Filed 7/31/14 Mike Rovner Construction v. Liberty Surplus Ins. CA2/6 

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS 

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 

SECOND APPELLATE DISTRICT 

DIVISION SIX 

MIKE ROVNER CONSTRUCTION, 

INC., 

 Plaintiff and Appellant, 

v. 

LIBERTY SURPLUS INSURANCE 

CORPORATION, 

 Defendant and Respondent. 

2d Civil No. B246877 

(Super. Ct. No. 56-2012- 

00411331-CU-BC-SIM) 

(Ventura County) 

 Mike Rovner Construction, Inc., (Rovner) appeals from a summary 

judgment entered in favor of Liberty Surplus Insurance Company (Liberty). The 

trial court found (1) that Liberty had no obligation to indemnify or defend because a 

complaint had not been filed against Rovner by the owner of an apartment complex 

where Rovner's subcontractors had improperly installed defective shower stalls; 

(2) the property damage produced by this occurrence began prior to the policy 

period in question and was specifically excluded; and (3) there is no stand alone 
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cause of action for an alleged violation of the Fair Claims Settlement Practices 

Regulations.1

 Appellant contends there are triable issues of fact as to all three issues. 

We affirm. 

FACTUAL AND PROCEDURAL HISTORY

The Insuring Agreement 

 Liberty issued a policy of comprehensive general liability insurance 

that promises to pay sums Rovner "becomes legally obligated to pay as damages 

because of . . . property damage to which this insurance applies." "Property 

damage" was defined as "physical injury to tangible property" and "loss of use of 

tangible property that is not physically injured." Property damage was covered only 

if it occurred "during the policy period" from November 13, 2009 to November 13, 

2010. An "occurrence" was defined as "an accident, including continuous or 

repeated exposure to substantially the same general harmful conditions." 

 Liberty agreed "to defend [Rovner] against any 'suit' seeking those 

damages." A "suit" was defined as a civil proceeding alleging damages or an 

arbitration proceeding or other alternative dispute resolution proceeding in which 

damages are claimed.

 Liberty explicitly excluded "Known Injury or Loss;" viz., property 

damage that "began prior to the inception date of this policy, and [that] is alleged to 

continue into the policy period." The known injury or loss exclusion was said to 

apply whether or not the damage or its cause was known to Rovner, whether or not 

continuous exposure to conditions causing the property damage occurred during the 

policy period or caused additional or progressive damage and whether or not 

Rovner's legal obligation to pay damages was established as of the inception date of 

the policy.

 

1

 All references to the Fair Claims Settlement Practices Regulations are set forth in 

the California Code of Regulations, title 10, section 2695 et seq.) 
3 

 Liberty's insurance contract also provides that Rovner was not 

permitted in its interactions with the owner of the apartment project to "make a 

payment, assume any obligation, or incur any expense . . . without [Liberty's] 

consent," except at its own expense. 

The Loss 

 Rovner was employed by LA Lakes at South Coast, L.P. to provide 

the labor and materials necessary to renovate the interior of apartments in Costa 

Mesa. Rovner in turn employed two subcontractors to provide and install shower 

enclosures in the individual apartments. The shower enclosures were installed 

between October 2007 and March 2009. The shower units were defective and were 

improperly installed. They failed and began damaging the apartment units when 

they were first used before the inception date of the Liberty policy. 

 Complaints about the shower enclosures began in 2008 and continued 

through October 2009. Between April 2010 and April 2011, the owner of the 

apartment buildings spent $26,965 repairing 21 of the units. Rovner repaired the 

rest between August 2011 and December 2011 at a cost of $553,800. Insurers other 

than Liberty paid Rovner $367,533.34 to resolve its claims against them. 

Trial Court Proceedings 

 The owner of the apartments never filed a lawsuit, never commenced 

an arbitration proceeding and never initiated an alternative dispute resolution 

process to establish Rovner's legal obligation to pay for property damage that 

resulted from the improper installation of the defective shower enclosures. 

 Rovner sued its insurers on July 27, 2011, even before it began 

making repairs to the units. The First Amended Complaint alleges Liberty breached 

the implied covenant of good faith and fair dealing in its contract (First Cause of 

Action) and breached the terms of its insurance contract (Second Cause of Action). 

