Century Nat. Ins. Co. v. Abbott

Filed 6/30/06 Century Nat. Ins. Co. v. Abbott CA4/1

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California Rules of Court, rule 977(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 977(b). This opinion has not been certified for publication or ordered published for purposes of rule 977.

COURT OF APPEAL, FOURTH APPELLATE DISTRICT

DIVISION ONE

STATE OF CALIFORNIA

APPEAL from a judgment of the Superior Court of San Diego County, Michael B. Orfield, Judge. Affirmed.

Brandon Abbott appeals from the granting of a summary judgment in favor of Century National Insurance Company (CNI) on its complaint for declaratory relief. Abbott contends the trial court erred in failing to determine he had not raised a material factual dispute as to who was insured by the policy and whether a rental agreement for a house at 161 Brisas Street in Oceanside (161 Brisas) was a sham and therefore that an exclusion for rental property in a homeowner's insurance policy issued by CNI did not apply. He also contends the court erred in failing to grant leave to amend his answer. We affirm the judgment.

FACTS

Underlying Lawsuit

Adam Arsala (Adam),^[1] a minor, and his parents, Abdul and Shanaz Arsala, resided at 161 Brisas. While Adam, Abbott and a young woman were at 161 Brisas, the young woman found a BB gun under a futon, fired it, and accidentally injured Abbott.

Abbott and his parents filed suit against the Arsalas, as well as Mary Rahim who held title to the house, for negligence and premises liability. Rahim was eventually dismissed from the action. CNI, under a reservation of rights, provided a defense for Adam and Rahim and then brought this declaratory relief action seeking a declaration that they were not covered by the policy.

Facts Relevant to Declaratory Relief Action

To understand Abbott's claims on appeal, it is necessary to understand the relationship between the Arsalas and Rahim as well as the circumstances surrounding the purchase, occupancy and subsequent sale of 161 Brisas.

Rahim and Shanaz were both born in Kabul, Afghanistan, and attended the same high school. They were also both members of the Mogul group, which is a "close community." Rahim immigrated to the United States in 1981, settling first in New York City. The Arsalas immigrated in 1987, settling first in Virginia. Before coming to the United States, Shanaz contacted some of her classmates, including Rahim. The Arsalas, after living in Virginia for five or six years, moved to Yakima, Washington at Rahim's suggestion, where she then lived. They stayed with Rahim for a couple of months.

In 1999 and 2000, Shanaz received checks for two separate personal injury settlements totaling about $30,000. She had intended to use the money for Adam's college education, but when Rahim asked Shanaz for money, Shanaz loaned the money to her. Shanaz did not give her the money all at once, but in $5,000 or $6,000 increments.

Eventually, the Arsalas moved to San Diego County. By that time, both Shanaz and Abdul were totally disabled, receiving social security disability income and federal Housing and Urban Development section 8 (24 CFR § 982.1 (Section 8)) rental assistance that paid about 70 percent of the rent. The Arsalas moved to a Carlsbad neighborhood that was unsafe and a bad environment for their teenage son. While they were living in Carlsbad, Rahim asked the Arsalas to help her daughter, who wanted to move to southern California. Rahim's daughter stayed with the Arsalas at their Carlsbad apartment, left some of her belongings there and had her mail delivered there for several months.

Rahim became interested in investing in the San Diego real estate market. She asked the Arsalas to look for property for her to purchase. Shanaz found a realtor in an Afghan publication who recommended 161 Brisas. The house was for sale, not for rent. The Arsalas were not interested in purchasing a house; they could not afford to do so. Shanaz called Rahim about the house, and she decided to purchase it in late 2001. She made a down payment of about $30,000. Title to the property was taken in Rahim's name and the deed was recorded in January 2002. Rahim purchased the homeowners policy at issue in this case, and she was the only named insured on the policy. The policy excluded liability coverage for full-time rental property.

