Filed 8/27/26 Linsao v. First Am. Property & Casualty Ins. Co. CA2/1
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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION ONE
JOHN LINSAO et al., B340746
Plaintiffs and Appellants, (Los Angeles County
Super. Ct. Nos. 20STCV47368,
v. 22STCV03541)
FIRST AMERICAN PROPERTY
& CASUALTY INSURANCE
COMPANY,
Defendant and Respondent.
APPEAL from a judgment of the Superior Court of
Los Angeles County, Wendy Chang, Judge. Affirmed.
Niddrie│Addams│Fuller│Singh, Victoria E. Fuller, Catherine
M. Asuncion; Herzog Yuhas Fournier & Ardell, Ian Herzog and Kali
Fournier for Plaintiffs and Appellants.
Manteau Downes, Patrick N. Downes and Ben A. Machida for
Defendant and Respondent.
Appellants James Linsao, Brian Walters, John Linsao,
and Maura Linsao, challenge a summary judgment in favor
of respondent First American Property & Casualty Insurance
Company (First American) in appellants’ lawsuit against First
American. That lawsuit asserts breach of contract, breach of
the implied covenant of good faith and fair dealing, intentional
infliction of emotional distress (IIED) and fraud claims based
primarily on First American’s investigation and ultimate denial
of a claim appellants John Linsao (Linsao)1 and Brian Walters
(collectively, the homeowners) made under their homeowner’s
insurance policy. We find no error and affirm.
FACTUAL BACKGROUND
Our factual summary accepts as true appellants’ evidence
in opposition to summary judgment and any reasonable inferences
that can be drawn from it. (Horn v. Cushman & Wakefield Western,
Inc. (1999) 72 Cal.App.4th 798, 805.)
A. The First American Policy
The homeowners jointly own a single-family residence
in Sherman Oaks (the insured property). They purchased a
“comprehensive, all risk homeowners policy” for the insured
property from First American.
The policy “insure[s] against direct physical loss [caused]
to” the insured property, subject to numerous exclusions.
Most relevant here, the policy excludes from coverage “loss
to property . . . caused by” “[w]eather conditions” (the weather
exclusion), “[a]cts or decisions, including the failure to act or decide,
1 Because we do not have occasion to discuss any other
appellants or individuals with the surname Linsao, we use it to
refer to appellant John Linsao only.
2
of any person, group, organization or government body” (the acts
and decisions exclusion) and “[f]aulty, inadequate or defective . . .
[p]lanning, zoning, development, surveying, . . . [d]esign,
specifications, workmanship, repair, construction, renovation,
remodeling, grading, compaction . . . or [m]aintenance . . . of part
or all of any property whether on or off the ‘residence premises’ ”
(the inadequate construction exclusion). It also excludes loss
caused by earth movement, such as mudslides (the earth movement
exclusion).
The homeowners also purchased a “flood and water/mud
intrusion/damage policy” covering the insured property from Hiscox
U.S. Flood Consortium 9762 and Wright National Flood Insurance
Services, LLC (collectively, Hiscox), not parties to this appeal.
B. Damage to Property
1. Interrupted Construction on Nearby
Property
The insured property is situated at the bottom of a
ravine on a steep hillside slope that rises behind it. In 2019,
Melt Construction (Melt) was building a large residence on an
undeveloped residential lot located upslope from the insured
property (the Hopevale property). The City of Los Angeles (the
City) approved plans for the construction that required Melt to
widen the road, build a retaining wall on its downslope edge, and
change the existing street grade.
A neighbor complained to the City about the aesthetic impact
of the wall on his property. As a result, the City asked Melt to stop
work on the wall to accommodate potential design changes. The
City did not, however, issue a formal “stop order” requiring Melt
to do so. Melt paused construction, at which point Melt had not
3
constructed approximately 15 feet of the wall, meaning the wall
stopped approximately 15 feet before the property line for the
insured property. Melt had “drilled the caisson holes” for this
15-foot portion and “had put rebar in the holes.” Melt also had
improved, but not yet paved, the dirt roadway.
2. December 2019 Storm
In December 2019, weather forecasts predicted a
rainstorm in the area of the insured property. Construction
on the Hopevale property retaining wall was still paused. In
preparation for the storm, Melt installed about 75 sandbags
at the end of the unfinished wall.
