Opinion
NOT TO BE PUBLISHED
APPEAL from the judgment of the Superior Court of Los Angeles County Super. Ct. No. BC253843, Lisa Hart Cole, Judge.
Horvitz & Levy, Peter Abrahams, Curt Cutting and Bradley S. Pauley; Lewis Brisbois Bisgaard & Smith, David E. Reynolds and Kenneth D. Watnick; Robinson & Wood and Archie S. Robinson, for Defendant and Appellant.
Harrington, Foxx, Dubrow & Canter and David H. Canter; Covington & Burling, William F. Greaney, Patricia A. Barald and Allan B. Moore, for Plaintiff and Respondent.
Defendant National Union Fire Insurance Company (National Union) appeals from the judgment entered for plaintiff Sears, Roebuck & Co. in Sears’s action to recover unpaid benefits of $20 million on an all-risk theft insurance policy issued by National Union. We affirm.
RUBIN, J.
Our recitation of the facts is drawn primarily from the trial court’s findings of undisputed facts, which are not contested on appeal.
Sears, Roebuck & Co. (Sears), one of the nation’s largest retail chains, designed its own ad campaigns and decided when and where to run its ads. As of late 1999, Sears had for several years used Focus Media (Focus) as its agent to buy from various media outlets the advertising time selected by Sears. Although there was no written agreement between Sears and Focus, their understanding, as put into practice over the years, involved having Focus place orders for ad time with the media outlets. The media outlets considered Sears to be jointly and ultimately liable for all ad purchases made on its behalf through Focus. Focus would send Sears invoices for the ad costs, and Sears would transmit funds to Focus, which was required to act as a conduit for Sears, passing Sears’s money on to the media outlets. Although the money from Sears was placed in an account with funds from other Focus clients, Focus would scrupulously account for the funds, and was subject to periodic audits by Sears. Sears would then pay Focus a separate agency fee for its services.
For instance, Focus would consolidate media outlet invoices into a single electronic invoice for Sears, and Sears would wire money in those exact amounts to Focus’s media account. Focus maintained 17 separate sub-accounts to track by date, amount, and specific media outlet how the money transferred by Sears was to be distributed to those outlets. When Focus booked a receivable from Sears for the media outlets it also booked a payable for Sears to those outlets.
The owner and sole shareholder of Focus was Thomas Rubin. As of late 1999, Rubin was in serious financial trouble and owed millions of dollars in back taxes to the federal government. From November 1999 through January 2000, Sears transferred nearly $35 million to Focus as payment for advertising time purchased by Sears through Focus. Rubin made off with a sizable portion of that money, leaving unpaid almost $24 million for ad time purchased by Sears, and as to which Sears had transferred funds to Focus for payment to the relevant media outlets. Many of those media outlets demanded payment from Sears, and Sears eventually settled nearly $24 million in claims for approximately $10.6 million, leaving almost $4.9 million in debt unpaid and unresolved as a result of Rubin’s theft.
National Union has asked us to take judicial notice that Rubin and another Focus Media executive, Thomas Sullivan, were indicted and convicted in federal court on various counts related to mail and wire fraud arising from Rubin’s theft. We grant that request and will judicially notice the indictment and judgment in that case. Focus was also involuntarily placed into bankruptcy.
Sears was insured by National Union against loss due to theft up to $20 million. The “CrimeGuard” policy covered a loss of assets, including money, “for which [Sears] is legally liable, or which is owned or held by [Sears] in any capacity, whether or not [Sears] is legally liable therefore.” In March 2000, Sears filed a claim with National Union for the full policy limits after learning that Rubin had taken $24 million of the funds Sears deposited with Focus from November 1999 through January 2000. When National Union denied Sears’s claim, Sears sued National Union. The operative second amended complaint contained three causes of action: (1) for breach of contract, seeking compensatory damages in an amount to be determined at trial; (2) for declaratory relief, seeking a judicial determination that Sears had suffered a covered loss under the policy, but not the amount of that loss; and (3) for breach of the implied covenant of good faith and fair dealing, seeking punitive damages.
