Judge Bruce G. Iwasaki, Case Number: 21STCV46149, Date: 2023-12-01 Tentative Ruling

Matter: Motion for Summary Judgment or, in the alternative, Summary Adjudication

This matter involves a first party insurance coverage dispute. The Second Amended Complaint (SAC), the operative pleading, alleges that, on December 28, 2020, water entered Plaintiff Reza Afazli’s (Plaintiff) real property (Property) due to a severe rainstorm causing extensive damage. According to the pleadings, the storm flooded and destroyed the roof, which in turn caused water intrusion into the units below. Plaintiff submitted a claim to his insurer, Defendant AmGUARD Insurance Company (AmGUARD), which AmGUARD denied. The SAC alleges that AmGUARD breached the terms of the parties’ Insurance Policy by denying Plaintiff’s claim and incorrectly attributed the water loss to lack of maintenance. Plaintiff contends that AmGUARD is required to pay for water damage to the Property under the terms of the Insurance Policy.

Defendant AmGUARD moves for summary judgment, or in the alternative, summary adjudication of each cause of action. Plaintiff opposes the motion. For the reasons discussed below, the Court disregards the opposition.

The motion for summary judgment is granted. The motion for summary adjudication is moot.

AmGUARD filed objections to Plaintiff’s late filed evidence. Because the Court has declined to consider Plaintiff’s late opposition and its evidence, these evidentiary objections are moot.

“The party moving for summary judgment bears the burden of persuasion that there is no triable issue of material fact and that he is entitled to judgment as a matter of law.” (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 850.) A triable issue of material fact exists 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. (Ibid.)[1]

“When deciding whether to grant summary judgment, the court must consider all of the evidence set forth in the papers (except evidence to which the court has sustained an objection), as well as all reasonable inferences that may be drawn from that evidence, in the light most favorable to the party opposing summary judgment.” (Avivi v. Centro Medico Urgente Medical Center (2008) 159 Cal. App. 4th 463, 467; Code Civ. Proc., § 437c, subd. (c).)

In support of the motion for summary judgment, AmGUARD moves for summary judgment on the grounds that there is no genuine issue as to any material fact and AmGUARD is entitled to summary judgment as a matter of law on the entirety of Plaintiff’s SAC.

In a sur-reply, AmGUARD argues Plaintiff’s opposition was untimely and should be disregarded. This argument is well-taken.

AmGUARD’s Motion for Summary Judgment was originally set to be heard on November 7, 2023. (Ingulsrud Decl., ¶ 2.) The Motion was continued at Plaintiff’s request to December 1, 2023, to allow further time for Plaintiff to conduct discovery. (Ingulsrud Decl., ¶ 3.) This Court set Plaintiff’s Opposition deadline for November 16, 2023 and AmGUARD’s Reply deadline for November 22, 2023, to be served by email. (Ingulsrud Decl., ¶ 4.)

On November 20, 2023AmGUARD served a “Reply”, at approximately 8:37 a.m. (Ingulsrud Decl., ¶ 5.)[2] Then, on November 21, 2023, at 4:39 p.m., counsel for AmGUARD received Plaintiff’s Opposition papers by email. (Ingulsrud Decl., ¶ 6.) Plaintiff’s opposition to the motion was filed five days after the court-ordered deadline and only one day before AmGUARD’s Reply was due.

The Opposition is silent as to its late filing. Plaintiff offers no explanation for the late filing or his failure to seek any relief from the Court to allow consideration of this late filing.

As the Reply was filed before the Opposition was filed, AmGUARD has had no opportunity to address the arguments and evidence made therein. Moreover, to date, Plaintiff still has not sought any relief in relation to its late opposition.