Rovner sought declaratory relief to confirm coverage for the unpaid balance of the 

repairs voluntarily made by Rovner (Fourth Cause of Action). There are also 

common counts (Third Cause of Action).
4 

 Liberty responded to the original complaint and Rovner's demand for 

a defense and indemnity by sending its insured a letter pointing out the fact no 

complaint had been filed and noting various limitations on coverage. Liberty 

reserved its rights to assert all defenses to Rovner's claim for coverage and a 

defense. It appointed an attorney to represent Rovner as to the owner's claim it was 

entitled to reimbursement for the initial repairs. Liberty later agreed, as an 

accommodation to its insured, to settle the smaller claim by the owner of the 

apartments for the cost of the repairs it made. Three insurers equally divided the 

owner's $26,965 claim. 

 Rovner and Liberty filed motions for summary judgment. The trial 

court's eight-page ruling denies Rovner's motion, grants Liberty's motion and orders 

Rovner's complaint against Liberty dismissed in its entirety.

 In explaining its reasons for granting the motion for summary 

judgment, the trial court observed that the insurance contract states Liberty "ha[s] 

no duty to defend or indemnify it unless a lawsuit was filed." The court concluded 

that since the owner of the property did not file "suit" or commence arbitration or 

alternative dispute resolution proceedings against Rovner, Liberty had no obligation 

either to indemnify or to defend the company. Citing Foster-Gardner, Inc. v. 

National Union Fire Insurance Company (1998) 18 Cal.4th 857, 883-884, the trial 

court rejected Rovner's argument that Liberty's failure promptly to respond to its 

notice of its claim impliedly denied it, giving Rovner the right to settle with the 

owner whether or not a suit was filed. 

 As an alternative ground for granting Liberty's motion, the trial court 

concluded the property damage asserted by Rovner was uninsured because the loss 

was a "Known Injury or Loss" that began prior to the inception date of the policy. 

The court found that undisputed facts establish that the defective shower enclosures 

were improperly installed and that upon first use damaged the apartments before the 

inception date of the Liberty policy on November 13, 2009. The court also said it 

was undisputed that this was the "occurrence" that produced leaks, failures and 
5 

collateral damage to the apartments began before the Liberty policy became 

effective. The court noted that it was irrelevant to the coverage dispute that some of 

tenants discovered and reported the leaks and other failures after the inception date 

of the Liberty policy because the policy specifically excludes such losses. 

 The trial court granted summary judgment on Rovner's First Cause of 

Action based upon its conclusion that the Fair Claims Settlement Practices 

Regulations do not create or even address insurance coverage. The regulations 

simply deal with how insurance claims are to be managed. The court concluded 

that while section 2695.7 of the regulations requires an insurer to respond to a claim 

within 40 days, non-compliance does not create a cause of action for money 

damages. The trial court rejected Rovner's argument that Liberty should be 

equitably stopped to deny coverage finding the elements of the doctrine were not 

established as a matter of law. 

STANDARD OF REVIEW 

 "The purpose of the law of summary judgment is to provide courts 

with a mechanism to cut through the parties' pleadings in order to determine 

whether, despite their allegations, trial is in fact necessary to resolve their dispute. 

[Citation.]" (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 843.) A 

motion for summary judgment "shall be granted if all the papers submitted show 

that there is no triable issue as to any material fact and that the moving party is 

entitled to a judgment as a matter of law." (Code Civ. Proc., § 437c, subd. (c).) A 

triable issue of material fact exists only if "the evidence would allow a reasonable 

trier of fact to find the underlying fact in favor of the party opposing the motion in 

accordance with the applicable standard of proof. . . ." (Aguilar v. Atlantic Richfield 

Co., supra, at p. 850.) 

 We apply a de novo standard of review to an order granting summary 

judgment when, on undisputed facts, the order is based on the interpretation or 

application of the terms of an insurance policy. (TRB Investments, Inc. v. Fireman's 

Fund Ins. Co. (2006) 40 Cal.4th 19, 30-31.) 
6 

 While insurance contracts will be construed broadly in favor of the 

insured, where the terms of a policy are plain and explicit, the courts will not 

indulge in a forced construction so as to fasten a liability on the insurance company 

that it has not assumed. (New York Life Ins. Co. v. Hollender (1951) 38 Cal.2d 73, 

81; see also Continental Cas. Co. v. Phoenix Const. Co. (1956) 46 Cal.2d 423, 432 

["insurance company has the right to limit the coverage of a policy issued by it and 

when it has done so, the plain language of the limitation must be respected"].) 