During the storm, water streamed along the wall toward
the unfinished end, then formed a gully leading directly to the
rear of the insured property. Normally, rain runoff from above
the construction site would continue evenly down the hillside, but
the incomplete retaining wall disrupted that natural flow. The
runoff inundated the drainage system on the insured property,
causing the rear retaining wall on the insured property to crack
and lean away from the hillside. Water, mud, and debris flowed
over the wall, filling the back patio of the insured property and
seeping into the house. This resulted in extensive water damage
within the walls of the insured property and permanent damage
to the floors. The damage rendered the home uninhabitable.
C. Investigation and Resolution of First American
Insurance Claim
1. Claim
On January 16, 2020, Walters reported the incident and
resulting loss to First American and made a claim under the
4
homeowners’ First American policy. Walters also made a claim
under their Hiscox flood insurance policy.
2. First American Communications with the
Homeowners During the Investigation
a. Initial denial and reopening of the
homeowners’ claim
First American obtained a third-party inspector’s report
and concluded that the cause of the homeowners’ claimed loss
was “a mudslide from a construction site” on the Hopevale
property. In a January 28, 2020 letter, First American informed
appellants it was denying the claim under the earth movement
exclusion.
On May 30, 2020, Linsao wrote to First American disputing
the application of the earth movement exclusion. Linsao, a
lawyer with substantial experience in the insurance industry,
contended that, for purposes of assessing coverage, “the cause
of the loss was the negligence of a third party, i.e., Melt.” On
June 3, 2020, First American reopened the claim to “ensure
[First American] [has] all the facts before making a final coverage
decision.”
b. Communications and investigation after
claim reopened
On June 9, 2020, First American sent third-party engineer
Alex Zaretskiy to inspect the insured property.
On June 22, 2020, First American manager David
Douillette called Linsao and “told [him] [Douillette] had reviewed
the matter with his management, they had agreed there was
coverage under the policy, and First American would be sending
[the homeowners a] written confirmation.” (Underscoring
5
omitted.) Douillette further “advised the matter was being
transferred to Antonio Esquivel, a large loss adjuster who would
be handling the claim settlement going forward.” “Later that
day, [Linsao] received a telephone call from . . . Esquivel, who
also confirmed that First American had determined that there
was coverage for the loss, and . . . explained that he was just
waiting until he had the written [Zaretskiy] report . . . in his
file before he could begin making payments.” (Underscoring
omitted.) Esquivel further “confirmed that he had damage
estimates for approximately $386,000 in his file.”
On June 25, 2020, Esquivel emailed Linsao that he “[was]
still pending [sic] the engineer’s report to conclude the coverage
determination.” Linsao called Zaretskiy that same day to inquire
about the report. Zaretskiy told Linsao that on June 16, 2020,
Zaretskiy “had participated in a conference call with [claims
adjuster] Bianca Orozco, David Douillette, and two [others]”
and “First American’s representatives [on the call] agreed
that the loss was covered.” Linsao immediately called Orozco,
who also told him she and Douillette had determined there was
coverage during the June 16 call, and the matter was “ ‘a done
deal.’ ”
On June 26, Linsao spoke to Esquivel and the vice
president of claims, Valerie Peterson, and reiterated that
Esquivel and Douillette had repeatedly told him the loss would
be covered.
On June 29, Esquivel gave Linsao a $20,000 check as
partial payment for living expenses.
Also on June 29, Peterson informed Linsao via email that
First American was “unable to affirm coverage [at this time]”
because the investigation was still ongoing. First American
6
counsel Garey Selvin emailed Linsao later that day. Selvin
wrote it was “important for us to reduce everything to writing . . .
[to] avoid any misunderstandings . . . . For example, you have
attributed statements regarding coverage to various First
American employees, who say they were misquoted. Neither I
nor anyone else has said that there is coverage for the claim.”
3. Linsao’s Loan
Around July 7, 2020, Linsao obtained a $200,000 loan to
pay for repairs and living expenses resulting from the loss and
the insured property remaining uninhabitable.
4. Final Denial of Appellants’ Claim
In a July 24, 2020 letter from Esquivel, First American
informed the homeowners it had completed its investigation
and was denying coverage for their claim. First American
explained it “disagree[d] with [the homeowners’] assessment that
a third party’s negligence is an insured peril.” First American
had instead concluded “four excluded perils combined to cause
the loss[:] . . . earth movement, water, third party negligence,
and weather.” Zaretskiy had concluded the downslope flow
was caused by Melt’s “ ‘inadequate construction wet-weather
management of construction activities’ ” and “[a]ll such
activities are excluded because they are faulty planning, faulty
development of the hillside, and faulty construction of the
retaining wall, as well as the project in general, which combined
with excluded surface water, weather and rain to produce an
excluded landslide.”