Rahim agreed to rent the property to the Arsalas because she knew them; they were members of the Afghan community; they had helped her find the house; and she could trust them to pay the rent and not damage the house. The Arsalas wanted to move from their Carlsbad apartment because the neighborhood was unsafe. Rahim and the Arsalas entered a written rental agreement on February 4, 2002; a written agreement was necessary so the Arsalas could continue to receive the Section 8 rent subsidy. The monthly rent was $1,500. Rahim testified the mortgage payments were $2,000 to $2,500 "or maybe less." Records from Countrywide Home Loans (Countrywide) show the mortgage payments on the first loan on the property were about $1,744 and $200 to $300 on the second loan.

Rahim and Shanaz stated in their depositions that Rahim generally paid the mortgage and insurance on the property except on a few occasions when, due to inclement weather in Washington and a fear of being late on the payments, Shanaz made the payments and was reimbursed for payments that exceed the rent. The record contains checks indicating the Arsalas made mortgage payments in January, February, April, and May 2002 to Countrywide.^[2]

When the Arsalas asked Rahim to repay the $30,000 loan so Abdul could pay funeral expenses for his father and credit card debt, Rahim refinanced 161 Brisas and gave the Arsalas about $30,000.

Rahim became ill and could no longer afford the mortgage payments. She was upset about the incident involving Abbott. When Abdul's brother called her from Virginia about the house, she offered to give it to him or let it go back to the bank; she was "sick and tired of the house" and she did not "want to deal with it anymore." Rahim knew Abdul's brother from Afghanistan, had talked with him on the phone previously, and had visited him in Virginia when she had lived in New York. He told her that he and Abdul did not talk to each other. Abdul stated in his deposition that he does not talk to his brother and did not facilitate or participate in the sale. Abdul speculated his brother may have learned Rahim was selling the house through Shanaz. The property was transferred to Abdul's brother in October 2003. Rahim lost her down payment plus $5,000 to $6,000 and did not obtain any of the accrued equity in the house, which was substantial. About six months later Abdul's brother sold the property for a substantial profit.

DISCUSSION

I

Summary Judgment

Abbott contends the court erred in failing to find Adam was an insured under the policy.

A defendant seeking summary judgment must show the plaintiff's cause of action has no merit, e.g., that the plaintiff cannot establish one or more of the elements of his or her cause of action. (Code Civ. Proc., § 437c, subd. (o).) The burden then shifts to the plaintiff to show there is a triable issue of material fact existing as to the cause of action or the defense. (Ibid.; Green v. Ralee Engineering Co. (1998) 19 Cal.4th 66, 72.) "For the summary judgment motion to have properly succeeded, the evidence must have left no room for conflicting inferences as to material facts. '[S]ummary judgment shall not be granted by the court based on inferences reasonably deducible from the evidence, if contradicted by other inferences or evidence, which raise a triable issue as to any material fact.' (Code Civ. Proc., § 437c, subd. (c).)" (Calvillo-Silva v. Home Grocery (1998) 19 Cal.4th 714, 735, disapproved on other grounds in Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 853, fn. 19.)

"On appeal after a motion for summary judgment has been granted, we review the record de novo, considering all the evidence set forth in the moving and opposition papers except that to which objections have been made and sustained." (Guz v. Bechtel National, Inc. (2000) 24 Cal.4th 317, 334; Galanty v. Paul Revere Life Ins. Co. (2000) 23 Cal.4th 368, 374.)

"Insurance policies are contracts and therefore subject to the rules of construction governing contracts. [Citation.] The goal of contractual interpretation is to determine and give effect to the mutual intention of the parties." (Safeco Ins. of America v. Robert S. (2001) 26 Cal.4th 758, 762-763.) The words of the policy govern its interpretation if they are clear and explicit. (Bank of the West v. Superior Court (1992) 2 Cal.4th 1254, 1264.)

