Filed 5/26/17
                           CERTIFIED FOR PUBLICATION

                IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                             FIRST APPELLATE DISTRICT

                                      DIVISION TWO


CALIFORNIA FAIR PLAN
ASSOCIATION,
        Plaintiff and Respondent,                  A143190

v.                                                 (Contra Costa County
MARLENE GARNES,                                    Super. Ct. No. C1102417)
        Defendant and Appellant.

        In 2011, Marlene Garnes’s family home in Richmond, California was seriously
damaged by a kitchen fire. She had purchased a fire insurance policy for the property,
with a policy limit of $425,000 (the Policy), from California FAIR Plan Association
(FAIR), California’s insurer of last resort. The dispute in this case and the issue on
appeal is how much coverage Garnes is entitled to under the Policy. She claims she
should receive the amount it will cost her to repair the house, less an amount for
depreciation, the net amount of which the parties agree would be $320,549. FAIR
contends the Policy, and the Insurance Code, allow it to pay her the lesser of that amount
or the fair market value of the house, which at the time of the fire was $75,000. The
answer to this question depends on interpretation of sections 2051, 2070 and 2071 of the
Insurance Code,1 including the phrases “total loss to the structure,” “partial loss to the
structure” and “actual cash value” in section 2051, and whether sections 2070 and 2071
permit insurers to provide less favorable coverage than that prescribed by section 2051.
Applying our independent judgment to these questions of statutory interpretation, we
        1
         All further statutory references are to the Insurance Code, unless otherwise
indicated.

                                              1
conclude that Garnes is correct. Section 2051 of the Insurance Code provides that under
an open fire insurance policy that pays “actual cash value,” as does the Policy here, the
“measure of the actual cash value recovery . . . shall be determined” in one of two ways,
depending on whether there has been a “total loss to the structure” or a “partial loss to the
structure.” For a “partial loss to the structure,” the measure prescribed is “the amount it
would cost the insured to repair, rebuild, or replace the thing lost or injured less a fair and
reasonable deduction for physical depreciation” or “the policy limit, whichever is less.”
(§ 2051, subd. (b)(2).) Construed in accord with its plain meaning, this provision,
coupled with sections 2070 and 2071, sets a minimum standard of coverage that requires
FAIR to indemnify Garnes for the actual cost of the repair to her home, minus
depreciation, even if this amount exceeds the fair market value of her home. Further, the
legislative history and the Insurance Commissioner’s interpretation of this statute also
support this interpretation. FAIR’s arguments are based on interpretations of these
sections that cannot be squared with their plain language, and the contention that
requiring recovery of repair costs less depreciation where they exceed fair market value is
bad policy. The latter argument is for the Legislature, not this court. The law supports
Garnes’s interpretation. Therefore, we reverse the trial court’s judgment and remand this
matter for further proceedings consistent with this opinion.
                                     BACKGROUND
       FAIR is an insurance industry placement facility and joint reinsurance association
created by the Legislature in 1968 to ensure that homeowners who live in high risk or
otherwise uninsurable areas have access to basic property insurance. (St. Cyr v.
California FAIR Plan Assn. (2014) 223 Cal.App.4th 786, 792–793; §§ 10090–10091.) It
is composed of insurers licensed to write and engaged in writing basic property insurance
within this state, and it is charged with assisting persons in securing basic property
insurance and administering a program to equitably apportion that insurance, and the
risks and benefits it entails, among California insurers. (§§ 10091, subd. (a), 10094.)
       In October 2011, Garnes’s home in the Iron Triangle neighborhood in Richmond
was damaged by a fire. She submitted a claim to her insurer, FAIR, seeking indemnity

                                               2
for the costs required to repair her home, less depreciation. FAIR declined to pay the
amount she requested and instead paid her the $75,000 it determined represented the fair
market value of her property in 2011. When the parties were unable to agree, FAIR filed
an action against Garnes2 seeking declaratory relief regarding the interpretation of section
2051. FAIR alleged it had issued Garnes a policy that covered the damage to her home,
that the cost to repair and rebuild the home was estimated to be more than $350,000 and
that the home’s fair market value in its undamaged condition before the fire was $75,000.
It further alleged that Garnes claimed she was entitled to the cost to repair her home, that
FAIR had paid her the fair market value of $75,000 for her home3 and that the parties
disputed whether the damage resulted in a total loss or a partial loss within the meaning
of section 2051. FAIR contended the loss was total because the cost to repair exceeded
the home’s fair market value, and that Garnes was entitled only to the fair market value
of the home under section 2051. According to FAIR, Garnes contended she suffered only
partial loss, which entitled her under section 2051 to recover the lesser of the policy limit
and the cost to repair or replace less depreciation. FAIR sought a declaration that damage
to Garnes’s home constituted a total loss within the meaning of the Policy and section
2051 and that Garnes, therefore, was entitled only to the actual cash value, meaning fair
market value, of her Richmond home.
       Garnes filed an answer contesting FAIR’s interpretation of section 2051 and
alleging that the Policy, as written, violates sections 2051, 2070, 2071, 10091 and 10094.
She sought a declaration that “total loss” under section 2051 means total loss to the
structure and that FAIR was violating its statutory obligations. She also filed a cross-
complaint against FAIR asserting claims for breach of contract and the covenant of good
faith and fair dealing; FAIR filed an answer denying her allegations.


       2
           The suit also named Garnes’s husband, Johnie Garnes, who is now deceased.
       3
         FAIR also alleged it had paid her separate amounts totaling about $67,000 for
demolition, asbestos abatement, emergency board up and lost rental value. Those
amounts are not in dispute.

                                              3
       In August 2012, FAIR filed a motion for summary judgment on its complaint
against Garnes. It argued that the Policy limits Garnes to the actual cash value of the
home where the cost to repair the damage exceeds the home’s fair market value, and that
the Policy complies with sections 2051 and 2071.
       FAIR based its motion on a handful of undisputed facts. These included that
FAIR issued the Policy providing coverage for Garnes’s dwelling, that the dwelling was
damaged by fire within the policy period, that Garnes submitted a claim for the cost of
repairing the damage, less depreciation, of $320,549.24, and that the appraised fair
market value of the home before the fire was determined to be $75,000. FAIR also set
forth the relevant terms of the Policy, which stated that if the cost to replace or repair a
damaged dwelling exceeded its actual cash value, which the Policy referred to as “Total
Loss,” FAIR would pay the actual cash value, but in any other case, which the Policy
described as “Partial Loss,” FAIR would pay the lesser of the cost to repair less
reasonable depreciation or the actual cash value.
       In opposition to FAIR’s motion, Garnes offered the following additional facts:
The Policy has a limit of $425,000, Garnes’s father purchased the Richmond home in the
1950s, it was Garnes’s childhood home and Garnes intended to repair and move back into
it, but FAIR had refused to pay an amount sufficient to repair it. Garnes also stated that
FAIR never changed its policy form to comply with the amendments to section 2051
enacted by the Legislature in 2004, despite having been warned by the Insurance
Commissioner, and had refused to pay her the amount required by section 2051,
subdivision (b).
       Garnes contended that the 2004 amendments to section 2051 were part of the
Homeowners’ Bill of Rights, which was designed to protect consumers of insurance who
suffer loss of homes or other structures, that the bill required insurers to amend their
policies to comply with section 2051 by July 1, 2005, and that FAIR did not amend its
policies. She argued that the Policy, by seeking to limit recovery for partial losses to fair
market value, was “in clear contradiction with section 2051.” She further argued that the


                                               4
court should look to the Insurance Code, not the Policy, to determine the extent of
FAIR’s liability for her fire loss.
       In a one-page tentative ruling that it subsequently adopted as its order, the trial
court granted FAIR’s motion for summary judgment, adopting FAIR’s interpretation of
the statutes. The parties thereafter stipulated to certain rulings that resolved the
remaining issues, and the court entered judgment in favor of FAIR on all claims.
       This appeal followed. After the parties submitted their briefs, we received and
granted requests to file amicus curiae briefs from the Insurance Commissioner
(Commissioner), who is charged with enforcing the Insurance Code and other laws
regulating the business of insurance in this state (§§ 12906, 12921), and from United
Policyholders, a national non-profit organization that seeks to promote and protect the
interests of insurance consumers.4




       4
          The parties and the Commissioner have also submitted various requests for
judicial notice, some of which we now rule upon. On July 15, 2015, Garnes submitted a
request for judicial notice of certain correspondence from counsel for the Commissioner
to counsel for FAIR, which FAIR opposed. We deny this request as untimely, having
been filed after FAIR had filed its respondent’s brief. (See Evid. Code, § 453, subd. (a).)
On August 19, 2015, the Commissioner submitted a request for judicial notice of five
items. We grant the request for the first three items, but deny it as to the two letters from
the Commissioner’s counsel to FAIR’s counsel in 2014 and 2015 because, as FAIR
points out in its brief in response to the Commissioner’s amicus brief, these letters pertain
to an argument—that FAIR’s policy is unenforceable because FAIR did not seek or
obtain the Commissioner’s permission to use it—that was not raised in the parties’ briefs
on appeal. (Mercury Casualty Co. v. Hertz Corp. (1997) 59 Cal.App.4th 414, 424–425
[“ ‘As a general rule, issues not raised by the appealing parties may not be considered if
raised for the first time by amici curiae’ ”].) Further, to the extent the letters also reflect
the Commissioner’s interpretation of the statute, they are redundant of the
Commissioner’s view as stated in his brief. We also deny FAIR’s subsequent request for
judicial notice of materials related to this argument of the Commissioner that we have
declined to consider. (See People ex rel. Lockyer v. Shamrock Foods Co. (2000)
24 Cal.4th 415, 422, fn. 2 [that judicially noticed material be relevant to a material issue
is a precondition to the taking of judicial notice].)


