Filed 3/27/15 Castrejon v. United States Liability Ins. Co. CA4/1
                      NOT TO BE PUBLISHED IN OFFICIAL REPORTS
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                    COURT OF APPEAL, FOURTH APPELLATE DISTRICT

                                                  DIVISION ONE

                                           STATE OF CALIFORNIA



ANGEL CASTREJON et al.,                                              D064679

         Plaintiffs and Appellants,

         v.                                                          (Super. Ct. No. 37-2010-00104436-
                                                                     CU-BC-CTL)
UNITED STATES LIABILITY
INSURANCE COMPANY,

         Defendant and Respondent.



         APPEAL from a judgment of the Superior Court of San Diego County, Richard

E.L. Strauss, Judge. Affirmed.



         Winters & Associates, Jack B. Winters, Jr. and Georg M. Capielo for Plaintiffs

and Appellants.

         Murchison & Cumming, Bryan M. Weiss and Nancy N. Potter for Defendant and

Respondent.

         A liability insurance policy that expressly excludes coverage of both real estate

sales transactions and fraudulent transactions does not cover either 1) the listing for sale
of real property or 2) a loan transaction that the plaintiff homeowners were unaware of

and that, at all times, they have asserted was fraudulent. Hence, we affirm a judgment

entered in favor of respondent insurer with respect to claims that it improperly declined to

defend the perpetrators of the mortgage loan fraud.

                  FACTUAL AND PROCEDURAL BACKGROUND

       A. Sales Listing

       In January 2007, plaintiffs and appellants Angel Castrejon and Chetana Castrejon

decided to move from California to Tennessee. Because they had previously refinanced a

mortgage working with Llewellen Labio, a licensed real estate agent, they contacted her

and signed a listing agreement with her and the mortgage company where she was an

agent, Century Mortgage, Inc. (Century). Arsalan Saadatirad was the real estate broker

of record at Century and he signed the listing agreement. The listing agreement

permitted Labio and Century to market the sale of the Castrejons' San Diego home.

       B. Loan

       In addition to the listing agreement, Labio presented the Castrejons with other

documents that Labio assured them were a routine part of the sale. Shortly after their

home was listed for sale, Labio told the Castrejons that their home had been sold and that

the transaction had closed. The Castrejons then received a wire transfer in the amount of

$10,739 with an explanation from Labio that it was a portion of the proceeds of the sale.

Closing documents the Castrejons thereafter received showed that $128,500 had been

diverted from the transaction to a third party unknown to the Castrejons, Llewmia

Company (Llewmia).

       When the Castrejons inquired of Labio about the diversion, they received a second

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wire transfer in the amount of $75,000 along with a note which stated that Labio,

Saadatirad, and Century could only pay that amount. Upon further investigation, the

Castrejons discovered that in fact their home had not been sold, but that Labio and

Saadatirad had used the documents the Castrejons had provided to obtain a loan against

their home and that the loan proceeds had been diverted to Llewmia, a company that

Labio controlled.

       C. Castrejons Claims Against Labio, Saadatirad and Century

       In October 2007, the Castrejons filed a complaint against Labio, Saadatirad and

Century. The complaint alleged the Castrejons had been damaged as a result of the

defendants' fraud and conversion.

       In April 2008 and again in November 2008, Saadatirad and Century tendered

defense of the Castrejon action to defendant and respondent United States Liability

Insurance Company (USLIC). USLIC had issued Century two successive liability

policies commencing in 2006. USLIC declined both tenders. USLIC asserted that

Century's policy did not cover real estate brokerage services such as those alleged in the

Castrejons' complaint.

       In January 2009, after they had answered the Castrejons complaint and after their

second tender of defense had been declined by USLIC, Saadatirad and Century reached a

settlement with the Castrejons. Saadatirad and Century assigned their rights against

USLIC to the Castrejons and admitted they were liable to the Castrejons on a theory of

negligent supervision. Saadatirad, Century and the Castrejons further agreed the trial

court could determine the amount of the Castrejons' damages and that, if the Castrejons

were unable to recover from USLIC, they could enforce any trial court judgment against

                                             3
Saadatirad and Century.

       Thereafter, Labio, Saadatirad and the notary who prepared the fraudulent loan

documents were convicted of theft and forgery related felonies growing out of the

Castrejon transaction.