"A policy provision is ambiguous when it can have two or more reasonable constructions." (Safeco Ins. of America v. Robert S., supra, 26 Cal.4th 758, 763.) Ambiguities are " 'resolved by interpreting the ambiguous provisions in the sense the promisor (i.e., the insurer) believed the promisee understood them at the time of formation. [Citation.] If application of this rule does not eliminate the ambiguity, ambiguous language is construed against the party who caused the uncertainty to exist. [Citation.]' [Citation.] 'This rule, as applied to a promise of coverage in an insurance policy, protects not the subjective beliefs of the insurer but, rather, "the objectively reasonable expectations of the insured." ' " (Montrose Chemical Corp. v. Admiral Ins. Co. (1995) 10 Cal. 4th 645, 667.) " '[A]mbiguous terms are resolved in the insureds' favor, consistent with the insureds' reasonable expectations.' " (Safeco Ins. of America v. Robert S., supra, 26 Cal.4th 758, 762, quoting Kazi v. State Farm Fire & Casualty Co. (2001) 24 Cal.4th 871, 879.)

The CNI policy defines who is "insured" as follows:

"Insured means you and the following persons if permanent residents of the residence premises:

"a. your relatives;

"b. anyone under the age of 18;

"c. if you are not a permanent resident of the residence premises but included in the Declarations as a named insured, you are an insured but your insurance is restricted to:

"(1) Coverages A and B under Section 1 -- Property; and

"(2) an occurrence arising out of the ownership, maintenance or use of the residence premises under Section II Liability." (Bold emphasis omitted.)

Abbott contends the policy language is clear and explicit that Adam was insured under the policy because he was a minor at the time of the incident and a permanent resident of 161 Brisas. We disagree.

Initially, we note the policy's definition of an "insured" contains two parts. First, it provides that "you," that is, the named insured Rahim, is an insured if she is a permanent resident of 161 Brisas and provides her relatives and anyone under the age of 18 are also insured if they are also permanent residents. Second, the definition provides that if "you," that is, the named insured Rahim, is not a permanent resident of 161 Brisas, then she is still an "insured" but her insurance coverage is restricted. This part of the definition does not list her relatives and minors as insured if they are permanent residents of the property.

Arguably the policy language could be viewed as ambiguous. The policy could be interpreted either as: (1) including relatives and minors only if they are part of Rahim's household who are all permanently residing in the premises or (2) including relatives and minors who permanently reside in the premises regardless of whether Rahim is also a permanent resident. The policy language itself, given its distinctions between whether the insured is or is not a permanent resident, supports an interpretation that Rahim, her relatives and minors are all "insureds" if Rahim is a permanent resident along with her relatives and minors, but that if Rahim does not live on the premises, then only she is an insured. This interpretation is consistent with other policy provisions indicating an intent to provide broad liability coverage for owner-occupied property and the owner/insured's household on the premises. For example, as we discuss in part II, the policy excludes liability coverage when the premises are full-time rental property.

Abbott contends "it would . . . be reasonable for . . . Rahim to expect Adam Arsala would be covered, because CNI's policy explicitly makes a distinction between those permanent residents of the premises who are under the age of 18, such as Adam, and those who are 18 or over, such as his parents." As CNI points out, under Abbott's interpretation Adam would be covered by the policy since he is a minor but his parents would not be covered since they are neither minors nor relatives. This is an anomalous result that would not be reasonably expected by either an insurer or the insured. Moreover, it is not objectively reasonable for an insured to expect liability coverage for a minor who is not a member of her household, is not a relative and who lives over a thousand miles away in a different state. In such circumstances, the named insured has no control of any kind over the minor and could not reasonably expect CNI to provide liability coverage.

Finally, Rahim personally would not have had a reasonable expectation that Adam would be insured by the policy because she had entered into a rental agreement with the Arsalas. As Abbott concedes, the policy specifically excludes liability coverage for full-time rental property. In such circumstances, Rahim could not have had any objectively reasonable expectation that Adam or any of the Arsalas would be covered by the policy.

In sum, the court properly granted summary judgment on the ground that none of the Arsalas were covered by the policy.

