Michael Harlan ROSENBERG et al., Plaintiffs and Appellants, v. FIRST STATE INSURANCE COMPANY, Defendant and Respondent.
Plaintiffs Michael Harlan Rosenberg and Harlan & Associates, Inc. (referred to collectively as Rosenberg) appeal from a summary judgment 1 entered in favor of defendant First State Insurance Company in plaintiffs' suit seeking damages for breach of an insurance contract and related causes of action. Plaintiffs contend the superior court erred in concluding the insurance policy purchased by plaintiffs from defendant did not provide coverage for the losses sustained by plaintiffs. For the reasons that follow, we reverse the judgment.
PROCEDURAL AND FACTUAL HISTORY
On May 16, 1985, plaintiffs filed suit against defendant for breach of an insurance contract and related causes of action.2 The complaint, as amended, alleged plaintiffs purchased “builders risk” insurance from defendant for a “commercial structure” being constructed by plaintiffs. The insurance policy, a copy of which was attached to the complaint, covered premises located at 4021 Rosewood Avenue in Los Angeles, for a term commencing December 28, 1982, and subsequently extended to July 31, 1984, and provided coverage of $3,660,000 for “Buildings” and $800,000 for “Loss of Rents.”
In its final form, the policy provided coverage for “all risks of physical loss of or damage to: [¶](a) Property in the course of construction, reconstruction or repair, including work and labor․” Under the heading “EXCLUSIONS,” appears the following: “This policy does not cover: ․ [¶]Cost of making good faulty or defective workmanship, material, construction or design, but this exclusion shall not apply to damage resulting from such faulty or defective workmanship, material, construction or design.”
Under the heading “RENTAL VALUE INSURANCE,” the policy states: “this Company shall be liable for the ACTUAL LOSS SUSTAINED ․ BY THE INSURED RESULTING DIRECTLY FROM NECESSARY UNTENANTABILITY, CAUSED BY DAMAGE TO OR DESTRUCTION OF THE BUILDING(S) OR STRUCTURE(S) AS FURNISHED AND EQUIPPED BY THE INSURED, ON THE DESCRIBED PREMISES BY THE PERIL(S) INSURED AGAINST DURING THE TERM OF THIS POLICY․”
The building was not completed as scheduled by October 1983, because “the structure sustained damages which rendered it untenantable․” Defendant, however, refused to compensate plaintiffs for the resulting loss of rental income.
On October 26, 1988, plaintiffs filed a motion for summary adjudication of issues. Plaintiffs alleged in their separate statement of undisputed material facts, and defendant admitted in its response, “that certain problems arose in the course of construction [of the insured building]; specifically, ‘shoring’ used when pouring the concrete for the slabs [in] the subterranean garage was removed prematurely,” which “resulted in the deflection of the first floor and parking level slabs, development of cracks, sloped floors, and ponding of water.”
On November 29, 1988, the superior court granted plaintiffs' motion for summary adjudication, ruling that “Defendant FIRST STATE INSURANCE COMPANY provided Plaintiffs with an ‘all risk’ policy for ‘Builder's Risk’ insurance, including coverage for lost rental value, for a commercial structure which Plaintiffs were constructing at 4021 Rosewood Avenue in Los Angeles, California.” In all other respects, the superior court denied plaintiffs' motion without prejudice.
On March 23, 1989, plaintiffs filed a second motion for summary adjudication of issues, which the superior court granted on April 25, 1989, ruling that “plaintiffs' building was untenantable until at least November 1, 1984.” The superior court denied plaintiffs' motion in all other respects.
On August 22, 1989, defendant filed a motion for summary judgment. Defendant alleged in its separate statement of undisputed material facts, and plaintiffs admitted in their response, the following: “8. The project was scheduled to be completed in January 1984.3 [¶]9. Due to defective workmanship material, construction or design plaintiffs were delayed in completing the project and obtaining a certificate of occupancy. [¶]10. Plaintiff[s] did not obtain a [ ]Certificate of occupancy until November of 1984. [¶]11. Plaintiff [s] submitted a claim under the policy for loss of rents․ [¶]14. Other than the damage from faulty or defective workmanship, construction or design no resulting physical damage was presented by plaintiffs or discovered [by defendant's] investigation. [¶]15. During the investigation the only physical damage discovered and presented by plaintiffs was the faulty or defective workmanship, material, construction or design․ [¶]16. Plaintiffs['] claim was denied on the basis that plaintiffs' inability to obtain a certificate of occupancy was the result of faulty or defective workmanship, material, construction or design without any resulting physical damage and therefore no coverage existed for alleged loss of rents.”