The Court exercises its discretion to disregard Plaintiff’s late-filed opposition. (Rules of Court, rule 3.1300(d) [“If the court, in its discretion, refuses to consider a late filed paper, the minutes or order must so indicate.”]; see also Mackey v. Board of Trustees of California State University (2019) 31 Cal.App.5th 640, 657 [“Plaintiffs inadvertently filed the declarations of Smith and Williams's parents on February 28, 2017, four days after the Board filed its reply and three days before the hearing date. A paralegal declaration cited upload error as the reason for the late filing. Nevertheless, plaintiffs did not seek a continuance, and there was no abuse of discretion in excluding declarations filed after the reply.”]; Bozzi v. Nordstrom, Inc. (2010) 186 Cal.App.4th 755, 765 [affirming trial court’s refusal to consider papers filed beyond the deadline when the opposing party “did not invoke any of the available procedures to obtain a court order permitting her to file late papers”].) Plaintiff Afzali already received a postponement of the hearing. Plaintiff had nearly three months after the motion was filed to submit its opposition on time. Trial is scheduled less than two months from now, and because of the Court’s calendar it is not possible to postpone the hearing without delaying the trial. No good cause for Plaintiff’s tardy filing has been offered. For those reasons, Plaintiff’s opposition papers are disregarded. The Court turns to the merits of Defendant’s motion.

AmGUARD argues it is entitled to summary adjudication of Plaintiff’s breach of contract claim because it properly denied Plaintiff’ claim for water loss under the parties’ Insurance Policy.

“Generally, the rights of the parties to an insurance dispute are determined by reference to the terms of the insurance policy.” (Mercury Ins. Co. v. Vanwanseele-Walker (1996) 41 Cal.App.4th 1093, 1100.) “[A] first party insurance policy provides coverage for loss or damage sustained directly by the insured … In the usual first party policy, the insurer promises to pay money to the insured upon the happening of an event, the risk of which has been insured against.” (Montrose Chemical Corp. v. Admiral Ins. Co. (1995) 10 Cal.4th 645, 663.) “In first party property cases, the right to coverage comes from the terms of the contract, i.e., it turns on determining causation of a loss and identifying whether it is covered or excluded.” (San Jose Crane & Rigging, Inc. v. Lexington Ins. Co. (1991) 227 Cal.App.3d 1314, 1319.)

Here, Afzali Family Trust is the named insured under a businessowner’s policy issued by AmGUARD – policy number AFBP155413 with effective dates of January 16, 2020 to January 16, 2021 (Policy). (DSS 1.) The Policy’s Declarations lists 1750 S. La Cienega Blvd., Los Angeles, CA as Location 1 (Property or Building). (DSS 2.)

The Policy, under Section I.A, states: “We will pay for direct physical loss of or damage to Covered Property at the premises described in the Declarations caused by or resulting from any Covered Cause of Loss.” The Policy defines a “Covered Cause of Loss” as “Risks of direct physical loss unless the loss is: a. Excluded in Paragraph II. Exclusions in Section I; or b. Limited in Paragraph 4. Limitations In Section I.”

(5) The interior of any building or structure caused by rain, snow, sleet, ice, sand or dust, whether driven by wind or not, unless:

(a) The building or structure first sustains damage by a Covered Cause of Loss to its roof or walls through which the rain, snow, sleet, ice, sand or dust enters; or (b) The loss or damage is caused by or results from thawing of snow, sleet or ice on the building or structure.”

1. We will not pay for loss or damage caused directly or indirectly by any of the following. Such loss or damage is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss. These exclusions apply whether or not the loss event results in widespread damage or affects a substantial area.

(2) Rust or other corrosion, decay, deterioration, hidden or latent defect or any qualify in property that causes it to damage or destroy itself;

3. We will not pay for loss or damage caused by or resulting from any of the following Paragraphs a. through c.

c. Negligent work Faulty, inadequate or defective: (1) Planning, zoning, development, surveying, siting; (2) Design, specifications, workmanship, repair, construction, renovation, remodeling, grading, compaction; (3) Materials used in repair, construction, renovation or remodeling; or (4) Maintenance; of part or all of any property on or off the described premises.” (DSS 3.)