                                              5
                                       DISCUSSION
       The facts here are not in dispute. The parties agree that Garnes purchased from
FAIR an insurance policy with a limit of $425,0005 covering fire damage to her
Richmond home for the period from December 23, 2010, to December 23, 2011. A
kitchen fire occurred on January 1, 2011, within the policy period, that caused substantial
damage to her home. The cost to repair the damage, including necessary lead and
asbestos abatement, was $362,670. Subtracting depreciation, the public adjuster
submitted a claim to FAIR on Garnes’s behalf for $320,549. FAIR obtained an appraisal
to determine the fair market value of the home in its undamaged condition just prior to
the fire, which was determined to be $75,000.
       It is also undisputed that the Policy FAIR issued to Garnes is a fire insurance
policy of a kind known as an “open policy,” meaning “one in which the value of the
subject matter is not agreed upon, but is left to be ascertained in case of loss.” (§ 411.)6
Further, it is an “actual cash value” or “ACV” policy. In a section entitled
“CONDITIONS,” the Policy contains a paragraph entitled “Loss Settlement,” which
states in relevant part that FAIR will pay the following amounts for losses to Garnes’s
dwelling: “(1) Total Loss: If the greater of the cost either to reconstruct or replace the
damaged part of the property exceeds the actual cash value before the loss of all covered
property . . . , we will pay such actual cash value. [¶] (2) Partial Loss: In the cases of
losses that are not described in (1) above, we will pay the least of the following amounts:
[¶] (a) The lower of the cost either to reconstruct or replace the damaged part of the
property, less a reasonable amount for depreciation; or [¶] (b) The actual cash value



       5
           The Policy insures the dwelling for $425,000 and personal property for $50,000.
       6
          This is to be distinguished from a “valued policy,” which is one that “expresses
on its face an agreement that the thing insured shall be valued at a specified sum.”
(§ 412.) As FAIR points out in its brief, the coverage amounts of $425,000 for the home
and $50,000 for its contents were requested by Garnes and not based on any inspection or
valuation assessment by FAIR.

                                              6
before the loss of the damaged property.” The Policy defines “actual cash value” of
property to mean “its fair market value.”
       At the crux of this appeal are two legal issues, which we review de novo. (Mt.
Hawley Ins. Co. v. Lopez (2013) 215 Cal.App.4th 1385, 1393–1394 [“The de novo
standard of review applies to issues of statutory and insurance policy interpretation”].)
First, do the relevant provisions of the Insurance Code, sections 2051, 2070 and 2071,
which govern open ACV policies, require FAIR to provide coverage to Garnes to pay for
the repair of the damage to her home, minus depreciation, if this amount exceeds the fair
market value of her home, as Garnes contends, or are these statutes consistent with the
Policy, which categorizes any loss in which cost to repair exceeds actual cash value as a
“total loss” entitling the policy holder to, at most, the fair market value of her property, as
FAIR contends?7 Second, if these statutes and the Policy conflict, which governs the
parties’ relationship here, the statutes, as Garnes contends, or the Policy, as FAIR
contends? We conclude Garnes is correct as a matter of law in both respects: the
Insurance Code requires payment of the costs to repair her home, less depreciation, even
if this amount exceeds the fair market value of her home, and it governs over any
conflicting terms of the Policy.
                                              I.
    The Insurance Code Requires FAIR to Pay for the Repair of Garnes’s Partially
                                Damaged Home.
       In their dispute over what the Insurance Code requires, Garnes and FAIR
principally debate two questions of statutory construction. First, does “total loss” in
section 2051, mean, as FAIR contends, damage to a dwelling so extensive that the cost to
repair or replace it exceeds its fair market value, or, as Garnes contends, the total physical
destruction of a dwelling? Second, does “actual cash value” as used in section 2071

       7
          The parties dispute whether Garnes’s dwelling suffered a “total loss” or a
“partial loss.” However, their disagreement on this point is of a legal rather than a factual
nature. The effect of the fire on Garnes’s home is not disputed. The fire caused
extensive damage to Garnes’s home, but did not physically destroy the building.


                                              7
mean, as FAIR contends, the fair market value of the dwelling, exclusive of the land, or,
as Garnes contends, the “actual cash value” that is set forth in section 2051, which for a
loss that is partial is the lesser of the cost to repair the dwelling minus depreciation and
the policy limit?
       We construe insurance statutes “to ascertain and effectuate legislative intent,”
looking first to the statutes’ words. (CalFarm Ins. Co. v. Wolf (2001) 86 Cal.App.4th
811, 815.) “If those words are clear, there is no need for construction. ‘ “When the
language is susceptible of more than one reasonable interpretation, however, we look to a
variety of extrinsic aids,” ’ including the object to be achieved, the evil to be remedied,
public policy, the statutory scheme of which the statute is a part, and legislative history.”
(Ibid., fn. omitted.) Applying these principles, we have examined the statutes’ plain
meaning, the relevant legislative history and the Insurance Commissioner’s interpretation
of the statutes, and conclude that Garnes’s interpretation of the statutes is correct.
       A. Section 2051 Plainly Refers to Physical, Rather than Economic “Loss.”
       Section 2051 sets forth the “measure of indemnity in fire insurance” for an open
ACV policy. Section 2051, subdivision (a) states that an insurer’s indemnity obligation
under an open ACV policy is generally based on the expense of replacing lost or injured
property.8 This obligation is further explicated by subdivisions (b)(1) and (2), which
prescribe mandatory measures of “actual cash value recovery” for each of two distinct
situations: one that applies “[i]n case of total loss to the structure” and another that
applies “[i]n case of a partial loss to the structure” or to loss of the contents.9

       8
          Section 2051, subdivision (a) states: “Under an open policy, the measure of
indemnity in fire insurance is the expense to the insured of replacing the thing lost or
injured in its condition at the time of the injury, the expense being computed as of the
time of the commencement of the fire.”
       9
          Section 2051, subdivision (b) provides: “Under an open policy that requires
payment of actual cash value, the measure of the actual cash value recovery, in whole or
partial settlement of the claim, shall be determined as follows:
        “(1) In case of total loss to the structure, the policy limit or the fair market value of
the structure, whichever is less.

                                                8
       In the case of a “total loss to the structure,” recovery is limited to the lesser of the
policy limit or a property’s “fair market value.” (§ 2051, subd. (b)(1).) In the case of
“partial loss to the structure,” however, recovery is not limited to fair market value;
instead, it is the lesser of the policy limit or “the amount it would cost the insured to
repair, rebuild, or replace the thing lost or injured less a fair and reasonable deduction for
physical depreciation based upon its conditions at the time of the injury.” (§ 2051,
subd. (b)(1).) Under subdivision (b)(2), it is clear that in the case of “partial loss to the
structure,” the insured is entitled to repair, rebuild or replace that which was lost or
injured. While such recovery is reduced by a deduction for physical depreciation and
may not exceed the policy limit, nothing in subdivision (b)(2) or the remainder of
section 2051 indicates that the policyholder is limited to the fair market value of the
property or any part of it.
       The language of section 2051 not only specifies the meaning of “actual cash
value” for total and partial losses, it provides strong indication of what constitutes a total
or partial loss of a residential property—specifically, that the determination depends on
what happens “to the structure.” Contrary to FAIR’s policy definition, which defines
“total loss” and “partial loss” by reference to economic considerations (whether the cost
to repair exceeds the property’s fair market value), section 2051 differentiates between
the degree of loss “to the structure,” and it prescribes two different measures of actual
cash value depending on whether the loss to the structure is “total” or “partial.”


        “(2) In case of a partial loss to the structure, or loss to its contents, the amount it
would cost the insured to repair, rebuild, or replace the thing lost or injured less a fair and
reasonable deduction for physical depreciation based upon its condition at the time of the
injury or the policy limit, whichever is less. In case of partial loss to the structure, a
deduction for physical depreciation shall apply only to components of a structure that are
normally subject to repair and replacement during the useful life of that structure.”
(Italics added.)
      Section 16 provides that as used in the Insurance Code, “the word ‘shall’ is
mandatory and the word ‘may’ is permissive, unless otherwise apparent from the
context.”

