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

               NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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 This opinion has not been certified for
publication or ordered published for purposes of rule 8.1115.


           IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                                  SECOND APPELLATE DISTRICT

                                                DIVISION SIX



MIKE ROVNER CONSTRUCTION,                                                     2d Civil No. B246877
INC.,                                                                        (Super. Ct. No. 56-2012-
                                                                             00411331-CU-BC-SIM)
     Plaintiff and Appellant,                                                   (Ventura County)

v.

LIBERTY SURPLUS INSURANCE
CORPORATION,

     Defendant and Respondent.




                   Mike Rovner Construction, Inc., (Rovner) appeals from a summary
judgment entered in favor of Liberty Surplus Insurance Company (Liberty). The
trial court found (1) that Liberty had no obligation to indemnify or defend because a
complaint had not been filed against Rovner by the owner of an apartment complex
where Rovner's subcontractors had improperly installed defective shower stalls;
(2) the property damage produced by this occurrence began prior to the policy
period in question and was specifically excluded; and (3) there is no stand alone
cause of action for an alleged violation of the Fair Claims Settlement Practices
Regulations.1
                Appellant contends there are triable issues of fact as to all three issues.
We affirm.
                      FACTUAL AND PROCEDURAL HISTORY
                                 The Insuring Agreement
                Liberty issued a policy of comprehensive general liability insurance
that promises to pay sums Rovner "becomes legally obligated to pay as damages
because of . . . property damage to which this insurance applies." "Property
damage" was defined as "physical injury to tangible property" and "loss of use of
tangible property that is not physically injured." Property damage was covered only
if it occurred "during the policy period" from November 13, 2009 to November 13,
2010. An "occurrence" was defined as "an accident, including continuous or
repeated exposure to substantially the same general harmful conditions."
                Liberty agreed "to defend [Rovner] against any 'suit' seeking those
damages." A "suit" was defined as a civil proceeding alleging damages or an
arbitration proceeding or other alternative dispute resolution proceeding in which
damages are claimed.
                Liberty explicitly excluded "Known Injury or Loss;" viz., property
damage that "began prior to the inception date of this policy, and [that] is alleged to
continue into the policy period." The known injury or loss exclusion was said to
apply whether or not the damage or its cause was known to Rovner, whether or not
continuous exposure to conditions causing the property damage occurred during the
policy period or caused additional or progressive damage and whether or not
Rovner's legal obligation to pay damages was established as of the inception date of
the policy.


1
  All references to the Fair Claims Settlement Practices Regulations are set forth in
the California Code of Regulations, title 10, section 2695 et seq.)

                                             2
              Liberty's insurance contract also provides that Rovner was not
permitted in its interactions with the owner of the apartment project to "make a
payment, assume any obligation, or incur any expense . . . without [Liberty's]
consent," except at its own expense.
                                       The Loss
              Rovner was employed by LA Lakes at South Coast, L.P. to provide
the labor and materials necessary to renovate the interior of apartments in Costa
Mesa. Rovner in turn employed two subcontractors to provide and install shower
enclosures in the individual apartments. The shower enclosures were installed
between October 2007 and March 2009. The shower units were defective and were
improperly installed. They failed and began damaging the apartment units when
they were first used before the inception date of the Liberty policy.
              Complaints about the shower enclosures began in 2008 and continued
through October 2009. Between April 2010 and April 2011, the owner of the
apartment buildings spent $26,965 repairing 21 of the units. Rovner repaired the
rest between August 2011 and December 2011 at a cost of $553,800. Insurers other
than Liberty paid Rovner $367,533.34 to resolve its claims against them.
                              Trial Court Proceedings
              The owner of the apartments never filed a lawsuit, never commenced
an arbitration proceeding and never initiated an alternative dispute resolution
process to establish Rovner's legal obligation to pay for property damage that
resulted from the improper installation of the defective shower enclosures.
              Rovner sued its insurers on July 27, 2011, even before it began
making repairs to the units. The First Amended Complaint alleges Liberty breached
the implied covenant of good faith and fair dealing in its contract (First Cause of
Action) and breached the terms of its insurance contract (Second Cause of Action).
Rovner sought declaratory relief to confirm coverage for the unpaid balance of the
repairs voluntarily made by Rovner (Fourth Cause of Action). There are also
common counts (Third Cause of Action).