National Union brought a summary judgment motion on several grounds, only two of which are still applicable on appeal. The first was based on Sears’s allegation that Focus was holding Sears’s money “in trust” for payment to various media outlets. According to National Union, because Focus was not required to segregate Sears’s money in a separate account, and because there was no express trust agreement, no trust existed and ownership of the money passed to Focus. As a result, National Union contended, Sears did not lose assets owned by it. National Union’s summary judgment motion was also based on two policy exclusions: (e) which barred coverage for loss arising from giving or surrendering assets in any exchange or purchase; and (n) which barred coverage for loss arising out of fraud which induces an insured to make any purchase or sale.
Sears countered with two motions for summary adjudication. The first sought summary adjudication of the declaratory relief claim and four of National Union’s related affirmative defenses. The lynchpin of that motion was Sears’s contention that Focus was its agent and had a fiduciary duty to pass along to the media outlets the money Sears transferred to Focus for that purpose. Under those circumstances, Sears argued, an express trust arose by operation of law, and Sears therefore retained an ownership interest in the money. The second motion argued that policy exclusions (e) and (n) did not apply. The trial court denied National Union’s motion for summary judgment and granted both of Sears’s motions for summary adjudication. In granting summary adjudication of Sears’s declaratory relief claim, the trial court concluded that as a matter of law Focus was Sears’s agent, acted “merely as a conduit for monies that Sears was providing to the [m]edia [o]utlets,” that the agency relationship was fiduciary in nature and gave rise to a trust or a trust-like obligation, and that Focus could not turn Sears’s money into its own by placing the money in a general operating account (even though it had not). Finally, the court found that Sears suffered a covered loss in excess of the policy’s $20 million limit.
The trial court later granted Sears’s request for a motion in limine to preclude National Union from contesting the amount of Sears’s loss. The trial court granted that motion, finding that it had already determined that Sears suffered a loss above the $20 million policy limits. Sears then dismissed its bad faith claim and the parties stipulated to entry of judgment, subject to National Union’s right of appeal, on the breach of contract and declaratory relief claims in the sum of $26,586,164.25. This appeal followed. National Union contends that the trial court erred by denying its summary judgment motion, and by granting Sears’s motions and entering judgment for Sears.
The amount over $20 million was comprised of prejudgment interest and costs.
National Union also contends that the trial court erred by entering judgment for Sears when its summary adjudication motion was geared solely towards the declaratory relief cause of action and did not seek a determination of the amount of Sears’s loss. We reject this contention for two reasons: First, it was raised in a footnote only, and was not part of a separately headed section of National Union’s appellate brief. (Cal. Rules of Court, rule 8.204(a)(1)(B); and second, because Sears’s notice of motion sought a declaration that Rubin had stolen “over $20 million in Sears’[s] money . . . .”
STANDARD OF REVIEW
Summary judgment is granted when a moving party establishes the right to the entry of judgment as a matter of law. (Code Civ. Proc., § 437c, subd. (c).) In reviewing an order granting summary judgment, we must assume the role of the trial court and redetermine the merits of the motion. In doing so, we must strictly scrutinize the moving party’s papers. The declarations of the party opposing summary judgment, however, are liberally construed to determine the existence of triable issues of fact. All doubts as to whether any material, triable issues of fact exist are to be resolved in favor of the party opposing summary judgment. While the appellate court must review a summary judgment motion by the same standards as the trial court, it must independently determine as a matter of law the construction and effect of the facts presented. (Barber v. Marina Sailing, Inc. (1995) 36 Cal.App.4th 558, 562.)
