CYPRESS GROVE TOWNHOUSE PROJECT COMMITTEE v. COVENANT MUTUAL INSURANCE COMPANY

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Court of Appeal, Sixth District, California.

CYPRESS GROVE TOWNHOUSE PROJECT COMMITTEE, et al., Plaintiffs and Appellants, v. COVENANT MUTUAL INSURANCE COMPANY, et al., Defendants and Respondents.

No. H001614.

Decided: December 22, 1987

Robert K. Johnson and Wyckoff, Richardson, Sanson, Allen & Lock–Paddon and Bruce A. Richardson, Watsonville, for plaintiffs and appellants. Thomas R. Fellows and Robinson & Wood, Inc., San Jose, for defendants and respondents.

We must determine in this case whether storm damage to sand dunes which formerly provided lateral support and protection from wave action to an insured town house complex is covered under the policy insuring that complex.   We conclude that the policy does provide such coverage, and that the insurance company has an obligation to either restore the sand dunes to their former state, or pay for the construction of a replacement structure providing protection equivalent to that provided by the sand dunes before they were destroyed.

PROCEDURAL HISTORY

Appellant Cypress Grove Townhouse Project Committee 1 filed a complaint against respondent Covenant Mutual Insurance Company and others 2 seeking recovery for property damage under a “Difference in Conditions” insurance policy which Covenant Mutual had issued insuring the Cypress Grove Townhouse Project.3  Covenant Mutual answered and subsequently moved for summary adjudication of issues and summary judgment.   Cypress Grove filed declarations and points and authorities in opposition to the motion.   Following a hearing, the superior court granted the motion and thereafter entered judgment in favor of Covenant Mutual.   Cypress Grove has appealed.

FACTS

Since this is an appeal from a summary judgment, we must accept as true the evidence presented by the nonmoving party (here Cypress Grove) and must resolve any factual conflicts in its favor.  (Bert G. Gianelli Distributing Co. v. Beck & Co. (1985) 172 Cal.App.3d 1020, 1034, 219 Cal.Rptr. 203;  Balen v. Peralta Junior College Dist. (1974) 11 Cal.3d 821, 825, 114 Cal.Rptr. 589, 523 P.2d 629;  Brandlin v. Belcher (1977) 67 Cal.App.3d 997, 999, 134 Cal.Rptr. 1;  Kelleher v. Empresa Hondurena de Vapores, S.A. (1976) 57 Cal.App.3d 52, 56, 129 Cal.Rptr. 32.)   Viewing the evidence in the light most favorable to appellant, as we must in this case, the record discloses the following:

The Cypress Grove town houses are located near the beach at Pajaro Dunes in Santa Cruz County.   Beginning in January of 1983, a severe ocean storm and high tides caused massive erosion of the beach and sand dunes which had previously supplied lateral support and wave protection to the town houses.   As a result of the storm, the beach level dropped three to five feet.   In addition, 30 to 90 feet of protective sand dunes in front of the town houses were destroyed, leaving a vertical escarpment 12 to 25 feet high.   This near vertical scarp came within three to five feet of many of the town house units.

The town house association took immediate measures to protect the town houses.   Emergency crews installed riprap 4 along the base of the erosion scarp to prevent the actual undermining of the foundations.   However, continuing storms destroyed this initial riprap protection.   Consequently, crews installed a second riprap fortification by placing rock directly on the beach in front of the erosion scarp and piling it against the exposed sand slope in a manner that covered nearly all of the exposed slope.   This second fortification protected the sand scarp from unusually strong surf that battered the eroded beach for nearly a month.   The fortification was also necessary to provide lateral support for the foundations of the nearby structures.

For the most part, the emergency riprap construction occurred during storms, and the effort was hampered by high tides and waves.   Consequently, the riprap was not engineered for permanent protection—the construction crews did not place blanket rock or filter fabric at the base of the structure and did not strategically interlock the rock during construction.