                                          3
              Liberty responded to the original complaint and Rovner's demand for
a defense and indemnity by sending its insured a letter pointing out the fact no
complaint had been filed and noting various limitations on coverage. Liberty
reserved its rights to assert all defenses to Rovner's claim for coverage and a
defense. It appointed an attorney to represent Rovner as to the owner's claim it was
entitled to reimbursement for the initial repairs. Liberty later agreed, as an
accommodation to its insured, to settle the smaller claim by the owner of the
apartments for the cost of the repairs it made. Three insurers equally divided the
owner's $26,965 claim.
              Rovner and Liberty filed motions for summary judgment. The trial
court's eight-page ruling denies Rovner's motion, grants Liberty's motion and orders
Rovner's complaint against Liberty dismissed in its entirety.
              In explaining its reasons for granting the motion for summary
judgment, the trial court observed that the insurance contract states Liberty "ha[s]
no duty to defend or indemnify it unless a lawsuit was filed." The court concluded
that since the owner of the property did not file "suit" or commence arbitration or
alternative dispute resolution proceedings against Rovner, Liberty had no obligation
either to indemnify or to defend the company. Citing Foster-Gardner, Inc. v.
National Union Fire Insurance Company (1998) 18 Cal.4th 857, 883-884, the trial
court rejected Rovner's argument that Liberty's failure promptly to respond to its
notice of its claim impliedly denied it, giving Rovner the right to settle with the
owner whether or not a suit was filed.
              As an alternative ground for granting Liberty's motion, the trial court
concluded the property damage asserted by Rovner was uninsured because the loss
was a "Known Injury or Loss" that began prior to the inception date of the policy.
The court found that undisputed facts establish that the defective shower enclosures
were improperly installed and that upon first use damaged the apartments before the
inception date of the Liberty policy on November 13, 2009. The court also said it
was undisputed that this was the "occurrence" that produced leaks, failures and


                                           4
collateral damage to the apartments began before the Liberty policy became
effective. The court noted that it was irrelevant to the coverage dispute that some of
tenants discovered and reported the leaks and other failures after the inception date
of the Liberty policy because the policy specifically excludes such losses.
              The trial court granted summary judgment on Rovner's First Cause of
Action based upon its conclusion that the Fair Claims Settlement Practices
Regulations do not create or even address insurance coverage. The regulations
simply deal with how insurance claims are to be managed. The court concluded
that while section 2695.7 of the regulations requires an insurer to respond to a claim
within 40 days, non-compliance does not create a cause of action for money
damages. The trial court rejected Rovner's argument that Liberty should be
equitably stopped to deny coverage finding the elements of the doctrine were not
established as a matter of law.
                               STANDARD OF REVIEW
              "The purpose of the law of summary judgment is to provide courts
with a mechanism to cut through the parties' pleadings in order to determine
whether, despite their allegations, trial is in fact necessary to resolve their dispute.
[Citation.]" (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 843.) A
motion for summary judgment "shall be granted if all the papers submitted show
that there is no triable issue as to any material fact and that the moving party is
entitled to a judgment as a matter of law." (Code Civ. Proc., § 437c, subd. (c).) A
triable issue of material fact exists only if "the evidence would allow a reasonable
trier of fact to find the underlying fact in favor of the party opposing the motion in
accordance with the applicable standard of proof. . . ." (Aguilar v. Atlantic Richfield
Co., supra, at p. 850.)
              We apply a de novo standard of review to an order granting summary
judgment when, on undisputed facts, the order is based on the interpretation or
application of the terms of an insurance policy. (TRB Investments, Inc. v. Fireman's
Fund Ins. Co. (2006) 40 Cal.4th 19, 30-31.)