A plaintiff moving for summary judgment meets its burden of showing that there is no defense to a cause of action if that party has proved each element of the cause of action entitling that party to judgment on that cause of action. (Code Civ. Proc., § 437c, subd. (p)(1).) If the plaintiff does so, the burden shifts to the defendant to show that a triable issue of fact exists as to that cause of action or defense. In doing so, the defendant cannot rely on the mere allegations or denial of its pleadings, “but, instead, shall set forth the specific facts showing that a triable issue of material fact exists . . . .” (Ibid.) A defendant moving for summary judgment meets its burden of showing that there is no merit to a cause of action if that party has shown that one or more elements of the cause of action cannot be established or that there is a complete defense to that cause of action. (Code Civ. Proc., § 437c, subds. (o)(2), (p)(2).) If the defendant does so, the burden shifts to the plaintiff to show that a triable issue of fact exists as to that cause of action or defense. In doing so, the plaintiff cannot rely on the mere allegations or denial of her pleadings, “but, instead, shall set forth the specific facts showing that a triable issue of material fact exists . . . .” (Code Civ. Proc., § 437c, subd. (p)(2).) A triable issue of material fact exists “if, and only if, the evidence would allow a reasonable trier of fact to find the underlying fact in favor of the party opposing the motion in accordance with the applicable standard of proof. [Fn. omitted.]” (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 850.) The rules applicable to summary judgments apply equally to motions for summary adjudication. (Lunardi v. Great-West Life Assurance Co. (1995) 37 Cal.App.4th 807, 819.)
Because we are interpreting an insurance policy on undisputed facts, we apply a de novo standard of review, using the well settled rules governing the interpretations of such policies. (Ortega Rock Quarry v. Golden Eagle Ins. Corp. (2006) 141 Cal.App.4th 969, 976.) “We must give effect to the intent of the parties when they formed the contract and, if possible, infer this intent solely from the written provisions of the contract. [Citation.] In so doing, we must ‘look first to the language of the [insurance policy] in order to ascertain its plain meaning or the meaning a layperson would ordinarily attach to it.’ The language of the policy must be read in the context of the instrument as a whole under the circumstances of the case and a policy provision will be considered ambiguous when it is capable of two or more reasonable constructions. [Citation.] If a policy provision is ambiguous, we resolve the ambiguity in the insureds’ favor, consistent with the insureds’ reasonable expectations. [Citation.]” (Davis v. Farmers Ins. Group (2005) 134 Cal.App.4th 100, 104 (Davis).)
DISCUSSION
1. Sears’s Money Transfers Did Not Pass Ownership to Focus
Sears argued below, and the trial court agreed, that Focus held Sears’s funds subject to a trust that arose by operation of law due to the fiduciary nature of Focus’s agency relationship with Sears, and that the nature of that trust precluded Focus from asserting an ownership interest in those funds. National Union contends that when Sears transferred money to Focus, ownership of the money passed to Focus. Because coverage under the policy applied to a loss of assets “owned” by Sears, National Union contends Sears did not own the money and therefore did not suffer a covered loss. National Union bases this argument on two grounds. First, although it contends that no trust agreement existed between Focus and Sears, National Union argues that if there were a trust, with Focus holding the money from Sears for the benefit of the media outlets, then ownership of the trust funds passed to Focus as trustee. (See Carr v. Bank of Italy (1931) 113 Cal.App. 6, 10 [title to property held in express trust for the benefit of third persons is vested in the trustee]; Rest.3d Trusts, § 2.) Second, because no trust was created, and because Focus commingled the money it received from Sears, a debtor-creditor relationship was created whereby Focus owned the funds but would be liable to Sears for breach of contract in the event the media outlets were not paid. (Petherbridge v. Prudential Sav. & Loan Assn. (1978) 79 Cal.App.3d 509, 517-518; Downey v. Humphreys (1951) 102 Cal.App.2d 323, 332 (Downey).)
At a minimum, National Union contends, there was conflicting evidence concerning the existence of a trust relationship, precluding summary adjudication for Sears on that issue. The claimed conflict is based on testimony from some Sears officials that they had no expectations a trust was created and that Focus could have placed Sears’s money into its general operating account if Focus had wanted to. This conflicted with statements from other Sears officials that the money transfers were not intended for Focus’s general operating expenses, were strictly limited to paying the media outlets, was Sears’s money, and was to be passed through to the media outlets.
