CHAINERY INC v. FIREMAN FUND INSURANCE COMPANY (1989)

The Chainery, Inc. (plaintiff), brought this action against Fireman's Fund Insurance Company (Fireman's Fund) seeking declaratory relief and damages under an insurance policy.   Fireman's Fund moved for summary judgment and the motion was granted.   Plaintiff appeals from the summary judgment.

I

In reviewing the propriety of a summary judgment, we are limited to a consideration of whether there is in dispute a genuine issue of material fact.   Summary judgment is authorized by Code of Civil Procedure section 437c, which provides in relevant part that 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).)  “Review of the trial court's determination involves pure matters of law:  Reassessment of the legal significance of the documents upon which the trial court acted.”  (LaRosa v. Superior Court (1981) 122 Cal.App.3d 741, 744, 176 Cal.Rptr. 224.)  “It is the general rule ․ that the moving parties' declarations should be construed strictly and the responding parties' liberally.  [Citations.]”  (Id., at p. 745, 176 Cal.Rptr. 224.)

Viewing the instant record in light of the above rules, the pertinent facts which are undisputed are set forth below.

II

Plaintiff is the owner and operator of three retail jewelry stores in Northern California.   In 1985, Fireman's Fund sold plaintiff a “Jewelers' Block Policy” covering its inventory in all three stores against “all risks of loss ․ or damage.”   Specifically, the policy covered:  “Pearls, precious and semi-precious stones, jewels, jewelry, watches and watch movements, gold, silver, platinum, other precious metals, and alloys and other stock usual to the conduct of the Insured's business, owned by the Insured.”   The policy was issued for the period of one year.   Coverage was limited to $70,000 with a deductible of $2,500.

Attached to the policy and incorporated by reference therein, is plaintiff's policy application, or “proposal,” which appears to be a standardized application form for this type of policy.   Although plaintiff submitted a proposal for each of its three business locations, it is only the one submitted on behalf of its store at 2154 Hilltop Mall Road in Richmond which concerns us in the instant case.   The proposal contains numerous questions posed by Fireman's Fund relative to the amount of coverage sought and the types of security measures taken by plaintiff to protect its business against possible burglary.   Specifically, plaintiff is asked whether its premises are protected by an electrical burglar alarm system, a holdup alarm and protective system, and/or a watchman service as well as what types of safes and/or vaults are employed.   As relates to the Richmond store, plaintiff responded by indicating that the store is protected by both kinds of alarm systems but not a watchman service and listing the specifications of a safe at that location.

The proposal also contains paragraph No. 16 which is at the crux of the instant case.   That provision, labelled “WARRANTIES AS TO PROPERTY INSURED DURING TERM OF INSURANCE AT ALL TIMES WHEN PREMISES ARE CLOSED,” concerns property to be kept in the store safe after store hours.   It states:  “a. (1) The proportion by value of property on premises kept in Locked Safes and Vaults protected as indicated under ․ 15c(1) will be 70%․  (3) The proportion by value of property on premises (including window display) out of Safes and Vaults will be 30[%].”

The subject warranty is then followed by this statement which is contained in paragraph No. 20 of the proposal:  “The signing and delivery of this Proposal does not bind the Proposer to complete the insurance, nor the Company(ies) to issue a Policy, but each answer given above shall constitute a warranty should a Policy be issued.”   This statement, in turn, is immediately followed by the signature of plaintiff's president.

Finally, one other key provision for our purposes is contained in Part A of the policy and provides:  “In consideration of the premium specified in the general declarations, and of the proposal(s) and declaration(s) ․ attached hereto and made a part hereof and which [are] hereby agreed to be the basis of this policy, and which the insured hereby warrants to be true as to each and every statement and particular contained therein, the company does insure the insured named above, herein called the insured ․ from the inception date above to the expiration date in the general declarations.”

During the term of the policy, plaintiff's store at 2154 Hilltop Mall Road in Richmond was burglarized after store hours resulting in a loss of approximately $26,000.   The target of the burglary was jewelry in six locked glass display cases inside the store.   Nothing was removed from the store safe.   While the parties disagree as to the exact percentages, plaintiff admits that at the time of the burglary between 30.4 percent and 32 percent of its inventory was outside the store safe.