The undisputed facts show that on February 10, 2021, AmGUARD received notice that Plaintiff’s Property was experiencing water leaks in the ceiling. (DSS 4.) On February 11, 2021, AmGUARD retained an independent adjusting company, Engle Martin, to conduct an investigation of the reported loss; Engle Martin assigned the loss investigation to Michael Salinas (Salinas). (DSS 5-6.)

Salinas inspected the Property on February 12, 2021. (DSS 7.) During the inspection, Salinas observed water damage in the far-right corner of the large reception entry area in the interior of the building. (DSS 11.) He did not observe any damage in the front entry area. (DSS 12.) Salinas next inspected a rear hallway where he observed additional ceiling damage. (DSS 13.) He also observed ceiling damage in the bathroom located in that hallway. (DSS 14.) Salinas also inspected additional offices and conference rooms; one large conference room on the north side of the building had significant water damage and the drywall ceilings had collapsed onto the tile floor. (DSS 15.)

After inspecting the interior, Salinas inspected the roof, which he observed was a flat roof. (DSS 17.) Although some portions of the roof appeared to be worn, Salinas observed no signs of wind damage to the roof. (DSS 18.) During the roof inspection, Salinas noted several large palm trees on the north side and northeast corner of the building. (DSS 19.) Salinas opined that these palm trees may have left debris that collected at the drain, allowing the water to pond on the flat roof during a rainstorm. (DSS 20.) Salinas also observed evidence of recent movement of the debris, suggesting that the debris had been recently removed from the roof. (DSS 21.) Salinas concluded that there was no evidence of any wind damage to the roof or any other damage to the roof creating an opening in the roof to allow rain to come in. (DSS 22.) However, the roof showed signs of wear and tear. (DSS 23.) According to Salinas, deterioration to the insulation on the top of the roof may have contributed to water leaking. (DSS 24.)[3]

On February 19, 2021, Salinas submitted his written report detailing his findings to AmGUARD. (DSS 26.) In the report, Salinas noted that there was a definite coverage question for AmGUARD because no visible signs of wind damage was observed. (DSS 28.) In fact, Salinas further noted that subrogation was unlikely because the cause of the loss appeared to be wear and tear or maintenance related. (DSS 30.) Because of his doubts regarding coverage, Salinas did not provide an estimate in his report. (DSS 29.)

On April 19, 2021, AmGUARD retained third party administrators Raphael & Associates to handle Plaintiff’s Claim. (DSS 31.) Following its investigation, Raphael & Associates sent a letter to Plaintiff denying the claim and detailing the reasons for denial; specifically, Raphael & Associates denied the claim based on the Policy’s exclusions for interior damage caused by rain, wear and tear and faulty maintenance, and on the grounds that there was no evidence of storm created openings to justify the interior water damage. (DSS 32.)

The Policy provides that AmGUARD “will pay for direct physical loss of or damage to Covered Property at the premises described in the Declarations caused by or resulting from any Covered Cause of Loss.” However, the Policy limits this coverage by providing that there is no coverage for damage to the interior of a building from rain unless the building first suffers damage to its roof or walls through which the rain enters. That is, the Policy required that the roof first be damaged, through which the rain entered, in order to cover rain damage to the building's interior.

In MRI Healthcare Center of Glendale, Inc. v. State Farm General Ins. Co. (2010) 187 Cal.App.4th 766, the Court of Appeal analyzed the term “direct physical loss” and explained “[i]n modern policies, “physical loss or damage” is typically the trigger for coverage. [Citation.] Clearly, this threshold is met when an item of tangible property has been “physically altered” by perils such as fire or water.” (Id. at 779.) The court continued “A direct physical loss “contemplates an actual change in insured property then in a satisfactory state, occasioned by accident or other fortuitous event directly upon the property causing it to become unsatisfactory for future use or requiring that repairs be made to make it so.” (Id.) Breaking down each term, the Court held:

“The word “direct” used in conjunction with the word “physical” indicates the change in the insured property must occur by the action of the fortuitous event triggering coverage. In this sense, “direct” means “ ‘[w]ithout intervening persons, conditions, or agencies; immediate [.]’ [Citation.]” (Ibid.) For loss to be covered, there must be a “distinct, demonstrable, physical alteration” of the property.” (Ibid.)