DISCUSSION 

The Insuring Agreement 

 Applying the above principles, we conclude that Liberty had no 

obligation under its policy to pay the amount voluntarily expended by Rovner to 

repair and replace the improperly installed defective shower enclosures. There was 

no suit, arbitration demand or ADR process commenced by the owner of the 

property against Rovner and thus there was no "property damage" that Rovner was 

legally obligated to pay. Moreover, the policy unequivocally excludes "Known 

Injury or Loss" that the policy states includes damage to property that "began prior 

to the inception date" of its policy. 

The Requirement of a "Suit"

 The Liberty policy is a standard comprehensive general liability 

policy. Liberty's indemnity provision states that it will pay sums Rovner 

"become[s] legally obligated to pay as damages because of . . . 'property damage' to 

which this insurance applies." As to the duty to defend, the insuring agreement 

provides that Liberty has the "right and duty to defend Rovner against any 'suit' 

seeking those damages" and to refuse to defend Rovner against "any 'suit' seeking 

damages for . . . 'property damage' to which this insurance does not apply." 

 In Certain Underwriters at Lloyd's of London v. Superior Court

(2001) 24 Cal.4th 945, the Supreme Court addressed this commonly used policy 

language and concluded that the duty to indemnify the insured is limited to money 

ordered by a court. Citing Foster-Gardner v. Superior Court, supra,18 Cal.4th at 
7 

pages 961-962, the majority reasoned that "[t]he duty to defend is broader than the 

duty to indemnify. The duty to defend is not broad enough to extend beyond a 

'suit,' i.e., a civil action prosecuted in a court, but rather is limited thereto. A 

fortiori, the duty to indemnify is not broad enough to extend beyond 'damages,' i.e., 

money ordered by a court, but rather is limited thereto. 'It is . . . well settled that 

because the duty to defend is broader than the duty to indemnify,' a determination 

that 'there is no duty to defend automatically means that there is no duty to 

indemnify.' [Citations.]" 

 Thus the duty of Liberty to defend and to indemnify Rovner is 

expressly linked to damages sought in a "suit," a term the policy explicitly states is 

limited to a complaint filed in court or an arbitration proceeding or an ADR process 

approved by Liberty. In the absence of a process designed to produce a 

determination of the damages Rovner is legally obligated to pay, Liberty was not 

obligated either to defend or to indemnify Rovner. Liberty's insured was not 

entitled to bypass this process and engage Liberty's policy by simply agreeing with 

the owner to make repairs and passing the bill along to its insurer. 

The Known Injury or Loss Exclusion

 Even if Liberty were obligated to indemnify Rovner for the cost of 

repairing the substandard work of its subcontractors, the policy specifically 

excludes property damage that began before November 13, 2009 and continued into 

the policy period. The known injury or loss exclusion applies whether or not the 

damage or its cause was known to Rovner, whether or not continuous exposure to 

conditions causing the property damage occurred during the policy period or caused 

additional or progressive damage and whether or not Rovner's legal obligation to 

pay damages was or was not established as of the inception date of the policy. To 

be covered, the property damage must occur during the policy period. 

 It is undisputed that Rovner's subcontractor improperly installed 

defective shower enclosures long before the inception date of Liberty's policy. All 

the enclosures were the same. It is also undisputed that the defective installations 
8 

damaged the apartments beginning with their first use after installation and that this 

too occurred before the inception date of the Liberty policy. Predictably, over time 

the defects continued to cause additional and progressive damage throughout the 

apartment project that was reported at different times by tenants. The damage was 

such that Rovner determined it was obligated to make repairs to every one of the 

units to salvage a valuable business relationship with the owner. This is precisely 

the risk that Liberty sought to exclude and that Rovner accepted when the policy 

was issued. Progressive property damage that starts before the insurers' policy 

period but that continues into the policy period does not trigger coverage. (USF Ins. 