                                               9
       The parties cite various authorities regarding the meaning of the phrases “total
loss” and “partial loss,” but these authorities are of little value because they do not
address the statutory language before us: “total loss to the structure” and “partial loss to
the structure.” Garnes cites authorities that are equivocal and indicate there are two
possible meanings of “total loss”; however, these authorities do not contain language
referring to “loss to the structure.”10 FAIR refers throughout its briefs to “total loss” and
“partial loss” but fails to address the full phrases used in section 2051: “total loss to the
structure” and “partial loss to the structure.”11
       While neither party provides any case law or other authority interpreting either
“total” or “partial” “loss to the structure,” we are at a loss to understand how the phrase
“loss to the structure,” without more, can possibly connote the economic concept FAIR
urges, i.e., a loss requiring repairs that would or would not cost more than the structure’s
fair market value. While “loss” by itself may be physical or economic,12 the “structure”
obviously refers to a physical structure, i.e., the insured dwelling.13 As Garnes puts it, “in
the statute, the object phrase—‘total loss’—operates upon the subject phrase—‘a
structure’—by way of the preposition ‘to.’ Had the Legislature used the word ‘of’, or
used a different sort of construction, such as ‘where a structure is a total loss’, there
might be some ambiguity. But total loss to a structure unmistakably contemplates a

       10
          For example, she cites a definition for “total loss” in Black’s Law Dictionary
(7th ed. 1999) and cases discussing the meaning of this term (see, e.g., Martinez v.
Enterprise Rent-A-Car Co. (2004) 119 Cal.App.4th 46, 54 [“ ‘Total loss’ is commonly
used to mean a ‘complete destruction’ of the property at issue. . . . [L]egal treatises are
consistent in defining a vehicle as a ‘total loss’ where the cost of repairs exceeds the
vehicle’s precollision fair market value”].)
       11
           For this same reason, its lengthy discussion of other jurisdictions’
interpretations of “total loss” or “partial loss” for purposes of property insurance policies
is not relevant.
       12
          Merriam-Webster’s first definition of “loss” is “destruction, ruin.”
(<https://www.merriam-webster.com/dictionary/loss>.)
       13
          See <https://www.merriam-webster.com/dictionary/structure> (defining
“structure” to mean, inter alia, “something (such as a building) that is constructed”).

                                              10
quantum of physical damage—i.e., complete or total—and excludes the sort of economic
analysis employed by FAIR Plan.”
       Further, if the Legislature had intended an economic definition, it could have said
so. Indeed, FAIR provided just such an explanation or definition for “total loss” in the
Policy: “If the greater of the cost either to reconstruct or replace the damaged part of the
property exceeds the actual cash value before the loss of all covered property . . . .” And
Black’s Law Dictionary defines “constructive total loss” as “[s]uch serious damage to the
insured property that the cost of repairs would exceed the value of the thing repaired.”
(Black’s Law Dictionary (8th ed. 2004) p. 964.) But the Legislature did not employ such
language connoting an economic measure. Instead it employed a phrase, “loss to the
structure,” that connotes physical damage. Applying that meaning to the undisputed
facts, it is apparent that the loss to Garnes’s home was partial within the meaning of
section 2051, as she contends, rather than total, as FAIR contends. Garnes’s home was
damaged, not destroyed.
       Nonetheless, FAIR contends, even if the loss was partial, the outer limit of
recovery allowed under the Insurance Code is the fair market value of the dwelling.
While FAIR acknowledges that section 2051, subdivision (b)(2), addressing recovery in
the case of a partial loss to the structure, “does not mention ‘fair market value’ as an
outside limit,” it contends section 2071 contains an “indemnity cap,” i.e., that the “actual
cash value” cap in that section is synonymous with the fair market value of the property,
and that section 2051 “was not intended to repeal” this cap. To evaluate this argument,
we must consider section 2051 together with sections 2070 and 2071.
       B. Sections 2070, 2071 and 2051 Read Together Support Garnes’s View of
          FAIR’s Statutory Obligations.
       Section 2070 generally requires fire policies in California to be on the standard
form set forth in section 2071, but permits insurers to deviate from the form “provided,
that coverage with respect to the peril of fire, when reviewed in its entirety, is
substantially equivalent to or more favorable to the insured than that contained in such
standard form fire insurance policy.” (§ 2070.) FAIR appears to argue that the Policy is

                                              11
“consistent with” the standard form, which we take to mean “substantially equivalent” to
it.
       The standard form as set forth in section 2071 provides, in relevant part, that in
consideration for the premium, the insurer “does insure [the insured] and legal
representatives, to the extent of the actual cash value of the property at the time of loss,
but not exceeding the amount which it would cost to repair or replace the property with
material of like kind and quality within a reasonable time after the loss . . . .” (§ 2071,
subd. (a).) FAIR argues this language “clearly ‘caps’ the limit of liability at the ‘actual
cash value of the property’ at the time of loss.” Next, FAIR relies primarily on Jefferson
Ins. Co. v. Superior Court (1970) 3 Cal.3d 398, 402 (Jefferson) for the proposition that
“ ‘actual cash value of the property’ as used in section 2071, is synonymous with ‘fair
market value.’ ” “Thus,” FAIR continues, “if the cost to repair or replace the damaged
property is more than its fair market value, then, according to the plain language of
section 2071, there is no coverage for the repair or replacement cost to the extent it
exceeds the actual cash value of the property.”
       In Jefferson, the California Supreme Court addressed the meaning of “actual cash
value” as used in the “average clause” of the standard form insurance policy then set
forth in section 2071. The insurers sought to apply the average clause, which allowed
them to proportionately reduce their coverage of fire damage to a hotel if the hotel owner
had not purchased a policy insuring the building to at least 70 percent of its actual cash
value.14 (Jefferson, supra, 3 Cal.3d at p. 400.) They contended “actual cash value,” as
used in the “average clause” of the policy, did not mean fair market value, but meant the
replacement cost of the building less depreciation. (Id. at p. 401.) The replacement cost


       14
           The average clause was designed to reduce the insurer’s coverage obligation if
the property was substantially underinsured. (Jefferson, supra, 3 Cal.3d at p. 400.) The
clause provided: “[This] company shall be liable for no greater proportion of such loss
than the amount of insurance specified in such item bears to the percentage specified in
the first page of this policy [70%] of the actual cash value of the property . . . .” (Id. at
p. 400, fn. 1, italics added.)

                                              12
for the hotel, less depreciation, was determined to be almost $170,000—far more than the
hotel’s fair market value of $65,000. (Id. at p. 400.) Whether the hotel was insured for
70 percent of its actual cash value depended on whether “actual cash value” was
interpreted to mean replacement cost less depreciation or the hotel’s fair market value.
By using the higher replacement cost minus depreciation measure, the insurers sought to
invoke the average clause and thereby reduce what they owed the hotel owner under the
policy. (Id. at p. 401 [insurers sought to pay $10,154 as proportion of $24,102 loss].)
The Supreme Court held that “ ‘[a]ctual cash value,’ ” as used in section 2071, was
“synonymous with ‘fair market value’ ” rather than “replacement cost less depreciation.”
(Jefferson, at p. 402.)
       The Jefferson court also sought to reconcile the use of the term “actual cash value”
in the average clause with the term’s use in the basic insuring clause of the policy: “The
term appears not only in the average clause, . . . but also in the insuring clause and must
be given the same meaning in both. The latter clause insures ‘to the extent of the actual
cash value of the property at the time of loss, but not exceeding the . . . cost to repair or
replace the property . . . .’ Since replacement cost less depreciation can never exceed
replacement cost, it would not be logical to interpret this clause to mean ‘to the extent of
the replacement cost less depreciation, but not exceeding the . . . cost to repair or replace
the property.’ (Italics added.) If ‘actual cash value’ had been intended to mean
replacement cost less depreciation, the Legislature would not have used ‘the cost to . . .
replace the property’ as a limiting factor, and would have specified as a limiting factor
only the cost to repair the property.” (Jefferson, supra, 3 Cal.3d at p. 402.)
       FAIR’s reliance on Jefferson overlooks one thing: the case involved a standard
form policy that was part of an earlier statutory regime. In 2004, 34 years after Jefferson
was decided, the Legislature adopted the current version of section 2051, which
prescribes the method for determining (and therefore the meaning of) “actual cash value”
for purposes of determining the insurer’s indemnity obligation under an open fire
insurance policy. Thus, while in 1970, the Jefferson court interpreted “actual cash value”
as used in section 2071 to mean “fair market value,” in 2004 the Legislature adopted a

                                              13
more specific and mandatory measure of “actual cash value” in a closely related section
of the Insurance Code, section 2051.15 For a total loss, the Legislature determined
“actual cash value” means the lesser of fair market value of the structure or the policy
limit. For a partial loss to the structure or loss to its contents, it means the lesser of the
cost to repair or replace the thing lost or injured minus a reasonable deduction for
physical depreciation or the policy limit. (See Kirkwood v. California State Automobile
Assn. Inter-Ins. Bureau (2011) 193 Cal.App.4th 49, 53 [“the 2004 amendments to
section 2051, . . . set out the precise method of determining actual cash value of lost or
injured property under an open policy of fire insurance”].)16 To the extent section 2051’s
definition of “actual cash value” differs from that in Jefferson, this later-enacted
legislation controls.17 (See Adoption of Kelsey S. (1992) 1 Cal.4th 816, 844 [statute

