Opinion
G036524
12-13-2006
Y2K TEXTILE, INC., Plaintiff and Appellant, v. LEXINGTON INSURANCE COMPANY, Defendant and Respondent.
Law Office of Sassoon Sales and Sassoon Sales for Plaintiff and Appellant. Selvin Wraith Halman, James L. Wraith and Elizabeth A. Doyle for Defendant and Respondent.
Plaintiff and appellant Y2K Textile, Inc. (Y2K) suffered a fire at its plant, and its insurance carrier declined to renew its insurance policy. Y2K sought insurance from defendant and respondent Lexington Insurance Company (Lexington). Lexington agreed to issue a policy on the condition that Y2K contract with a professional duct cleaning service, in order to minimize the risk of future fires. During the period of the Lexington policy, another fire broke out. Lexington denied Y2Ks claim for damages, because Y2K admitted that it had not contracted with a professional duct cleaning service.
Y2K filed a bad faith action against Lexington. The court granted Lexingtons motion for summary judgment and denied Y2Ks motion for summary adjudication. Judgment was entered in favor of Lexington.
On appeal, Y2K claims that summary judgment in favor of Lexington was improper because the requirement that Y2K contract with a duct cleaning service was not conspicuous, plain and clear. Y2K also contends that there was a triable issue of material fact as to whether it had substantially performed the contract requirement by having its own employees perform duct cleaning work. We reject these arguments and conclude that the trial court properly granted summary judgment in favor of Lexington and denied summary adjudication in favor of Y2K. The orders and judgment are affirmed.
I
FACTS
The material facts are not in dispute. A fire broke out at Y2Ks plant on April 30, 2001 and Y2Ks insurance carrier, Golden Eagle Insurance Company, paid $525,000 with respect to Y2Ks claim. Golden Eagle declined to renew Y2Ks insurance policy because of Y2Ks fire loss history.
Y2Ks retail insurance broker, Industrial Risk Insurance Services (Industrial Risk), thereafter sought out replacement insurance for Y2K. In furtherance of that objective, Industrial Risk contacted Worldwide Facilities, Inc. (Worldwide), a wholesale and surplus lines insurance broker. Worldwide, in turn, obtained a quote from Lexington. Worldwide thereafter issued a binder to Industrial Risk. The binder identified Y2K as the insured, Industrial Risk as its agent, and Lexington as the insurer, and provided that a "contract with a duct cleaning service" was a condition and a warranty. Lexington issued policy No. 8528992, effective December 1, 2001 to December 1, 2002.
On December 5, 2002, Worldwide issued a second binder, confirming the procurement of a renewal policy for a second term. The binder provided that a "contract with a duct cleaning service" continued to be a condition and a warranty. Lexington issued its policy No. 7473283, effective December 1, 2002 to December 1, 2003. The renewal policy contained the same terms and conditions as the prior policy, including the same protective safeguards provision requiring Y2K to maintain a contract with a duct cleaning service.
A fire broke out at Y2Ks plant on June 16, 2003. Y2K tendered a claim to Lexington. Lexington denied the claim, stating that "insurance coverage for Y2K Textiles facility was suspended on June 16, 2003, due to Y2K Textiles violation of the policys `protective safeguards provision imposing a warranty obligation on Y2K Textile to have a `contract with a duct cleaning service."
Y2K filed a complaint for breach of contract and breach of the obligation of good faith against Lexington. Lexington filed a motion for summary judgment and Y2K filed a motion for summary adjudication. The court granted Lexingtons motion and denied Y2Ks motion and entered judgment in favor of Lexington. Y2K filed a notice of appeal from the summary judgment, as well as from the underlying orders granting Lexingtons motion and denying its own.
