Opinion
NOT TO BE PUBLISHED
San Francisco County Super. Ct. No. CPF-97-984502
Margulies, Acting P.J.
Claimants Fred and Hanna Carter installed a new roof of fire-resistant tiles in 1995. Eleven years later, they discovered a water spot on their ceiling caused by a leak in the roof. Defendant Golden Eagle Insurance Company (Golden Eagle), now in conservatorship, had issued a property damage policy covering the tiles used in claimants’ roof, but the policy period covered only damage occurring in 1995–1996, the first year of the roof’s installation. Claimants filed a claim under the Golden Eagle insurance policy supported by an expert declaration explaining how the roof tiles could have caused property damage during their first year of installation, despite the failure of visible damage to appear until 11 years later. The claims administrator for Golden Eagle denied the claim, and the trial court affirmed that denial. We affirm the trial court.
I. BACKGROUND
On August 10, 2007, claimants submitted a claim to the claims administrator for Golden Eagle, a defunct insurance company then in conservatorship. (See generally Garamendi v. Golden Eagle Ins. Co. (2005) 128 Cal.App.4th 452, 459 (Garamendi).) Pursuant to Insurance Code section 1011, the conservatorships of financially troubled insurance companies are the responsibility of the Insurance Commissioner (commissioner). As part of a plan of reorganization for Golden Eagle, the commissioner instituted a procedure for the determination of claims made under insurance policies issued by Golden Eagle in its solvent days. (See Low v. Golden Eagle Ins. Co. (2002) 101 Cal.App.4th 1354, 1359; Ins. Code, § 1021.)
The claim explained that on June 20, 1995, claimants installed on their home a new roof of “Terra Shake” roofing tiles. The Terra Shake tiles were intended to resemble traditional cedar shakes, but they were manufactured from a fire-resistant mixture of cement and wood fibers or paper. Unfortunately, the design of the Terra Shake tiles proved defective, and claimants’ roof eventually developed a leak.
Golden Eagle had issued a property damage insurance policy to the manufacturer of Terra Shake, Terra Roofing Products, Inc. (Terra Roofing), that covered a single policy year, from June 6, 1995 to June 6, 1996. This policy period corresponded to the first 11½ months of the life of claimants’ roof. Claimants did not notice any signs of a roof leak until the rainy season of 2006–2007, some 11 years after their roof was installed and 10 years after the expiration of the Golden Eagle insurance policy. Their claim sought the costs of retaining experts to evaluate the roof, removing and replacing it, and repairing leak damage inside the house. Enclosed with their claim was a report detailing the results of an investigation of the leak, a declaration by an expert in construction materials, and various cost estimates for the necessary repairs.
According to the leak investigation report, prepared by Applied Materials & Engineering, Inc. (Applied Materials), claimants first suspected a roof leak when they noticed a spot on their ceiling. Investigation in the attic space revealed signs of water intrusion. Inspection of the roofing tiles above the location of the ceiling spot showed “[w]idespread, advanced coating loss,” “[m]oderately widespread, advanced material deterioration,” “[m]oderately widespread, advanced distortion,” and “[l]imited vegetation growth.” The Applied Materials report attached a number of photographs of claimants’ roof and concluded, “Leaking through the Terra Shake roof covering is positively indicated at the reported leak location. Conditions resulting from the defective roofing materials including coating loss, material deterioration and distortion correspond to the location of the reported leak.... We observed no evidence of other conditions including the general construction or casualty that may have caused leaking through the Terra Shake roofing. [¶] Based upon our investigation, it is our opinion that the reported leaking is the result of defects in the Terra Shake roofing materials that produce conditions permitting water infiltration.”
The expert who submitted the declaration in support of the claim, Arnold Rodio, had personally inspected over 200 Terra Shake roofs and thousands more covered by cement fiber tiles manufactured by other companies. He stated he had reviewed the Applied Materials report and had “inspected and measured the Carter’s home for damages caused by defective Terra Shake.”