According to a soil and foundation engineer hired by Cypress Grove, the existing riprap is inadequate to provide long-term protection.   The expert concluded that “[o]ver the course of normal continual storm wave bombardment, most of the riprap structures presently on the beach will deteriorate, causing settlement, overtopping and disbursement of the rock, leaving the [town house] structures unprotected and deprived of necessary lateral support.”

Covenant Mutual concedes that the casualty policy was in effect at the time of the storm, and that the storm is a “covered peril” under the terms of the policy.   In fact, Covenant Mutual has already paid Cypress Grove approximately $300,000 for the costs of installing the emergency riprap, future costs of removing the riprap,5 and expenses incurred for walkways, stairways, and related structures on the insured property.

However, Cypress Grove contends that Covenant Mutual is also liable for the cost of dune restoration and a permanent structure—described as a seawall—which will provide lateral support to the town house foundations and will protect them from future wave action.   Although the estimated cost of this seawall is not set out in the declarations, it has been described as a “multi-million dollar structure” by respondents' counsel.

In granting summary judgment for Covenant Mutual, the superior court found specifically that the policy did not provide coverage for the destruction of the sand dunes and the loss of necessary lateral support.   Since we disagree with this conclusion, we reverse the summary judgment and remand the case to the superior court for trial.

DISCUSSION

The Covenant Mutual policy protects the Cypress Grove town houses against “all risks of physical loss or damage from any external cause” except as explicitly excluded by the policy.   The parties agree that the wave action generated by the storms is a covered peril under the policy.   Where they disagree is on the extent of the property covered by the policy.

The policy describes the property covered in the following manner:  “PROPERTY OR INTEREST COVERED—THIS POLICY COVERS PROPERTY DESCRIBED IN ITEMS A, B, C, D, & E, BELOW BUT NO COVERAGE ATTACHES UNDER ANY ITEM UNLESS AN “X” IS INSERTED IN THE BOX PRECEDING THAT ITEM:  [¶] ITEM A—ON BUILDING(S) AND/OR STRUCTURES IN ALL PARTS, INCLUDING ADDITIONS AND/OR EXTENSIONS IN CONTACT THEREWITH (REGARDLESS OF CONSTRUCTION) AND ON ALL PROPERTY BELONGING TO AND/OR CONSTITUTING A PERMANENT PART OF SAID BUILDINGS AND/OR STRUCTURES AND PERTAINING TO THE SERVICE, UPKEEP, MAINTENANCE AND OPERATION THEREOF;  ALL WHICH NOW IS OR MAY HEREAFTER DURING THE TERM OF THIS POLICY BECOME AT THE RISK OF THE INSURED.”   Item A is the only box checked, and the remaining items are irrelevant to the determination of the issue before us.

In interpreting the policy, we begin with some basic propositions.   First, since neither party introduced any extrinsic evidence to aid in interpreting the policy, we are free to exercise our independent judgment in determining whether the policy covers the loss of the sand dunes and/or lateral support to the structures.  (Parsons v. Bristol Development Co. (1965) 62 Cal.2d 861, 865–866, 44 Cal.Rptr. 767, 402 P.2d 839;  9 Witkin, Cal.Procedure (3d ed. 1985) Appeal, § 294, p. 305.)   Secondly, any uncertainty or ambiguity in an insurance policy must be resolved against the insurer.  (Wildman v. Government Employees' Ins. Co. (1957) 48 Cal.2d 31, 35, 307 P.2d 359;  Healy Tibbits Constr. Co. v. Employers' Surplus Lines Ins. Co. (1977) 72 Cal.App.3d 741, 751, 140 Cal.Rptr. 375;  Hughes v. Potomac Ins. Co. (1962) 199 Cal.App.2d 239, 248, 18 Cal.Rptr. 650.)  “If semantically permissible, the contract will be given such construction as will fairly achieve its object of securing indemnity to the insured for the losses to which the insurance relates.”  (Wildman, supra, 48 Cal.2d at p. 35, 307 P.2d 359.)

We have failed to uncover any authority which deals with the precise form of damage at issue in this case.   However, several cases which address the scope of coverage for damage caused by landslides convince us that Covenant Mutual is required to pay for permanent lateral support for the project buildings.