II
ANALYSIS
A. Summary Judgment Review:
On review of a summary judgment, we "examine the record de novo and independently determine whether [the] decision is correct. [Citation.]" (Colarossi v. Coty US Inc. (2002) 97 Cal.App.4th 1142, 1149.) "Under summary judgment law, any party to an action, whether plaintiff or defendant, `may move the court `for summary judgment in his [or her] favor on a cause of action . . . or defense (Code Civ. Proc., § 437c, subd. (a)) — a plaintiff `contend[ing] . . . that there is no defense to the action, a defendant `contend[ing] that the action has no merit (ibid.). The court must `grant[] the `motion `if all the papers submitted show that `there is no triable issue as to any material fact (id., § 437c, subd. (c)) — that is, there is no issue requiring a trial as to any fact that is necessary under the pleadings and, ultimately, the law [citations] — and that the `moving party is entitled to a judgment as a matter of law (Code Civ. Proc., § 437c, subd. (c))." (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 843.)
"[I]n moving for summary judgment, a `defendant . . . has met his [or her] `burden of showing that a cause of action has no merit if he [or she] `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. Once the defendant . . . has met that burden, the burden shifts to the plaintiff . . . to show that a triable issue of one or more material facts exists as to that cause of action or a defense thereto. . . . (Code Civ. Proc., § 437c, subd. (o)(2).)" (Aguilar v. Atlantic Richfield Co., supra, 25 Cal.4th at p. 849.)
B. Pleadings:
(1) Y2Ks complaint
In its complaint, Y2K alleged that Lexington had breached the terms of the insurance policy by refusing to reimburse Y2K for losses suffered in connection with the fire that took place during the policy period. Y2K also alleged that Lexington had breached its obligation of good faith and fair dealing by refusing to pay on the policy and failing to investigate and process the claim.
(2) Lexingtons motion for summary judgment
In its motion for summary judgment, Lexington stated that it had agreed to issue an insurance policy to Y2K on the express condition that Y2K maintain a contract with a duct cleaning service. Lexington also asserted that it was not contractually liable under the policy because Y2K had violated the protective safeguards provision of the policy, which stated that the policy would be suspended automatically when Y2K failed to adhere to its warranty to maintain a contract with a duct cleaning service. In addition, Lexington contended that it was not liable for bad faith, because its denial of Y2Ks claim was reasonable as a matter of law. It further explained that since there were no benefits owing under the contract, there could be no cause of action for bad faith.
In support of its motion, Lexington provided, inter alia, copies of the first policy, the second policy, and the binders pertaining to each policy. Each policy contained the described protective safeguards endorsement. In addition, each binder stated, inter alia: "CONDITIONS: . . . [¶] . . . [¶] 3. Warrant the following: [¶] . . . [¶] — Contract with Duct Cleaning Service[.]"
Lexington also provided the declaration of Kim L. Randall (Randall), senior vice-president and property manager for Worldwide. Randall explained that Worldwide was in the business of "solicit[ing], negotiat[ing] and plac[ing] insurance risks with insurers on behalf of retail insurance brokers and their clients." She said that she had been contacted by Industrial Risk about obtaining insurance for Y2K. Randall also stated that she had informed Industrial Risk that it would be very difficult to place insurance for Y2K, as a textiles operation with a previous fire history. Nonetheless, Randall was able to obtain a quote from Lexington, although its underwriter, Western Risk Specialists, Inc. (Western Risk) qualified that "it might be willing to insure Y2K . . . on the condition that the insured have a contract with a duct cleaning service." Randall stated that each of the binders issued made clear that a "`contract with a duct cleaning service [was] a condition and [a] warranty."
In addition, Lexington provided the declaration of Phyllis Nordman (Nordman), employed by Western Risk as an underwriter. She declared that Worldwide contacted Western Risk about commercial property coverage for Y2K. Nordman stated: "On behalf of Lexington, I issued a quote to Worldwide agreeing to insure Y2K . . . on the condition that the insured have a contract with a duct cleaning service." She explained that she issued a commercial property insurance policy to Y2K containing "a manuscripted `Protective Safeguards endorsement (`P-9), which requires that the insured maintain a contract with a duct cleaning service and provides that the insurance will be suspended if the insured fails to notify Lexington immediately of any impairment to, suspension of or failure to maintain the specified protective safeguard. P-9 was specifically written for this insured because of its prior fire loss which occurred in its duct system."