Despite this assertion, it is not clear Rodio ever inspected claimants’ roof. His declaration is a general discussion of Terra Shake failure and contains no reference to specific conditions on claimants’ roof. The trial court noted, “[T]he parties seem to agree that Mr. Rodio did not conduct an inspection of [claimants’] property. At the hearing on May 6, 2008 Claimants’ counsel, in referring to the Commissioner’s letter denying the claim, cites as error a reference to ‘Rodio’ having inspected the Claimants’ property.”
Rodio explained that cement fiber roof tiles are laid down over a layer of “felt paper,” an asphalt-coated material. The felt paper is intended to be a “secondary” barrier to water penetration, but it is not waterproof and cannot tolerate exposure to excessive amounts of water. Cement fiber tiles are “extremely brittle” and therefore “do not tolerate nails or staples as do wood shakes.” While cedar shakes form a watertight seal around nails driven into them, Terra Shakes fracture when nailed. Driving a nail into a Terra Shake causes the cement material to break away in the area immediately adjacent to the entry and exit points of the nail. Rainwater penetrates around the shank of the nail, traveling into the tile itself and down to the felt paper underneath. As water penetrates in this manner, the gap in the tile around the nail gradually grows. Further, the layer of felt paper underneath the tiles “begins to wear at the point where the [nail] passes through the felt and attaches to the wood sheathing. The opening in the felt paper at the location of the nail penetration becomes larger allowing more and more water to pass directly down onto the wood sheathing.... [¶]... Water begins to deteriorate the felt through these nail holes from the first rain after installation. The condition becomes progressively worse over time until the paper is sufficiently damaged to cause a leak. [¶] I have repeatedly seen this condition on Terra Shake and other cement fiber roofs. It is the leading cause of leaks in Terra Shake properties today.”
Rodio’s declaration also described other methods by which Terra Shake roofs fail. Cement particles from the tiles slough off and, over time, damage the felt paper, allowing water to penetrate. In addition, during rain the tiles absorb water and expand. When the tiles dry, their surfaces dry before the interior, causing them to “warp and distort” and allowing “wind-driven rainwater to seep down the fasteners to access the felt underlayment.” Further, because of their brittleness, Terra Shakes cannot be walked upon without their cracking and breaking. Normal roof and gutter maintenance can thereby lead to increased water penetration. Rodio also listed “coating degradation, material deterioration, moisture absorption, distortion, and loss of resistance to breaking and excessive curling and lifting” as other ways of causing “water penetration beneath the shake, which corrodes felt paper and causes leaks that result in property damage.”
The claims administrator denied the claim in its entirety on the grounds that (1) the damage had not been shown to occur during the policy period and (2) the policy did not cover damage to the roof tiles themselves. The administrator discounted the Rodio declaration as “not based upon any observations which occurred during our policy period, but rather based upon his speculation and an inspection he conducted ten years after our policy expired.” In addition, the administrator relied on a report prepared by another roofing expert, J.E. Eddington. Eddington, who did not inspect claimants’ roof, stated felt paper under Terra Shake roofs was not damaged upon first exposure to rain, since it was “designated [sic] to withstand contact with typical rainwater.” Contrary to Rodio’s opinion, Eddington described felt paper as a “primary barrier against the weather.” Damage to felt paper, in Eddington’s experience, more often occurred as a result of exposure to sunlight or unusually large amounts of rainwater. Eddington noted that claimants’ failure to notice a leak until 10 years after installation “supports our opinion that consequential damage (more than likely) did not occur during the [policy period].”
As permitted by statute (Ins. Code, § 1032), claimants filed an application for an order to show cause in the trial court challenging the denial of their claim, supported by the documents in the claim file. The trial court denied the application in a thorough written decision, finding substantial evidence to support the claims administrator’s factual conclusion no property damage occurred during the policy period. The court began its discussion by noting, “It is undisputed that Claimants had the burden of establishing that damage to their property occurred during the policy period.” The court then discussed at length the evidence submitted by the parties and summarized its conclusions as follows:
The trial court also found the claims administrator had applied proper legal standards and conducted a fair determination, and it rejected claimants’ argument for a more strict standard of review.
