Opinion
Case Number C-01-20821-JF, Case No. C-02-1723-JF, [Lead Case Doc. No. 77].
September 20, 2004
ORDER DENYING AMICO'S MOTION FOR SUMMARY JUDGMENT
American Motorists Insurance Company, Inc. ("AMICO") has moved for summary judgment. The Court has considered the moving and opposing papers as well as the oral arguments presented at the hearing on September 17, 2004. For the reasons discussed below, AMICO's motion is DENIED.
I. BACKGROUND
This litigation arises out of a dispute between an insurance company, American Motorists Insurance Company, Inc. ("AMICO") and its insured, IDEC Corporation ("IDEC"). On April 1, 1996, AMICO issued to IDEC a policy insuring against loss or damage to certain real properties owned by IDEC. One of the insured properties is a building located at 1274 Anvilwood Avenue in Sunnyvale, California ("the building" or "the property"). In March 1996, IDEC entered into an agreement to sell the property "as is" to William Holt ("Holt") for $1.55 million. In October 1996, while that sale was in escrow, and while the policy was in full force and effect, IDEC discovered that thieves had broken into the building, ripped open interior walls and stolen wiring, piping and other materials that could be sold for salvage. IDEC notified AMICO of the loss shortly thereafter. In December 1996, IDEC informed Holt that it was terminating the sale agreement. The following month, AMICO advanced an initial $175,000 with respect to the loss and entered into negotiations with IDEC regarding settlement of the claim. In March 1997, Holt filed a state court action against IDEC, seeking specific performance of the sale agreement. Holt and IDEC reached settlement in November 1999. Meanwhile, IDEC and AMICO continued negotiations with respect to IDEC's claim. In March 2000, IDEC sold the property "as is" to a couple, the Halls, for $3.88 million.In August 2001, AMICO filed a petition to compel an appraisal of the property pursuant to certain provisions of the policy. In March 2002, IDEC filed an action in the Santa Clara County Superior Court, alleging that AMICO was acting in bad faith by delaying payment of monies owed under the policy. AMICO removed that action to this Court on April 10, 2002 and the two actions have been related. AMICO now seeks summary judgment on the ground that IDEC did not suffer a compensable loss under the terms of the policy.
II. LEGAL STANDARD
A motion for summary judgment should be granted if there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986). The moving party bears the initial burden of informing the Court of the basis for the motion and identifying the portions of the pleadings, depositions, answers to interrogatories, admissions, or affidavits that demonstrate the absence of a triable issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986).
If the moving party meets this initial burden, the burden shifts to the non-moving party to present specific facts showing that there is a genuine issue for trial. Fed.R.Civ.P. 56(e); Celotex, 477 U.S. at 324. A genuine issue for trial exists if the non-moving party presents evidence from which a reasonable jury, viewing the evidence in the light most favorable to that party, could resolve the material issue in his or her favor. Anderson, 477 U.S. 242, 248-49; Barlow v. Ground, 943 F.2d 1132, 1134-36 (9th Cir. 1991).
III. DISCUSSION
AMICO moves for summary judgment based upon its contention that IDEC did not suffer a compensable loss under the terms of the policy. The policy's Loss Payment provision states in relevant part that "[w]e will not pay you more than your financial interest in the Covered Property." AMICO introduces evidence that: IDEC had agreed to sell the property to Holt for $1.55 million; that sale was in escrow at the time of the vandalism; and Holt stood ready, willing and able to complete the sale on the same terms notwithstanding the vandalism. AMICO argues that under these circumstances IDEC's financial interest in the property was the agreed-upon $1.55 million sale price. Because IDEC could have gone forward with that sale, AMICO contends that IDEC suffered no compensable loss under the policy. AMICO also points to the fact that IDEC eventually sold the property to the Halls for $3.88 million.
IDEC opposes the motion, asserting that it did suffer a compensable loss because it held legal title and actual possession of the property at the time of the vandalism and materials worth hundreds of thousands of dollars actually were stolen from the property. IDEC further asserts that: as between IDEC and Holt, the risk of loss was allocated to IDEC during the pendency of escrow; Holt in fact was not ready, willing and able to go forward with the sale agreement on the same terms after the vandalism; and even had the sale to Holt been completed, IDEC was to retain a deed of trust on the property as security for approximately $1 million of the purchase price, which would have given IDEC a continuing insurable interest in the property. Finally, IDEC asserts that the sale of the property to the Halls three years later, on different terms, does not somehow negate the fact that IDEC had an insurable interest in the property at the time of the vandalism.
AMICO requests that the Court strike IDEC's opposition papers on the ground that they were due by Friday, August 27, 2004 and were not filed until August 28, August 29 and August 30, 2004. In the absence of any demonstrated prejudice to AMICO, the Court in the exercise of its discretion has considered IDEC's late-filed papers.
AMICO relies primarily on Royal Ins. Co. v. The Sisters of the Presentation, 430 F.2d 759 (9th Cir. 1970) and Smith v. Jim Dandy Markets, 172 F.2d 616 (9th Cir. 1949). IDEC relies primarily on Vierneisel v. Rhode Island Ins. Co., 77 Cal.App.2d 229 (1946).
In Royal Insurance, the insured property was a convent that had fallen into disrepair. The Sisters entered into an agreement with the Bishop under which the Bishop agreed to convey an adjoining parcel and erect a new convent on it, and in return the Sisters agreed to allow a high school to be constructed on the site of the old convent. The new convent was completed and the Sisters moved into it. All salvageable fixtures were removed from the old convent and demolition was scheduled. The day before demolition of the old convent was to commence, it burned down. The Court cited Cal. Ins. Code § 281 for the proposition that an insurable interest is one "of such a nature that a contemplated peril might directly damnify the insured," and interpreted this to mean that an insurable interest consists of a pecuniary interest. Royal Insurance, 430 F.2d at 761 (quoting Cal. Ins. Code § 281). The Court stated that in determining whether an insured has a pecuniary interest in a particular property, a court must "examine the realities, economic or otherwise, of a situation rather than merely looking at technical concepts of title." Id. Noting that the old convent had been abandoned and scheduled for demolition, and that the agreement the Sisters had entered into with the Bishop was specifically enforceable, such that the Sisters had no right to reinhabit the old convent, the Court held that the Sisters did not have a pecuniary interest in the property at the time of the fire. Id.
The Court reached a similar result in Smith. In that case, Smith owned or leased eight markets. He leased or subleased these markets, including fixtures, machinery and equipment, to Jim Dandy Markets for approximately one year. Subsequently, the parties entered into an agreement under which Jim Dandy Markets purchased Smith's interests in the various properties and leases. One of the market buildings was destroyed by fire. Both Smith and Jim Dandy Markets had obtained insurance policies on the building, and a question arose as to whether, at the time of the fire, Smith had an insurable interest in the building such that he could collect on his policy. The Court concluded that Smith had transferred all interest in the property, including the building destroyed by fire, to Jim Dandy Markets, and that Smith thus lacked a pecuniary interest. Smith, 172 F.2d at 618. The Court explicitly rejected Smith's argument that he had an insurable interest because he held a lien on the building for the balance of the purchase price. Id.
