GRC coverage was certainly not clear. On the contrary, Maryland had no such obligation. Thus, Maryland ’s refusal to grant plaintiffs the benefit of GRC coverage
cannot be the basis of a bad faith claim. Because plaintiffs assert no independent basis for liability on the part of Zurich alone, but instead rely on a respondeat superior theory, we conclude the trial court also properly sustained Zurich’s demurrers to the second amended complaint.



### D ISPOSITION The judgments of dismissal in favor of Northern, Maryland and Zurich are
affirmed. Defendants are entitled to their cost s on appeal. (Cal. Rules of Court, rule 8.278(a)(1).)

HULL , J. We concur:

RAYE , P. J.

DUARTE , J.