First, in Pfeiffer v. General Insurance Corporation (N.D.Cal.1960) 185 F.Supp. 605, an insured home was damaged in a landslide.   After the slide, the land underneath the home remained unstable, rendering the structure unsafe.   The plaintiffs sued to have the insurance carrier pay for stabilizing the underlying soil.   The insurance policy provided coverage for the plaintiffs' “dwelling.”   Consequently, the court described the issue before it in the following manner:  “Does an insurance policy which insures a dwelling against the perils of landslide cover the land underlying the house, as well as the house itself?”  (Id. at p. 606.)   After observing that the term “dwelling” had been interpreted both broadly and narrowly depending on the context (id. at p. 607), the court stated:  “In the case at bar it is manifest that the land underlying the house must be encompassed within the word ‘dwelling’ unless the policy is to be interpreted as illusory.   It appears to this court, and this court finds, that no amount of repairs to the present structure alone will cure the damage or replace the dwelling until the earth movement under the structure is stabilized.”  (Id. at p. 608.)   The court concluded that “to require plaintiffs to repair the house and garage on a mass of shifting earth is to render abortive their rights and to place a construction [on the policy] that results in an absurdity.”  (Ibid.)

The rationale underlying Pfeiffer was extended in Hughes v. Potomac Ins. Co., supra, 199 Cal.App.2d 239, 18 Cal.Rptr. 650.   There, a home located near a creek bank was insured by an “all risk” policy.   A major slide on the property destroyed a block of earth 30 feet wide and 100 feet long.   This left the home standing on the edge of a newly formed 30–foot cliff and deprived the home of essential subjacent and lateral support.   Although the slide caused only $50 damage to the home itself, the cost of a retaining wall and fill necessary to support the dwelling and stabilize the soil was estimated at $19,000.  (Id. at p. 243, 18 Cal.Rptr. 650.)

Again, the insurance company contended that its policy covered the building structure only, and not the underlying soil or land.  (Id. at p. 245, 18 Cal.Rptr. 650.)   The Company attempted to distinguish the Pfeiffer case on the ground that the policy there under consideration insured a “dwelling” while the policy in Hughes insured a “dwelling building.”   According to the company, this language clearly indicated that only the structure itself and not the underlying land was insured.  (199 Cal.App.2d at p. 248, 18 Cal.Rptr. 650.)   In rejecting this argument, the court observed:  “In the case at bar, respondents were issued a policy insuring them against all physical loss to their ‘dwelling’ or ‘dwelling building.’   Although the policy specifically provides for the exclusion of certain items which might conceivably be considered within Coverage A, such as trees, shrubs or plants, the policy nowhere provides that the ground underlying the dwelling building is to be excluded from coverage.   Under such circumstances, the question of whether the term ‘dwelling’ or ‘dwelling building’ is controlling is of little significance.   In the Pfeiffer case, the court pointed out that to interpret the word ‘dwelling’ in such a manner as to exclude the underlying land would be to render the policy illusory.   We are of the same opinion that the same rule applies to the words ‘dwelling building.’   To accept appellant's interpretation of its policy would be to conclude that a building which has been overturned or which has been placed in such a position as to overhang a steep cliff has not been ‘damaged’ so long as its paint remains intact and its walls still adhere to one another.   Despite the fact that a ‘dwelling building’ might be rendered completely useless to its owners, appellant would deny that any loss or damage had occurred unless some tangible injury to the physical structure itself could be detected.   Common sense requires that a policy should not be so interpreted in the absence of a provision specifically limiting coverage in this manner.”  (Id. at pp. 248–249, 18 Cal.Rptr. 650.)