Ultimately what is at issue is whether Sears still owned the funds it transferred to Focus for payment to the media outlets, because if Focus owned the funds, they could not have been stolen from Sears. The authorities relied on by National Union to show the existence of a debtor-creditor relationship between Sears and Focus lead us to conclude that not only did no such relationship exist, but that the manner by which Focus held Sears’s money allowed Sears to retain an ownership interest in those funds. As a result, whether or not a trust relationship existed between Sears and Focus is irrelevant, and we will assume for discussion’s sake only that National Union is correct that no trust existed. We begin by examining the underpinnings of National Union’s debtor-creditor argument.
The cases relied on by Sears and the trial court for the existence of a trust relationship concerned situations where an agent either came into possession of property that was to be delivered to or held for the benefit of the principal, where the agent made a secret profit from money delivered by the principal to be used for some special purpose, or where the agent used the principal’s money and took title to some property in the agent’s own name. (See, e.g., Fischer v. Machado (1996) 50 Cal.App.4th 1069; Store of Happiness v. Carmona & Allen, Inc. (1957) 152 Cal.App.2d 266; Kinert v. Wright (1947) 81 Cal.App.2d 919.) Because we affirm on another ground, we need not decide whether the principle announced in such decisions is applicable on these facts.
The essential premise of National Union’s argument is that Sears allowed Focus to commingle the funds Sears gave Focus to pay the media outlets that ran Sears’s ads, thereby giving rise to a debtor-creditor relationship with Sears having no ownership interest in the funds. National Union cites Downey, supra, 102 Cal.App.2d 323, as the source of this rule. The defendant in Downey was an insurance agent who remitted to the insurance company premiums collected from his policyholder clients after offsetting certain amounts owed to him by the insurer. When the insurance company became insolvent, its liquidator sued the agent to recoup the amounts offset, claiming the agent had been a trustee of the premium payments and was therefore under a fiduciary duty to remit them without making the disputed offsets. The agent was granted a judgment of nonsuit on the ground that he was in a debtor-creditor relationship with the insurer and was thus free to make his offsets. The evidence showed that the defendant had been operating under the terms of an oral understanding with the insurance company that the agent was responsible for collecting premiums from his policyholder clients, that the insurance company did not care what he did with the premiums or whether he collected them at all, that the defendant placed the premium payments received from policyholders in his own general account, and that the insurance company looked solely to the agent’s own credit, not the actual premium payments, as the source of compensating the insurer.
Under those circumstances, the appellate court held that a debtor-creditor relationship existed and affirmed the judgment. As part of its discussion, the Downey court cited the First Restatement of Agency, section 398, comment c. for the proposition that, “[i]f funds held by an agent are commingled with the knowledge and consent of his principal, in the absence of an agreement to the contrary, the inference is that the agent becomes a debtor to the amount received for the principal.” (Downey, supra, 102 Cal.App.2d at p. 332.)
The commingling described by the Restatement, however, is commingling of a principal’s funds with an agent’s funds. Section 398 of the First Restatement of Agency states that “[u]nless otherwise agreed, an agent receiving or holding things on behalf of the principal is subject to a duty to the principal not to receive or deal with them so that they appear to be his own, and not so to mingle them with his own things as to destroy their identity.” Comment c., which was cited in Downey, said that certain professional agents such as auctioneers and factors operate under customs where mingling the agent’s and principal’s funds is accepted and expedient. In such cases, the inference is that the agent becomes a debtor to the principal in the amount received.
Despite statements in the record from some Sears’s employees that it would not have mattered to them had Focus commingled its funds with those from Sears, the undisputed evidence is that such commingling never occurred. Instead, Sears’s money was placed in a special media account maintained by Focus, and mingled only with advertising time payments from other Focus clients. In such cases, comment c. states that the various principals are tenants in common of the amounts held by the bank. Tenancy in common is a long-established form of ownership interest in this state. (Civ. Code, §§ 682, subd. (3), 685.) Because no commingling of Focus’s and Sears’s funds occurred, National Union’s debtor-creditor argument fails. (See In re Taxes, Aiea Dairy, Ltd. (1963) 46 Haw. 292, 312-313 [citing com. c. to Rest.2d Agency, § 398 for proposition that milk producers who commingled their milk for distribution by a common distributor did not pass title to or make taxable sales of their milk to the distributor, who was “a mere conduit through which title passes from the producers to the consumer”].) Instead, this undisputed evidence shows that Sears retained an ownership interest in the funds.
