Barshak v. American Equity Ins. Co.

Filed 7/31/07 Barshak v. American Equity Ins. Co. CA1/3

NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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

FIRST APPELLATE DISTRICT

DIVISION THREE

In this case we are asked whether the mistaken sale of personal property by a self-storage facility that is alleged to cause significant emotional distress to the owner of the personal property is covered under the facilitys comprehensive general liability insurance. We conclude there was no potential for coverage because no covered event occurred within the policy period. Accordingly, we affirm the judgment in favor of the insurance company and against the owner of the property who is the insureds assignee.

BACKGROUND

In August 1997 Jackie Barshak rented a storage space at a self-storage facility operated by Container Storage, Inc. (CSI). Because she was leaving to spend a year abroad, she paid the full yearly rental of $722and gave CSI the name and address of William Gersten as the party to whom any notices should be sent during her planned absence. Barshak stored her possessions in the storage unit, including furniture, clothing, jewelry, original artworks, the only copy of her masters thesis, heirlooms and other items of sentimental value. Barshak returned from abroad on August 3, 1998, to discover that during her absence CSI had sent her several invoices for non-payment of rent followed by a notice of intended sale. Barshak did not receive these because CSI failed to send them to William Gersten as directed. CSI sold all of Barshaks stored belongings at a public sale on May 26, 1998.

In July 1999 Barshak sued CSI. The complaint alleged breach of contract, breach of express and implied warranty, breach of the implied covenant of good faith and fair dealing, conversion, fraud, conspiracy, negligence, negligence per se and intentional infliction of emotional distress. Barshak sought damages for the fair market value of her personal property, loss of use, the lost sentimental value of personal items, emotional distress, and physical injury, pain, discomfort, anxiety, humiliation, mental anguish, and severe emotional distress. She also sought punitive damages.

CSI was insured by American Equity Insurance Company (American Equity) under a commercial general liability (CGL) policy from July 15, 1998 to July 15, 1999. American Equity denied CSI coverage because (1) the sale of Barshaks property occurred before the inception of the policy period on July 15, 1998;^[1]and (2) conversion of Barshaks property was not an occurrence as defined by the policy.

CSI and Barshak subsequently agreed to binding arbitration on Barshaks claims, and that CSI would assign its potential claims against its insurers to Barshak. The agreement recited that Barshak had fully prepaid CSIs storage fees for the year; that a CSI bookkeeping error caused her account to appear as unpaid; and that the parties believed the Reliance and American Equity policies provided coverage.

The arbitrator found CSI was negligent; that it committed an accidental conversion of Barshaks property; and that its negligence and conversion were causes of Barshaks injury, damage, loss or harm. He awarded special damages of $1,141,936, property damages of $152,320, and general damages of $2,500,000, for a total judgment of $3,794,256.

Barshak then filed this case against American Equity for breach of contract, breach of the implied covenant of good faith and fair dealing, and reimbursement. American Equity and Barshak filed cross-motions for summary judgment. The court granted summary judgment in favor of American Equity, denied Barshaks motion, and entered judgment for American Equity. Based on the allegations of the complaint and the undisputed facts, the court concluded as a matter of law that Barshaks claims against CSI were not potentially for damages because of property damage as that term is defined in the insurance contracts. Barshaks underlying complaint did not raise the potential of a claim against CSI for physical injury to tangible property or for loss of use of tangible property that has not been physically injured. See [Collin v. American Empire Ins. Co. (1994) 21 Cal.App.4th 787, 817-818 (Collin)]. The court also found that Barshaks claims were not even potentially for property damage that occurred during the American Equity policy period. As to the bodily injury allegations, the court ruled that emotional distress and bodily injury claims arising out of noncovered events do not constitute a separate bodily injury occurrence and are not covered under a general liability insurance contract. Because the bodily injury claims arose from the uncovered property damage, the court ruled, there was no potential coverage for the bodily injury claims.

The court declined American Equitys request for a finding that the allegations of the complaint were nothing more than a cause of action for conversion, which American Equity contended is not an occurrence for coverage purposes. Rather, the court concluded, whether or not the allegations in the complaint amounted to an occurrence, that occurrence itself did not occur within the policy period. Because the occurrence did not occur within the policy period, it could not have been a covered event, and the alleged bodily injuries derived from the occurrence were therefore not covered.

Barshak filed a timely appeal.

DISCUSSION

I. Standard of Review

[S]ummary judgment is properly granted when the evidence in support of the moving party establishes there is no material issue of fact to be tried and the moving party is entitled to a judgment as a matter of law. [Citations.] The trial court must decide if a triable issue of fact exists. If none does, and the sole remaining issue is one of law, it is the duty of the trial court to determine the issue of law.  (Western Mutual Ins. Co. v. Yamamoto (1994) 29 Cal.App.4th 1474, 1480-1481.)