Finally, in Snapp v. State Farm Fire & Cas. Co. (1962) 206 Cal.App.2d 827, 24 Cal.Rptr. 44, a home insured under an all risk policy was built on poorly made fill.   Because of the unstable fill and heavy rainfall, the land beneath the home moved laterally, causing damage to the structure and its foundation.   Although the original foundation was adequate to support the home before the earth movement, it proved inadequate afterwards.  (Id. at p. 829, 24 Cal.Rptr. 44.)   The insureds therefore sought recovery for an improved foundation to stabilize the home.   Again, the insurance company tried to distinguish Pfeiffer on the ground that Pfeiffer dealt with a policy insuring a “dwelling” while the policy in Snapp insured only the “dwelling building.”   The Snapp court found this distinction unimportant, because it apparently reasoned that the case did not turn on fine points of precise contractual interpretation, but instead on more basic principles applicable to insurance contracts.   The court observed that “[t]he plain intent of the policy ․ involved, as in any contract agreeing to indemnify the insured in the event of certain contingencies, is that the insured will be made whole to the extent of the coverage contracted.”  (Id. at p. 832, 24 Cal.Rptr. 44.)   In order to meet this goal, a redesigned and improved foundation was necessary, according to the court.

The Snapp court also stated that “[i]t need not be determined whether the policy here involved covers the land beneath the dwelling, per se, to agree with the reasoning of the court in Pfeiffer ․” that it would be absurd to require the homeowners to repair their home before the land underneath was stabilized.  (Id. at p. 833, 24 Cal.Rptr. 44.)

 From these three cases we distill the following rule:  When a policy insures a “dwelling” or “dwelling building” against damage caused by earth movement, and such a peril damages or threatens the structure, the insurer has an obligation to pay for measures necessary to provide at least the same degree of lateral and subjacent support as existed prior to the earth movement.

 By analogy, we think this rule should also apply to a policy which insures “buildings and/or structures in all parts” against damage to the property caused by wave action.   In other words, we believe that Covenant Mutual has an obligation to pay for measures necessary to provide the same degree of lateral support and protection from ocean waves as existed prior to the erosion caused by the storms at issue.   We do not mean to imply by this ruling that Covenant Mutual must build the seawall Cypress Grove has demanded or restore the dunes in the manner they desire.   The measures necessary to provide the same degree of lateral support and protection from ocean waves as existed prior to the erosion have not yet been determined by the parties.   In short, this is an issue of fact which must be determined at trial.

Although Covenant Mutual has not directly attacked Pfeiffer, Hughes, and Snapp, it makes a number of arguments in an effort to distinguish those cases and to show that this case is fundamentally different.   We reject each of these arguments.

First, in a manner reminiscent of the Book of Revelations, Covenant Mutual paints an apocalyptic picture of what will occur should Cypress Grove prevail in this case.   In order to do this, the company mischaracterizes the issue presented by this appeal.   According to Covenant Mutual, Cypress Grove seeks to create an “implied warranty of safety” which, taken to its logical extreme, would require automobile insurers to replace worn tires on insured automobiles and fire insurers to equip all existing commercial structures with modern fire sprinkler systems.   As we have previously explained, the relief we provide in this case is much narrower than the “implied warranty of safety” Covenant Mutual fears.   We hold only that Covenant Mutual has an obligation to pay for measures designed to provide the same degree of lateral support and protection from ocean waves as existed prior to the storm induced erosion.   The company does not have an obligation to provide superior protection to that which existed prior to the storm, nor to insure the property against the possibility of any future damage.

Second, Covenant Mutual contends that the policy insures “buildings and structures” only, and not the natural features of the land, such as sand dunes.   We agree with this proposition in the abstract.   That is, had the storm destroyed sand dunes on a portion of the property far removed from any buildings and structures so that the structures and buildings were not threatened by the loss of lateral support or wave protection, then, clearly, Covenant Mutual would not be obliged to pay for measures to restore those dunes.   However, that is not the case here.   Rather, Cypress Grove's soil and foundation expert indicated that the erosion does threaten the insured buildings since “[o]ver the course of normal continual wave bombardment, most of the riprap structures presently on the beach will deteriorate, causing settlement, overtopping and disbursement of the rock, leaving the structures unprotected and deprived of necessary lateral support.”  (Emphasis added.)   Thus, we believe this case is controlled by Pfeiffer, Hughes, and Snapp, where violent changes to the natural features of the land damaged or threatened the insured structures.