In short, because Focus kept the money transferred by Sears and its other clients in a separate account and did not commingle that money with its own funds, Sears was an owner of the money in that account as a tenant in common with the other Focus clients. Because the policy covered a loss of assets owned by Sears “in any capacity,” and because Sears owned those funds as a tenant in common, it suffered a covered loss under the policy. Whether or not a trust relationship existed between Sears and Focus is therefore irrelevant to the ownership issue.
Alternatively, regardless of whether such commingling occurred or whether a trust relationship existed, we will still affirm. Under National Union’s theory, an agent who comes into possession of his principal’s money with instructions to pay that money to a third party might be liable for breach of contract if the money is used for the agent’s own purposes, but, because the agent is the owner of the funds, the agent can never be criminally liable for theft or civilly liable for conversion. The law is to the contrary. “The possession of property by one who has come into possession with the owner’s consent, but for a particular purpose, or conditionally, does not constitute such an interest as to prevent his appropriation or conversion of the property from constituting theft, for the owner is not divested of title until the purpose is accomplished or the condition performed.” (Clary v. Hale (1959) 175 Cal.App.2d 880, 888; see People v. Broes (1956) 138 Cal.App.2d 843, 847 [defendant guilty of embezzlement, and no debtor-creditor relationship shown, where victim investor advanced money to defendant to place in escrow to buy real property].)
2. Policy Exclusions (e) and (n) Are Inapplicable
National Union contends that the trial court erred by granting Sears’s motion for summary adjudication as to policy exclusions (e) and (n), and that those exclusions in fact preclude coverage for Sears’s loss. Exclusion (e) excludes coverage for “loss or damage resulting from dissolution [theft] arising out of the giving or surrendering of assets in any exchange or purchase.” Because the term “arising out of” is broadly construed, National Union argues that Rubin’s theft arose out of the surrender of assets by Sears in its purchase of advertising time. Exclusion (n) excludes coverage for “loss resulting from dissolution arising out of fraud which induces the Insured to make any purchase or sale.” Because a Sears officer testified that Sears was fraudulently induced to transfer its money to Focus, National Union contends this exclusion applies as well.
An insurer may select the risks it will insure and those it will not, and a clear exclusion will be respected. If the exclusion is clear, we will not rewrite the policy to impose coverage that was not contemplated. However, an exclusion must be clearly stated and will be strictly construed against the insurer. If an exclusion is ambiguous enough to support two or more reasonable constructions, the ambiguity will be resolved against the insurer and in favor of coverage. (Smith Kandal Real Estate v. Continental Cas. Co. (1998) 67 Cal.App.4th 406, 414 (Smith Kandal).)
We agree with National Union that the phrase “arising out of” is not ambiguous. However, we conclude that Sears’s interpretation is the correct one, and that the phrase cannot be stretched from the underlying transactions with the media outlets (in which there was a purchase and sale) to cover theft by someone else (Rubin.)
Because we conclude the exclusion is not ambiguous, we reject Sears’s reliance on extrinsic evidence such as insurance industry publications and the testimony of a National Union official. (ACL Technologies, Inc. v. Northbrook Property & Casualty Ins. Co. (1993) 17 Cal.App.4th 1773, 1790-1792.)