On the same day that defendant filed its motion for summary judgment, plaintiffs filed a third motion for summary adjudication of issues.
On September 25, 1989, the superior court granted defendant's motion for summary judgment and denied plaintiffs' motion for summary adjudication of issues. The court's minute order 4 states: “The insuring clause is not ambiguous and clearly requires physical damage to the property in order for there to be coverage. Plaintiff's contention that the adjective ‘physical’ modifies only the noun ‘loss' but not the noun ‘damage’ in the phrase ‘․ all risks of physical loss of or damage to property in the course of construction ․’ is strained and artificial and not within the zone of reasonableness. Plaintiff offers no parol evidence in support of its interpretation.”
A motion for summary judgment “shall be granted if all the papers submitted show that there is no triable issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” (Code Civ.Proc., § 437c, subd. (c).) “In order to prevent the imposition of a summary judgment, the disputed facts must be ‘material,’ i.e., relate to a claim or defense in issue which could make a difference in the outcome. [Citation.] We recognize that summary judgment procedures are viewed as ‘drastic’ [citations]; however, the purpose of a summary judgment ‘is to expedite litigation by avoiding needless trials' [citation].” (Burton v. Security Pacific Nat. Bank (1988) 197 Cal.App.3d 972, 976–977, 243 Cal.Rptr. 277.)
“ ‘ “ ‘[T]he party moving for summary judgment has the burden of showing by declarations or affidavits setting forth facts admissible as evidence in a trial that the claims or defenses of the adverse party are entirely without merit on any legal theory․’ ” ' [Citation.]” (Dolquist v. City of Bellflower (1987) 196 Cal.App.3d 261, 266, 241 Cal.Rptr. 706.) The declarations of the moving party are strictly construed and those of the nonmoving party liberally construed, “ ‘and doubts as to the propriety of granting the motion should be resolved in favor of the party opposing the motion.’ ” (Sheffield v. Eli Lilly & Co. (1983) 144 Cal.App.3d 583, 611, 192 Cal.Rptr. 870; Becker v. IRM Corp. (1985) 38 Cal.3d 454, 458, 213 Cal.Rptr. 213, 698 P.2d 116.) “The reviewing court conducts a de novo examination to determine whether there are any genuine issues of material fact or whether the moving party is entitled to summary judgment as a matter of law. [Citation.]” (Onciano v. Golden Palace Restaurant, Inc. (1990) 219 Cal.App.3d 385, 391, 268 Cal.Rptr. 96.)
The superior court granted defendant's motion for summary judgment on the ground that “[t]he insuring clause ․ requires physical damage to the property in order for there to be coverage.” “[S]ince the underlying facts are not in dispute ‘ “it is the duty of the appellate court ․ to make its own independent determination of the meaning of the language used in the instrument [ ] under consideration.” [Citations.]’ ” (State Farm Mut. Auto. Ins. Co. v. Partridge (1973) 10 Cal.3d 94, 100, 109 Cal.Rptr. 811, 514 P.2d 123.)
We are guided in this task by “established principles applicable to the interpretation of insurance policies. Words used in an insurance policy are to be interpreted according to the plain meaning which a layman would ordinarily attach to them. Courts will not adopt a strained or absurd interpretation in order to create an ambiguity where none exists. [Citations.] [¶]On the other hand, ‘any ambiguity or uncertainty in an insurance policy is to be resolved against the insurer and ․ if semantically permissible, the contract will be given such construction as will fairly achieve its object of providing indemnity for the loss to which the insurance relates.’ [Citations.] ․ ‘Whereas coverage clauses are interpreted broadly so as to afford the greatest possible protection to the insured [citations], exclusionary clauses are interpreted narrowly against the insurer. [Citations.]’ ․ ‘ “[T]he burden rests upon the insurer to phrase exceptions and exclusions in clear and unmistakable language.” [Citation.]’ ” (Reserve Insurance Co. v. Pisciotta (1982) 30 Cal.3d 800, 807–808, 180 Cal.Rptr. 628, 640 P.2d 764.)
The insuring clause of the policy here at issue, in broad language, provides coverage for “all risks of physical loss of or damage to: [¶](a) Property in the course of construction, reconstruction or repair, including work and labor․” Assuming arguendo that the superior court is correct that this language requires there be physical damage to the property in order for the policy to provide coverage, the record discloses the existence of a triable issue of fact as to whether the insured building sustained such physical damage. Plaintiffs alleged in their separate statement of undisputed material facts, and defendant admitted in its response, “that early removal of the shorings [used when pouring the concrete for the slabs in the subterranean garage] resulted in the deflection of the first floor and parking level slabs, development of cracks, sloped floors, and ponding of water.” The record, therefore, establishes the building suffered physical damage within the meaning of the insuring clause, and the superior court erred in granting summary judgment on the ground that no such physical damage occurred.