       15
            Sections 2051 and 2071 are in Division 2, Part 1, Chapter 2 of the Insurance
Code, which is entitled “The Fire Insurance Contract.” Chapter 2 contains three articles,
the first (irrelevant here) concerning “Change of Risk,” the second (containing
section 2051) governing the “Measure of Indemnity” and the third (containing
section 2071) governing the “California Standard Form Fire Insurance Policy.”
       16
          As the Commissioner points out, the Legislature is presumed to have been
aware of judicial precedent in effect at the time it enacts or amends legislation and to
have acted in light of such precedent. (In re W.B. (2012) 55 Cal.4th 30, 57.) By adopting
two measures of “actual cash value” neither of which corresponds with the definition
adopted in Jefferson, the Legislature signaled its intent to change the law and effectively
overrule Jefferson. Further, an Enrolled Bill Report recognizes that the bill would have
“LEGAL IMPACT,” specifically on Jefferson, which it described as “California authority
that defines actual cash value.” (State and Consumer Services Agency, Enrolled Bill
Rep. on Assem. Bill No. 2962 (2003–2004 Reg. Sess.) prepared for Governor
Schwarzenegger (Sept. 15, 2004) p. 5.)
       17
           Doan v. State Farm General Ins. Co. (2011) 195 Cal.App.4th 1082, also cited
by FAIR, is not to the contrary. The issue there was whether appraisal provisions
included in property insurance policies as required by section 2071 required
policyholders to exhaust the appraisal process before seeking declaratory relief on the
pure legal issue of whether the insurer’s method of calculating depreciation was
permissible. (Doan, at pp. 1088, 1091.) The court had no occasion to determine the
meaning or measure of “actual cash value” for any purpose. It did state in dicta that “[a]s
used in [section 2071], actual cash value ‘is synonymous with “fair market value[,]” ’ ”
citing Jefferson. (Doan, at p. 1092.) But it also stated that under section 2051, “when an

                                               14
superseded prior California Supreme Court decision]; City and County of San Francisco
v. Cobra Solutions, Inc. (2006) 38 Cal.4th 839, 850 [statute superseded prior court of
appeal decision].)
       But, FAIR argues, “there is no indication that the Legislature intended to abrogate
the Supreme Court’s interpretation of the phrase ‘actual cash value of the property’ as
used in section 2071.” The Legislature’s failure to specifically amend section 2071,
FAIR contends, gives rise to a presumption that it did not intend to alter the operation of
that section. We disagree. Section 2071 did not and does not define “actual cash value,”
although the court interpreted that phrase in Jefferson. As already discussed, the
Legislature thereafter, in amending closely related provisions of the Insurance Code,
specifically defined that same phrase in a manner different from the definition adopted in
Jefferson. The 2004 legislation thus does indicate a legislative intent to abrogate
Jefferson in part.
       FAIR also argues that section 2051 “does not repeal the actual cash value limit set
forth in section 2071.” But the argument relies on a statutory construction that would
give “actual cash value” two different meanings as applied to an open fire insurance
policy. In measuring the recovery for a partial loss under the mandatory language of
section 2051, “actual cash value” is the lesser of the policy limit or the cost to repair or
replace the damaged property, less a deduction for physical depreciation. This would be
further limited, according to FAIR, by reading the language “to the extent of the actual
cash value of the property at the time of loss” in section 2071 to mean the fair market
value of the damaged property. Thus, in FAIR’s view, section 2051, in conjunction with


open policy ‘requires payment of actual cash value’ for a structure’s contents, ‘the
measure of the actual cash value recovery’ is ‘the amount it would cost the insured to
repair, rebuild, or replace the thing lost or injured less a fair and reasonable deduction for
physical depreciation based upon its condition at the time of the injury or the policy limit,
whichever is less.’ ” (Doan, at p. 1093.) These descriptions provided background for the
court’s discussion of the appraisal process. The court did not decide the meaning of
“actual cash value” as used in either section 2071 or 2051 or attempt to reconcile the
differences it attributed to these statutes.

                                              15
section 2071, means that a property owner whose home is damaged but not destroyed
may recover not the lesser of two measures (the policy limit and the cost to repair or
replace the damaged property minus depreciation) but the least of three (the policy limit,
the cost to repair or replace minus depreciation and the fair market value of the property).
FAIR does not explain how the words of sections 2071 and 2051 support its position, and
for the reasons just stated, they do not.
       FAIR argues, however, that this interpretation is necessary to harmonize
sections 2051 and 2071. We are not convinced. To continue to interpret the language
“actual cash value” in section 2071 to mean fair market value in the face of
section 2051’s specific definitions of that phrase would run contrary to the general
presumption that a word or phrase used in a particular sense in one part of a statute is
intended to have the same meaning if it appears in another part of the same statute.
(Delaney v. Baker (1999) 20 Cal.4th 23, 41.) The presumption is “rebuttable if there are
contrary indications of legislative intent” (id. at pp. 41–42), but FAIR fails to identify
such indications in the legislative history, and we are not aware of any.
       Further, if the Legislature had intended to impose a fair market value “cap” or
limit on recovery for partial loss to a structure, it would have included fair market value
as an express limitation in subdivision (b)(2) of section 2051. This is made evident by
the fact that the Legislature included precisely such an express limitation on recovery for
total losses to a structure in subdivision (b)(1). (See § 2051, subd. (b)(1) [“In case of
total loss to the structure, the policy limit or the fair market value of the structure,
whichever is less”], italics added.) If that is what it intended for subdivision (b)(2), it
could and would have used the same or similar language.
       Finally, reading the language in section 2071, “to the extent of the actual cash
value of the property” to mean “to the extent of the [fair market value] of the property”
would create a redundancy with section 2051, subdivision (b)(1), which already limits
recovery for total loss to a structure to “the policy limit or the fair market value of the
structure, whichever is less.” (Italics added.) (See Pacific Legal Foundation v.
Unemployment Ins. Appeals Bd. (1981) 29 Cal.3d 101, 114 [“Wherever reasonable,

                                               16
interpretations which produce internal harmony, avoid redundancy, and accord
significance to each word and phrase are preferred”].)
       Nor do we agree with FAIR that interpreting the phrase “actual cash value” in
section 2071 to mean the same as “actual cash value” defined in section 2051 will result
in an implied repeal of section 2071. Again, section 2071 prescribes the basic terms of a
fire insurance policy from which, under section 2070, an insurer may not generally
deviate. It uses the phrase “actual cash value” but, unlike section 2051, does not
prescribe a measure for it or otherwise define it. The definition FAIR urges, which
focuses on fair market value, comes from case law discussing an earlier statutory regime,
not from section 2071. As incorporated into section 2071, section 2051’s definitions of
actual cash value superseded the Jefferson court’s definition in part.18 But that does not
mean section 2051 repealed section 2071.
       On the contrary, section 2051 can readily be harmonized with section 2071 by
simply incorporating into section 2071 the more specific measures of “actual cash value”
now prescribed by section 2051. As the Commissioner explains, “[s]ection 2051 did not
repeal section 2071—rather, it provided a clear and consistent measure of actual cash
value that informs the reference to the term ‘actual cash value’ in 2071. Thus,
sections 2051 and 2071 do not conflict and must be read together to effectuate the intent
of the Legislature.”
       As so construed, section 2071 retains outer limits on insurers’ liability under an
open fire insurance policy. Those outer limits are the “actual cash value” as defined in
section 2051. In the case of a total loss to a structure, the outer limits are set by the lesser
of fair market value or the policy limit, and in the case of a partial loss to a structure (or
loss to the contents), the outer limits are defined by the lesser of the cost to repair minus
depreciation or the policy limit. FAIR fails to explain why, thus reconciled with
section 2051, section 2071 does not continue to serve its function of specifying the

       18
          We say “in part” because under section 2051 fair market value still plays a role
in defining actual cash value where there is a total loss of a structure.

                                              17
minimum requirements for fire insurance policies in California. We conclude that it does
so.
       C. The Legislative History of Section 2051 Also Supports Garnes’s View of
          FAIR’s Statutory Obligations.
       In 2004, the Legislature adopted Assembly Bill No. 2692 (AB 2692), amending
section 2051 to add subdivision (b) which prescribes “the measure of actual cash value
recovery” under an open actual cash value policy. (Stats. 2004, ch. 605, § 2.)19 The
legislative history of AB 2692, which was sponsored by the Commissioner and the
Department of Insurance (Assem. Insurance Com., Background Information Sheet on
Assem. Bill No. 2962 (2003–2004 Reg. Sess.) Mar. 18, 2004, p. 2), further supports
Garnes’s view of FAIR’s statutory obligations to pay for the repairs of her home.20
       The purpose of AB 2692 is made plain in many documents contained in the
legislative history files. In the wake of a series of devastating wildfires in Southern
California that destroyed thousands of homes,21 legislators were concerned about a lack
of clarity in insurance policies and inconsistent practices by insurers regarding the

       19
           AB 2692 not only added subdivision (b), but also enacted a new section 675.1,
which prohibits insurers from cancelling coverage in the case of a total loss to the
structure while the structure is being reconstructed (§ 675.1, subd. (b)) and, if the time for
renewal occurs before reconstruction is complete, requires insurers to adjust the limits,
coverages and premiums to reflect the change in the insured’s exposure to loss. (Id.,
subd. (a).)
       20
           Garnes also asks us to consider the legislative history of a similar, but not
identical, predecessor bill, Senate Bill No. 1678, which was proposed in 2002 by Senator
Richard Polanco but which, after a number of amendments, ultimately failed to pass out
of committee. We decline to do so because neither house of the Legislature passed
Senate Bill No. 1678, and the history that surrounds it thus “cannot be deemed a reliable
and clear indication of the Legislature’s intent” two years later, when the Legislature
enacted AB 2692. (See Medical Bd. v. Superior Court (2003) 111 Cal.App.4th 163, 181–
182.)
       21
         (Assem. Insurance Com., Background Information Sheet on Assem. Bill No.
2962 (2003–2004 Reg. Sess.) Mar. 18, 2004, p. 1.) For a discussion of other legislation
passed and a regulation adopted in response to the same wildfires, see Association of
California Ins. Companies v. Jones (2017) 2 Cal.5th 376, 382–385.


