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NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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 a nd 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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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 Su rplus Insurance Comp any (Liberty). The trial court found (1) that Liberty had no obligation to indemnify or defend because a complaint had not been filed against Rovn er by the owner of an apartment complex where Rovner's subcontractors had improper ly installed defective shower stalls; (2) the property damage produced by th is occurrence began prior to the policy period in question and was specifically excluded; and (3) there is no stand alone2 cause of action for an alleged violation of the Fair Claims Settlement Practices Regulations. 1 Appellant contends there are triable issu es of fact as to all three issues.
We affirm.
FACTUAL AND PROCEDURAL HISTORY The Insuring Agreement Liberty issued a policy of compre hensive general lia bility insurance that promises to pay sums Rovner "becom es legally obligated to pay as damages because of . . . property damage to whic h 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." Propert y damage was covered only if it occurred "during the policy period" fr om November 13, 2009 to November 13,
2010. An "occurrence" wa s defined as "an accident, including continuous or repeated exposure to substantially th e same general harmful conditions." Liberty agreed "to defend [Rovner] against any 'sui t' seeking those damages." A "suit" was defined as a ci vil proceeding alleging damages or an arbitration proceeding or other alternativ e 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 peri od." The known in jury or loss exclus ion was said to apply whether or not the damage or its cau se was known to Rovner, whether or not continuous exposure to cond itions causing the property damage occurred during the policy period or caused add itional or progressive damage and whether or not Rovner's legal obligation to pay damages wa s established as of the inception date of the policy.

1 All references to the Fair Claims Settleme nt 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 ow ner of the apartment project to "make a payment, assume any obligation, or incu r 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 renova te the interior of apartments in Costa Mesa. Rovner in turn employed two subc ontractors 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 in ception date of the Liberty policy. Complaints about the shower enclosures bega n in 2008 a nd continued through October 2009. Between April 2010 and April 2011, the owner of the apartment buildings spent $26 ,965 repairing 21 of the un its. Rovner repaired the rest between August 2011 and December 2011 at a cost of $553,8 00. Insurers other than Liberty paid Rovner $367,533.34 to resolve its clai ms against them. Trial Court Proceedings The owner of the apartments neve r filed a lawsuit, never commenced an arbitration proceeding and never initiated an alte rnative dispute resolution process to establish Rovner's legal oblig ation 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 Am ended 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 insura nce contract (Second Cause of Action). Rovner sought declaratory relief to confir m 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 in sured a letter pointing out the fact no complaint had been filed and noting va rious limitations on coverage. Liberty reserved its rights to assert all defenses to Rovner's claim for coverage and a
defense. It appointed an atto rney to represent Rovner as to the owner's claim it was
entitled to reimbursement for the initial re pairs. 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 in surers 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 mo tion, grants Liberty' s motion and orders Rovner's complaint against Libe rty dismissed in its entirety. In explaining its reasons for granting the motion for summary judgment, the trial court observed that the insurance contract st ates 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, Libe rty 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 Libe rty's failure promptly to respond to its notice of its claim impliedly denied it, gi ving Rovner the right to settle with the
owner whether or not a suit was filed. As an alternative ground for granti ng 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 prio r to the inception date of the policy. The court found that undisputed facts establ ish that the defective shower enclosures were improperly installed and that upon fi rst use damaged the apartments before the inception date of the Liberty policy on Nove mber 13, 2009. The court also said it was undisputed that this was the "occurre nce" that produced leaks, failures and5 collateral damage to the apartments be gan before the Liberty policy became
effective. The court noted that it was irrele vant to the coverage dispute that some of tenants discovered and reported the leaks a nd other failures after the inception date of the Liberty policy because the polic y specifically excludes such losses. The trial court granted summary judg ment on Rovner's First Cause of Action based upon its conc lusion that the Fair Clai ms Settlement Practices Regulations do not create or even addre ss insurance coverage. The regulations simply deal with ho w 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 Ro vner'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 th rough the parties' pleadings in order to determine whether, despite their allegations, trial is in fact necessary to reso lve their dispute. [Citation.]" ( Aguilar v. Atlantic Richfield Co . (2001) 25 Cal.4t h 826, 843.) A motion for summary judgment "shall be gr anted if all the papers submitted show that there is no triable issue as to any ma terial 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 onl y 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 ap plicable 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, th e 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 ha s 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 proc ess commenced by the owner of the property against Rovner and thus there wa s no "property damage" that Rovner was legally obligated to pay. Moreover, the policy un equivocally excludes "Known Injury or Loss" that the polic y 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 provisi on 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 th e duty to defend, th e insuring agreement provides that Liberty has the "right and du ty 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 Cour t 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 at7 pages 961-962, the majority r easoned that "[t]he duty to de fend 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 pr osecuted in a court, but rather is limited thereto. A fortiori, the duty to indemnify is not broa d 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 automa tically means that there is no duty to indemnify.' [Citations.]" Thus the duty of Liberty to defe nd and to indemnify Rovner is expressly linked to damages s ought in a "suit," a term the policy explicitly states is limited to a complaint filed in court or an arbitration proceedi ng or an ADR process approved by Liberty. In the absenc e of a process designed to produce a determination of the damages Rovner is le gally obligated to pay, Liberty was not obligated either to defend or to inde mnify 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 oc curred during the policy period or caused additional or progressive damage and whet her 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 th e inception date of Liberty's policy. All
the enclosures were the same. It is also undisputed that the defective installations8 damaged the apartments beginning with their first use after installation and that this too occurred before the inception date of th e Liberty policy. Predictably, over time
the defects continued to cause additiona l and progressive damage throughout the apartment project that was reported at diffe rent times by tenants. The damage was
such that Rovner determined it was obligated to make re pairs 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 accep ted 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 Clai ms Practices Regulation If coverage exists for property dama ge that occurred within the policy period, then denying an insured a defens e 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 settle ment 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 repairi ng the shower enclosures does not create coverage where none existe d before and does not expo se 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 creat e a cause of action for damages. ( City of Hollister v. Monterey Insurance Co. (2008) 165 Cal.A pp.4th 455, 490-491.) Equitable Estoppel
Rovner maintains that the doctrine of equitable estoppel applies to create coverage. It argues that there are tria ble issues of fact as to whether Liberty allowed and encouraged Rovner to settle with the owner of the apartment project9 and to spend the money required to make th e repairs. Rovner reasons that even if property damage first occu rred before the inception of Liberty's policy period, equitable considerations should be applie d to create coverage "to prevent Liberty from unfairly benefitting from its own wrongful conduct." Rovner explains, "Such wrongful conduct consists of allowing an d 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 thos e 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 insuranc e 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) th at 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. 4 88.) The principal disadvantage suffered by the
insured in City of Hollister however, was the forced fo rfeiture 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 litigati on before the repairs were commenced. Nothing Liberty did forced or induced Ro vner to settle its lawsuit against the10 insurers that issued policies covering th e 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 Lu is 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

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O'Rourke, Fong & Manoukian, Roderi ck 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.