On appeal, we review the trial courts order granting summary judgment independently to determine whether there are any triable factual issues. (Western Mutual Ins. Co. v. Yamamoto, supra, 29 Cal.App.4th at p. 1481.) Likewise, because the interpretation of an insurance policy is a question of law, [we must] make an independent determination of the meaning of the language used in the contract under consideration. [Citation.] [] Moreover, where there is no genuine issue of material fact, the appellate court should affirm the judgment of the trial court if it is correct on any theory of law applicable to the case, including but not limited to the theory adopted by the trial court. [Citations.] Thus, we must affirm so long as any of the grounds urged by [the moving party], either here or in the trial court, entitles it to summary judgment. (Ibid.; see also Lomes v. Hartford Financial Services Group, Inc. (2001) 88 Cal.App.4th 127, 131.)

II. Analysis

The question before us is purely one of law: whether, on the undisputed facts under the terms of the insurance policy, American Equity had an obligation to defend CSI. An insurers duty to defend is broader than the duty to indemnify. [Citations.] However, an insurer has a duty to defend only if it becomes aware of, or if the third party lawsuit pleads, facts giving rise to the potential for coverage under the insurance policy. [Citations.] If there is no potential for coverage, there is no duty to defend. (Lomes v. Hartford Financial Services Group, Inc., supra, 88 Cal.App.4th at p. 132.) Accordingly, summary judgment for the insurer is mandated when the insurer can prove that undisputed facts eliminate any potential for coverage under the policy. (Montrose Chemical Corp. v. Superior Court (1993) 6 Cal.4th 287, 300-301.)

Particularly, when the case turns on the interpretation or application of the terms of an insurance policy, we review the terms of the policy to determine whether the insurer owed the insured a duty to defend. A duty to defend arises when the claim creates any potential for indemnity or coverage. The determination of whether the duty to defend arises is made by comparing the terms of the policy with the allegations of the complaint and any known extrinsic facts, and any doubt as to whether the facts create a duty to defend is resolved in favor of the insured.  (Baroco West, Inc. v. Scottsdale Ins. Co. (2003) 110 Cal.App.4th 96, 100, fns. omitted.) After receiving a tender of defense, the insurer satisfies its duty to investigate by considering the complaint and the terms of the policy. Although extrinsic facts may also give rise to a duty to defend, such facts must be known at the time of tender and must reveal a potential for liability. (Id. at p. 103, fns. omitted.)

A claim is potentially covered only if the alleged harm occurred within the policy period. (Buena Vista Mines, Inc. v. Industrial Indemnity Co. (2001) 87 Cal.App.4th 482, 487.) American Equity asserts the allegations of the complaint and the known facts definitively establish it was impossible that Barshaks claims were covered because, among other things, there was no claim for covered property damage within the policy period, and there was no claim for covered bodily injury because all of Barshaks alleged emotional distress and medical claims resulted from an uncovered lossthe sale of her property. We agree.

The American Equity agreement is a standard CGL policy. The coverage section for bodily injury and property damage liability provides, in pertinent part, as follows: 1.  Insuring Agreement. [] (a) We will pay those sums that the insured becomes legally obligated to pay as damages because of bodily injury or property damage to which this insurance applies. We will have the right and duty to defend the insured against any suit seeking those damages. However, we will have no duty to defend the insured against any suit seeking damages for bodily injury or property damage to which this insurance does not apply. . . . [] . . . [] (b) This insurance applies to bodily injury and property damage only if: [] (1) The bodily injury or property damage is caused by an occurrence that takes place in the coverage territory; and [] (2) The bodily injury or property damage occurs during the policy period. (Italics added.) Property damage is defined as: a. Physical injury to tangible property, including all resulting loss of use of that property. All such loss of use shall be deemed to occur at the time of the physical injury that caused it; or [] b. Loss of use of tangible property that is not physically injured. All such loss of use shall be deemed to occur at the time of the occurrence that caused it.  Bodily injury means bodily injury, sickness or disease sustained by a person, including death resulting from any of these at any time.

The policy also contains an exclusion for Damage to Impaired Property and Property Not Physically Injured (the Impaired Property Exclusion). In relevant part, it provides that there is no coverage for:  Property damage to impaired property or property that has not been physically injured, arising out of: [] (1) A defect, deficiency, inadequacy or dangerous condition in your product or your work; or []  (2) A delay or failure by you or anyone acting on your behalf to perform a contract or agreement in accordance with its terms.

Barshaks allegations make it clear that all of her claims, whether for property damage or bodily injury, arise from the sale, and ensuing loss, of her personal items stored with CSI.^[2] Her items were sold on May 26, 1998, before the July 15, 1998, inception of the American Equity policy period. The other arguable occurrence Barshak suggests, CSIs bookkeeping error and its ensuing failure to properly notify her of her purported default in payment, took place even earlier. Therefore, the alleged property damage did not occur during the policy period. Even if Barshaks claim is construed to be for loss of the use of her property, the policy language states such loss occurs at the time of the  occurrence that caused it. Here again, that was no later than the sale held on May 26, 1998, before the American Equity policy was effective.