II

Exclusion for Business Property

Abbott contends he raised a triable issue of fact as to whether the rental agreement was a sham. He contends Rahim had no profit motive since the rental agreement was a sham and she did not obtain any of the equity in the house or profit when it was sold and therefore Rahim was not engaged in a "business enterprise" within the meaning of the CNI policy.

The CNI policy excludes liability coverage for personal liability and medical payments to others for bodily injury "arising out of business pursuits of any insured." (Bold emphasis omitted.) "Business" is defined in the policy as follows:

"Business means any full- or part-time trade, profession or occupation, including . . . rental or holding for rental of the whole or a portion of any premises by any insured." (Italics added, bold emphasis omitted.)

This business pursuit exclusion for personal liability/medical payments does not apply to:

"(1) the occasional rental or holding for rental of the residence premises for exclusive use as a residence;

"(2) the rental or holding for rental of a part of the residence premises for exclusive use as a residence and for no more than two roomers, boarders or tenants;

"(3) the rental or holding for rental of a part of the residence premises as a private garage; or

"(4) with respect to Coverage E [personal liability] to the occasional part-time business pursuits of an insured who is under 18 years of age." (Bold emphasis omitted.)

Basically, Abbott's claim the rental agreement was a sham rests on: (1) the $30,000 loan from Shanaz to Rahim; (2) some direct mortgage payments by the Arsalas to Countrywide in 2002; and (3) the transfer of the property to Abdul's brother. Abbott draws the inferences that the Arsalas loaned Rahim the amount for the down payment, the Arsalas were de facto owners under a constructive trust theory, and the transfer of the property to Abdul's brother ultimately benefited the Arsalas. Abbott contends the rental agreement was a sham, intended only to allow the Arsalas to continue receiving Section 8 rental assistance so they could make the mortgage payments.

The problem with Abbott's argument is that it is based not on reasonable inferences but on speculation. Speculation is not evidence. (See People v. Holt (1997) 15 Cal.4th 619, 669 ["An inference is not reasonable if it is based only on speculation"]; Frei v. Davey (2004) 124 Cal.App.4th 1506, 1512 [inferences that are based on speculation or conjecture cannot support a finding of substantial evidence].)

Initially, we note that while it is undisputed that Shanaz loaned money to Rahim and that the amount loaned was similar to the down payment on the property, the deposition testimony of Shanaz and Abdul indicates they did not know whether the loan was used for the down payment and Rahim's deposition testimony in the record on appeal is silent as to what she did with the $30,000 loan from Shanaz. Additionally, the evidence in the record on appeal indicates Shanaz did not loan Rahim the entire amount at one time, but in increments of $5,000 to $6,000 and there is no evidence indicating when the money was loaned. Given the deposition testimony and the lack of evidence as to when the loan was made, only speculation supports a conclusion Rahim used the loan as a down payment.

Further, even if Rahim used the loan from Shanaz to make the down payment on 161 Brisas, in the absence of other evidence, it is only speculation that supports a conclusion the parties intended the Arsalas to be the true owners of the property. Title to the property was taken in Rahim's name alone. It is undisputed Rahim and the Arsalas entered into a rental agreement. All of the deposition testimony and declarations from the Arsalas and Rahim uniformly state Rahim owned the property and the Arsalas were tenants. At no time did the Arsalas make the full payments covering the mortgage and insurance. The mortgage payments exceeded the rent. When Shanaz made direct mortgage or insurance payments, she made them at Rahim's request and Rahim reimbursed her for amounts exceeding the rent. There was no evidence the Arsalas paid Rahim any amount greater than the monthly rental. Rahim repaid the loan to the Arsalas, the loan which Abbott claims constituted the Arsalas' down payment on the house.

Finally, Abbott relies on Rahim's transfer of the house to Abdul's brother for no consideration, which resulted in transferring equity to Abdul's brother and on the subsequent sale of the house at a profit about six months later. There is, however, no evidence in the record indicating the Arsalas received any portion of the sales proceeds. Further, undisputed deposition testimony indicated Abdul and his brother did not talk to each other and the brother lived in Virginia.