Co. v. Clarendon Amer. Ins. Co. (2006) 452 F. Supp.2d 972, 989-990.) 

Liability Based Upon a Claims Practices Regulation

 If coverage exists for property damage that occurred within the policy 

period, then denying an insured a defense and indemnity may give the insured the 

right to settle with a claimant and expose the insurer to liability for the amount of 

the settlement. (Walters v. American Ins. Co. (1960) 185 Cal.App.2d 776, 784; 

Pruyn v. Agricultural Ins. Co. (1995) 36 Cal.App.4th 500, 520, fn. 9.) Here, 

Liberty had no duty to defend Rovner and no obligation to indemnify the company 

from the cost of the settlement it entered into with the owner of the apartment 

project. 

 Liberty's failure to respond within 40 days to Rovner's notice it was 

making a claim for the cost of repairing the shower enclosures does not create 

coverage where none existed before and does not expose Liberty to a claim for 

damages in an amount equal to the cost of its repairs to the apartment units. 

Violating section 2695.7 does not create a cause of action for damages. (City of 

Hollister v. Monterey Insurance Co. (2008) 165 Cal.App.4th 455, 490-491.) 

Equitable Estoppel

 Rovner maintains that the doctrine of equitable estoppel applies to 

create coverage. It argues that there are triable issues of fact as to whether Liberty 

allowed and encouraged Rovner to settle with the owner of the apartment project 
9 

and to spend the money required to make the repairs. Rovner reasons that even if 

property damage first occurred before the inception of Liberty's policy period, 

equitable considerations should be applied to create coverage "to prevent Liberty 

from unfairly benefitting from its own wrongful conduct." Rovner explains, "Such 

wrongful conduct consists of allowing and encouraging [Rovner] to conduct repairs 

at [its] own cost, so as to prevent the filing of a lawsuit by [the owner of the project] 

which in turn relieved Liberty of its obligation to indemnify [Rovner] and 

compensate it for the cost to repair those units that fall within the coverage of 

[Liberty's policy]." 

 Liberty was not relieved of a duty to defend as to indemnity because it 

never arose. 

 Rovner is correct that insurance coverage cannot be established 

through waivers implied from the conduct of an insurer or by estoppel. (Quan v. 

Truck Insurance Exchange (1998) 67 Cal.App.4th 583, 602, fn. 18; R & B Auto 

Center v. Farmers Group (2006) 140 Cal.App.4th 327, 351-352.) The elements of 

the doctrine of equitable estoppel are: "(1) The party to be estopped has engaged in 

blameworthy or inequitable conduct; (2) that conduct caused or induced the other 

party to suffer some disadvantage; and (3) equitable considerations warrant the 

conclusion that the first party should not be permitted to exploit the disadvantage he 

has thus inflicted upon the second party." (City of Hollister v. Monterey Ins. Co., 

supra, 165 Cal.App.4th at p. 488.) The principal disadvantage suffered by the 

insured in City of Hollister however, was the forced forfeiture of insurance 

coverage. Here, there was no coverage. 

 Nothing Liberty did caused Rovner to forfeit coverage with Liberty or 

any of its other insurers. Rovner either had coverage under Liberty's policy or the 

policy of one or more other insurers or it did not. Rovner's dispute with its insurers 

about coverage existed and was in litigation before the repairs were commenced. 

Nothing Liberty did forced or induced Rovner to settle its lawsuit against the 
10 

insurers that issued policies covering the period when the defective showers were 

installed and first used for less than the entire cost of the repairs. 

DISPOSITION

 The judgment is affirmed. Costs on appeal are awarded to 

Respondent. 

 NOT TO BE PUBLISHED. 

 BURKE, J.* 

We concur: 

 GILBERT, P. J. 

 YEGAN, J. 

 

* (Judge of the Superior Court of San Luis Obispo County, assigned by the Chief 

Justice pursuant to art. 6, § 6 of the Cal. Const.)
Barbara A. Lane, Judge 

Superior Court County of Ventura 

______________________________ 

 O'Rourke, Fong & Manoukian, Roderick D. Fong, Marina Manoukian and 

Christian A. Setian for Plaintiff and Appellant. 

 Musick, Peeler & Garrett, Susan J. Field and Jeniffer C. Kalvestran for 

Defendant and Respondent.