Advanced Network, Inc. v. Peerless Ins. Co., 190
Cal.App.4th 1054 (2010)
BACKGROUND FACTS
ANI contracted with Mission Federal Credit Union to service its
cash distribution machines. It was subsequently discovered that an
ANI employee had stolen approximately $2 million in cash from
Mission Federal. Mission Federal made a claim against its fidelity
bond holder, Cumis Insurance Society, which paid the claim and then
sued ANI. ANI tendered the defense of the lawsuit to its CGL
carrier, Peerless. Peerless denied the claim on the ground that
there was no "property damage" as money is not
tangible property and because theft would not be an
"occurrence." ANI subsequently settled with Cumis
and commenced an action against Peerless for breach of contract and
bad faith. Both parties moved for summary judgment and/or summary
adjudication. The trial court granted ANI's motion for
summary adjudication as to Peerless's duty to defend on the
ground that Mission Federal sustained a "loss of
use" of the cash. The court further found that the theft,
from the standpoint of ANI, was accidental. The matter proceeded to
trial and Peerless was found to have breached the duty to indemnify
as well as the duty of good faith and fair dealing. Punitive
damages and Brandt fees were also awarded. Peerless appealed.
THE COURT'S RULING
In reversing the trial court, the Court of Appeal relied heavily
on Collin v. American Empire Ins. Co. (1994) 21
Cal.App.4th 787. In Collin, the court held that conversion
of property did not amount to "loss of use."
Although the Collin court recognized that the plaintiffs had
lost the use of their property, the damages they recovered were not
"loss of use" damages, but instead the value of
the property itself.
Applying this reasoning, the Court of Appeal in the present case
determined that the phrase "loss of use" is not
synonymous with the term "loss" for insurance
purposes. Coverage for "loss of use" is not
triggered when the only damages sought represent the replacement
value of converted property.
THE EFFECT OF THE COURT'S RULING
The court's holding follows prior California appellate
decisions to the effect that damages for replacement of converted
property do not qualify as "loss of use."
However, of significance is footnote 2 in the court's
opinion. In that footnote, the court points out that ANI argued
that the term "loss of use" should be interpreted
as including actual loss of cash since there is no rental value for
cash. The court noted that rental value is not the only measure of
damages for loss of use of property. Since financial institutions
make money through use of money, temporary deprivation of large
sums of cash could cause damages such as lost interest or lost
profits on investments. It is unclear whether this court would have
found that a complaint containing such allegations would have been
sufficient to trigger an obligation to defend.
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This opinion is not final. It may be withdrawn from publication or
modified upon rehearing. These events would render the opinion
unavailable for use as legal authority
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