In sum, the evidence in the record on appeal shows: (1) a coincidence in the amount of the loan and the down payment; (2) a rental agreement between Rahim and the Arsalas; (3) payments of only the rental amount by the Arsalas; (4) mortgage payments by Rahim or reimbursement by Rahim to the Arsalas of mortgage payments in excess the amount of rent; and (4) Abdul's brother benefited from the transfer of the property to him by Rahim. This evidence is insufficient to support a reasonable inference that the rental agreement was a mere sham and that the business pursuit exclusion applied.^[3]

III

Amendment of Answer

Abbott contends the court abused its discretion in failing to allow him to amend his answer.

On March 3, 2005, the day before the summary judgment motion hearing, Abbott made a motion for leave to amend his answer, with a scheduled hearing date of April 22, 2005. In support of his motion to amend his answer, Abbott claimed he had discovered additional facts after he had filed his answer that showed the rental agreement was a sham. He sought to amend his answer "to correct the possible impression that defendant concedes the existence of a bonafide [sic] rental contract between Mary Rahim and the Arsala's, [sic] correct earlier inferences of the motives of the parties and incorporate the recently discovered facts." Abbott's proposed amendment deleted parts of his original answer, including statements that Rahim purchased 161 Brisas with the intent to live in the house, "for that reason purchased the subject homeowners policy," but when she could not sell her Washington house "agreed to rent to the Arsalas in the interim as she couldn't afford two mortgage payments." In his amended answer, Abbott stated:

"(B.) Although Mary Rahim was the legal owner of 161 Brisas, the Arsalas were, in fact, the beneficial owners of the property.

"(C.) There was no true rental agreement, even though a purported rental agreement was signed by the parties.

"(D.) The purported rental agreement was entered into because section 8 required a rental document for the Arsalas to continue receiving their housing assistance, but without the intent of the parties to engage in a rental relationship."

The court denied leave to amend after it had granted the summary judgment motion.

Abbott contends he is entitled, under Code of Civil Procedure section 473, to correct an inadvertent mistake in his answer, a mistake that resulted because discovery had not yet taken place.

Code of Civil Procedure, section 473, subdivision (b) allows relief from a judgment based on the grounds of mistake, inadvertence, surprise or excusable neglect. The mistake may be one of either law or fact. (8 Witkin, Cal. Procedure (4th ed. 1997), Attack on Judgment in Trial Court, §§ 160, 161, pp. 662-664 .) A party seeking relief must show the mistake was "excusable" and the motion was timely. (Rappleyea v. Campbell (1994) 8 Cal.4th 975, 982.) The court's decision is reviewed for an abuse of discretion. (Solv-All v. Superior Court (2005) 131 Cal.App.4th 1003, 1007.)

We find no abuse of discretion because amendment of the pleading would not have changed the outcome of the summary judgment motion. The trial court did not base its ruling on the statements contained in Abbott's answer but on its determinations Adam was not insured by the CNI policy and Abbott had failed to present facts to raise a triable issue of fact as to whether the rental agreement was a sham, determinations we have affirmed on appeal.

DISPOSITION

The judgment is affirmed. CNI is awarded costs on appeal.

McCONNELL, P. J.

WE CONCUR:

O'ROURKE, J.

IRION, J.

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^[1] When referring to the Arsalas individually, we use their first names for the sake of convenience.

^[2] We note the date on one of the copies of the checks in the record is illegible.

^[3] We note proof the rental agreement was a sham would probably void the policy. The policy provides: "This entire policy shall be void if . . . an insured has wilfully concealed or misrepresented any material fact or circumstances concerning this insurance or the subject thereof, or the interest of an insured therein . . . ." (Bold emphasis omitted.) Proof the rental agreement was a sham would mean Rahim misrepresented a material fact, that is, who owned the property.