                                            5
              While insurance contracts will be construed broadly in favor of the
insured, where the terms of a policy are plain and explicit, the courts will not
indulge in a forced construction so as to fasten a liability on the insurance company
that it has not assumed. (New York Life Ins. Co. v. Hollender (1951) 38 Cal.2d 73,
81; see also Continental Cas. Co. v. Phoenix Const. Co. (1956) 46 Cal.2d 423, 432
["insurance company has the right to limit the coverage of a policy issued by it and
when it has done so, the plain language of the limitation must be respected"].)
                                        DISCUSSION
                                The Insuring Agreement
              Applying the above principles, we conclude that Liberty had no
obligation under its policy to pay the amount voluntarily expended by Rovner to
repair and replace the improperly installed defective shower enclosures. There was
no suit, arbitration demand or ADR process commenced by the owner of the
property against Rovner and thus there was no "property damage" that Rovner was
legally obligated to pay. Moreover, the policy unequivocally excludes "Known
Injury or Loss" that the policy states includes damage to property that "began prior
to the inception date" of its policy.
                              The Requirement of a "Suit"
              The Liberty policy is a standard comprehensive general liability
policy. Liberty's indemnity provision states that it will pay sums Rovner
"become[s] legally obligated to pay as damages because of . . . 'property damage' to
which this insurance applies." As to the duty to defend, the insuring agreement
provides that Liberty has the "right and duty to defend Rovner against any 'suit'
seeking those damages" and to refuse to defend Rovner against "any 'suit' seeking
damages for . . . 'property damage' to which this insurance does not apply."
              In Certain Underwriters at Lloyd's of London v. Superior Court
(2001) 24 Cal.4th 945, the Supreme Court addressed this commonly used policy
language and concluded that the duty to indemnify the insured is limited to money
ordered by a court. Citing Foster-Gardner v. Superior Court, supra,18 Cal.4th at


                                            6
pages 961-962, the majority reasoned that "[t]he duty to defend is broader than the
duty to indemnify. The duty to defend is not broad enough to extend beyond a
'suit,' i.e., a civil action prosecuted in a court, but rather is limited thereto. A
fortiori, the duty to indemnify is not broad enough to extend beyond 'damages,' i.e.,
money ordered by a court, but rather is limited thereto. 'It is . . . well settled that
because the duty to defend is broader than the duty to indemnify,' a determination
that 'there is no duty to defend automatically means that there is no duty to
indemnify.' [Citations.]"
               Thus the duty of Liberty to defend and to indemnify Rovner is
expressly linked to damages sought in a "suit," a term the policy explicitly states is
limited to a complaint filed in court or an arbitration proceeding or an ADR process
approved by Liberty. In the absence of a process designed to produce a
determination of the damages Rovner is legally obligated to pay, Liberty was not
obligated either to defend or to indemnify Rovner. Liberty's insured was not
entitled to bypass this process and engage Liberty's policy by simply agreeing with
the owner to make repairs and passing the bill along to its insurer.
                          The Known Injury or Loss Exclusion
               Even if Liberty were obligated to indemnify Rovner for the cost of
repairing the substandard work of its subcontractors, the policy specifically
excludes property damage that began before November 13, 2009 and continued into
the policy period. The known injury or loss exclusion applies whether or not the
damage or its cause was known to Rovner, whether or not continuous exposure to
conditions causing the property damage occurred during the policy period or caused
additional or progressive damage and whether or not Rovner's legal obligation to
pay damages was or was not established as of the inception date of the policy. To
be covered, the property damage must occur during the policy period.
               It is undisputed that Rovner's subcontractor improperly installed
defective shower enclosures long before the inception date of Liberty's policy. All
the enclosures were the same. It is also undisputed that the defective installations