                                             18
determination of “actual cash value” in adjusting claims under residential fire insurance
policies. It is not entirely clear from the legislative history what gave rise to these
concerns, but the state of the law at the time provides some idea. (See San Francisco
Internat. Yachting Group v. City and County of San Francisco (1992) 9 Cal.App.4th 672,
680 [“Both the legislative history of the statute and the wider historical circumstances of
its enactment may be considered in ascertaining legislative intent”].)
       Prior to 2004, section 2051 provided: “Under an open policy, the measure of
indemnity in fire insurance is the expense to the insured of replacing the thing lost or
injured in its condition at the time of the injury, such expense being computed as of the
time of the commencement of the fire.” (Stats. 1935, ch. 145, art. 2, p. 595.) In 1970, the
California Supreme Court in Jefferson interpreted “actual cash value” to mean fair market
value. And in 1998, an appellate court in Cheeks v. California Fair Plan Assn. (1998)
61 Cal.App.4th 423 stated that an insurer could define “actual cash value” in a manner
different from that required by section 2071 as interpreted by Jefferson by simply
drafting their policy to “say so.” (Cheeks, at p. 429.)22
       Against this muddled legal backdrop, it is perhaps not surprising that, as the
legislative history reflects, insurers were using a variety of different measures of “actual
cash value” when adjusting claims made under fire insurance policies, only one of which
was replacement cost minus depreciation, and that disagreements about how to measure
the recovery under fire insurance policies were a source of continuing conflict between
insurers and policyholders.




       22
          Further, as Garnes’s counsel pointed out at oral argument, while the fair market
value of a home that has been destroyed in a total loss is easy enough to ascertain, it is
not obvious what method should be used to determine the fair market value of parts of a
home that are merely damaged.


                                              19
       For example, the Background Information Sheet regarding AB 2692 for the
Assembly Insurance Committee,23 in a description of “existing law on this issue,” stated:
“The California Residential Property Insurance Disclosure provides coverage definitions;
however, the valuation of property is unclear and continues to be an issue between
insurance companies and consumers.” (Assem. Insurance Com., Background
Information Sheet on Assem. Bill No. 2962 (2003–2004 Reg. Sess.) Mar. 18, 2004, p. 1.)
It described what the bill did as follows: “Clarifies the measurement of ‘actual cash
value’ in relation to a homeowners insurance policy. Prohibits insurance companies from
deducting depreciation for labor when consumers replace or rebuild their property.”
(Ibid.) In a section entitled “What’s wrong with existing law? Why is this bill needed?,”
it stated: “Many homeowners policies do not clearly define how ‘actual cash value’ will
be determined” and referred to a practice by insurance companies in calculating actual
cash value of deducting the cost of labor. (Id. at pp. 1–2.) It further stated: “This bill
will explain and provide consistency for how claims will be adjusted and prohibit
insurance companies from deducting the cost of labor in settlements.” (Id. at p. 2.)
       Similarly, a Report by the Assembly Committee on Insurance,24 dated May 5,
2004, states: “The purpose of the bill, according to the author, is to explain and provide
consistency for how claims will be adjusted and prohibit insurance companies from
deducting the cost of labor in settlements. The author states that many homeowners’
policies do not clearly define how ‘actual cash value’ is to be determined, and
additionally, when calculating this value, most insurance companies deduct the cost of
labor. Thus, supporters believe that consumers are forced to pay out-of-pocket costs for a
portion of the repairs. The author believes that this bill would clarify the measurement of
‘actual cash value’ in relation to a homeowner’s insurance policy.” (Assem. Com. on

       23
           Courts consider such background information documents in discerning
legislative intent. (See Quarry v. Doe I (2012) 53 Cal.4th 945, 987; Sherwin-Williams
Co. v. City of Los Angeles (1993) 4 Cal.4th 893, 899–900.)
       24
         Committee reports also are an appropriate source of legislative intent. (See Mt.
Hawley Ins. Co. v. Lopez (2013) 215 Cal.App.4th 1385, 1401.)

                                             20
Insurance, Rep. on Assem. Bill No. 2962 (2003–2004 Reg. Sess.) as proposed to be
amended May 5, 2004, p. 1.) The same report goes on to note that “the author of the bill
highlights that the California Residential Property Insurance Disclosure provides
coverage definitions; however, the valuation of property is unclear and continues to be an
issue between insurance companies and consumers.” (Id. at p. 2.)
       Also, a report of the Senate Committee on Insurance dated June 16, 2004,
explains: “Existing law [¶] 1. Defines an ‘open policy’ of fire insurance, generally
speaking, as one that does not state the amount for which the item is insured, but also
states, in essence, that the measure of payment is the expense to replace the item in its
condition at the time just prior to commencement of the fire [Section 2051]; [¶] 2.
Otherwise leaves unanswered important questions about how to calculate actual cash
value.” (Sen. Com. on Insurance, Rep. on Assem. Bill No. 2962 (2003–2004 Reg. Sess.)
as proposed to be amended June 16, 2004, p. 1.) It goes on to explain: “This bill [¶] 1.
Would specify that actual cash value, in the case of a total loss, would be equal to the
policy limit or fair market value of the structure, whichever is less; [¶] 2. Would specify
that actual cash value, in the case of a partial loss to the structure or contents, would be
the amount it would cost the insured to repair, rebuild, or place [sic] the thing lost or
injured less a fair and reasonable deduction for physical depreciation based upon the
condition at the time of the injury or the policy limit, whichever is less; [¶] 3. Would
specify, also with respect to a partial loss of a structure, that a deduction for depreciation
shall apply only to parts of the structure that are normally subject to repair or
replacement.” (Ibid.) It describes the purpose of the bill as “[t]o clarify the measurement
of ‘actual cash value’ under a homeowners’ insurance policy, and to provide protections
against cancellation during the rebuilding process.” (Id. at p. 2.) It further states that
“[a]ccording to the author’s office, many homeowners’ policies do not clearly define how
‘actual cash value’ will be determined. The bill is needed to provide consistency in the
calculation of ‘actual cash value.’ Consistency will further protect consumers.” (Ibid.)




                                              21
        Finally, as described in an enrolled bill memorandum25 AB 2962 was designed,
among other things, to “clarify the measurement of ‘actual cash value’ in relation to a
homeowners’ insurance policy and help resolve disputes between insurers and their
policyholders.” (Enrolled Bill Memo. on Assem. Bill No. 2962 (2003–2004 Reg. Sess.)
prepared for Governor Schwarzenegger (Sept. 10, 2004) p. 1.) The same memorandum
contains language similar to that in earlier reports, expressing the author’s statement that
“the valuation of property is unclear and continues be an issue between insurance
companies and consumers.” (Id. at p. 2.)
        Significantly, another enrolled bill report explicitly recognized that AB 2692
would change the law as articulated in Jefferson: A section entitled “LEGAL IMPACT”
states: “Jefferson v. Superior Court, 3 Cal.3d 398 (1970); California authority that
defines actual cash value.” (State and Consumer Services Agency, Enrolled Bill Rep. on
Assem. Bill No. 2962 (2003–2004 Reg. Sess.) prepared for Governor Schwarzenegger
(Sept. 15, 2004) p. 5.) This suggests the Legislature understood that AB 2692 would
supplant Jefferson’s definition of “actual cash value” with the measure set forth in the
bill.
        FAIR barely acknowledges this legislative history,26 which undermines its
contention that section 2051, subdivision (b) provides a measure of “actual cash value”
that is effectively modified and limited by ascribing a different meaning to the same
phrase as used in section 2071. The Legislature was attempting to eliminate confusion
and disagreement, not to create them. To read the “actual cash value” in section 2071 to
mean “fair market value” and to create an additional limitation on recovery for partial


        25
           The California Supreme Court has routinely considered statements in enrolled
bill reports and memoranda as evidence of the Legislature’s intent. (See Lockheed
Information Management Services Co. v. City of Inglewood (1998) 17 Cal.4th 170, 184;
California Correctional Peace Officers Assn. v. State Personnel Bd. (1995) 10 Cal.4th
1133, 1149.)
        26
          FAIR merely concedes that the Legislature was concerned “that insurance
policies were inconsistent or unclear as to how they defined ‘actual cash value.’ ”

                                             22
losses beyond the limits imposed in section 2051 would create unnecessary complexity
and inject uncertainty into the measure of recovery for a partial loss to a structure,
undermining the legislative goals of providing clarity and avoiding disputes. As we have
already stated, if the Legislature had intended to limit “actual cash value” for partial
losses by fair market value, it could have done so clearly by expressing that limitation in
subdivision (b)(2) of section 2051. Further, if that had been the Legislature’s intent, one
would expect to see some indication of it in the legislative history of AB 2962, but there
is none.
       For these reasons, the legislative history supports Garnes’s interpretation of
Insurance Code sections 2071 and 2051.
       D. The Insurance Commissioner’s and the Legislature’s Interpretations Also
          Support Garnes’s View of FAIR’s Statutory Obligations.
       Other factors support Garnes’s interpretation. First, the Insurance Commissioner’s
interpretation is consistent with hers. While we are not bound by the Commissioner’s
interpretive regulation, we nonetheless accord it “ ‘great weight and respect.’ ” (Yamaha
Corp. of America v. State Bd. of Equalization (1998) 19 Cal.4th 1, 11–12 (Yamaha).)
       The Commissioner’s interpretation is best reflected in a regulation the
Commissioner amended in 2006 to include the following language: “Under a policy,
subject to California Insurance Code Section 2071, where the insurer is required to pay
the expense of repairing, rebuilding or replacing the property destroyed or damaged with
other of like kind and quality, the measure of recovery is determined by the actual cash
value of the damaged or destroyed property, as set forth in California Insurance Code
Section 2051.” (Cal. Code Regs., tit. 10, § 2695.9.) The Commissioner maintains this
interpretation in his amicus curiae brief, and it deserves significant deference. 27 The
Commissioner’s interpretation obviously supports Garnes’s interpretation.