Nordman further declared that "[i]n view of the nature of Y2K Textiles business and its prior fire loss history, Lexington would never have agreed to issue the above-referenced policy without a specific protective safeguards warranty mandating that the insured maintain a contract with a duct cleaning service." Finally, she stated that "[t]he renewal policy contain[ed] the same terms and conditions as the earlier policy, including the same . . . protective safeguards warranty (P-9) requiring the insured to maintain a contract with a duct cleaning service."
In addition to the foregoing, Lexington supported its motion for summary judgment with a stipulation executed by Y2K. Y2K stipulated that Lexington had issued a commercial property insurance policy that contained a protective safeguards endorsement. One of the protective safeguards was identified as a "contract with a duct cleaning service." The endorsement provided that the insurance would be suspended automatically if Y2K failed to notify Lexington immediately when it knew of any impairment in the protective safeguards or if it failed to maintain the protective safeguards. Y2K further stipulated that it "did not have a contract with a duct cleaning service at the time of the subject fire loss" and that it "did not advise or notify Lexington. . . that it did not have a contract with a duct cleaning service prior to the subject fire loss."
In its motion, Lexington asserted that it did not need to demonstrate causation, because the policy was suspended due to Y2Ks failure to maintain a duct cleaning contract. Lexington nonetheless offered evidence in support of its position that the fire was indeed caused by the failure to properly clean the ducts. Lexington provided the declarations of Captain Kurt Bertuzzi (Bertuzzi), of the City of Fullerton Fire Department, and Ronald R. Hamel (Hamel), a private investigator and retired member of the Los Angeles City Fire Department. Bertuzzi declared that he had responded to the June 16, 2003 fire at Y2Ks plant. He stated that he had "determined that the origin was inside the duct system . . . . The cause of the fire was due to the lack of maintenance in cleaning the exhaust ducts. . . ." Hamel declared that he had been hired by Lexington to perform a cause and origin investigation pertaining to the fire in question. Hamel stated: "Based on physical evidence and witness statements, this fire was caused by ignition of lint and/or debris in the exhaust ducts . . . ." He further opined: "I conclude that the fire was caused by Y2K Textile[]s failure to adequately clean its air handling system, which led to the presence of combustible material within the exhausts ducts."
Lexington met its burden to show that there was no merit to the complaint. Y2K had admitted that it did not comply with the requirement of the protective safeguards provision to contract with a duct cleaning service. Therefore, under the terms of the insurance policy, the policy was suspended and no benefits were due. Because there were no benefits due, there could be no breach of contract for failure to cover Y2Ks loss and also no viable cause of action for bad faith. (Waller v. Truck Ins. Exchange, Inc. (1995) 11 Cal.4th 1, 19, 36-37.) Once Lexington met that burden, the burden shifted to Y2K to raise a triable issue of material fact as to either one of its causes of action. (Aguilar v. Atlantic Richfield Co., supra, 25 Cal.4th at p. 849.)
(3) Y2Ks opposition to the motion for summary judgment
In opposition to Lexingtons motion for summary judgment, Y2K argued that the protective safeguards endorsement was unenforceable because it was not conspicuous, plain and clear. It also argued that it had substantially complied with the requirements of the protective safeguards endorsement by having its own employees perform duct cleaning. Finally, it asserted that there was a triable issue of material fact as to whether Lexington had acted reasonably, or in bad faith.