On a related point, Covenant Mutual argues that Pfeiffer, Hughes, and Snapp are distinguishable because those cases involved policies insuring “dwellings” or “dwelling buildings,” while the policy at issue here insured “building(s) and/or structures in all parts․”  According to Covenant Mutual, the use of “dwelling” to describe the insured property implies that the insurer has a duty to make the insured property safe for its intended purpose as a habitation, while the lack of that term indicates no such duty exists.   The distinction fails to impress.   First, the policy itself makes it clear that the “building(s) and/or structures” insured are in fact “dwellings.”   In interpreting a written contract, “all of the writing must be read together and every part interpreted with reference to the whole so that each provision ․ will be effective for its general purpose.”  (Hoagland v. City of Los Angeles (1951) 103 Cal.App.2d 499, 502, 229 P.2d 823;  Civ.Code, § 1641.)   Here, the property insured is described as “Cypress Grove Townhouses.”   A town house is defined as “[o]ne of a row of houses connected by common side walls.”  (The American Heritage Dictionary, supra, p. 1359, emphasis added.)   Unless Covenant Mutual is to contend that a “house” is not a “dwelling,” then the policy issued does, in fact, insure “dwellings” or “dwelling buildings.”   Moreover, the distinction between other “buildings” and “dwellings” simply makes no sense.   In effect, Covenant Mutual is arguing that an insurance company does not have a duty to make a nonresidential building safe and habitable after it has suffered damage, but does have a duty to make a “dwelling” habitable.   The logic of this argument escapes us.   We can see no reason why the occupants of a nonresidential building—such as workers and customers—are entitled to less protection than the occupants of a home or apartment.

Covenant Mutual next contends that it has no obligation to indemnify Cypress Grove because the insured structures were not themselves damaged in the storm.   This argument has already been rejected in Hughes.   There, the court observed:  “Despite the fact that a ‘dwelling building’ might be rendered completely useless to its owners, appellant would deny that any loss or damage had occurred unless some tangible injury to the physical structure itself could be detected.   Common sense requires that a policy should not be so interpreted in the absence of a provision specifically limiting coverage in this manner.”   (Hughes v. Potomac Ins. Co., supra, 199 Cal.App.2d at pp. 248–249, 18 Cal.Rptr. 650.)   Here, of course, the town houses have not necessarily been rendered “completely useless” to the owners.   However, they have been deprived of lateral support and wave protection necessary to their structural safety.   “Common sense” dictates that this is, in fact, damage which is compensable under the policy.

Covenant Mutual also complains that the construction of a seawall will result in a “betterment” rather than compensation for an insured loss.   First, in light of the result in Snapp, it seems a “betterment” may in fact be required where that is the only way to repair the damage caused by an insured peril.   In Snapp, the court included the cost of an improved foundation in determining the amount to be awarded to the insured.   Such a foundation was required to restore the insureds to “their former position as the occupants of a secure building.”  (Snapp v. State Farm Fire & Cas. Co., supra, 206 Cal.App.2d at pp. 832–833, 24 Cal.Rptr. 44.)

We need not determine here whether a seawall constitutes a “betterment.”   As we have stated before, Covenant Mutual has an obligation to pay for measures necessary to provide the same degree of lateral support and protection from ocean waves as existed prior to the storm induced erosion.   What those measures might be is a question of fact which the parties have not yet litigated.   However, if it appears that the construction of a seawall is the only method by which Covenant Mutual may fulfill its obligation, then, under Snapp, Covenant Mutual is required (within the policy limits, of course) to indemnify Cypress Grove for the cost of constructing that wall, even if it might be viewed as a “betterment.”

Covenant Mutual next contends that, absent direct physical damage to the structure itself, “the structure cannot be deemed ‘damaged’ for purposes of property insurance until it becomes so unfit for occupancy, so unsuitable for its intended use, or so uninhabitable that its continued use may be deemed ‘dangerous.’ ”   However, as we have already explained, in our view the destruction of lateral support for foundation structures is compensable damage to the structure.