Barshaks claim fails for another reason as well; the Impaired Property exclusion bars the possibility of coverage. Under that exclusion, there is no coverage for property damage to property that has not been physically injured arising out of the insureds failure to perform its contractual obligations. Because Barshaks action alleged that CSI negligently or intentionally breached its contract with her by its bookkeeping and notification errors and by selling her property, the underlying suit arose from deficiencies in CSIs work, its failure to perform a contract in accordance with its terms, or both. Assuming arguendo that Barshak alleged otherwise covered property damage, coverage would be precluded under the Impaired Property exclusion.

Nor are we persuaded that Barshaks bodily injury allegations could invoke American Equitys duty to defend. Barshaks complaint alleged in several causes of action that as a result of CSIs sale of her property, she generally suffered upset, distress, anxiety, nervousness, humiliation and emotional distress. Her cause of action for intentional infliction of emotional distress alleged that she suffered pain, discomfort, anxiety, humiliation, mental anguish, and severe emotional distress. Her cause of action for negligent infliction of emotional distress is slightly different, and alleges she suffered an unspecified physical injury, pain, discomfort, anxiety, humiliation, mental anguish and severe emotional distress.^[3] Although emotional harm is not typically within the scope of bodily injury coverage in a comprehensive general liability policy, we will assume for purposes of this discussion that Barshak sufficiently alleged a bodily injury. (See generally Chatton v. National Union Fire Ins. Co. (1992) 10 Cal.App.4th 846, 855.) But we still must consider whether Barshaks bodily injury reasonably imposed on American Equity a duty to defend CSI under the policy.

Barshak relies on the rule announced in Montrose Chemical Corp. v. Admiral Ins. Co., supra, 10 Cal.4th at pages 669-673, to argue that her bodily injury occurred when she made the horrible discovery in August 1998, during the policy period, that her property was sold in May. Barshak argues her August 1998 discovery was the date of occurrence because it was when she first suffered emotional distress and physical injury. Under Montrose, the trigger for coverage is the date a party is damaged. Therefore, Barshak says she was damaged in August 1998. But it now appears to be clearly settled in California that occurrence-based liability policies were never intended to cover emotional distress damages that flow from an uncovered occurrence and an insured cannot reasonably expect coverage or a defense merely because a claim of emotional or physical distress is alleged as a result of an economic loss. (Miller v. Western General Agency, Inc. (1996) 41 Cal.App.4th 1144, 1151-1152.)

There is no claim here that CSI inflicted bodily injury on Barshak by any other means than the wrongful sale of her property. That sale, and the events leading up to it, all occurred before the effective date of the American Equity policy. Moreover, if the sale arose from an accident or occurrence as defined in the policy, the impaired property exclusion provides there was no coverage for Barshaks property loss. As horrifying as Barshaks discovery may have been, her injury was triggered by the sale of her property and all the harmful consequences flowed from it. When damages that the liability policy covers flow from damages that the policy does not cover, no duty to defend exists. (Kazi v. State Farm Fire & Casualty Co. (2001) 24 Cal.4th 871, 880; Waller v. Truck Ins. Exchange, Inc. (1995) 11 Cal.4th 1, 26-27.)

The Montrose rule was formulated to address cases seeking damages for continuous or progressively deteriorating bodily injury and property damage that occurred during the successive policy periods. (Montrose Chemical Corp. v. Admiral Ins. Co., supra, 10 Cal.4th at p. 654.) This is not such a case. Barshaks claim does not involve an injury caused by deterioration or continuous or repeated exposure to harmful conditions, and the rule announced in Montrose does not apply here. Moreover, Barshaks theory would apparently extend an insurers obligation to defend any claim of emotional distress where it is said to arise from the discovery, during the policy period, of property damage that occurred in an isolated incident before the policy was effective. Not surprisingly, Barshak provides no relevant authority for this proposition. In this very different context, Miller, Kazi and Waller, not Montrose, provides the governing rule.

Because there was no possibility of coverage for either property damage or bodily injury, American Equity had no duty to defend CSI against Barshaks claims. Summary judgment was properly granted.

DISPOSITION

The judgment is affirmed.

_________________________

Siggins, J.

We concur:

_________________________

Parrilli, Acting P.J.

_________________________

Pollak, J.

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Analysis and review provided by Santee Property line attorney.

^[1] CSI was insured by Reliance Insurance Company (Reliance) before the inception of the American Equity policy.

^[2] Barshak asserted in discovery responses that the purchaser of the property may have disposed of some of it in a dump on or about July 15, 1998, facts that theoretically could support a claim for property damage within the policy period. However, because American Equity had no notice of such facts before they were disclosed in the course of litigation, they could not have given rise to a duty to defend. (See Baroco West v. Scottsdale Ins. Co., supra, 110 Cal.App.4th at p. 103.) In any event, Barshak has abandoned this argument by failing to raise it on appeal.

^[3] This appears to be the only reference in the complaint to physical injury, and in the arbitration proceedings Barshak claimed as her only physical injury that her distress over the incident led to her premature menopause.