Subsequent to the burglary, plaintiff filed a claim with Fireman's Fund for the entire loss.   Claiming that plaintiff had breached the warranty contained in paragraph No. 16 of the policy, Fireman's Fund refused plaintiff any recovery under the policy.

Thereafter, the instant suit was filed by plaintiff seeking declaratory relief and damages.   The damages claim is based on allegations of breach of the covenant of good faith and fair dealing, violations of the Insurance Code, breach of fiduciary duty and fraud.

III

 The sole issue before us is the propriety of the trial court's action in granting the motion of Fireman's Fund for summary judgment.   The case hinges on the application of paragraph No. 16 to the coverage provided under the policy.   Fireman's Fund maintains that the provision is a material warranty the breach of which entitles it to avoid or rescind the policy altogether.   Plaintiff, on the other hand, maintains that it is not a material warranty or if it is, it is unenforceable based on its ambiguity.   We have determined that paragraph No. 16 is a material warranty.   Nevertheless, we reverse the summary judgment for the reasons which follow.

Pertinent statutes provide as follows:  “A statement in a policy of a matter relating to the person or thing insured, or to the risk, as a fact, is an express warranty thereof.”  (Ins.Code, § 441.)

“A statement in a policy, which imports that there is an intention to do or not to do a thing which materially affects the risk, is a warranty that such act or omission will take place.”  (Ins.Code, § 445.)

“Unless the policy declares that a violation of specified provisions thereof shall avoid it, the breach of an immaterial provision does not avoid the policy.”  (Ins.Code, § 448.)

As expressed by a decision of the Second Appellate District, Division Two, “The rule in California is that no right to avoid or rescind an existing policy of insurance arises from the violation by the insured of a provision in the policy unless such provision materially affects the risk or the policy specifically sets forth that the breach will avoid the policy.  [Citations.]  [¶] The rule is the same regardless of the fact that the provision may be characterized as a warranty.”  (Los Angeles Mut. Ins. Co. v. Cawog (1973) 30 Cal.App.3d 378, 383, 106 Cal.Rptr. 307.)

The policy at issue in the instant case does not provide for avoidance or termination of the policy for failure to strictly adhere to paragraph No. 16 of the proposal—that is, for plaintiff's failure to lock 70 percent by value of its jewelry in the store safe after store hours.   Therefore, under the above referenced statutes, our attention is directed to a consideration of whether paragraph No. 16 materially affects the risk and the objective of Fireman's Fund in including it in the policy.

Generally speaking, the materiality of facts represented in an insurance policy is determined “solely by the probable and reasonable influence of the facts” upon the insurer “in forming [its] estimate of the disadvantages of the proposed contract, or in making [its] inquiries.”  (Ins.Code, § 334;  see also Thompson v. Occidental Life Ins. Co. (1973) 9 Cal.3d 904, 916, 109 Cal.Rptr. 473, 513 P.2d 353.)   While in many cases the question of materiality poses a question of fact for the jury, we think the materiality of plaintiff's promise to lock a certain portion of its jewelry in the safe after store hours is so obvious that it can be determined as a matter of law.

“It is universally known that a fortune in jewelry can be carried in one's pocket, and loose jewelry protected only by a glass window or door and a glass showcase is a prime target for thieves, who can fill their pockets and be on their way long before the police or anybody else can respond to a burglar alarm;  but opening and rifling a locked safe is neither that easy nor quick.”  (Michael v. St. Paul Fire and Marine Ins. Co. (1983) 65 N.C.App. 50, 308 S.E.2d 727, 730.)   Stated in its simplest terms, plaintiff's promise to keep a large part of its inventory in a safe reduced the likelihood of loss of that portion of the inventory, by making it less accessible.   It thereby materially affected the risk assumed by Fireman's Fund in covering this inventory against loss and was a “probable and reasonable influence” on the offer by Fireman's Fund to carry the policy in the first place.