       27
          Specifically, the Yamaha factors weigh powerfully in favor of affording this
significant deference. The Legislature has empowered the Commissioner to adopt rules
and regulations as necessary to implement the insurance laws of the state. (Calfarm Ins.
Co. v. Deukmejian (1989) 48 Cal.3d 805, 824 [discussing broad powers of

                                             23
       Second, as the Commissioner points out, the Legislature itself interpreted sections
2051 and 2071, albeit in legislation enacted six years after the amendment of
section 2051. (See People ex rel. Lockyer v. R.J. Reynolds Tobacco Co. (2005)
37 Cal.4th 707, 724 [“ ‘While “subsequent legislation interpreting [a] statute . . . [cannot]
change the meaning [of the earlier enactment,] it [does] suppl[y] an indication of the
legislative intent which may be considered together with other factors in arriving at the
true intent existing at the time the legislation was enacted” ’ ”].) Specifically, in
sections 10101 and 10102, the Legislature prescribed a form of disclosure statement that
insurers are required to provide consumers when issuing or renewing a policy of
residential property insurance. That form informs purchasers of actual cash value
coverage that “ACTUAL CASH VALUE COVERAGE pays the costs to repair the
damaged dwelling minus a deduction for physical depreciation. If the dwelling is
completely destroyed, this coverage pays the fair market value of the dwelling at the time
of loss. In either case, coverage only pays for costs up to the limits specified in your
policy.” The Legislature’s interpretation supports Garnes’s interpretation of
sections 2051 and 2071 in two respects. It indicates that actual cash value in the case of a
damaged dwelling means the costs to repair the dwelling minus physical depreciation,
and that the only cap in that situation is “the limits specified” in the policy. Only where
the dwelling is “completely destroyed” is “actual cash value” limited to “the fair market
value of the dwelling at the time of loss.” It also indicates that “partial loss to the
structure” and “total loss to the structure” in section 2051 mean, respectively, that the
dwelling is “damaged” and that “the dwelling is completely destroyed.”


Commissioner]; Gov. Code § 11152; see §§ 12921.7, 12923.) The Insurance Code
provisions at issue in this case contain language that is “ ‘technical, obscure [and]
complex’ ” and “ ‘entwined with issues of . . . policy.’ ” (See Yamaha, supra, 19 Cal.4th
at p. 12.) Interpretation of sections 2051 and 2071 falls squarely within the Department’s
legislatively designated field of expertise. (See Yamaha, at pp. 12–13.) Further, the
Commissioner’s interpretive amendment to this rule was adopted in 2006, and is near
contemporaneous with the 2004 legislation it interprets; and it is a “ ‘long-standing’ ” and
“ ‘consistently maintained’ ” interpretation. (See Yamaha at pp. 12–13.)

                                              24
       E. FAIR’s Other Arguments Are Unpersuasive.
       FAIR argues that Garnes and the Commissioner’s interpretation of section 2051,
subdivision (b) would lead to absurd results because, if she had suffered a total loss, her
recovery would have been limited to fair market value, whereas the partial loss she in fact
sustained does not so limit her recovery. We disagree. It is conceivable the Legislature
intended for homeowners whose houses were not entirely destroyed to have the option of
repairing their homes and remaining in the homes and neighborhoods they had chosen
(and, for some homeowners, such as Garnes, in the neighborhoods and homes they had
grown up in).
       Indeed, this would hardly be the first time that real property has been recognized
as unique (see Real Estate Analytics, LLC v. Vallas (2008) 160 Cal.App.4th 463, 475,
476; Civ. Code, § 3387), especially regarding a home. (See Lennar Homes of California,
Inc. v. Stephens (2104) 232 Cal.App.4th 673, 689; Reese v. Wong (2001) 93 Cal.App.4th
51, 59, fn. 5; Code Civ. Proc., § 405.33; Civ. Code, § 3387 [presumption of uniqueness
conclusive in case of single-family dwelling party intends to occupy].) Courts have
recognized that homes may have values to an owner that are distinct from economic
worth, such as familiarity, comfort and the memories they invoke, and accorded them
legal significance. (E.g., In re Marriage of Duke (1980) 101 Cal.App.3d 152, 158
[emotional attachment of custodial parent and children to long-time family residence is
fact to be considered in determining its disposition].)
       The Legislature may well have concluded that, in the case of a home that is not
destroyed and is amenable to repair, a measure of indemnity that provides for repair and
rebuilding serves to preserve these intangible interests, at least to some degree. It may
also have concluded that where a home is destroyed so completely that these attributes
can no longer be enjoyed, a recovery that will enable the owner to purchase a dwelling of
equal economic value is appropriate. We thus disagree with FAIR that the interpretation
of sections 2051 and 2071 urged by Garnes and the Insurance Commissioner produces
absurd results.


                                             25
       FAIR also argues that Garnes and the Commissioner’s interpretation would
“eliminate[] the distinction between actual cash value and replacement policies.” FAIR
is correct in stating that replacement cost policies provide greater coverage than ACV
policies. (See § 10102 [“Actual Cash Value Coverage is the most limited level of
coverage listed”].) It is also true, as FAIR points out, that “a replacement cost policy
pays the insured the replacement cost of the lost or damaged property regardless of its
fair market value and without deduction for depreciation.” However, the role that fair
market value and depreciation play in the insured’s indemnity obligation under ACV and
replacement cost policies is different depending on whether loss to a structure is partial or
total. When the indemnity afforded by ACV and replacement cost coverage provided
under the Insurance Code is compared for both partial and total losses, it becomes
apparent that the interpretation of the Code adopted by Garnes and the Commissioner
does not conflate ACV and replacement cost coverage.
       Indeed, as we have already alluded to, the differences between the two, under
California law, are summarized succinctly in the mandatory form of disclosure contained
in section 10102.28 “ACTUAL CASH VALUE COVERAGE pays the costs to repair the
damaged dwelling minus a deduction for physical depreciation. If the dwelling is
completely destroyed, this coverage pays the fair market value of the dwelling at time of
loss. In either case, coverage only pays for costs up to the limits specified in your
policy.” (§ 10102, subd. (a).) “REPLACEMENT COST COVERAGE,” “EXTENDED
REPLACEMENT COST COVERAGE” and “GUARANTEED REPLACEMENT COST
COVERAGE” are all “intended to provide for the cost to repair or replace the damaged

       28
           The disclosure statement is consistent with the measures of indemnity provided
in section 2051, which governs open ACV policies and section 2051.5, which applies to
open replacement cost policies. The latter section provides in relevant part that “Under
an open policy that requires payment of the replacement cost for a loss, the measure of
indemnity is the amount that it would cost the insured to repair, rebuild, or replace the
thing lost or injured, without a deduction for physical depreciation, or the policy limit,
whichever is less.” (§ 2051.5.)



                                             26
or destroyed dwelling, without a deduction for physical depreciation.” Replacement Cost
Coverage pays replacement costs “up to the limits specified in your policy”; Extended
Replacement Cost Coverage “provides additional coverage above the dwelling limits up
to a stated percentage or specific dollar amount”; and “Guaranteed Replacement Cost
Coverage” “covers the full cost to repair or replace the damaged or destroyed
dwelling . . . regardless of the dwelling limits shown on the policy declarations page.”
       In other words, in comparing the two types of coverage with respect to a partial
loss, an ACV policy pays the costs to repair “minus a deduction for physical
depreciation” up to the limits of the policy, whereas a replacement cost policy pays the
cost to repair “without a deduction for physical depreciation” up to the limits of the
policy, and for Extended and Guaranteed replacement cost coverage, beyond the limits of
the policy. For total losses, ACV pays the fair market value of the dwelling at the time of
loss, whereas replacement coverage pays for replacement costs up to, or beyond, the
limits of the policy.
       This comparison, which is entirely consistent with Garnes and the Commissioner’s
interpretation of sections 2051 and 2071, belies FAIR’s contention that such
interpretation will eliminate the distinction between ACV and replacement cost policies.
As the form disclosure statement reflects, the two types of policy provide different
indemnity measures for both partial losses and total losses, and replacement policies
provide more generous coverage than ACV policies. The further fair-market-value cap
FAIR would have us read into sections 2051 and 2071 is not required to achieve this
result. In short, FAIR’s interpretation is a solution in search of a problem.
       FAIR also argues that Garnes and the Commissioner’s interpretation would
“circumvent” the provision in section 2051.5 that allows insurers to withhold a portion of
the replacement cost under a replacement cost policy until the insured completes the
repair or rebuilding of the property. That section provides in relevant part that “[i]f the
policy requires the insured to repair, rebuild, or replace the damaged property in order to
collect the full replacement cost, the insurer shall pay the actual cash value of the
damaged property, as defined in Section 2051, until the damaged property is repaired,