As noted above, the undisputed evidence from Salinas’ inspection does not show any wind damage to the roof nor did he find any storm created openings in the roof. Thus, the exception to the limitation does not apply because the building or structure did not sustain “damage by a Covered Cause of Loss to its roof or walls through which the rain” entered. As such, the rain damage limitation applies to bar coverage for the interior damage to the Property caused by rain. Accordingly, there was no coverage under the Policy.

The Policy did not provide coverage for Plaintiff’s Claim and AmGUARD did not breach the terms of the Policy. As such, the Court need not address whether exclusions for wear and tear, deterioration and failure to maintain applied to also precluded coverage. (Apple Annie, LLC v. Oregon Mutual Ins. Co. (2022) 82 Cal.App.5th 924, fn. 2 [“It is black-letter insurance law that exclusions are only considered after it is established that coverage exists under the policy”].) That is, while Salinas concluded that that any roof leak was likely due to wear and tear and debris on the roof – grounds which are specifically excluded by coverage under the Policy – the Court need not determine that this was the cause.

Second Cause of Action for Breach of the Implied Covenant of Good Faith And Fair Dealing (Insurance Bad Faith), and Third Cause of Action for Bad Faith Denial Of Insurance Claim:

AmGUARD argues it is entitled to summary adjudication of these claims because Plaintiff’s denied claim was not covered by the Policy. In the alternative, AmGUARD argues that, even if there is a triable issue of material fact in dispute regarding coverage, AmGUARD’s coverage determination was not unreasonable and arose from a genuine dispute over coverage.

“Every contract imposes on each party a duty of good faith and fair dealing in each performance and in its enforcement.” (Careau & Co. v. Security Pacific Business Credit, Inc. (1990) 222 Cal.App.3d 1371, 1393.) In the insurance context, “[t]o establish a bad faith claim, the insured must show that (1) benefits due under the policy were withheld and (2) the reason for withholding the benefits was unreasonable or without proper cause.” (Century Surety Co. v. Polisso (2006) 139 Cal.App.4th 922, 949.)

However, a breach of implied covenant of good faith and fair dealing and bad faith denial are implied covenants intended “as a supplement to the express contractual covenants, to prevent a contracting party from engaging in conduct that frustrates the other party's rights to the benefits of the agreement.” (Waller v. Truck Ins. Exchange, Inc. (1995) 11 Cal.4th 1, 36.) “Absent that contractual right, however, the implied covenant has nothing upon which to act as a supplement, and “should not be endowed with an existence independent of its contractual underpinnings.”” (Ibid.)

That is, where there is no insurance coverage for a claim, there can be no action for breach of the implied covenant of good faith and fair dealing or bad faith because the covenant is based on the contractual relationship between the insured and the insurer. (Waller, supra, 11 Cal.4th at p. 36; Love v. Fire Ins. Exchange (1990) 221 Cal.App.3d 1136, 1151, 1153 [“[A] bad faith claim cannot be maintained unless policy benefits are due is in accord with the policy in which the duty of good faith is rooted.”].) Therefore, because AmGUARD prevailed on Plaintiff’s breach of contract cause of action, Plaintiff’s claims for breach of good faith and fair dealing or bad faith denial of coverage must also fail. (Musso & Frank Grill Co., Inc. v. Mitsui Sumitomo Ins. USA Inc. (2022) 77 Cal.App.5th 753 [“Because Musso & Frank cannot establish a breach of contract, it follows necessarily that it cannot prove a breach of the covenant of good faith and fair dealing.”]; United Talent Agency v. Vigilant Insurance Company (2022) 77 Cal.App.5th 821, 841 [“In addition, a plaintiff that cannot state a cause of action for breach of contract cannot assert a claim for breach of the implied covenant of good faith and fair dealing.”].)