These facts are borne out by the papers filed by Fireman's Fund in support of its motion for summary judgment.   According to these papers, the warranty contained in paragraph No. 16 is a condition to the company's issuance of a Jewelers' Block Policy.   The company is willing to assume the risk of carrying such a policy only where the insured warrants that it will keep 70 percent or more of its inventory in a safe after business hours.   It will not carry the policy absent such an agreement.   Additionally, the company gives credits against the insured's premium for agreeing to this warranty.   And the more inventory the insured promises to keep in the safe, the more credits it gets.

Had the safe and its use been a matter of no consequence, it is inconceivable that Fireman's Fund would have listed this item as a protective device in its policy and made it the basis of a warranty contained therein.

IV

 However, our analysis does not stop here as different warranties may affect a risk in different ways.   Some warranties are designed to forestall burglaries altogether such as warranties promising the use of burglar alarms and watchmen.   Other warranties are designed to simply reduce the amount of loss should a burglary occur.   Such is the warranty in the case at bench.

Plaintiff's promise to keep 70 percent of its inventory by value in a safe is material as to that part of the inventory only.   It is not material as to the remaining 30 percent.   This is necessarily so because while an agreement to keep 70 percent of one's inventory in a safe reduces the risk of insuring that portion of the inventory, it does not reduce the risk of insuring the remaining 30 percent which may or may not be kept in the safe.

Accordingly, we hold that the breach in this instance does not justify total forfeiture of coverage under the policy.   Plaintiff's breach does not affect the obligation of Fireman's Fund to cover the loss of 30 percent of plaintiff's inventory by value at the time of the burglary, and to that extent plaintiff has not forfeited coverage with respect thereto.

V

In addition to all the foregoing, the subject policy contains a glaring ambiguity on the issue of coverage.   As noted, the policy says nothing about what the penalty will be for noncompliance with paragraph No. 16.   However, as relates to another warranty contained in the policy, one fixing the maximum value of property to be displayed in show windows, the policy very specifically makes compliance a condition precedent “to any recovery.”   This discrepancy in the terms of the two warranties, we hold, creates an ambiguity as to the ramifications of a breach of paragraph No. 16.   Based on this discrepancy, we think it entirely reasonable for plaintiff to have assumed that such a breach would not result in total forfeiture of coverage, since nowhere in the policy did Fireman's Fund indicate that this would be the case.

“An insurance policy, like any other contract, must be construed as an entirety, with each clause lending meaning to the other.  [Citation.]  In interpreting the policy, we must take cognizance of the reasonable expectations of the parties in entering into the agreement.  [Citations.]

“․

“․ [A]n insurer who wishes to condition its contractual liability upon the insured's conformance with certain conduct must do so in clear, unambiguous language.  [Citation.] ․ ‘If the insurer uses language which is uncertain any reasonable doubt will be resolved against it;  if the doubt relates to extent or fact of coverage, whether as to peril insured against [citations], the amount of liability [citations] or the person or persons protected [citations], the language will be understood in its most inclusive sense, for the benefit of the insured.’ ”  (Holz Rubber Co., Inc. v. American Star Ins. Co. (1975) 14 Cal.3d 45, 56, 59–60, 120 Cal.Rptr. 415, 533 P.2d 1055.)

Here, we believe our construction of paragraph No. 16 to be in keeping with both the wording of the policy and the rules of law governing said policy.   It is a “ ‘semantically permissible’ ” one and one which will “ ‘fairly achieve [the policy's] manifest object of securing indemnity to the insured for the losses to which the insurance relates' [citation].”  (Holz Rubber Co., Inc. v. American Star Ins. Co., supra, 14 Cal.3d at p. 60, 120 Cal.Rptr. 415, 533 P.2d 1055.)

The summary judgment in favor of Fireman's Fund is reversed and the case is remanded for further proceedings consistent with this opinion.   Plaintiff shall recover its costs on appeal.

MERRILL, Associate Justice.

BARRY–DEAL, Acting P.J., and STRANKMAN, J., concur.