                                             27
rebuilt, or replaced” and that “[o]nce the property is repaired, rebuilt, or replaced, the
insurer shall pay the difference between the actual cash value payment and the full
replacement cost reasonably paid to replace the damaged property, up to the limits stated
in the policy.” (§ 2051.5, subd. (a).) “Had Garnes purchased a replacement cost policy,”
FAIR contends, “she would have been entitled to the amount needed to rebuild, repair or
replace the damaged property only upon showing that she had made those repairs.” “That
is, actual repair or replacement of the damaged property is a condition precedent to
recovery of replacement costs.” Under Garnes’s interpretation, FAIR contends, “she
would be entitled to replacement cost recovery without having to first repair the property
or to otherwise comply with section 2051.5(a).”
       FAIR’s description of the statute is not accurate. Section 2051.5, subdivision (a)
does not require insureds to repair or replace as a “condition precedent” to recovery of
replacement costs. Rather, it implicitly allows FAIR or other insurers to include a
provision in the policy requiring the insured to repair or rebuild in order to collect “the
full replacement cost.” (§ 2051.5, subd. (a), italics added.) However, it requires the
insurer in the meantime to pay “the actual cash value of the damaged property” until the
damaged property is repaired or rebuilt, and then to pay the difference between actual
cash value and full replacement cost once the repair or rebuilding is completed. (Ibid.)
       Moreover, FAIR does not explain or provide authority for what its obligations are
where replacement costs are provided under an ACV policy, much less how they differ
from its obligations under section 2051.5, subdivision (a) for a replacement cost policy.
Under both types of policy, “actual cash value,” as interpreted by Garnes and the
Commissioner, for a partial loss means replacement cost minus depreciation, or the
policy limits, whichever is less. However, the indemnity measure under a replacement
cost policy is replacement costs “without a deduction for physical depreciation,” or the
policy limits, whichever is less. Under an ACV policy, the owner is entitled to actual
cash value, period: that is, the lesser of the policy limit or replacement costs minus
depreciation. Under section 2051.5, subdivision (a), under a replacement policy that
requires repair, rebuilding or replacement, the owner is entitled to actual cash value in the

                                              28
same amount as an ACV policyholder, at the outset, but in addition, is entitled to the
difference between actual cash value and full indemnity (replacement costs without
depreciation) at the conclusion of repair or rebuilding. There is no anomaly in this result.
The two types of policyholders are treated the same before completion of repair or
rebuilding, but the replacement policyholder ultimately receives an additional payment,
and is therefore better off than the ACV policyholder, once repair or rebuilding is
complete.
         In short, this argument, too, lacks merit.
         Finally, FAIR argues that Garnes and the Commissioner’s interpretation would
create a “moral hazard.” It posits that “[s]ince a partial loss may easily exceed the actual
cash value (fair market value) of the property, an insured could purchase an old, run-
down property, over-insure it and hope for a convenient fire that would not totally
destroy the property.” Further, “[i]f Garnes’ interpretation were to be adopted, an insured
would have every incentive to make a claim for the cost of repairs, then sell the property
as a teardown and pocket the balance.”
         The “hazard” FAIR describes is, to be generous, overstated. The idea that
individuals would purchase a “run-down” property and then “hope for a convenient fire
that would not totally destroy the property” is at best speculative. Further, if FAIR means
to suggest an owner might bring about such a fire intentionally, such “moral hazard”
could be rectified by the insurer’s invocation of the intentional acts exclusion of
section 533 to deny coverage. Regardless, FAIR’s argument amounts to an attack on the
policy underlying the standard form fire insurance policy as adopted by the Legislature.
To the extent FAIR thinks it ought to be revised, it is a matter for the Legislature, not this
court.
                                                 II.
               The Insurance Code Governs FAIR’s Obligations To Garnes.
         The parties also dispute whether the Policy is to be applied in accordance with its
terms or instead in accordance with the Insurance Code. FAIR argues that regardless of
whether the Policy complies with the governing Insurance Code provisions, this case and

                                               29
its obligations to Garnes are “governed by the policy she purchased, not by some
statutory form policy she never purchased.” Garnes relies on Century-National Ins. Co.
v. Garcia (2011) 51 Cal.4th 564 (Century-National) for the proposition that “a fire
insurance policy that offers less coverage than the standard form (Insurance Code §2071)
is invalid,” and “that insurers may not provide less coverage than appears in the form fire
policy set forth in §2071.”
       In view of this dispute, a few words about the intersection of insurance policies
and the Insurance Code are in order. As Witkin points out, “All insurance policies issued
in California are governed by the provisions of the Insurance Code. [Citation.] When
insurance coverage is required by law, the statutory provisions are incorporated into the
insurance contract. The obligations under an insurance policy are measured and defined
by the pertinent statute, and the statute and the policy together form the insurance
contract. [Citation.] This general principle is subject to the condition that statutory
provisions may not be read into a policy to the insured’s detriment, even where the
statutory language appears mandatory.” (2 Witkin, Summary of Cal. Law
(10th ed. 2005) Insurance, § 8, p. 30.)
       “While the duties and obligations of the insurer and the insured are contractual in
nature, neither party has the inviolate rights that normally characterize private contracts.
This is because the business of insurance is a matter of the public interest, and insurance
contracts are subject to the reasonable exercise of the state’s police power. [Citation.]
Any provision in an insurance policy that fails to conform to law or violates public policy
is unenforceable.” (2 Witkin, Summary of Cal. Law, supra, § 8. p. 30.) Finally,
“[p]olicies may be required to include certain provisions.” (Ibid. [citing as example
§ 11580].)
       Consistent with these principles, courts have long held that “an insurer has the
right to limit policy coverage in plain and understandable language and . . . may limit the
nature of the risk it undertakes to assume. [Citations.] Nevertheless, an insurance
company’s limitation of coverage must conform to the law and public policy. [Citation.]
Furthermore, it is also well settled that insurance contracts, as contracts of adhesion, are

                                             30
subject to careful judicial scrutiny to avoid injury to the public. [Citation.] Courts
considering adhesion contracts have a heightened responsibility to prevent the marketing
of policies that provide unrealistic and inadequate coverage. Thus, any portion of an
insurance contract which is violative of public policy is not enforceable.” (Carson v.
Mercury Ins. Co. (2012) 210 Cal.App.4th 409, 425–426.)29
       Century-National, on which Garnes relies, applied these principles to a fire
insurance policy challenged by the insureds as inconsistent with section 2071. The
California Supreme Court held an exclusionary clause that was less favorable to the
insureds than the section 2071 standard form policy impermissibly reduced the statutorily
mandated coverage and thus was invalid and unenforceable. (Century-National, supra,
51 Cal.4th at pp. 566, 573.) It reversed the Court of Appeal’s affirmance of a trial court
ruling sustaining the insurer’s demurrer based on this exclusion provision in the policy.
(See ibid.) The insured was entitled to enforce the policy notwithstanding the invalid
provision.
       Specifically, Century-National involved a fire insurance policy that contained
clauses precluding coverage if the loss was caused by the intentional act or criminal
conduct of “any insured.” (Century-National, supra, 51 Cal.4th at p. 566.) The court
concluded these clauses “impermissibly reduce coverage that is statutorily mandated.”
(Ibid.) Under the policy, as written, the insureds could not recover against Century-
National even if they were innocent of wrongdoing because their losses were caused by a
fire intentionally set by their son, who was a co-insured. (Id. at pp. 566, 568.) Although
the policy “purport[ed] to exclude coverage” of the insureds’ losses, the court held
“section 2070 requires a comparison of the policy with the standard form fire policy set
forth in section 2071.” (Id. at p. 569.) The question was “whether the Century-National
policy provides coverage that is at least as favorable to the insureds as the coverage

       29
          As a case cited by the Insurance Commissioner reflects, this rule is of long
standing. (See Wildman v. Government Emp. Ins. Co. (1957) 48 Cal.2d 31, 39–40
(Wildman) [discussing older cases, including Malmgren v. Southwestern Auto. Ins. Co.
(1927) 201 Cal. 29].)