“First, although Mr. Rodio opined that during the process of installing Terra Shakes, nails break the Terra Shakes which immediately causes rainwater to damage the underlying felt, there was no evidence to support this when [claimants’] roof was inspected more than 10 years later. Significantly, the Applied Materials Report did not report broken roof shakes or mention nails breaking shakes. Second, the Applied Materials Report noted that the shakes had experienced ‘coating loss, material deterioration and distortion.’ However, neither Rodio nor Applied Materials opined that these conditions occur immediately, or that they caused consequential damage within the policy period. Moreover, the Applied Materials Report correlates the area of distorted (but not broken or shattered) shakes with the leak observed on the interior of the home.... In sum, the theory postulated by the Rodio Declaration ‘in regard to all Terra Shakes’ did not match up with what the Applied Materials Report actually documented and photographed at the Claimants’ residence. Third, Claimants never noticed any evidence of leaking until ten years after the policy period expired. Although it is not a prerequisite to a claim that damage must be observed during the policy period, the fact that it was not observed until more than 10 years after the period can be considered as part of all of the facts and circumstances. The Rodio Declaration and the Applied Materials Report never addressed the seemingly counterintuitive (though admittedly not dispositive) fact that the first evidence of leaking did not appear until 10 years after the installation was completed. [¶] Further, Mr. Eddington gave a contrary opinion. He opined that the felt underlayment is not damaged by contact with the first rain, and that most felt damage is due to long time exposure to sunlight (UV) rather than deterioration by simple contact with water. In fact, the Applied Materials Report included a photograph showing that the Claimants’ Terra Shakes had deformed and exposed the felt to sunlight. All of these facts, coupled with the fact that no leak was reported until more than a decade after installation of the roof, supported Mr. Eddington’s opinion that ‘more than likely’ the consequential damage did not occur during the policy period.”
II. DISCUSSION
Claimants contend the trial court erred in applying an abuse of discretion standard of review, rather than a de novo standard, and argue the court would have reversed the claims administrator had it applied the proper standard of review. We do not address the applicable standard of review because we conclude claimants failed to carry their burden of proof under any standard.
In reviewing for substantial evidence, the trial court was applying the abuse of discretion standard as described in Garamendi, supra, 128 Cal.App.4th 452: an abuse of discretion is found if, among other grounds, the claims administrator’s factual conclusions are not supported by substantial evidence. (Id. at p. 466.)
The trial court reviewed the evidence at length and sensibly evaluated it. After reviewing the same evidence, we cannot improve on the trial court’s analysis. To recover under the Golden Eagle policy, claimants were required to show some property damage caused by the Terra Shakes during the policy period, the first year of their installation. As the trial court’s discussion quoted above demonstrates, there was very little, if any, evidence of property damage at that time. Although Rodio outlined a mechanism by which the Terra Shake tiles caused almost immediate property damage, he failed to connect this theoretical mechanism to the actual conditions on claimants’ roof. As the trial court explained, the observations of the investigators who inspected the roof did not appear to support Rodio’s theory of damage, and the expert consulted by the claims administrator directly contradicted the premises of his theory. Reviewing the totality of the evidence, the claim of damage in the first year clearly was not supported by a preponderance of the evidence, as necessary for claimants to carry their burden.
