United States: Grebow v. Mercury Insurance Co.

(Preventative Measures Not Covered Under Homeowners Insurance Policy)

In Grebow v. Mercury Insurance Company, 241 Cal. App. 4th 564 (2015), the California Court of Appeal affirmed the trial court's grant of summary judgment to Mercury Insurance Company ("Mercury"), finding Arthur and Helen Grebows' claim for expenditures to prevent a collapse (an insurable loss) was not covered by the terms of their homeowners policy.

The Grebows purchased a superior property homeowners policy from Mercury for their residence located in Tarzana, California. The Grebows asked a general contractor to inspect the rear deck because of recurring watermarks. The contractor found severe decay in the steel beams that supported the second floor of the house, and reported that the beams and poles could no longer support the upper portion of the house, a large portion of which would fall. Upon inspection, a structural engineer agreed with the general contractor's findings. The engineer also opined the failure of the poles and beams was caused by concealed decay and corrosion. The Grebows were advised not to enter the top portion of their home until repair work was completed. The Grebows authorized the purchase of shoring material, which was installed the next day, and entered into a construction contract for the repairs. Nearly a month later, the Grebows orally notified Mercury of their claim, which they submitted in writing the following day. Mercury investigated and, approximately four months after the Grebows submitted their claim, denied the claim. The Grebows had paid approximately $91,000 to remediate their home.

The Grebows filed an action against Mercury, asserting claims of breach of contract and tortious breach of insurance contract. The Grebows filed a motion for summary adjudication regarding coverage. Mercury filed a motion for summary judgment that there was no coverage as a matter of law so Mercury was not obligated to reimburse the Grebows. The trial court denied the Grebows' motion, but granted Mercury's. The trial court then denied the Grebows' motion for new trial, and the Grebows appealed the trial court's decisions as to all three motions.

In ruling on the Grebows' appeal, the Court of Appeal noted that the general rules of contract interpretation apply to insurance disputes:

The California Supreme Court has established the following rules of interpretation: "Interpretation of an insurance policy is a question of law and follows the general rules of contract interpretation. [Citation.] 'The fundamental rules of contract interpretation are based on the premise that the interpretation of a contract must give effect to the "mutual intention" of the parties. "Under statutory rules of contract interpretation, the mutual intention of the parties at the time the contract is formed governs interpretation. (Civ. Code, § 1636.) Such intent is to be inferred, if possible, solely from the written provisions of the contract. (Id., § 1639.) The 'clear and explicit' meaning of these provisions, interpreted in their 'ordinary and popular sense,' unless 'used by the parties in a technical sense or a special meaning is given to them by usage' (id., § 1644), controls judicial interpretation ... (id., § 1638.)"'" (MacKinnon v. Truck Ins. Exchange (2003) 31 Cal.4th 635, 647–648 [3 Cal. Rptr. 3d 228, 73 P.3d 1205] (MacKinnon).) Although "'"insurance contracts have special features, they are still contracts to which the ordinary rules of contractual interpretation apply." [Citation.]'" (Rosen v. State Farm General Ins. Co. (2003) 30 Cal.4th 1070, 1074 [135 Cal. Rptr. 2d 361, 70 P.3d 351] (Rosen).) "'If possible, we infer th[e] intent solely from the written provisions of the insurance policy. [Citation.] If the policy language "is clear and explicit, it governs." [Citation.]' [Citation.]" (Id. at pp. 1074–1075.)

The Court of Appeal first considered whether the Grebows' claim would be covered as "collapse," defined under the terms of the policy as "sudden and complete breaking down or falling in or crumbling into pieces or into a heap of rubble or into a flattened mass" which does not include "settling, cracking, shrinking, bulging, expansion, sagging or bowing, nor a substantial impairment of the structural integrity of a structure or building, not a condition of imminent danger of collapse or a structure or building." The Grebows argued the deck was part of the building, and that the detachment of certain elements of the deck constituted a collapse, caused by hidden decay. Mercury asserted the plain language of the policy is inconsistent with this claim. The Court pointed to a split in authority over the scope of collapse coverage: while some courts require a complete falling down or flattening to rubble, others find a collapse when the damage has materially impaired the basic structure or integrity of the building. The policy language required the former (complete falling down) and excluded the latter (impairment), rendering the collapse clause unambiguous. The Grebows did not experience a complete falling down, as required by the terms of the policy, and various other exclusions (i.e. for corrosion, wear and tear, deterioration, and rust) also applied, precluding a finding that the Grebows' claim was covered as a collapse under the terms of the policy.

