United States: California Fair Plan Association v. Garnes

In California Fair Plan Association v. Garnes, 11 Cal.App.5th 1276 (May 26, 2017), the Court of Appeal reversed the trial court's judgment finding that California FAIR Plan Association ("FAIR") was only obligated to pay for the fair market value of the insured Michelle Garnes' house in connection with a fire which destroyed the kitchen in her home. The fair market value of the house at the time of the fire was $75,000 while the cost of repairing the kitchen, minus depreciation, was $320,549.00. In reaching its decision, the Court of Appeal interpreted Insurance Code sections 2051, 2070 and 2071.

Section 2051 of the Insurance Code provides that under an open fire insurance policy that pays "actual cash value," the measure of such 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 (see Section 2051, subd. (b)(2)).
  • 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 (see Section 2051, subd. (b)(1)).

The parties' dispute arose out of a fire which took place in 2011 and seriously damaged a portion of plaintiff's house. FAIR took the position that it was only obligated to pay for the fair market value of the house, i.e., $75,000 under Section 2051, as opposed to the cost of repair for the home in the amount of $320,549. Garnes had purchased 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. Further, such policy was an "actual cash value" or ACV policy. In that regard, the policy contained a paragraph entitled "loss settlement" which states in relevant part that FAIR will pay the following amounts for losses to Garnes' 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 cases of losses that are not described in (1) above, we 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 before the loss of the damaged property. The policy defined "actual cash value" of property to mean its fair market value.

In response to the language in the policy, Garnes argued that section 2051, when interpreted in conjunction with sections 2070 and 2071, required FAIR to pay for the cost of repairing the damaged home, notwithstanding that the cost of such repair exceeded the fair market value of the house.

The Court of Appeal characterized the parties' dispute as follows:

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 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 CalApp.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.

The Court of Appeal then held that Section 2051 refers to physical, rather than economic loss as referred to the FAIR policy. The Court of Appeal stated as follows:

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. 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 "in case of total loss to the structure" and another that applies "in case of a partial loss to the structure" or to loss of the contents.

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."

Notwithstanding the Court of Appeal's interpretation of Section 2051, FAIR argued that section 2071 contains an indemnity cap, i.e., "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. FAIR argued as follows in connection with the indemnity cap:

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 Ca1.3d 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."

The Court of Appeal rejected FAIR's argument and interpreted section 2071 as follows:

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 minimum requirements for fire insurance policies in California. We conclude that it does so.

The Court of Appeal also held that legislative history of Section 2051 supported its interpretation of the provision in conjunction with Section 2071. In addition, the Court of Appeal held that where the FAIR policy language conflicted with these code sections, the code sections controlled the coverage afforded by the policy as such sections were mandatory.

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.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
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
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
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.


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.


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