                                             31
provided in the standard form.” (Ibid.) If it did not, the exclusion “to that extent” was
invalid. (Ibid.)
       The Supreme Court determined that, while the statutory standard form contained
“no express exclusion for losses caused by intentional acts or criminal conduct,”
section 533 set forth such a willful act exclusion that was incorporated into the standard
form policy. (Century-National, supra, 51 Cal.4th at pp. 568–569; see id. at p. 570
[referring to section 533 as “implied statutory exclusion”].) But section 533 was a more
limited exclusion than that in the Century-National policy. “Section 533’s use of the
term ‘the insured’ bears directly on the instant coverage issue: unlike policy exclusions
that refer to ‘an’ insured or ‘any’ insured, exclusions based on acts of ‘the’ insured are
construed as not barring coverage for innocent coinsureds. [Citations.] Given the settled
meaning of the language used in section 533, the standard form fire policy must be
construed as including a willful acts exclusion that is protective of innocent insureds.”
(Century-National, at p. 569.) Because, “under the standard form, which must be read as
including section 533’s exclusion for losses caused by ‘the wilful act of the insured’, . . .
innocent insureds would not be barred from coverage,” the court concluded that “the
intentional acts exclusion in the Century-National policy results in coverage that is not at
least substantially equivalent to the level of protection provided in the statutory standard
form fire policy” and therefore was “invalid.” (Id. at p. 573.)
       In Howell v. State Farm Fire & Casualty Co. (1990) 218 Cal.App.3d 1446,
disapproved on other grounds in Reid v. Google, Inc. (2010) 50 Cal.4th 512, 532, fn. 8,
also cited by Garnes, Division Three of this court held that a policy provision that
conflicted with Insurance Code provisions is unenforceable. The court held that an
insurer could not enforce a policy exclusion that was inconsistent with section 530 as
interpreted by our Supreme Court in Sabella v. Wisler (1963) 59 Cal.2d 21. (Howell, at
p. 1456.)
       Section 530 and Sabella govern how coverage is determined when there is a
concurrence of different causes of loss. (See Howell, supra, 218 Cal.App.3d at p. 1453.)
The insurer in Howell, State Farm, argued that it could “contractually exclude coverage”

                                              32
notwithstanding section 530 and Sabella. (Howell, at p. 1457.) Our court flatly rejected
that argument, citing three earlier cases in which the courts had “applied the Sabella
efficient proximate cause analysis despite the presence of specific exclusionary language
not present in the Sabella contract.” (Id. at p. 1458.) We stated: “The simple truth—
which State Farm insists on ignoring—is that this provision is a part of the statutory law
of this state and is applicable to all insurers who issue ‘all risk’ policies. For this simple
reason, the exclusions contained in the policies at issue are not enforceable to the extent
they violate . . . section 530.” (Ibid; see also Julian v. Hartford Underwriters Ins. Co.
(2005) 35 Cal.4th 747, 754 (Julian) [citing Howell for the proposition that “[p]olicy
exclusions are unenforceable to the extent that they conflict with section 530 and the
efficient proximate cause doctrine”].)
       Further, the court’s reasoning in Howell was not limited to section 530. “Stated
simply, the important question presented by this case is whether a property insurer may
contractually exclude coverage when a covered peril is the efficient proximate cause of
the loss, but an excluded peril has contributed or was necessary to the loss. We conclude
that a property insurer may not limit its liability in this manner, since the statutory and
judicial law of this state make the insurer liable whenever a covered peril is the ‘efficient
proximate cause’ of the loss, regardless of other contributing causes. Consequently, the
policy exclusions at issue in this case are not enforceable to the extent they conflict with
California law.” (Howell, supra, 218 Cal.App.3d at p. 1452, fn. omitted.)
       Century-National and Howell hold, and Julian reiterates, that where California’s
statutory or decisional law require coverage, an insurer may not circumvent the law by
employing contrary contract terms. FAIR counters with Cheeks, in which a panel of the
Second District Court of Appeals suggested the opposite. However, it did so in dicta30

       30
          The court in Cheeks rejected FAIR’s interpretation of the policy language it
was using at the time, which was the same or similar to the standard form policy.
(Cheeks, supra, 61 Cal.App.4th at pp. 426–429.) The court’s comment that FAIR could
have used other language that was inconsistent with section 2071 was unnecessary to its
decision. (See Cheeks, at p. 429 & fn. 5.)

                                              33
that can have no force after the California Supreme Court issued its decision in Century-
National 13 years later. Further, Howell and Julian involved the requirements of
sections 530 and 532, general provisions of the Insurance Code regulating causes of loss,
and case law interpreting them. These cases demonstrate that where an insurer’s policy
contains terms that conflict with the law, the courts will decline to enforce the
impermissible terms and read into the policy the terms required by statute. (See also
Wildman, supra, 48 Cal.2d at pp. 39–40 [where policy provisions were in derogation of
Vehicle Code sections, latter “must be considered a part of every policy of liability
insurance even though the policy itself does not specifically make such laws a part
thereof”]; Utah Property & Casualty Ins. Guaranty Ass’n v. United Services Auto. Assn.
(1991) 230 Cal.App.3d 1010, 1019 & fn. 1 [and cases cited therein].)
       FAIR seeks to distinguish Century-National, contending it involved an exclusion
that conflicted with section 2071. According to FAIR, “Garnes does not claim that the
FAIR Plan policy fails to comply with section 2070 or 2071. Rather, she claims the
policy does not comply with section 2051.” FAIR concedes that section 2071 is
mandatory but argues “section 2051 contains no such mandatory language” and for this
reason “Century-National is inapplicable.”
       We disagree for three reasons. First, Garnes plainly does argue that the Policy
fails to comply with sections 2070 and 2071. She points out that section 2071 provides
for coverage “ ‘to the extent of the actual cash value of the property at the time of loss,
but not exceeding the amount which it would cost to repair.’ ” She further argues that
section 2051 defines “actual cash value” for purposes of the section 2071 standard form
policy and that the statutory definition is “mandatory.”
       Second, FAIR’s argument that section 2051 is not mandatory is spurious.
Section 2051’s language is mandatory. It provides: “Under an open policy that requires
payment of actual cash value, the measure of the actual cash value recovery, in whole or
partial settlement of the claim, shall be determined as follows: . . . .” (§ 2051, subd. (b),
italics added.) It then sets forth the measures that apply in the case of total loss to the
structure and in the case of partial loss to the structure. (Ibid.) And lest there be any

                                              34
doubt about the meaning of “shall,” section 16 provides that “[a]s used in this code the
word ‘shall’ is mandatory.” Moreover, the legislative history makes clear that the
measures adopted in section 2051 were intended to be mandatory. The legislative goals
of clarity, consistency and dispute avoidance would not be served if insurers could
substitute other and conflicting provisions in their policies in place of section 2051.
Section 2051 thus provides mandatory minimum coverage under an open ACV fire
insurance policy.
       Third, since mandatory insurance coverage provisions are incorporated into every
policy to which they pertain, section 2051 is incorporated into the standard form policy
set forth in section 2071, as indicated by case law, regulation and statute. In Century-
National the court stated: “Because section 533 represents ‘ “an implied exclusionary
clause which by statute is to be read into all insurance policies” ’ [citation], the standard
form fire insurance policy is properly read as excluding coverage for losses caused by
‘the willful act of the insured.’ ” (Century-National, supra, 51 Cal.4th at p. 569.)
Similarly, because section 2051 represents an implied coverage requirement which is to
be read into all open ACV fire insurance policies, the standard form fire insurance policy
is properly read as incorporating the measures of indemnity it sets forth.
       Further, as the Commissioner points out, its Regulation 2695.9, subdivision (f)(1)
explicitly incorporates section 2051 into the standard form policy. The regulation states:
“Under a policy, subject to California Insurance Code Section 2071, where the insurer is
required to pay the expense of repairing, rebuilding or replacing the property destroyed or
damaged with other of like kind and quality, the measure of recovery is determined by
the actual cash value of the damaged and destroyed property, as set forth in California
Insurance Code Section 2051.” (Cal. Code Regs., tit. 10, § 2695.9, subd. (f)(1).)
       Finally, section 2070 requires “[a]ll fire policies” to be on the standard form or
provide coverage for fire losses that is “substantially equivalent to or more favorable to
the insured than that contained in such standard form fire insurance policy.” (§ 2070.)
The Policy, insofar as it purports to cap indemnity for partial losses at fair market value,
or to treat a loss that does not destroy the structure as a “total loss,” is not “substantially

                                               35
equivalent to or more favorable to” Garnes than the standard form policy, read to
incorporate the provisions of section 2051. The Policy, to that extent, is unenforceable,
and we must treat it as if its indemnity terms conformed to section 2051.
       In short, the Policy must be applied in accordance with the Insurance Code rather
than by its own terms.
                                        DISPOSITION
       The judgment is reversed, and we remand the case to the superior court for
proceedings consistent with the views expressed in this opinion. Garnes is awarded costs
of appeal.




                                            36
                            STEWART, J.



We concur.




RICHMAN, Acting P.J.




MILLER, J.




                       37
California FAIR Plan Assn. v. Garnes (A143190)




                                        38
Trial Court: Contra Costa County Superior Court

Trial Judge: Hon. Steven Austin

Counsel:

Hereford Kerley, Law Office of Dylan Schaffer, Kerley Schaffer, J. Edward Kerley,
Dylan L. Schaffer for Defendant and Appellant.

Kamala D. Harris, Attorney General, Kathleen A. Kenealy, Chief Assistant Attorney
General, Paul D. Gifford, Senior Assistant Attorney General, Joyce E. Hee, Supervising
Deputy Attorney General, Robert E. Asperger, Deputy Attorney General for Dave Jones,
Insurance Commissioner of the State of California as Amicus Curiae on behalf of
Defendant and Appellant.

Amy Bach, Daniel Wade for United Policyholders as Amicus Curiae on behalf of
Defendant and Appellant.

Lewis Brisbois Bisgaard & Smith, Raul L. Martinez, Elise D. Klein for Plaintiff and
Respondent.




                                           39