In support of its position, Y2K quoted the following language from Steven v. Fidelity & Casualty Co. (1962) 58 Cal.2d 862: "In standardized contracts, . . . which are made by parties of unequal bargaining strength, the California courts have long been disinclined to effectuate clauses of limitation of liability which are unclear, unexpected, inconspicuous or unconscionable." (Id. at p. 879.) Y2K also noted that following language: "`[I]t must appear affirmatively that [the person bound] consented and agreed to [the condition] either by being required to sign it or by having his attention particularly called to it. [Citation.]" (Id. at p. 881.) Y2K failed to explain how the protective safeguard endorsement, as a specifically negotiated provision, could be construed either as a "standardized contract" provision or as a provision that was unexpected. Furthermore, Y2K omitted to explain how the provision could be construed as unconscionable, given Y2Ks fire loss history. Finally, its efforts to characterize the negotiated provision as unclear were unavailing.
In support of its opposition to the motion, Y2K presented the declaration of Chris Park (Park), an officer of Y2K. In that declaration, Park stated that he was unaware that the policy would be suspended if Y2K did not contract with a duct cleaning service. He did not explain his involvement, if any, with the procurement of the insurance, or address whether he had any contact with Industrial Risk concerning the same. Park also declared that Y2K engaged in a regimen of cleaning the ducts itself.
The court sustained Lexingtons objections to the Park declaration, on the grounds that it was lacking in personal knowledge and lacking in foundation. The court explained its reasoning in its tentative ruling, which it attached to and incorporated by reference into, its minute order granting Lexingtons motion for summary judgment. Thus, Y2K presented no admissible evidence to show that, despite the negotiation of the protective safeguards warranty provision, it remained unaware that it was required to maintain a duct cleaning service contract.
On appeal, Lexington asserts that Y2K did not challenge any of the courts evidentiary rulings. In its reply brief, Y2K states that it did cite evidence (presumably meaning in its opening brief) and that "implicit in those citations is a rejection of any ruling by the trial court regarding that evidence." Assuming, for the sake of discussion, that the mere citation to evidence constitutes argument that any court ruling precluding the admission of that evidence was erroneous (a stretch, we must say), such argument is nonetheless waived when not supported by citation to authority. (People v. Morse (1993) 21 Cal.App.4th 259, 275.) Furthermore, "an appellant must make an offer of proof in the trial court in order to claim on appeal that evidence was wrongly excluded. [Citation.] Similarly, if an appellant wishes to argue a point on appeal, it must first make a record by raising the point in the trial court. [Citations.]" (Tudor Ranches, Inc. v. State Comp. Ins. Fund (1998) 65 Cal.App.4th 1422, 1433; see also People v. Valdez (2004) 32 Cal.4th 73, 108.) Inasmuch as Y2K neither cites any portion of the record to show that it objected to the evidentiary rulings in the trial court, nor cites any authority for the proposition that the evidentiary rulings were erroneous, Y2Ks evidentiary arguments are deemed waived.
In its opening brief on appeal, Y2K admits that Industrial Risk was "informed . . . in writing that Lexington would issue a policy on condition that Y2K contracted with a duct cleaning service." At the same time, it asserts, without citation to the record, that "Y2Ks retail broker did not inform Y2K of the endorsement or else Y2K would not have been paying $50,000 per year in premiums knowing there was no insurance." However, "[if Y2K] misunderstood or was misled as to the coverages [it] purchased, the person responsible for that misunderstanding was [Industrial Risk]. [Citations.]" (Farm Air Flying Service v. Southeastern Aviation Ins. Services, Inc. (1988) 206 Cal.App.3d 637, 641.) The knowledge of Industrial Risk, as the agent of Y2K, is imputed to Y2K. (Ibid.) Thus, Y2K is deemed to be aware of the negotiated insurance policy provision requiring it to maintain a contract with a duct cleaning service and providing that on its failure to do so and to inform Lexington of that failure, the coverage would be suspended automatically. Y2K has stipulated to the fact that it did not enter into a contract with a duct cleaning service and did not inform Lexington of the same. Therefore, the policy was suspended at the time of the fire. Consequently, there being no potential for coverage under the policy, there was no viable cause of action against Lexington for breach of the insurance contract. (R & B Auto Center, Inc. v. Farmers Group, Inc. (2006) 140 Cal.App.4th 327, 350.)