       D. Trial Court Proceedings

       The Castrejons sued USLIC on the bad faith and breach of contract claims

Saadatirad and Century had assigned them. USLIC moved for summary judgment on the

grounds the Castrejons' underlying claims were not covered because the USLIC policy

only covered loan transactions and because the claims grew out of Saadatirad's and

Century's fraudulent conduct. The trial court denied the motion. In particular, the court

found that at the time defense of the Castrejons' claim was tendered to USLIC, it was not

certain as a matter of law that there was no possibility of coverage.

       Thereafter, the trial court conducted a nonjury trial of the Castrejons' claims

against USLIC and found in favor of USLIC. The trial court concluded that the USLIC

policy only covered mortgage transactions, not real estate sales transactions, and that

"[t]his was not a legitimate mortgage transaction at all. The transaction was a fraudulent

scheme clothed as a mortgage transaction. It was a way to steal money from the people

that owned this house. As alleged by the First Amended Complaint in the underlying

case, this was either a real estate sales transaction, or it was a fraud, neither of which

would be covered."

       Judgment was entered in favor of USLIC, and the Castrejons filed a timely notice

of appeal.



                                               4
                                        DISCUSSION

       On appeal, the Castrejons contend the trial court erred in its interpretation of the

USLIC policy in effect at the time the loan transaction and diversion occurred and assert

the policy covered both real estate transactions and mortgage transactions. They further

argue that because the underlying complaint alleged claims for both intentional and

negligent conduct, and alleged that both Saadatirad as well as Century were liable,

Century's potential liability for negligent conduct gave rise, at the very least, to a duty to

defend it. For the reasons we set forth below, we affirm the trial court's judgment in

favor of USLIC.

                                               I

       We of course review questions of law, including the interpretation of contracts

where no parole or extrinsic evidence has been offered, de novo. (See Waller v. Truck

Ins. Exchange, Inc. (1995) 11 Cal.4th 1, 18.) Generally, we review the admission or

exclusion of evidence for abuse of discretion. (People v. Waidla (2000) 22 Cal.4th 690,

717.) It is axiomatic that we review the trial court's factual determinations for substantial

evidence. (Ermoian v. Desert Hospital (2007) 152 Cal.App.4th 475, 501.) Importantly,

where, as here, it appears from the record on appeal the appellant did not request any

additional findings, we are required to imply any reasonable findings that support the

judgment. (In re Marriage of Arceneaux (1990) 51 Cal.3d 1130, 1133-1134.)

                                               II

       In their principal argument on appeal, the Castrejons contend that, in determining

that the USLIC policy did not provide coverage for real estate sales services, the trial

court erred. We find no error.

                                               5
       A. Coverage Provisions of the USLIC Policy

       Century initially obtained liability insurance from USLIC in 2006. With respect to

the 2006 policy the trial court made the following findings:

       "a. . . . Century[] originally submitted an application to United States Liability

Insurance Company ('USLIC') seeking insurance for a mortgage brokerage company,

stating that the only business of the company was mortgage brokerage and that Arsalan

Saadatirad was the President of Century Mortgage.

       "b. USLIC issued a Professional Liability policy effective April 19, 2006 to April

19, 2007, which, on the Declarations page, in Section VIII, provided that the policy was

issued to provide coverage 'Solely in the performance of Professional Services as a(n)

Mortgage Broker for others for a fee.'

       "c. The 2006-2007 policy also included a 'Mortgage Brokers Endorsement' and a

Professional Services Endorsement which provided in pertinent part that USLIC was not

obligated to defend or indemnify claims arising out of services as a Real Estate Agent or

Broker."

       In 2007, Century renewed its USLIC policy. With respect to the renewed policy,

which was in place at the time the Castrejons were the victims of Labio's and Saadatirad's

fraud, the trial court found:

       "d. Prior to April 19, 2007 Saadatirad/Century requested renewal of the USLIC

policy, and in connection with the renewal, completed a Specified Professions

Professional Liability Renewal Application. That Renewal Application asked if there had

been any change to the nature of the business and Saadatirad answered 'No' and signed

the application.

                                             6
       "e. USLIC issued a Policy Renewal Certificate which stated: 'Please attach this

Renewal Certificate to your expiring policy.['] The lower portion of the Renewal

Certificate contained the Declarations for the renewal of the policy for the period April

19, 2007-2008. The Declarations did not include a Section VIII. [See Trial Exhibit No.

3]

       "f. USLIC also provided Century Mortgage with an updated Mortgage Brokers

Endorsement which was made part of the 2007-08 policy. The 2007-08 policy included

the same Professional Services Endorsement as the 2006-07 policy, excluding coverage

for services as a Real Estate Agent or Broker."