The motion for summary adjudication of the second and third causes of action is granted.[4]

Fifth Cause of Action for Negligence and Sixth Cause of Action for Negligent Misrepresentation:

The SAC alleges that “Defendants” negligently procured the Policy and made negligent misrepresentations regarding the Policy. Specifically, the SAC alleges that AmGUARD was negligent in the procurement of the Policy on behalf of Plaintiff because Plaintiff met with his insurance broker and explained the nature of the business and the need for insurance to cover any potential rain damage and water intrusion damage. (SAC ¶¶ 52.) “Had the Defendants told the Plaintiff that the Policy does not cover rain damage or roofleaks or water intrusion claims before the Policy was purchased, the Plaintiffs would have never procured the Policy as it did not meet its needs.” (SAC ¶ 55.)

In moving for summary adjudication of these causes of action, AmGUARD argues that the claims for negligence and negligent misrepresentation fail for multiple reasons: first, the claims are based on Plaintiff’s insurance broker’s allegedly negligent procurement of the policy – not AmGUARD’s statements; second, AmGUARD has no obligation to recommend or procure a particular type of policy for Plaintiff; and, third, there is no evidence that AmGUARD made any representations to Plaintiff prior to the issuance of the policy.

The elements of a cause of action for negligence are “(a) a legal duty to use due care; (b) a breach of such legal duty; [and] (c) the breach as the proximate or legal cause of the resulting injury.” (Ladd v. County of San Mateo (1996) 12 Cal.4th 913, 917.) “ ‘While breach of duty and proximate cause normally present factual questions, the existence of a legal duty in a given factual situation is a question of law for the courts to determine. [Citation.]’ ” (Jackson v. Ryder Truck Rental, Inc. (1993) 16 Cal.App.4th 1830, 1838.)

The elements of negligent misrepresentation are “(1) the misrepresentation of a past or existing material fact, (2) without reasonable ground for believing it to be true, (3) with intent to induce another's reliance on the fact misrepresented, (4) justifiable reliance on the misrepresentation, and (5) resulting damage.” (Apollo Capital Fund LLC v. Roth Capital Partners, LLC (2007) 158 Cal.App.4th 226, 243.)

Both claims fail where the evidence shows that Plaintiff purchased the Policy through a third-party insurance broker, not AmGUARD. (DSS 44.) Under Insurance Code section 33, “Insurance broker” is defined as “a person who, for compensation and on behalf of another person, transacts insurance other than life, disability, or health with, but not on behalf of, an insurer.” (LA Sound USA, Inc. v. St. Paul Fire & Marine Ins. Co. (2007) 156 Cal. App. 4th 1259, 1268 [“[A]n insurance broker by definition represents policyholders, not insurers.”].) Thus, as matter of law, any actions or omission made by this third-party insurance broker that Plaintiff allegedly relied upon cannot be imputed onto AmGUARD.

Moreover, the evidence also shows that Plaintiff cannot recall any conversation with his insurance broker about the type of coverage the Policy would have for water damage – only the cost of the Policy. (DSS 45.) Thus, Plaintiff cannot demonstrate any justifiable reliance on any purported misrepresentation because he cannot identify any representation that was relied upon.