As far as Y2Ks argument that it had substantially complied with the duct cleaning requirement by cleaning the ducts itself, Y2K failed to present any admissible evidence in support of that theory. As previously noted, the Park declaration was deemed inadmissible. In addition to that declaration, Y2K provided copies of letters from Action Duct Cleaning Company and Phil Ackland and Associates. The former opined that "[t]he exhaust ducts and dye ovens are being cleaned to [a] standard that would certainly seem acceptable." The latter stated that "[t]here [was] no written protocol for the cleaning of commercial dyer/dryer exhaust ducts" and expressed a belief "that there [were] no special requirements or regulations required to clean these systems" and that "the most prudent practice would be to have the ducts cleaned `in-house." The court stated in its order granting summary judgment that the exhibits were hearsay and the declarants had not been shown to be experts. Moreover, the exhibits were not sworn declarations. Once again, Y2K is, at this point, bound by the trial courts evidentiary rulings. (Tudor Ranches, Inc. v. State Comp. Ins. Fund, supra, 65 Cal.App.4th at p. 1433; People v. Valdez, supra, 32 Cal.4th at p. 108.) Consequently, its argument that it substantially complied with the duct cleaning requirement is unsupported by any evidence. As previously stated, the breach of contract claim fails.
Finally, we address Y2Ks argument that there was a triable issue of material fact as to whether Lexington had acted reasonably, or in bad faith. "When an insured submits a claim to an insurer and there is no potential for coverage of that claim under the policy, the insurer has no duty to defend and it may reasonably deny the claim. [Citation.]" (R & B Auto Center, Inc. v. Farmers Group, Inc., supra, 140 Cal.App.4th at p. 354.) As the Supreme Court has explained, "It is clear that if there is no potential for coverage and, hence, no duty to defend under the terms of the policy, there can be no action for breach of the implied covenant of good faith and fair dealing because the covenant is based on the contractual relationship between the insured and the insurer.
[Citation.]" (Waller v. Truck Ins. Exchange, Inc., supra, 11 Cal.4th at p. 36.) Here, because there was no potential for coverage under the policy, a cause of action for breach of the covenant of good faith and fair dealing would not lie.
In conclusion, Y2K did not meet its burden to raise a triable issue of material fact with respect to either of the causes of action under its complaint. Therefore, the trial court properly granted Lexingtons motion for summary judgment. (Aguilar v. Atlantic Richfield Co., supra, 25 Cal.4th at p. 843.)
(3) Y2Ks motion for summary adjudication
Y2Ks notice of appeal states that Y2K appeals from the order denying its motion for summary adjudication, in addition to the order granting Lexingtons motion for summary judgment. In its opening brief on appeal, Y2K mentions that it filed a motion for summary adjudication and that it was denied. However, it does not mention the content of its motion or specifically articulate why the motion should have been granted. "`When an issue is unsupported by pertinent or cognizable legal argument it may be deemed abandoned and discussion by the reviewing court is unnecessary[.]" (Estate of Bibb (2001) 87 Cal.App.4th 461, 470.)
Even so, we observe that the arguments contained in the motion for summary adjudication were substantially similar to those raised in opposition to Lexingtons motion for summary judgment. We need not rehash them. The trial court properly denied the motion for summary adjudication for the same reasons that it properly granted Lexingtons motion for summary judgment.
III
DISPOSITION
The order granting summary judgment in favor of Lexington, the order denying summary adjudication in favor of Y2K, and the summary judgment are affirmed. Lexington shall recover its costs on appeal.
We Concur:
OLEARY, ACTING P. J.
IKOLA, J. --------------- Notes: See now Code of Civil Procedure section 437c, subdivision (p)(2).