       Based on these findings the trial court concluded that the second USLIC policy

unambiguously excluded coverage for real estate sales or brokerage services. The trial

court stated:

       "a. The 2007-08 policy was not ambiguous because the declarations page did not

include item VIII. The determination of ambiguity of a policy is based upon the

reasonable expectations of the insured. While there was no actual testimony from the

insured as to his expectations, and such testimony would, in any event[,] be suspect in

view of subsequent events, the reasonable expectations can be determined from the

context of the transaction: the insured asked for mortgage brokerage coverage. He

received an original policy which was limited to mortgage brokerage services, which

contained a mortgage brokers endorsement, and which excluded real estate sales or

brokerage activities. When the insured asked for a renewal of the policy, he represented

that the business of Century Mortgage had not changed. He received a policy which

included a new mortgage brokers endorsement form and which still excluded services as

                                             7
a real estate agent or broker. USLIC asked that it be attached to the previous year's

policy. The declarations page was missing Item VIII, but in view of what

Century/Saadatirad had asked for, what they had received in the past, the Mortgage

Brokers form on both policies and the exclusion for Real Estate Sales or Broker services

on both policies, the 2007-08 policy was not ambiguous as to whether it would provide

coverage for real estate sales or brokerage."

       B. Analysis

       The 2007-2008 policy contained the following Professional Services Exclusion

Endorsement: "In consideration of the premium paid, it is agreed that the Company shall

not be liable to make any payment for Loss or Defense Costs in connection with any

Claim made against any Insured based upon, arising out of, directly or indirectly

resulting from, in consequence of, or in any way involving the rendering or failure to

render Professional Services by any Accountant, Insurance Agent or Broker, Lawyer,

Medical Professional, Real Estate Agent or Broker, Title Insurance Agent/Abstractor and

Escrow Agent."

       It is well established that "insurers have the right to limit policy coverage in plain

and understandable language and can limit the character and extent of the risk assumed."

(Shell Oil Co. v. Winterthur Swiss Ins. Co. (1993) 12 Cal.App.4th 715, 749.) When it is

asserted, as here, that a limitation on coverage set forth in a policy is ambiguous and that

the ambiguity should be interpreted in favor of the insured, we must apply the rules of

construction, which govern all contracts: "While insurance contracts have special

features, they are still contracts to which the ordinary rules of contractual interpretation

apply. [Citation.] The fundamental goal of contractual interpretation is to give effect to

                                                8
the mutual intention of the parties. [Citation.] If contractual language is clear and

explicit, it governs. [Citation.] On the other hand, '[i]f the terms of a promise are in any

respect ambiguous or uncertain, it must be interpreted in the sense in which the promisor

believed, at the time of making it, that the promisee understood it.' [Citations.] This rule,

as applied to a promise of coverage in an insurance policy, protects not the subjective

beliefs of the insurer but, rather, 'the objectively reasonable expectations of the insured.'

[Citation.] Only if this rule does not resolve the ambiguity do we then resolve it against

the insurer. [Citation.]

       "In summary, a court that is faced with an argument for coverage based on

assertedly ambiguous policy language must first attempt to determine whether coverage

is consistent with the insured's objectively reasonable expectations. In so doing, the court

must interpret the language in context, with regard to its intended function in the policy.

[Citation.] This is because 'language in a contract must be construed in the context of

that instrument as a whole, and in the circumstances of that case, and cannot be found to

be ambiguous in the abstract.' [Citations.]" (Bank of the West v. Superior Court (1992) 2

Cal.4th 1254, 1264-1265, italics omitted.)

       In the context of an initial policy application that stated Century was a mortgage

broker, an application for a renewal that stated Century's business had not changed and

successive policies that expressly excluded real estate services, like the trial court, we

interpret the USLIC policy as unambiguously excluding coverage for real estate sales

transactions. The absence of a declarations clause in the second policy that would have

more fully defined mortgage services covered by the policy did not in any manner

eliminate or reduce the scope of the real estate services exclusion.

                                              9
                                                 III

       The Castrejons also argue that, in any event, the USLIC policy covered their

negligent supervision claim against Century, as opposed to their separate claims against

Labio and Saadatirad. We disagree. The trial court's implied finding that no claims

arising out of the fraud practiced by Labio and Saadatirad were covered is fully supported

by the record.

       Both the 2006-2007 policy and the 2007-2008 policy provided: "This Policy does

not apply to, and the Company will not defend or pay Loss for, any Claim arising out of,

directly or indirectly resulting from, based upon or in any way involving any actual or

alleged: [¶] A. criminal, fraudulent, dishonest or discriminatory act or omission . . . ."