Second, the Court of Appeal considered whether the Grebows' claim was covered as mitigation. In an aside, the Court noted that, while Mercury did not specifically make the argument, even if there was a collapse, the exclusion would have precluded coverage. The Grebows argued the mitigation clause of the policy entitled them to reimbursement of their costs as mitigation. Mercury argued the clause only applied after a loss occurs, so the Grebows' claim was not one for mitigation. The Court again found this clause to be unambiguous: the duty to mitigate arises after a loss to which the insurance applies. Because the only possible loss would be collapse, which did not occur as defined by the policy, the Grebows' claim was not recoverable as mitigation. The Court further determined that to read the policy as argued by the Grebows would make all maintenance calculated to prevent what would ultimately be an insurable loss reimbursable by the insurer, and the parties could not have intended to convert the homeowners insurance policy into a maintenance agreement.

The Grebows also argued Mercury had an obligation to reimburse them based on "sue and labor" clauses. However, a "sue and labor" clause "applies when a party takes steps to prevent an imminent loss that would be covered it if occurred, such as a collapse." Additionally, the mitigation clause in the policy is not the same as a "sue and labor" clause – the mitigation clause only applies after a loss. Next the Grebows contended they had a common law duty to prevent an imminent insurance loss, and Mercury had a corresponding duty to reimburse for such costs. The Court distinguished the case law on which the Grebows relied – the first as dictum, the second as relying on a "sue and labor" clause not present in the policy. After considering the conflicting authorities on this subject generally, the Court concluded: "absent a provision that provides for reimbursement, the insurer has no obligation to reimburse an insured for costs to prevent an imminent insurable occurrence from occurring." The Court then declined to consider such a provision as an implied term of the policy:

To imply an obligation to reimburse an insured for preventive acts would result in uncertainty as to when such an obligation can be enforced. For example, if an insured has a hole in his or her roof, should he or she be able to obtain reimbursement for preventing water damage by fixing the roof? If a tree is leaning ominously toward a house, is the cost of removing the tree reimbursable? All maintenance is geared towards preventing an insurable loss. To have to litigate the point at which maintenance becomes a reasonable step to prevent an imminent insurable loss is an undesirable way to deal with insurance coverage. Moreover, if insurers are responsible for such reimbursement, they will either raise the cost of insurance or attempt to insert even more explicit clauses precluding such exposure.

The Court also rejected the use of quasi-contract remedies (i.e. unjust enrichment and restitution) here because of the existence of the insurance contract.

Third, the Court of Appeals considered the Grebows' argument that Mercury was estopped from denying coverage due to its knowledge of ongoing repairs and delay in communicating its denial. The Court distinguished the Grebows' cited case law, Reliance Ins. Co. v. The Escapade, 280 F.2d 482 (5th Cir. 1960), wherein the insurer "at least implied there would be coverage if the insured mitigated losses and the insured relied upon the insurance agent's requirement of preventive work." The Court found Reliance not applicable: "Mercury did not demand anything of the Grebows or suggest that the claim would be covered if the Grebows mitigated prospective damages. Also in that case the damages had already occurred. Mercury took no action upon which the Grebows could or did rely. So estoppel is not applicable."

Fourth, the Court of Appeals considered the Grebows' claim for tortious breach of contract. Absent a claim for breach of contract, the Grebows could not establish a breach of the implied covenant of good faith and fair dealing. The Court determined the trial court properly granted summary judgment to Mercury and properly denied the Grebows' motion for summary adjudication.

Finally, the Court of Appeals considered the Grebows' arguments in support of their motion for a new trial, which was based on a claim of an error of law and triable issues of fact. The Court determined the Grebows "essentially reargued" the issues raised in the motions for summary adjudication and summary judgment, and "introduced no new facts." The Court also affirmed the denial of the motion for new trial.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions