Opinion
NOT TO BE PUBLISHED
APPEAL from a judgment of the Superior Court of Los Angeles County No. BC346920, Haley J. Fromholz, Judge.
Law Offices of Andre Hassid and Andre Hassid; Law Offices of Daniel J. Spielfogel and Daniel J. Spielfogel for Plaintiffs and Appellants.
Hager & Dowling, John V. Hager and Lisa Franklin for Defendant and Respondent.
WOODS, J.
INTRODUCTION
The case involves an insurance coverage dispute. The core issue is whether the trial court erred in determining that the defendant/respondent Mercury Casualty Company (“Mercury”) was under no obligation to defend plaintiffs and appellants Edward N. Miller and Denise L. Miller (“Millers”) in their underlying litigation with Kelly S. Lawson and Kelly Hunt-Miceli (“Lawsons”) involving the sale of a renovated home located in Marin County, California. The Millers were the sellers and the Lawsons were the buyers. For the reasons hereafter stated, we affirm the judgment of the trial court.
FACTUAL AND PROCEDURAL SYNOPSIS
The underlying litigation between the Lawsons and the Millers.
The Lawsons sued the Millers in the Superior Court in Marin County, action No. CV044382 on October 1, 2004. In addition to suing the Millers various construction contractors were also named as defendants. The action brought by the Lawsons included allegations which they captioned as Fraud, Failure to Disclose, Breach of Contract, Rescission, Breach of Fiduciary Duty, Professional Negligence, General Negligence, Breach of Implied Warranty, Unjust Enrichment and Constructive Trust.
The Millers sold the property in question to the Lawsons on February 13, 2004. Thereafter, the Lawsons purportedly discovered several defects in the property, which triggered the filing of their lawsuit in the Superior Court of Marin County as above mentioned. The allegations of their complaint maintained that the Millers sold a defective house to them and those defects were caused by the intentional acts of the Millers or by their negligent actions either in their capacity as owners or builders.
In addition to other claims of damages, the Lawsons maintained they suffered personal injuries resulting from exposure to toxic mold and gas.
Millers’ homeowner’s policy with Mercury.
The Millers originally purchased a homeowner’s policy of insurance with Mercury in September of 2003. After the sale of the home to the Lawsons on February 13, 2004, the Miller’s policy with Mercury was cancelled on March 18, 2004.
At oral argument on June 6, 2008, counsel for the Millers admitted the Millers cancelled the policy with Mercury.
Millers’ tender and request for defense under the Mercury policy.
The Millers tendered the Lawson complaint to Mercury with a request for a defense. This tender was followed by Mercury’s rejection of the Millers’ request on the grounds that the Lawson complaint did not make any allegations that would potentially be covered under their policy with Mercury.
Millers’ tender of defense to American International Insurance Company of California (“AIIC”).
AIIC defended the Millers against the Lawsons’ claims upon Millers’ tender and request for a defense. The defense provided by AIIC ultimately led to a settlement between the Lawsons and the Millers.
AIIC’s assignment of subrogation rights to the Millers.
Following the settlement, AIIC assigned to the Millers its subrogation rights against Mercury for reimbursement of its defense costs incurred in the Lawson action. The current lawsuit against Mercury in the Los Angeles County Superior Court then followed, as hereafter set forth.
Initial complaint of the Millers filed on February 3, 2006.
On February 3, 2006, the Millers filed a complaint in the Los Angeles County Superior Court against Mercury where Mercury has its principal place of business. The initial complaint is captioned “Complaint For Breach of Contract; Declaratory Relief; Tortious Breach of the Implied Covenant of Good Faith and Fair Dealing.” The complaint names Mercury as the named defendant and includes 50 fictitious defendants.
First amended complaint of the Millers filed on April 28, 2006.
On April 28, 2006, the Millers filed an amended complaint which they captioned as follows: “First Amended Complaint for Breach of Contract; Declaratory Relief; Tortious Breach of the Implied Covenant of Good Faith and Fair Dealing; Equitable Contribution; Equitable Subrogation; and Equitable Indemnity.” The first amended complaint will hereafter be referred to as the FAC. Attached as Exhibit “A” to the FAC was a copy of the declaration page of the policy issued to the Millers, together with a copy of the policy. Exhibit “A” consists of 100 pages which were incorporated by reference into the body of the FAC. Attached to the FAC as Exhibit “B” was a copy of the complaint filed by the Lawsons against the Millers, and others, in the Marin County action. Exhibit “B” is also incorporated by reference into the body of the FAC.
On July 19, 2006, the Millers filed a Notice of Errata To Exhibit “A” to the FAC on the basis that Exhibit “A” to the original FAC was partially illegible.
Mercury’s demurrer to the Millers’ FAC and notice to strike portions thereof, filed on July 28, 2006.
On July 28, 2006, Mercury filed its notice of demurrer to Millers’ FAC. The notice of demurrer also gave notice of its concurrent filing of a request for Judicial Notice of Pleadings in support of its demurrer and in support of its notice to strike portions of the FAC.
The demurrer.
Mercury demurred to the FAC, addressing three causes of action, pursuant to Code of Civil Procedure section 430.10, subdivision (e) for failure to state facts sufficient to constitute a cause of action “because there is no coverage for the underlying first amended complaints as a matter of law, therefore,” no claim for breach of contract, declaratory relief or tortuous breach of the covenants of good faith and fair dealing can be legally asserted.
All further statutory references are to the Code of Civil Procedure unless context requires otherwise.
The motion to strike.
In capsule form, Mercury’s motion to strike is directed to those portions of the FAC which are purportedly irrelevant in that certain causes of action in the Marin County action did not include the Millers as defendants. Further, the Mercury motion to strike is directed toward the allegations praying for punitive damages on the grounds of lack of specificity to justify such an award. Mercury claims that punitive damages cannot be pleaded generally and the FAC is devoid of any purported despicable conduct on its part to substantiate such an award as pleaded.
The Millers filed opposition to the demurrer and motion to strike and the matter was set for hearing by the court on September 6, 2006.
Hearing on September 6, 2006, pertaining to Mercury’s demurrer and motion to strike.
The demurrer to the FAC was overruled. The motion to strike was granted.
Mercury contended that the first three causes of action pled by the Millers did not state causes of action because they had their inception in allegations of fraud and failure to disclose. Such allegations were intentional and thus excluded under the provisions of the policy, citing Miller v. Western General Agency, Inc. (1996) 41 Cal.App.4th 1144 as authority.
The court held, in essence, that it could not rule as a matter of law that the Miller’s FAC did not state viable causes of actions for failure to defend and under the well litigated rule that the duty to defend is much broader than the duty to indemnify, the demurrer should be overruled.
As to Mercury’s motion to strike, the court agreed that the FAC had not sufficiently pled with specificity the allegations supporting the punitive damages claim and granted the motion with five days leave to amend as to the punitive damages claim. In all other respects the motion to strike was denied.
The second amended complaint of the Millers filed on September 8, 2006.
On September 8, 2006, the Millers filed their second amended complaint which was captioned in identical fashion as the FAC with the exception that the document was now conspicuously referred to as the “Second Amended Complaint.” The second amended complaint will be referred to as the SAC hereafter unless context otherwise dictates. In general, the only allegations that appear to this court to be different from the FAC are the allegations that Mercury “manufactured an exclusion,” and that it “failed to interview the plaintiffs, or conduct any meaningful investigation.” This summary of the difference between the FAC and the SAC is extracted from Mercury’s memorandum of points and authorities submitted in support of its motion for summary adjudication as hereafter set forth. This court finds the comparison to be accurate.
Mercury’s motion for summary adjudication regarding punitive damages, filed on September 27, 2006.
In addition, Mercury filed a motion to strike on October 5, 2006, again seeking to strike the punitive damages allegation. The motion to strike punitive damages was heard first, even though counsel for the Millers asked the court to defer its ruling until after Mercury’s summary adjudication motion was to be heard two weeks later on grounds that evidence would be produced in appellant’s opposition to that motion that Mercury’s claims officer admitted Mercury had a duty to defend the Millers and knew this at the time they denied coverage. The trial judge issued his ruling striking the punitive damages without waiting for the summary adjudication hearing.
Mercury maintains in its motion for summary adjudication that the claim for punitive damages is wanting in numerous respects and should be stricken. Mercury focused the trial court’s attention on the fact that, almost exclusively, Millers’ insurer, AIIC, argued that there was coverage and a duty to defend, and that Mercury took the contrary position. Mercury maintained in its motion that merely taking a willful position of absence of coverage, even if ultimately incorrect, does not rise to the level of conduct that is unreasonable, malicious, oppressive or fraudulent, warranting the imposition of punitive damages. Mercury cited Tomaselli v. Transamerica Ins.Co. (1994) 25 Cal.App.4th 1269 in support of its position, as well as Flyer’s Body Shop Profit Sharing v. Ticor Title Ins. Co. (1986) 185 Cal.App.3d 1149, 1154. Mercury further posited in the trial court that even unreasonable conduct which constitutes a form of unfair dealing will not support punitive damages, relying on the authority set forth in Shade Foods, Inc. v. Innovative Products Sales & Marketing, Inc. (2000) 78 Cal.App.4th 847.
On November 22, 2006, the Millers filed their opposition to Mercury’s motion for summary adjudication of the punitive damages issue. The Millers summarized their opposition in the trial court as follows:
“Mercury acted with conscious disregard of the rights of the Millers forsaking the peace of mind afforded by Mercury’s insurance policy, when it denied, all the while knowing their [sic] was a duty to defend the Millers because the Lawson complaint allegations were potentially covered by the policy.
“This is not a case of ‘honest mistake’ or negligence. Mercury did nothing more than fabricate grounds for denial of coverage, knowing full well that the evidence was contrary to its assertions.
“Since Mercury denied coverage when it knew that a duty to defend existed, there is more than sufficient evidence for a jury to find that Mercury acted with malice, fraud and oppression. With all the admissions made by Mercury, the question of whether punitive damages should be assessed is a matter for a jury to decide.
“The Millers should have been defended by Mercury, and Mercury knew it. Mercury had many opportunities to change its mind when it received, but refused to give any credence to the letters from AIG [sic], explaining in great detail why Mercury had a duty to defend, and why the Millers had an insurable interest. Still Mercury shirked its responsibilities knowing the Millers would be left to fend for themselves. This conscious disregard of the rights of the Millers, and the duties of Mercury -- this conscious fabrication of grounds for denial of coverage that Mercury knew was false warrants denial of Mercury’s Motion for summary adjudication.” (Bold emphasis in original.)
Hearing on November 11, 2006, pertaining to Mercury’s motion to strike Millers’ claim of entitlement to punitive damages.
On November 11, 2006, the court heard Mercury’s motion to strike punitive damages from the SAC. The matter was taken under submission. On November 21, 2006, the court granted the motion reasoning that Mercury had previously moved under section 436 to strike the punitive damages claim from the SAC and noted further that grounds for the motion to strike must appear on the face of the pleading under attack, or from matters which the court may judicially notice, in accordance with section 437. While making an extensive analysis of the Millers’ claim for punitive damages, the trial court in essence deferred to its prior ruling on Mercury’s motion to strike which the court had previously granted, thereby rendering the issue moot for purposes of Mercury’s current motion for summary adjudication of the punitive damages claim.
In making its analysis, the court indicated that the complaint against the insurer must plead the insurer’s conduct constituted oppression, fraud or malice within the meaning of Civil Code section 3294, subdivision (a), and further noted that “malice” is conduct intended to cause injury or “despicable conduct which is carried on by the defendant with a willful and conscious disregard of the rights of safety of others,” citing section 3294, subdivision (c)(1) of the Civil Code as authority. The court referred to “oppression” as “despicable conduct that subjects a person to cruel and unjust hardship in conscious disregard of that person’s rights,” citing Civil Code section 3294, subdivision (c)(2) as authority.
The court further noted that the complaint must allege facts indicating the insurer was personally guilty of “oppression, fraud or malice,” or had advance knowledge of the unfitness of its employee and employed him or her in conscious disregard of the rights of others, or authorized or ratified the wrongful conduct, citing Civil Code section 3294, subdivision (b) as authority.
Further, the court noted that merely alleging that defendants acted with oppression, fraud or malice is insufficient and the pleading must specifically allege specific acts to support an award of punitive damages, and further noting that general allegations are insufficient. The court cited Smith v. Superior Court (1992) 10 Cal.App.4th 1033, 1041-1042 as authority.
The court summarized the SAC by stating that the allegations were that Defendant breached its duty to defend Plaintiffs in a suit brought against Plaintiffs by third parties, the Lawsons, in Marin County. The homeowner’s policy at issue contained two parts, the first covering “physical loss” to the property, and the second covering liability exposure for bodily injury and property damage. The court noted that the plaintiffs sold the property to the Lawson parties on February 13, 2004, and the policy was cancelled on March 18, 2004.
In reaching its ultimate conclusion in granting Mercury’s motion to strike, the trial court stated “It appears that the majority of the punitive damages allegations in the SAC mirror those in the FAC. The mere conclusionary characterization of conduct as ‘intentional and willful’ falls short of a showing of the requisite evil motive to injure. Monge v. Superior Court (1986) 176 Cal.App.3d 503, 512 [discussing Brousseau v. Jarrett (1977) 73 Cal.App.3d 864.]” and “Plaintiffs have failed to allege specific facts to demonstrate that Defendant’s position was so unworkable as to rise to the level of malice, oppression or fraud. The motion to strike is granted.”
Millers’ motion for summary adjudication of duty to defend filed on September 28, 2006.
On September 28, 2006, the Millers filed a Motion for Summary Adjudication of Duty to Defend. Extensive documentation was filed in support of the motion. The core of the motion was in essence based on the seminal case of Gray v. Zurich Ins. Co. (1966) 65 Cal.2d 263 where the California Supreme Court declared that the duty to defend is broader than the duty to indemnify. As long as there is a potential for coverage the insurer has a duty to defend its insured regardless of the final outcome of the coverage issue. To state it in the terms set forth by the Millers, “Thus, if there is a potential the Lawsons (Plaintiffs in the underlying case) would recover damages for property damage which falls within the coverage of the policy, the duty of MERCURY to defend the Millers is triggered. ‘Implicit in this rule is the principle that the duty to defend is broader than the duty to indemnify; an insurer may owe a duty to defend its insured in an action in which no damages ultimately are awarded’” (Emphasis in original.)
In a twist of procedure permitted by the trial court, and based upon stipulation of counsel, as hereinafter described, the trial court in effect denied the Millers’ motion for summary adjudication, but permitted a cross motion for summary adjudication by Mercury which utilized Millers’ motion as Mercury’s own motion for summary adjudication on the issue of duty to defend. The court’s reasoning on Millers’ motion is more fully set forth hereafter.
Hearing on Millers’ motion for summary adjudication of the issue of duty to defend on December 15, 2006.
In ruling on Millers’ motion for summary adjudication of the duty to defend issue, the trial court focused on Millers’ declaratory relief cause of action in denying Millers’ motion. In summary, the trial court’s ruling was as follows: the insured must first prove the existence of a potential for coverage; if shown, the insurer must produce evidence that conclusively refutes potential for coverage; the insured need only show that the underlying claim may fall within policy coverage but the insurer must prove it cannot, citing Montrose Chemical Corp. v. Superior Court (1993) 6 Cal.4th 287 as authority; the following language is found in the Mercury policy: “If a claim is made or a suit is brought against an insured for damages because of bodily injury or property damage caused by an occurrence to which this coverage applies, we will: . . . 2. provide a defense at our expense by counsel of our choice even if the allegations, which if true would be covered, are groundless, false or fraudulent. . . .”; occurrence is defined as “an accident, which first happens or first commences during the policy period and which results in bodily injury or property which first happens or first commences during the policy period.”; bodily injury is defined as “bodily harm, sickness or disease” excluding communicable disease caused by an organism, and does not include emotional distress; property damage is defined as “physical injury to or destruction of tangible property.”; the policy language provides for relevant exclusions to liability coverage in relevant part by stating “[w]e will not pay for property damage: . . . b. caused intentionally by an insured . . . d. arising out of: (1) business pursuits . . . .”; the policy defines business as “trade, profession or occupation”; the policy provides “1. Coverages E [personal liability] and F [medical payments to others] do not apply to bodily injury or property damage: [¶] a. which is expected or intended by one or more insureds . . . c. arising out of rendering or failing to render professional services . . . m. [w]hich, in whole or in part, arises out of, is aggravated by or results from mold, fungi, bacteria, viruses or other microbes, wet rot, or dry rot. [¶] 2. Coverage E [Personal Liability] does not apply to . . . a. Liability . . . (2) under any contract or agreement. However, this exclusion does not apply to written contracts . . . (a) that directly relate to the ownership, maintenance or use of an insured location.”
Confronted with the facts in this case and what the trial court perceived to be the law applicable to the issues before it as above summarized, the court came to its ultimate conclusion by emphasizing two points. The two points are set forth verbatim as follows:
“The insurer’s duty to defend ‘turns upon those facts known by the insurer at the inception of a third party lawsuit.’ Montrose Chem. Corp. v. S.Ct. (Canadian Universal Ins. Co., Inc.) (1993) 6 C4th 287, 295.
“An insurer ‘must defend a suit which potentially seeks damages within the coverage of the policy.’ Gray v. Zurich Ins. Co. (1966) 65 C2d 263, 275 (emphasis in original). A defense is excused only when ‘the third party complaint can by no conceivable theory raise a single issue which could bring it within the policy coverage.’ Montrose Chem. Corp. v. S.Ct. (Canadian Universal Ins. Co., Inc.) (1993) 6 C4th 287, 295.
“However, the insurer’s duty to defend does not extend to claims for which there is no potential for liability coverage. This includes claims falling outside the scope of the insuring clause, or within an express exclusion from coverage, or barred by statutory or public policy limitations. ‘The insurer need not defend if the third party complaint can by no conceivable theory raise a single issue which could bring it within the policy coverage.’ Gray v. Zurich Ins. Co. (1965) 65 C2d 263, 276; La Jolla Beach & Tennis Club, Inc. v. Industrial Indem. Co. (1994) 9 C4th 27, 39.
“First, it appears that Defendant had no duty [to] defend Plaintiffs for allegations of negligence as ‘owners.’ Plaintiffs allege that on February 13, 2004, they sold the property to the Lawsons, and on March 18, 2004 their policy with Defendant was canceled. (SAC ¶5, ¶8). The Lawson complaint alleges that the Lawsons ‘took possession of the Property’ after escrow closed, February 13, 2004, and there is no suggestion in the Lawson complaint that any of the Lawsons’ alleged injuries or damages occurred while the Plaintiffs owned and controlled the property. (Lawson Complaint ¶44 – Defendant’s RJN).
“Absent concealment, a prior owner of real property is not liable for injuries caused by a defective condition on the property after the owner has relinquished ownership and control, even if the prior owner negligently created the condition. Lewis v. Chevron U.S.A., Inc. (2004) 119 Cal.App.4th 690, 693. Concealment of a known dangerous condition is an intentional act which would not qualify as an occurrence under the policy at issue here.
“Therefore, it appears that Defendant had no duty to defend against allegations that Plaintiffs, as owners, negligently created a defective condition that caused damage to the Lawsons after Plaintiffs no longer owned or controlled the property.
“Second, it appears that Defendant had no duty to defend Plaintiffs for allegations of negligence as ‘builders.’ In the policy at issue, there is no potential for coverage for ‘. . . bodily injury or property damage . . . b. arising out of business pursuits of any insured . . . c. arising out of rendering or failing to render professional services . . .’ Business is defined in the policy as ‘trade, profession, occupation.’ If Plaintiffs were not acting as owners, but as builders, coverage is precluded because acting as a builder would fall under the aforementioned exclusion.
“The burden is on the insured to make a prima facie showing that the third party claim potentially falls within the insuring provisions of the policy. Aydin Corp. v. First State Ins. Co. (1998) 18 C4th 1183, 1188; Anthem Electronics, Inc. v. Pacific Employers Ins. Co. (9th Cir. 2002) 302 F.3d 1049, 1059, fn. 3 (applying Cal. law). It appears that Plaintiffs have not carried their burden.”
Notice of entry of judgment and Millers’ notice of appeal.
Following judgment and notice of entry thereon, the Millers filed their timely notice of appeal on February 23, 2007.
DISCUSSION
Standard of review.
The standard of review is not a contention in this case. Mercury, in its respondent brief on appeal, states the standard of review pertaining to a judgment following the granting of a motion for summary judgment, fully and accurately as follows:
“‘A trial court properly grants summary judgment where no triable issue of material fact exists and the moving party is entitled to judgment as a matter of law. (Code Civ. Proc., § 437c, subd. (c).) The trial court’s decision is reviewed de novo, considering all of the evidence the parties offered in connection with the motion (except that which the court properly excluded) and the uncontradicted inferences the evidence reasonably supports. (Artiglio v. Corning Inc. (1998) 18 Cal.4th 604, 612.) In the trial court, once a moving defendant has “shown that one or more elements of the cause of action, even if not separately pleaded, cannot be established,” the burden shifts to the plaintiff to show the existence of a triable issue; to meet that burden, the plaintiff “may not rely upon the mere allegations or denials of its pleadings . . . but, instead, shall set forth the specific facts showing that a triable issue of material fact exists as to that cause of action. . . .” (Code Civ. Proc., § 437c, subd. (o)(2); Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 854-855; Merrill v. Navegar, Inc. (2001) 26 Cal.4th 465, 476-477; Herberg v. California Institute of the Arts [(2002)] 101 Cal.App.4th 142, 148-149.[)] “‘On the grant of summary judgment, the appropriate standard of review is de novo.’ [(]Reyes v. Van Elk, Ltd. [2007] 148 Cal.App.4th 604, 609.[)]”
Epicenter of Millers’ contention of potential for coverage under the Mercury policy.
The heart of the Millers’ contentions on appeal is to be found in the deposition testimony of one Randall Petro, Mercury’s Home Office Person, alleged to be “Most Knowledgeable.” Mr. Petro testified as follows:
“THE WITNESS: I would have looked at the complaint, yes, including paragraph 98.
Paragraph 98 of the Lawsons’ complaint alleges as follows: “Plaintiffs will establish the precise amount of such damages at the time of trial, according to proof, including, but not limited to, the cost of expert investigation, redesign and reconstruction of the problem areas; costs of the damage[s] that are the legal/proximate consequence of the above described problems as to Property and personal property; the cost of repairs; the loss of value due to defective conditions; the loss of use and enjoyment of the Property; the loss of resale value related to the necessity of Plaintiffs’ disclosure of said defects and/or history of defects in the event of any future sale; the loss of use and enjoyment of the Property; and, injury to the body caused by exposure to molds caused by the excessive moisture described, and physical discomfort caused by exposure to the mold and excessive moisture conditions.”
“Q As you sit here today doesn’t it cause you concern that paragraph 98 alleges damage to personal property by the Lawsons?
“THE WITNESS: I’m not sure what you mean by concern. I do see what you’re saying as far as there was an allegation of property damage to personal property, yes.
“Q Because it’s covered under the policy true?
“THE WITNESS: Potentially, yes.
“Q. Same can be said for bodily injury in this paragraph, agree?
“THE WITNESS: Agree.
. . .
“THE WITNESS: Having looked at this paragraph, I could see where there would be potential for property damage and bodily injury coverage, yes. (Bold emphasis in original.)
We now discuss each argument made by the Millers and give our reasons why the Millers were incorrect in their contentions and, in addition, why the testimony of Mr. Petro, concluding that a potential for coverage under the policy existed, was incorrect.
The California Supreme Court stated in its landmark decision that “where [the] only potential for liability turns on resolution of [a] legal question, there is no duty to defend.” (Waller v. Truck Ins. Exchange, Inc. (1995) 11 Cal.4th 1, 25-26.) We discern that the contentions regarding punitive damages and duty to defend in this instance are purely legal in nature and as hereafter reasoned the judgment should be affirmed. We now give our reasons for affirming the judgment.
De novo review and statement of reasons for finding no potential for coverage.
The policy was cancelled.
Perhaps the most conspicuous, and agreed fact, is that the policy of insurance was no longer operative because coverage had been cancelled as of March 18, 2004, one month and three days after consummation of the sale to the Lawsons on February 13, 2004. Although not exclusively determinative on this fact alone, it is glaringly conspicuous.
The gravamen of the Lawson complaint was for intentional acts of misconduct.
When considered in all of its ramifications, the gravamen of the complaint by the Lawsons against the Millers is founded on causes of action for fraud and intentional concealment. The Mercury policy, even if it had not been cancelled, as agreed by the parties, contains exclusions for intentional acts. Fraud and intentional concealment are clearly intentional acts, as opposed to acts classified as accidental. The trial court correctly noted in its order granting summary adjudication that the Mercury policy provided “We will not pay for property damage: . . . b. caused intentionally by an insured. . . .” This principle is coextensive with public policy which provides that insurance is founded upon the bed rock concept that risk must be involved in an insurance contract and coverage founded upon an intentional act removes the risk element and such coverage is no longer accidental.
Economic damages were claimed under the guise of intentional acts.
We note, as did the trial court, that under the provisions of the policy, property damage was defined as “physical injury to or destruction of tangible property.” A careful examination of the damages allegations against the Millers by the Lawsons in the Marin County action reveal that the grounds for damages are not based on defective construction but on the alleged concealment of defects by the Millers. Thus Lawsons’ claim of damages pertain not to specific tangible property, but to economic damages, resulting in a reduction in the market value of the house.
A canvass of the decisional law on the issue reveals that both state and federal courts have confirmed that no coverage exists when the claim of fraud or concealment is involved on the rationale that damages commensurate with such allegations are not directed at damages to property, but the damages to value which are economic in nature. Miller v. Western General Agency Inc., supra, 41 Cal.App.4th 1144 appears to be directly on point in setting forth the comparison between physical damage involving tangible property and economic damage. In Miller, the insureds were sued after the sale of their home to the purchasers. The theory of the purchasers’ lawsuit was based on concealment of the alleged faulty plumbing in the house when sold. A summary judgment was affirmed on appeal following the trial court’s granting of a motion for summary judgment in favor of the insurer. The reasoning of the court was that the alleged misrepresentations did not qualify as an accident and on the grounds that the claims did not result in any potentially covered bodily injury or property damage. (Id. at pp. 1150-1151.) We find the reasoning of the court in Miller to be persuasive. We likewise find that the damages asserted by the Lawsons are economic and based on alleged fraudulent concealment. Such damages are not covered by the policy with Mercury.
Business pursuits and professional services exclusion.
The Millers contend that a potential for coverage was extant in the policy because Lawsons’ complaint in the Marin County action included allegations of negligence against the contractors and the Millers were acting in the capacity of contractors or builders when they embarked upon remodeling of their home. The Millers reason that they potentially could be found liable as negligent builders. We find this argument to be faulty in that the Millers could not have acted both as owners and as builders. If negligent owners, then coverage would be precluded pursuant to the decision in Preston v. Goldman (1986) 42 Cal.3d 108 holding that former owners who are allegedly negligent in constructing an improvement on their property are not subject to liability for injuries sustained on that property long after they have relinquished all ownership and control, applying the general rule that ownership and control is a fundamental requirement for assessing liability. (Accord Lewis v. Chevron U.S.A., Inc, supra, 119 Cal.App.4th 690.) If the Millers were negligent builders, then they are directly confronted by the business pursuits provisions of the Mercury policy. As the trial court emphasized, the Mercury policy contained the following provisions: “In the policy at issue, there is no potential for coverage for . . . bodily injury or property damage . . . b. arising out of business pursuits of any insured . . . c. arising out of tendering or failing to render professional services.” (Italics added.) Business is defined in the policy as “trade, profession, or occupation.” (Italics added.) We conclude, as did the trial court, that if the Millers were not acting as owners but as builders then the literal language of the policy would exclude coverage under the aforementioned provision.
Mold exclusion.
The Millers concede that the mold exclusion in the Mercury policy operates to preclude coverage for alleged bodily injury arising from the mold infestation. As stated in their opening brief, “[t]he policy contains a mold exclusion.”
Punitive damages.
Mercury raises the issue of whether the appeal from the court’s order denying imposition of punitive damages is an appealable order. Mercury points out that the court’s order was in fact made before final judgment was entered in this case thereby violating the rule against piecemeal adjudication leading to a waste of judicial resources. We note, however, that the Millers maintain that they are appealing from the “judgment” thereby making the appeal of the punitive damages issue procedurally proper. The argument of the Millers on this limited issue is persuasive. We find the appeal encompasses the issue of the appropriateness of the ruling denying the punitive damages claim and we reach the merits of the contentions appertaining thereto.
On the merits, we find the judgment of the trial court to be correct. It is settled law that in order to state a claim for punitive damages the pleadings require specificity and not generalities. This means pleading the “facts” with certainty and specificity. Miller’s SAC is simply wanting in this regard. In essence, it merely alleges that Mercury disagreed that there was a potential for coverage under the policy and simply refused to provide a defense as requested. As the cases point out, even a mistaken belief as to lack of coverage and denial thereof does not warrant imposition of punitive damages. We further note that the plaintiff’s burden of proof with respect to punitive damages, as well as the requirement of specificity in pleading, is that of “clear and convincing evidence” which is an elevated standard over the usual civil burden of proof by a preponderance of the evidence. Additionally, it has been historically held in appellate decisions that punitive damages are generally disfavored in the law. This decisional attitude is an additional reason for requiring specificity in pleading facts to warrant punitive damages. The Millers have simply failed in their effort to convince this court that punitive damages should be allowed under the facts and status of the pleadings in this case.
Millers’ argument that allegations against them in the Marin County action gave rise to a potential for coverage based upon a theory of negligence.
The Millers argue that the complaint in the underlying Marin County Superior Court litigation alleged the Millers were potentially liable on a negligence theory for bodily injury and property damage (to the buyers’ personal property, not the house itself) between February 14, 2004 (when escrow closed and the buyers took possession of the house) and March 18, 2004 (when the Mercury policy was cancelled).
The Millers’ theory of coverage is valid -- that is, if the buyers had alleged their negligence as homeowners caused bodily injury (other than bodily injury within the mold exclusion) or damage to the buyers’ personal property in the policy period, there is a duty to defend even a frivolous claim. As the Supreme Court explained in Horace Mann Ins. Co. v. Barbara B. (1993) 4 Cal.4th 1076, 1086, an insurer may not deny a defense by labeling the action frivolous or unable to state a claim for relief. The insurer has a duty to defend a potentially covered claim even if the claim is “groundless, false or fraudulent.” The duty to defend requires the insurer to “defe[nd] against all claims potentially within policy coverage, even frivolous claims unjustly brought.” When the underlying complaint is “a sham,” the insurer’s proper course is not to deny a defense, but to defend its insured and “demur or obtain summary judgment on its insured’s behalf.” (Ibid.)
The difficulty for the Millers’ theory, however, is that the buyers’ lawsuit did not assert a negligence claim against the Millers, did not plead facts that would support a theory the Millers owed duties to the buyers, separate from those upon which the fraud and failure to disclose claims were based, upon which a negligence claim could be asserted and did not seek either type of covered damages from the Millers.
Seven of the complaint’s 13 causes of action are directed to the Millers. The first cause of action for fraud, the second for failure to disclose (sellers), the third for failure to disclose (against Denise Miller, only, as the real estate agent for the sellers), the fourth for breach of contract, the fifth for rescission, the 12th for unjust enrichment and the 13th for a constructive trust. None of those legal theories includes a claim for negligence. Moreover, although the complaint itself has a general negligence cause of action (the 11th cause of action), the Millers are not named as defendants in that claim. In addition, the damages sought against the Millers are expressly identified as those alleged in paragraph 52 only -- amounts to repair and rehabilitate the property; the cost of replacement housing while repairs are made; expenses for consultants to diagnose the problems with the property; the cost of emergency mitigation repairs; “injury to their bodies caused by exposure to molds caused by excessive moisture”; the loss of value to the property; and loss of use and enjoyment of the property; and the loss of resale value. None of those damages falls within the category of bodily injury (other than mold) or damage to the buyers’ personal property.
To be sure, in paragraph 98, emphasized by the Millers, there is a reference (without elaboration) to damage to the buyers’ personal property and to “physical discomfort caused by exposure to the mold and excessive moisture conditions.” Perhaps those qualify as property damage and bodily injury under the policy. But there is no indication of when the injury occurred, so arguably they occurred at least in part in the policy period (prior to the March 18, 2004 cancellation). But those damage claims are in the ninth cause of action against certain contractors for breach of implied warranty. Not only are the Millers not named as defendants but also in paragraph 96 it is alleged that these claims belonged to the Millers and were assigned to the buyers with the sale of the house. This paragraph’s description of damages is not incorporated by reference in any of the paragraphs identifying the damages sought from the Millers. Similarly, in paragraph 104, part of the 10th cause of action for breach of express warranty against the roofing contractor (Booth & Little), there is a claim for damage to personal property and for “physical discomfort caused by exposure to the cold and excessive moisture condition,” coupled with an allegation the express warranty for a four-year period was transferred from the Millers to the buyers. Again, these damage allegations are not incorporated into the claims against the Millers, which as noted, are not negligence claims in any event.
There is no doubt we might be able to hypothesize additional facts to support a general negligence theory the buyers could have asserted against the Millers that, together with paragraph 98 and 102’s references to damage to the buyers’ personal property and to bodily injury from moisture (in addition to, and different from, mold-related damage), would create a potentially covered claim. However, even though an insurer’s obligation to defend is triggered by a potentially covered claim asserted in a complaint, even if frivolous, that obligation does not extend to the endless number of unpleaded claims that also could have been brought. An insured may not create a defense obligation where one does not otherwise exist by speculating as to how the third party complaint could be amended to state additional (unknown) facts that, if alleged, would support a potential for coverage under an alternative, unpleaded theory. (Gunderson v. Fire Ins. Exchange (1995) 37 Cal.App.4th 1106, 1114 [“An insured may not trigger the duty to defend by speculating about extraneous ‘facts’ regarding potential liability or ways in which the third party claimant might amend its complaint at some future date. This approach misconstrues the principle of ‘potential liability’ under an insurance policy.”]; see Hurley Construction Co. v. State Farm Fire & Casualty Co. (1992) 10 Cal.App.4th 533, 538.)
DISPOSITION
The judgment is affirmed. Respondent to recover costs of appeal.
We concur: PERLUSS, P.J. ZELON, J.