Provisions such as this, which apply to a particular class of acts rather than to particular

actors or insureds, exclude coverage not only for claims against the actual perpetrators of

a fraud but derivative claims against their supervisors or employers based on a theory of

negligent supervision. (See Medill v. Westport Ins. Corp. (2006) 143 Cal.App.4th 819,

832 [exclusion for violation of securities laws applies to all insureds even if only

committed by one].)1 Thus, this case is plainly distinguishable from the holding in Smith

Kandal Real Estate v. Continental Casualty Co. (1998) 67 Cal.App.4th 406, 415, upon

which the Castrejons rely. In that case, the court considered an exclusion that applied

only to certain insureds, not a class of acts.



1      The express exclusion in USLIC's policy, which applies to fraudulent acts as
opposed to actors or insureds, is broader than the provisions of Insurance Code section
533 which states: "An insurer is not liable for a loss caused by the wilful act of the
insured; but he is not exonerated by the negligence of the insured, or of the insured's
agents or others."
                                                 10
       Moreover, where, as here, the record shows Saadatirad, the principal of Century,

was engaged in the fraudulent scheme, there is no reasonable possibility the corporate

entity he controlled would have ever had the power to discipline him, and, hence, there

was no possibility it would be held liable on a theory of negligent supervision of him or

Labio, his coconspirator. (See Coit Drapery Cleaners, Inc. v. Sequoia Ins. Co. (1993) 14

Cal.App.4th 1595, 1605.)

                                             IV

       The Castrejons also suggest that because in declining Saadatirad's and Century's

tenders of defense USLIC relied on the real estate services exclusion, it could not later

rely on the intentional fraud exclusion as relieving it of its duty to defend. We disagree.

USLIC's letters declining to provide a defense to Saadatirad and Century did not waive

its right to later assert other grounds for declining coverage, and there is no other

evidence suggesting that it intended to forego any other defense, including the intentional

fraud that gave rise to the Castrejons' underlying claims. As the court in Waller v. Truck

Ins. Exchange, Inc., supra, 11 Cal.4th at pages 31-32 stated in rejecting such a waiver

argument: "California courts have applied the general rule that waiver requires the

insurer to intentionally relinquish its right to deny coverage and that a denial of coverage

on one ground does not, absent clear and convincing evidence to suggest otherwise,

impliedly waive grounds not stated in the denial. (State Farm Fire & Casualty Co. v.

Jioras (1994) 24 Cal.App.4th 1619, 1628, fn. 7 ['Waiver depends solely on the intent of

the waiving party, and is not established merely by evidence the insurer failed to specify

the exclusion in a letter reserving rights.']; cf. Titan Corp. v. Aetna Casualty & Surety Co.

(1994) 22 Cal.App.4th 457, 467; Velasquez v. Truck Ins. Exchange (1991) 1 Cal.App.4th

                                             11
712, 722 ['Whether a waiver has occurred depends solely on the intention of the waiving

party. [Citation.] An intention to waive a limitations provision is not evinced by the

failure to raise that point in a letter denying a claim.']; California Union Ins. Co. v. Poppy

Ridge Partners (1990) 224 Cal.App.3d 897, 902 [insurer's reliance on particular policy

provision to deny coverage does not preclude insurer from later claiming rights under

other provisions]; contra, Alta Cal. Regional Center v. Fremont Indemnity Co. (1994) 25

Cal.App.4th 455, 466 [dictum stating that where insurance contract does not provide

coverage but insurer fails to assert correct ground for denying coverage, automatic waiver

doctrine permits insured to receive coverage where none exists].)"

       Although not asserted in USLIC's letter declining coverage, in light of the entirely

fraudulent nature of the Castrejon transaction, at the time coverage was denied there was

in fact no potential for coverage. (See Waller v. Truck Ins. Exchange, Inc., supra, 11

Cal.4th at p. 37 [no duty to defend where no potential coverage even though defense to

coverage not asserted at time tender of defense declined].)

                                              V

       The Castrejons contend the trial court erred in admitting evidence of Labio's and

Saadatirad's criminal convictions. They contend that because the convictions occurred

after USLIC declined to provide a defense, they were irrelevant and inadmissible. Again,

we find no error. Although not dispositive, the convictions were plainly relevant in

considering the nature of the acts that gave rise to the Castrejons' claims.




                                             12
                                   DISPOSITION

      The judgment in favor of USLIC is affirmed. USLIC to recover its costs of

appeal.




                                                                 BENKE, Acting P. J.

WE CONCUR:



                 O'ROURKE, J.



                       IRION, J.




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