In Vierneisel, the defendant insurance company issued a policy on the home of the insureds. The insureds subsequently entered into an agreement to sell their home to the plaintiffs. On the date escrow opened, the insureds deposited in escrow the insurance policy and a deed conveying the property to the plaintiffs. The next day a fire destroyed the home. The insureds and the plaintiffs went forward with the sale. The insureds assigned the policy and their right to recover thereunder to the plaintiffs and recorded the deed to the plaintiffs. The policy contained a provision that it could not be assigned without the consent of the insurer, and no consent ever was sought or obtained. The insurer refused to pay on the policy, and the plaintiffs brought suit. The trial court entered judgment for the plaintiffs and the court of appeal affirmed. The appellate court noted that "where conditions fixed for delivery of a deed are not such as are certain to happen, merely depositing the deed with the escrow holder does not pass title to the grantee," and that even though escrow had been opened, the plaintiffs merely had the right to complete the terms of escrow. Vierneisel, 77 Cal.App.2d at 231, 233. The court thus concluded that the insureds were still the sole and unconditional owners of the property on the date of the fire. Id. at 231-32. The court further concluded that, while the policy could not be assigned without the insurer's consent, the purported assignment of the policy did not occur until after the loss, by which time liability already had "fastened upon the insurer." Id. The court cited the general rule that after a loss has arisen, any right of the insured as a result of the loss may be assigned with or without the consent of the insurer. Id. Because the insureds suffered a pecuniary loss as a result of the fire, and later assigned to the plaintiffs the right to collect on this loss, the plaintiffs were entitled to payment from the insurer. Id. at 233.
The instant case is more like Vierneisel than Royal Insurance or Smith. Unlike the Sisters in Royal Insurance, IDEC had not removed all salvageable materials from the property and scheduled it for demolition. To the contrary, hundreds of thousands of dollars worth of salvageable materials were stolen from the property while IDEC owned it. Unlike the insured in Smith, IDEC had not assigned all rights in the property as of the time of loss. While escrow had opened on the sale agreement with Holt, Vierneisel makes clear that the pendency of escrow does not divest an insured of title to the property or an insurable interest therein. As the Court noted during the hearing, agreements for the sale of real estate fall through all the time. Here, there was no certainty that the sale was going to be completed and, in fact, it was not completed. On the date of the vandalism, IDEC was the sole and unconditional owner of the property. There is no dispute that hundreds of thousands of dollars worth of salvage materials were stolen from the property. As a result, IDEC suffered a pecuniary loss.
AMICO argues that the sale was certain to be completed, but for IDEC's "affirmative acts." AMICO has cited no authority for the proposition that when a real estate sale falls through because of an act of the seller, the seller somehow is stripped of its insurable interest in the property. Moreover, under Vierneisel, it appears that IDEC would have been entitled to benefits under the policy even if the sale had been completed. AMICO argues that the $1.55 million sale price included the materials stolen and that any insurance recovery on top of the sale price would have been a double recovery for IDEC. It may be that AMICO could have defended on this theory had the sale been completed. It may be that IDEC, like the insureds in Vierneisel, would have assigned to the buyer its rights under the policy. Regardless of how these matters might have played out had the sale been completed, it is clear that IDEC had a pecuniary, insurable interest in the property at the time of loss. See Greco v. Oregon Mutual Fire Ins. Co., 191 Cal.App.2d 674, 686 (1961) (holding that the status of an insured's interest is measured at the time of loss rather than at some subsequent time). AMICO argues that this loss somehow was negated by the fact that years later IDEC sold the property to the Halls for more money than it would have received from Holt, but cites no authority for this proposition. Accordingly, AMICO has failed to demonstrate that IDEC did not suffer a compensable loss under the policy.
Both parties make numerous evidentiary objections. With respect to IDEC's objection to the copy of the insurance policy provided to the Court by AMICO, there does not appear to be any real dispute as to the terms of the policy or the authenticity of the document provided, and the Court is satisfied that the copy of the policy is genuine. Accordingly, that objection is overruled. The remaining objections go to evidence immaterial to the legal issues addressed in the instant order and need not be addressed. For example, both parties raise numerous objections to evidence pertaining to the issue of whether Holt was ready, willing and able to go forward with the sale on the same terms after the vandalism. The Court has assumed as much for purposes of analysis. Even if this were a dispositive issue, however, the Court concludes that there are triable issues of material fact with respect to Holt's desire and ability to complete the sale with no alteration in terms after the vandalism, and that these issues would defeat AMICO's motion.
IV. ORDER
Accordingly, AMICO's motion for summary judgment is DENIED.