National Union relies primarily on Davis, supra, 134 Cal.App.4th 100, and Smith Kandal, supra, 67 Cal.App.4th 406, for the proposition that exclusion (e)’s “arising out of” language must be so broadly construed that Rubin’s theft of Sears’s money is deemed to arise out of Sears’s purchase of advertising time through Focus. It is true that both decisions held that “arising out of” suggests a broader standard than causation, and means origination, growth, flow, or connection to the event. (Davis, supra, at pp. 106-107; Smith Kandal, supra, at p. 419.) Neither decision concerned a theft loss policy such as the one at issue here, however. Regardless, Smith Kandal listed one significant limitation on the “arising out of” terminology – it does not come into play if the loss were caused by an independent act or intervening cause that was independent of, or wholly disassociated and remote from the specified activities. (Smith Kandal, supra, at p. 419.) The transaction at issue here involved Sears’s transfer of its funds to its agent, Focus, as part of Sears’s purchase of ad time from the media outlets. Rubin’s theft of those funds once they came into the possession of Focus must be considered an independent and intervening act separate and apart from the purchase transaction. (See Barclay Kitchen, Inc. v. California Bank (1962) 208 Cal.App.2d 347, 355 [theft may be intervening act in regard to a defendant’s liability for negligence]; American Home Assur. Co. v. State Farm (1969) 1 Cal.App.3d 355, 358-359, disapproved on another ground in State Farm Mut. Auto. Ins. Co. v. Jacober (1973) 10 Cal.3d 193, 207-208 [motorist injured while unloading her parked car when she slipped on defect in parking lot; her insurance for injuries arising out of use of car did not apply because her injuries were due to a remote and intervening cause].)
For similar reasons, we hold that exclusion (n) is inapplicable. That exclusion applies to fraud that induces the insured to make a purchase or sale. As part of this argument, National Union points to Rubin’s federal criminal conviction of mail and wire fraud based on an indictment alleging that Sears turned money over to Focus in reliance on Rubin’s fraudulent representations that the media outlets would be paid. The undisputed evidence showed that Sears made its own decisions about when and where to place its ads, and simply relied on Focus to arrange ad time purchases Sears had already decided to make. Rubin did no more than dupe Sears into transferring funds to Focus in order to pay for those transactions. In short, Rubin’s fraud did not induce Sears to make any particular advertising purchase. Instead, it merely induced Sears to rely on Focus and Rubin to pay for those purchases. Although the exclusion might apply if Sears had paid the media outlets directly and those outlets then fraudulently reported that ads had played when they had not, those facts are not present here.
See footnote 4, ante.
3. Sears’s Loss Is Not Reduced By Its Settlements with the Media Outlets
Even if Sears owned the money taken by Rubin, National Union contends Sears did not suffer a loss equal to or greater than its $20 million policy limits. The basis for this contention is the undisputed fact that for every dollar of Sears’s money stolen by Rubin, Sears received the ad time it intended to pay for. Because Sears settled with some of the unpaid media outlets for approximately $10.6 million and there is no evidence that Sears will ever pay any more money for the advertising time it received, National Union contends that $10.6 million is the true amount of Sears’s actual loss. National Union supports this contention with inapplicable decisions concerning an insured’s potential, unrealized losses. As set forth below, however, at the time of Rubin’s theft Sears suffered an actual loss that was not affected by its later settlements with some of the media outlets.
These include: Pacific-Southern Mortgage Trust Co. v. Insurance Co. of North America (1985) 166 Cal.App.3d 703, involving an action by a lender on a commercial blanket bond when one of its officers was involved in making a fraudulent loan and the appellate court held that the loss occurred when a default occurred, not when the loan was made; and Alberts v. American Casualty Co. (1948) 88 Cal.App.2d 891, where a hotel guest’s money was stolen from the hotel’s safe and it was determined that no covered loss occurred under the hotel’s insurance policy until and unless the guest obtained a judgment against the hotel.