Finally, Covenant Mutual places considerable reliance on Baalmann v. Firemen's Ins. Co. (1959) 168 Cal.App.2d 287, 335 P.2d 744.   In that case, a retaining wall was damaged in a landslide.   The retaining wall was not part of the dwelling, and the dwelling was not injured by the slide.   The insured sued to recover for repairs to the wall.   The insurance policy expressly provided that the insurer was not liable for “ ‘RETAINING WALLS NOT CONSTITUTING A PART OF A BUILDING COVERED․’ ”  (Id. at p. 288, 335 P.2d 744.)   The Court of Appeal held that there was substantial evidence presented at trial to support the trial court's conclusion that the retaining wall was not a part of the property insured.   Consequently, the denial of coverage was upheld.  (Id. at pp. 289, 291, 335 P.2d 744.)   Of course, there is no similar clause in the present policy excluding coverage for retaining walls or other structures providing lateral support.   Since Baalman turned on the interpretation of a specific exclusionary clause, we find it of little relevance to the case at bench.   In fact, the absence of such an exclusion itself militates in favor of the interpretation we adopt in this case.  (See Hughes v. Potomac Ins. Co., supra, 199 Cal.App.2d at p. 248, 18 Cal.Rptr. 650.)

In sum, we are convinced that, under the terms of the policy construed in the manner most favorable to Cypress Grove, Covenant Mutual has an obligation to pay for measures necessary to provide the same degree of lateral support and protection from ocean waves as existed prior to the erosion caused by the storms at issue.   We do not mean to indicate by this opinion what those measures might be.   That is an issue of fact which must be agreed upon by the parties or litigated at trial.

The judgment is reversed.   Costs on appeal are awarded to Cypress Grove as the prevailing party.  (Cal.Rules of Court, rule 26(a).)

FOOTNOTES

FOOTNOTE.  

1.   Suit was brought on behalf of the Cypress Grove Townhouse Project Committee and the individual owners.   For the sake of brevity, “Cypress Grove” will be used to refer to all appellants.

2.   Suit was brought against Covenant Mutual Insurance Company;  Western Insurance Brokers, Inc.;   Western Re–Insurance Brokers, Inc.;   and Swett and Crawford, Underwriting Managers.   For the sake of brevity, “Covenant Mutual” will be used to refer to all respondents.

3.   The complaint also sought recovery under tort theories which are not relevant to this appeal.

4.   “Riprap” is defined as “[a] loose assemblage of broken stones erected in water or on soft ground as a foundation.”  (The American Heritage Dictionary (1973) p. 1120.)

5.   Reimbursement for the cost of the temporary riprap was required under the policy's Sue and Labor clause, which provides:  “IN CASE OF ACTUAL (OR IMMINENT, WITH PROPER NOTICE TO AND APPROVAL FROM THIS COMPANY) LOSS OR DAMAGE IT SHALL BE LAWFUL AND NECESSARY FOR THE INSURED, THEIR FACTORS, SERVANTS OR ASSIGNS, TO SUE, LABOR AND TRAVEL FOR IN AND ABOUT THE DEFENSE, SAFEGUARD AND RECOVERY OF THE PROPERTY INSURED HEREUNDER, OR ANY PART THEREOF, WITHOUT PREJUDICE TO THIS INSURANCE, NOR SHALL THE ACTS OF THE INSURED OR THIS COMPANY IN RECOVERING, SAVING AND PRESERVING THE PROPERTY INSURED IN CASE OF LOSS OR DAMAGE, BE CONSIDERED A WAIVER OR ACCEPTANCE OF ABANDONMENT;  TO THE CHARGES THEREOF, THIS COMPANY WILL CONTRIBUTE ACCORDING TO THE RATE AND QUANTITY OF THE SUM HEREIN INSURED.”

STONE, Associate Justice.* FN* Assigned by the Chairperson of the Judicial Council.

AGLIANO, P.J., and CAPACCIOLI, J., concur.