Finally, there is no separate duty by AmGUARD “to provide an insurance policy which actually met the needs of the Plaintiffs instead just meeting the Defendant’s own need to make a profit.” (SAC ¶ 51.) Ultimately, “it is a duty of the insured to read his policy,” and the insured is generally “bound by clear and conspicuous provisions in the policy even if evidence suggests that the insured did not read or understand them.” (Chase v. Blue Cross of California (1996) 42 Cal.App.4th 1142, 1155; Malcom v. Farmers New World Life Ins. Co. (1992) 4 Cal.App.4th 296, 303; Mission Viejo Emergency Medical Associates v. Beta Healthcare Group (2011) 197 Cal.App.4th 1146, 1156 [“Insurers are not required to sit beside a policy holder and force them to read (and ask if they understand) every provision in an insurance policy.”].)

AmGUARD’s undisputed evidence shows no negligent conduct or negligent misrepresentations by AMGUARD in the procurement of the Policy. The motion for summary adjudication of these causes of action are granted.

AmGUARD moves for summary adjudication of Plaintiff’s UCL claim because it is merely derivative of Plaintiff’s other failed claims.

The UCL does not proscribe specific activities, but in relevant part broadly prohibits “any unlawful, unfair or fraudulent business act or practice.” (Bus. & Prof. Code, § 17200.) “Because . . . section 17200 is written in the disjunctive, it establishes three varieties of unfair competition—acts or practices which are unlawful, or unfair, or fraudulent. In other words, a practice is prohibited as ‘unfair’ or ‘deceptive’ even if not ‘unlawful’ and vice versa.” (Aleksick v. 7-Eleven, Inc. (2012) 205 Cal.App.4th 1176, 1184 [citing Cel–Tech Communications, Inc. v. Los Angeles Cellular Telephone Co. (1999) 20 Cal.4th 163, 180].)

This cause of action is based on the same set of facts and circumstances as the breach of contract and bad faith claims. (SAC ¶¶ 43-49.)

Because Plaintiff’s breach of contract and bad faith claims fail, Plaintiff’s derivative UCL claim also fails. (AMN Healthcare, Inc. v. Aya Healthcare Services, Inc. (2018) 28 Cal.App.5th 923, 950 [“[W]hen the underlying legal claim fails, so too will a derivative UCL claim.”]; William C. McCaughey, et al. v. Ohio Security Insurance Company, et al. Additional Party Names: Envista Forensics, LLC, Liberty Mutual Insurance Company, Mary H. McCaughey (C.D. Cal., Apr. 2, 2021, No. EDCV191484JGBSHKX) 2021 WL 2548689, at *7 [“Defendant next moves for summary judgment on Plaintiffs' Section 17200 claim, arguing that this cause of action is based on Plaintiffs' claims for breach of contract and implied covenant of good faith and fair dealing. (Mot. at 13.) Because those claims fail as a matter of law, so does the Section 17200 claim. The Court agrees, and GRANTS Defendant's Motion as to the Section 17200 claim.”].)

All of Plaintiff’s causes of action fail. The motion for summary judgment is granted. The motion for summary adjudication is moot. Within 20 days, Defendant AmGUARD is to prepare, submit, and serve a proposed Judgment consistent with the Court’s ruling.

[1] In its moving papers, AmGUARD cites Aydin Corp. v. First State Ins. Co. (1998) 18 Cal.4th 1183 for the proposition that, in the insurance context, the insured bears the burden of proving that the occurrence forming the basis of its claim is within the basic scope of insurance coverage or that there is an exception to the exclusion of an insurance policy coverage. (18 Cal.4th at 1192.) However, the discussion on the burden of proof in Aydin is inapplicable to the standard on a motion for summary judgment. The court in Aydin Corp. was discussing the burden of proof at trial.

[2] AmGUARD filed its reply a day early because of a preplanned trip on November 21, 2023.

[3] Salinas observed the other building on the Property, but no interior damage to that building was reported at the time. (DSS 25.)

[4] Because these tort claims fail, the claims’ corresponding request for punitive damages also fails. (American Cas. Co. of Reading, Pennsylvania v. Krieger (9th Cir. 1999) 181 F.3d 1113, 1123 [“If the insurer did not act in bad faith, punitive damages are unavailable.”].)