California follows the New York rule of Foley v. Manufacturers’ & Builders’ Fire Ins. Co. of New York (1897) 152 N.Y. 131 (Foley), which holds that even though an insured’s property loss is cured by a third party, an actual, covered loss still occurred and the insured is still entitled to recover on his policy. The plaintiffs in Foley, supra, were landowners who sued their insurer to recover for damages caused to a building being constructed on their land. The insurer denied the claim, contending that because the construction contractor was still obligated to complete the building at no additional cost to the plaintiffs, they had incurred no loss. The New York court rejected the insurer’s claim, stating: “But the contract relations between the plaintiffs and the contractors is a matter in which the defendant has no concern. . . . [¶] The fact that the improvements on land may have cost the owner nothing, or that if destroyed by fire he may compel another person to replace them without expense to him, or that he may recoup his loss by resort to a contract liability of a third person, in no way affects the liability of an insurer, in the absence of any exemption in the policy. [Citations.]” (Foley, supra, at p. 135.)
Our courts first adopted this rule in Hughes v. Potomac Ins. Co. (1962) 199 Cal.App.2d 239, 250 (Hughes). The plaintiffs in Hughes owned a house that suffered damage when water from a nearby creek caused a landslide that damaged not just the house and its contents, but also washed out some of the ground on which the home rested. On appeal from a bench trial awarding plaintiffs their damages, the insurer argued that the plaintiffs suffered no loss because a county flood control district replaced and stabilized the missing soil. In addition to quoting Foley and a later New York appellate decision, the Hughes court quoted an insurance law treatise for the proposition that “the party insured is entitled to be compensated for such loss as is occasioned by the perils insured against, in precise accordance with the principles and terms of the contract of insurance. [¶] Nor are his damages to be diminished because he has collateral contracts or relations with third persons which relieve him wholly or partly from the loss against which the insurance company agreed to indemnify him.” (Hughes, supra, at p. 251, quoting Joyce on the Law of Insurance, vol. 1. 2d Ed., §§ 24, 24a, pp. 123, 125, internal citations and quotation marks omitted.)
Hughes was disapproved on another point by Sabella v. Wisler (1963) 59 Cal.2d 21, 34.)
Hughes and the New York rule were applied again in another landslide case, Strickland v. Federal Ins. Co. (1988) 200 Cal.App.3d 792, 801-802. More recently, the New York rule was followed in Textron Financial Corp. v. National Union Fire Ins. Co. of Pittsburgh (2004) 118 Cal.App.4th 1061 (Textron). The plaintiff in Textron was the secured lender on a commercial bus and was also named as the loss payee on a policy covering damage to that bus. When the bus was damaged, the plaintiff’s claim for policy benefits was denied because the insurer wrongly claimed the plaintiff had been removed from the policy. The plaintiff sued and obtained a damage award, but on appeal the insurer contended the award should have been offset by pretrial settlements between the plaintiff and other defendants. Relying on Hughes and Strickland, the Textron court affirmed the award. (Id. at p. 1077.)
National Union was the defendant insurance company in Textron.
Decisions from other state courts applying the New York rule are consistent with this reasoning. For example, the court in Citizens Insurance Company v. Foxbilt, Inc. (8th Cir. 1955) 226 F.2d 641 applying Iowa law, held that the tenant of business premises could recover on its fire insurance policy for damage to its office space even though the building owner repaired the damage at his expense pursuant to the lease terms. Applying the New York rule, the court held that because the insurer agreed to indemnify the insured for loss due to fire, and because such a loss occurred, the insurer was obligated to pay policy benefits even though the insured reaped a windfall. (Id. at p. 645.) In Milwaukee Mechanics Ins. Co. v. Maples (1953) 66 So.2d 159 the court considered an action brought by the plaintiff – the owner of a building that burned down while in the process of being sold – against her fire insurer. Through subsequent negotiations with the original purchaser’s successor, the plaintiff completed the transaction for just $1,000 less than original sales price, then sought to recover the full amount of her fire insurance policy. The insurer refused and the plaintiff eventually prevailed at trial. The judgment was affirmed because the insurer’s liability must be measured “by the fire damage at the time of the loss and not by fortuitous circumstances later befalling the insured and to which [the insurer] was in no wise privy. [Citations.]” (Id. at p. 167.)