This does not end our analysis, however, for we still are required to affirm the summary judgment if the superior court's ruling is “ ‘right upon any theory of the law applicable to the case, ․ regardless of the considerations which may have moved the trial court to its conclusion.’ [Citation.]” (D'Amico v. Board of Medical Examiners (1974) 11 Cal.3d 1, 19, 112 Cal.Rptr. 786, 520 P.2d 10.)
The broad scope of the insuring clause in the contract here at issue is narrowed by various exclusions. Defendant asserts that the following exclusion applies in the present case: “This policy does not cover: ․ [¶]Cost of making good faulty or defective workmanship, material, construction or design, but this exclusion shall not apply to damage resulting from such faulty or defective workmanship, material, construction or design.” Relying upon this clause, defendant urges that “faulty workmanship is ․ not a covered peril” and, accordingly, the policy provides no coverage for loss of rents resulting from such faulty workmanship. We disagree.
The policy's exclusion of coverage for the cost of “making good” faulty workmanship does not establish that faulty workmanship is not a covered peril. To the contrary, the phrase stating this exclusion goes on to clarify that “this exclusion shall not apply to damage resulting from such faulty or defective workmanship, material, construction or design.” Because damage resulting from defective workmanship is expressly covered by the policy, the conclusion is inescapable that faulty workmanship is a covered peril.
A more complex issue is whether the word “damage,” as used in the phrase “this exclusion shall not apply to damage resulting from such faulty or defective workmanship, material, construction or design,” is limited to physical damage or instead includes in addition economic damage such as loss of rents.
The case of Southern Cal. Edison Co. v. Harbor Ins. Co. (1978) 83 Cal.App.3d 747, 148 Cal.Rptr. 106 construed an insurance contract containing an exclusion clause identical to the one here at issue. The insured sought reimbursement for the costs of “mudjacking operations” necessary to raise the foundations of a generating plant to their intended elevation, asserting that defective foundations caused damage “to the steel H beams of the superstructure.” The Court of Appeal held: “The rule emerging from the cases is that the insurer, while not liable for repair or replacement of the contractor's defective work or product, is nonetheless liable for damages to other property caused by the defects. [Citation.] Where there is no showing made of damage aside from the defective work or product, no recovery has been permitted.” (Id., at p. 756, 148 Cal.Rptr. 106.)
The court's statement that the insurer is “liable for damages to other property caused by the defects” seems to suggest that such damage must be physical rather than economic. But the facts before the court in Edison involved only allegations of physical damage resulting from defective workmanship. The court had no occasion to consider whether the language in the insurance contract would cover liability for economic damages as well as physical damage.
“Language used in any opinion is of course to be understood in the light of the facts and the issue then before the court, and an opinion is not authority for a proposition not therein considered. [Citation.]” (Ginns v. Savage (1964) 61 Cal.2d 520, 524, fn. 2, 39 Cal.Rptr. 377, 393 P.2d 689.) We conclude that the phrase in the contract of insurance, “this exclusion shall not apply to damage resulting from such faulty or defective workmanship, material, construction or design,” encompasses economic damages resulting from defective workmanship as well as physical damage. Not only is this phrase, by its terms, not limited to physical damage, but consideration of the phrase in the context of the entire contract supports the conclusion that the word “damage” was intended to include economic damages, because coverage is expressly provided for loss of rents resulting from covered perils. Accordingly, the superior court erred in rendering summary judgment in favor of defendant.
The judgment is reversed. Plaintiffs shall recover their costs on appeal.
1. Although plaintiffs purported to appeal from “the Judgment,” the record initially provided this court did not include a judgment, but only a minute order granting defendant's motion for summary judgment. Such an order is not appealable. (Morales v. Coastside Scavenger Co. (1985) 167 Cal.App.3d 731, 733, fn. 1, 213 Cal.Rptr. 482.) In response to our order directing plaintiffs' attention to this deficiency, plaintiffs have provided us with a certified copy of a judgment entered March 12, 1991. We therefore treat the notice of appeal as an effective, though premature, notice of appeal from that judgment. (Cal. Rules of Court, rule 2(c).)
2. The first amended complaint also named as a defendant Carroon & Black, an unincorporated association, but this defendant is not a party to the present appeal.
3. As previously noted, plaintiffs' first amended complaint alleged a different completion date, namely October 1983.
4. Plaintiffs have not provided this court with a reporter's transcript of the hearing.
GEORGE, Associate Justice.
ARLEIGH M. WOODS, P.J., and GOERTZEN, J., concur.