                                             7
damaged the apartments beginning with their first use after installation and that this
too occurred before the inception date of the Liberty policy. Predictably, over time
the defects continued to cause additional and progressive damage throughout the
apartment project that was reported at different times by tenants. The damage was
such that Rovner determined it was obligated to make repairs to every one of the
units to salvage a valuable business relationship with the owner. This is precisely
the risk that Liberty sought to exclude and that Rovner accepted when the policy
was issued. Progressive property damage that starts before the insurers' policy
period but that continues into the policy period does not trigger coverage. (USF Ins.
Co. v. Clarendon Amer. Ins. Co. (2006) 452 F. Supp.2d 972, 989-990.)
                Liability Based Upon a Claims Practices Regulation
              If coverage exists for property damage that occurred within the policy
period, then denying an insured a defense and indemnity may give the insured the
right to settle with a claimant and expose the insurer to liability for the amount of
the settlement. (Walters v. American Ins. Co. (1960) 185 Cal.App.2d 776, 784;
Pruyn v. Agricultural Ins. Co. (1995) 36 Cal.App.4th 500, 520, fn. 9.) Here,
Liberty had no duty to defend Rovner and no obligation to indemnify the company
from the cost of the settlement it entered into with the owner of the apartment
project.
              Liberty's failure to respond within 40 days to Rovner's notice it was
making a claim for the cost of repairing the shower enclosures does not create
coverage where none existed before and does not expose Liberty to a claim for
damages in an amount equal to the cost of its repairs to the apartment units.
Violating section 2695.7 does not create a cause of action for damages. (City of
Hollister v. Monterey Insurance Co. (2008) 165 Cal.App.4th 455, 490-491.)
                                  Equitable Estoppel
              Rovner maintains that the doctrine of equitable estoppel applies to
create coverage. It argues that there are triable issues of fact as to whether Liberty
allowed and encouraged Rovner to settle with the owner of the apartment project


                                           8
and to spend the money required to make the repairs. Rovner reasons that even if
property damage first occurred before the inception of Liberty's policy period,
equitable considerations should be applied to create coverage "to prevent Liberty
from unfairly benefitting from its own wrongful conduct." Rovner explains, "Such
wrongful conduct consists of allowing and encouraging [Rovner] to conduct repairs
at [its] own cost, so as to prevent the filing of a lawsuit by [the owner of the project]
which in turn relieved Liberty of its obligation to indemnify [Rovner] and
compensate it for the cost to repair those units that fall within the coverage of
[Liberty's policy]."
               Liberty was not relieved of a duty to defend as to indemnity because it
never arose.
               Rovner is correct that insurance coverage cannot be established
through waivers implied from the conduct of an insurer or by estoppel. (Quan v.
Truck Insurance Exchange (1998) 67 Cal.App.4th 583, 602, fn. 18; R & B Auto
Center v. Farmers Group (2006) 140 Cal.App.4th 327, 351-352.) The elements of
the doctrine of equitable estoppel are: "(1) The party to be estopped has engaged in
blameworthy or inequitable conduct; (2) that conduct caused or induced the other
party to suffer some disadvantage; and (3) equitable considerations warrant the
conclusion that the first party should not be permitted to exploit the disadvantage he
has thus inflicted upon the second party." (City of Hollister v. Monterey Ins. Co.,
supra, 165 Cal.App.4th at p. 488.) The principal disadvantage suffered by the
insured in City of Hollister however, was the forced forfeiture of insurance
coverage. Here, there was no coverage.
               Nothing Liberty did caused Rovner to forfeit coverage with Liberty or
any of its other insurers. Rovner either had coverage under Liberty's policy or the
policy of one or more other insurers or it did not. Rovner's dispute with its insurers
about coverage existed and was in litigation before the repairs were commenced.
Nothing Liberty did forced or induced Rovner to settle its lawsuit against the



                                           9
insurers that issued policies covering the period when the defective showers were
installed and first used for less than the entire cost of the repairs.
                                     DISPOSITION
               The judgment is affirmed. Costs on appeal are awarded to
Respondent.
               NOT TO BE PUBLISHED.




                                             BURKE, J.*


We concur:



               GILBERT, P. J.



               YEGAN, J.




*
 (Judge of the Superior Court of San Luis Obispo County, assigned by the Chief
Justice pursuant to art. 6, § 6 of the Cal. Const.)

                                            10
                                  Barbara A. Lane, Judge

                           Superior Court County of Ventura
                          ______________________________


              O'Rourke, Fong & Manoukian, Roderick D. Fong, Marina Manoukian and
Christian A. Setian for Plaintiff and Appellant.
              Musick, Peeler & Garrett, Susan J. Field and Jeniffer C. Kalvestran for
Defendant and Respondent.