As just discussed, the New York rule developed in fire insurance cases and has since been applied to other forms of property casualty insurance. In Simon Marketing v. Gulf Ins. Co. (2007) 149 Cal.App.4th 616 (Simon Marketing), we interpreted a similar policy covering property theft and noted that it was a form of property insurance that developed out of fire insurance. (Id. at p. 622, & fn. 6.) We therefore see no reason not to apply the rule here.
The insurance at issue in Simon Marketing covered property loss from employee theft, with property defined to include money, securities, and property other than money and securities. (Simon Marketing, supra, 149 Cal.App.4th at p. 619.) National Union’s CrimeGuard policy covered loss of assets due to destruction, disappearance, or theft, with assets defined to include “money, securities or other property . . . .”
The facts of this case fall squarely within the New York rule. Sears suffered a loss of more than $20 million when Rubin stole Sears’s money that was intended to pay the media outlets. The policy contains no provisions that determine the amount of actual loss according to any favorable settlements by the insured with third parties that might reduce the amount of loss. Therefore, the fact that Sears was able to negotiate a favorable reduction in the amounts owed with some of the third party media outlets does not diminish its loss.
National Union has not argued on appeal that the concepts of subrogation, offset, or mitigation of damages apply to this issue, and we express no opinion on those issues. However, our determination of this issue necessarily resolves National Union’s separate contention that Sears’s action was premature because it suffered no actual loss until it paid the media outlets after the complaint was filed. Because under the New York rule Sears’s subsequent settlements did not diminish the amount of its actual loss, it follows that an actual loss occurred at the time of theft, not when Sears paid money to the media outlets. (Accord F.D.I.C. v. United Pacific Ins. Co. (10th Cir. 1994) 20 F.3d 1070, 1080 [bond covering loss from employee theft; in regard to determining loss, only concern is with the immediate and direct effect of the employee’s action and it does not matter that the insured may be able to obtain reimbursement or recover its loss].)
4. The Amount of Sears’s Funds Stolen By Rubin Was Conceded
National Union contends that even though Rubin made off with millions of dollars from Focus, there are disputed issues of fact whether and to what extent any of those funds came from Sears, as opposed to other clients. As Sears points out in its appellate brief, National Union is raising this contention for the first time on appeal, and it is therefore waived. (Zimmerman, Rosenfeld, Gersh & Leeds LLP v. Larson (2005) 131 Cal.App.4th 1466, 1487-1489.)
National Union’s reply brief does not respond to Sears’s statement that National Union did not dispute this issue below, focusing instead on the evidence before the trial court. Even though Sears’s separate statement in support of its summary adjudication motion set forth a chain of facts leading to the conclusion that Rubin must have made off with Sears’s money when he raided Focus’s accounts, National Union’s opposition separate statement focused on its contention that the money taken by Rubin belonged to Focus, not Sears. National Union’s separate statement did refer to several paragraphs of the declaration of its accounting expert, Chris Money, including a paragraph that referred to a complaint by Focus’s bankruptcy trustee that supposedly alleged that most of the distributions from Focus to Rubin came from accounts other than the account containing Sears’s funds. However, the separate statement did not specify any particular portions of those paragraphs and made no reference to this particular issue. Furthermore, National Union’s unsupported reference to the allegations of a bankruptcy complaint is hardly evidence that Rubin did not make off with Sears’s money, and at no point in National Union’s opposition separate statement did it explicitly challenge Sears’s contention.
DISPOSITION
For the reasons set forth above, the judgment is affirmed. Respondent Sears to recover its costs on appeal.
I CONCUR: COOPER, P. J.
The issue was also not argued in National Union’s opposition points and authorities. Sears’s summary adjudication reply brief said that National Union conceded that Rubin took Sears’s money. National Union never challenged this assertion, even when Sears’s counsel made it again during the hearing on the summary adjudication motions, or when the court stated twice during the hearing that it believed Rubin had made off with Sears’s money. Finally, the proposed order prepared by Sears included the trial court’s own findings that “National Union has not put forward any evidence that Mr. Rubin did not take the money” Sears provided to Focus and that it was “very clear that Mr. Rubin absconded with the funds . . . .” Those findings were never disputed in National Union’s objections to the proposed order.