Claimants never directly address the trial court’s reasoning. Instead, they appear to be making two different arguments in support of their contention they demonstrated property damage during the policy period. First, they argue the Rodio declaration must, in effect, be accepted as conclusive proof that damage caused by seepage around nail holes in the felt paper, which began immediately, ultimately led to the water infiltration observed on the ceiling. Even Rodio, however, acknowledged his theory of immediate damage through nail-hole deterioration is “the leading cause of leaks in Terra Shake properties today,” not the only cause. He detailed several other ways in which the roofs fail—erosion of the felt paper from disintegration of the tiles, gradual wearing out of the tiles caused by moisture uptake, deterioration of their outer surface, and damage that occurs when the roofs are walked upon. Although Rodio claimed to have reviewed the Applied Materials report, he never discussed the report’s observations nor explained how those observations and the photographs from the roof supported his theory of damage by seepage around nail holes. Nor does he cite any of his own observations of claimants’ roof as support for his theory. Therefore, even relying solely on the Rodio declaration, it can be concluded only that deterioration around nail holes was one among a range of possible causes of the observed damage.
Rodio’s declaration was not, however, the only evidence available, and the remainder of the evidence suggests a different cause for the damage observed in claimants’ home. The description of the condition of the roof in the Applied Materials report does not indicate any tile breakage or degradation around nail entry holes. Rather, the description corresponds to a gradual deterioration of the tiles, one of the alternative causes for leakage acknowledged by Rodio. Not coincidentally, the deterioration described by Applied Materials is located in the same general place in the roof as the water infiltration. There is no evidence this type of deterioration would have caused property damage in the first year; on the contrary, it is the type of deterioration that would have occurred over an extended period of time as the tiles aged.
In discussing the Applied Materials report, claimants state, “[Applied Materials] inspected the roof and confirmed the nature of the property damage. [It], too, concluded that the reported leaking was the result of defects in the Terra Shake roofing materials.” While this statement is true, it utterly ignores the gap between the Applied Materials findings and Rodio’s theory of seepage around nail holes. Although Applied Materials confirmed property damage due to defects, they were not the same defects Rodio claimed would cause damage in the first year.
There were other problems with Rodio’s theory. Although he stated water penetration through nail holes would have caused damage from the first rain, claimants did not notice a leak until 10 rainy winters had come and gone. Rodio’s declaration contains no explanation why the type of immediate damage he posits would not manifest itself for eleven years. In addition, Eddington takes issue with the entire basis for Rodio’s theory, contending felt paper is a more resilient water barrier than Rodio believes. In short, the evidence, taken as a whole, provided no reason to believe Rodio’s mechanism of seepage around nail holes was associated with the water infiltration actually observed by claimants and reported by Applied Materials.
Second, claimants appear to argue they are entitled to recover because Rodio declared the Terra Shake tiles caused some damage in the first year—deterioration of the felt paper at the point where it is penetrated by nails—even if there have been no leaks as a result of that damage. Under this theory, claimants are entitled to a new roof because the Terra Shake tiles caused the felt paper to deteriorate around nail holes, even if that damage had nothing to do with the water infiltration they observed on their ceiling. (See, e.g., Armstrong World Industries, Inc. v. Aetna Casualty & Surety Co. (1996) 45 Cal.App.4th 1, 97–98.) Assuming this type of deterioration could support their recovery of a new roof, the argument fails because there is no evidence this process actually occurred on claimants’ roof. As noted above, the Rodio declaration contains no discussion tying his theory to conditions on the roof, and the Applied Materials report did not report any instance of tiles fractured, or even excessively weathered, around their nail holes, a necessary precondition for the type of damage Rodio described. The only property damage Applied Materials reported was water infiltration of the roof, which the report tied to an area of deteriorated Terra Shakes. Even ignoring the Eddington report, which plausibly debunks Rodio’s theory, the only evidence supporting the occurrence of Rodio’s felt paper damage is his assertion it often occurs. That general claim is refuted in this particular instance by Applied Materials’s failure to observe the telltale signs of such damage. The evidence is simply insufficient to support claimants’ contention that felt paper deterioration around nail holes occurred on their roof.
Because claimants failed to carry their burden of demonstrating Terra Shake tiles caused property damage during the policy period, it is unnecessary for us to consider the parties’ remaining arguments.
III. DISPOSITION
The judgment of the trial court is affirmed.
We concur: Dondero, J., Banke, J.