Linsao disputed the denial, arguing that the neighbor’s
complaints were the predominate cause of the loss, not Melt’s
decisions. On October 2, Selvin responded that even if this
7
were the case, the acts and decisions exclusion would apply
and prevent coverage.
D. Appellants’ Lawsuit and Summary Judgment
1. Complaint
Appellants filed a complaint against First American,
Hiscox, and others.2 Appellants sued First American for breach
of the insurance contract, alleging that no policy exclusion
applied and the policy covered the loss. Appellants alleged First
American also breached the implied covenant of good faith and
fair dealing, both by leading the homeowners to believe First
American would cover the loss, and by conducting an inadequate
investigation in bad faith. They asserted an IIED claim against
First American based on this same conduct. Finally, appellants
asserted a fraud claim based on purported misrepresentations on
the First American website regarding the extent of coverage for
“water intrusion” loss.3
2. Summary Judgment
On September 25, 2023, First American filed its motion
for summary judgment arguing that as a matter of law, the policy
did not cover the homeowners’ loss. It argued that, regardless
which of the multiple factors contributing to the loss constituted
the “efficient proximate cause,” one or more policy exclusions
2 In April 2024, appellants filed notice that they had
settled their claims against all insurer defendants except First
American.
3 On January 20, 2021, appellants filed a separate lawsuit
against the City, Melt and other parties allegedly associated with
the construction work on the Hopevale property.
8
applied and prevented coverage. It further argued the evidence
did not create a triable question as to multiple elements of a
fraud claim.
Appellants countered that a jury could reasonably conclude
from the evidence that no exclusion applied, and that certain
exclusions First American relied on were unenforceable.
Appellants further argued First American’s representations to
Linsao during the investigation, on which the homeowners had
relied, estopped First American from denying coverage.
The court rejected appellants’ estoppel argument and
considered the coverage issue. The court concluded “[t]he
undisputed facts show that [the homeowners’] claim falls within
one or more coverage exclusions in their [p]olicy,” entitling
First American to summary judgment on the breach of contract
and implied covenant causes of action. Because appellants
“appear[ed] to concede” in their statements of undisputed
fact that Melt’s construction on the Hopevale property was
the efficient proximate cause of the loss, the court focused
on the inadequate construction exception. The court rejected
appellants’ arguments that, because the evidence did not
conclusively establish Melt had been negligent, this exception
did not necessarily apply. It also rejected appellants’ “pivot”
to the argument that, because Melt would not have halted
construction absent the neighbor’s complaint, the neighbor’s
conduct was the efficient proximate cause of the loss.
The court further concluded that, “assuming[,] arguendo
only, that the efficient proximate cause of this loss was . . . the
actual movement of the earth or the storms that caused the rain,
that then caused the flood,” the undisputed facts established
applicability of other policy exceptions.
9
Absent policy coverage, the court went on, the breach of
contract, implied covenant, and IIED claims fail as a matter of
law. Finally, the court concluded the evidence did not support
several elements of appellants’ fraud claim. Accordingly, the
court granted the summary judgment motion.
This appeal followed.
DISCUSSION
A defendant moving for summary judgment has the
initial burden of showing “one or more elements of the cause
of action . . . cannot be established.” (Code Civ. Proc., § 437c,
subd. (p)(2).) Upon such a showing, the burden shifts to the
plaintiff to establish a triable issue of material fact. (Ibid.;
Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826,
849-850.) “There is a triable issue of material fact if, and only
if, [admissible] 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.” (Aguilar,
supra, at p. 850; LaChapelle v. Toyota Motor Credit Corp. (2002)
102 Cal.App.4th 977, 981.)
We review a trial court’s decision to grant a motion for
summary judgment de novo, “considering all of the evidence
offered in connection with the motion—except that which the
court properly excluded—and the uncontradicted inferences
the evidence reasonably supports.” (DiCola v. White Brothers
Performance Products, Inc. (2008) 158 Cal.App.4th 666, 674.)
A. Summary Adjudications Based on Lack of
Coverage
Appellants argue the court erred in summarily adjudicating
any claim based on noncoverage because (1) triable issues
10
remained as to what the predominate cause of the loss was;
(2) the evidence and terms of the policy create triable issues
as to coverage; (3) First American is estopped from asserting
a noncoverage defense; and (4) First American investigated the
claim in bad faith, which supports an implied covenant claim
and/or an IIED claim, even in the absence of policy coverage.
1. A Triable Question as to Which Event
Predominately Caused the Loss Does Not
Preclude Summary Judgment Here
Appellants’ policy is an all-risk policy, meaning it
“ ‘covers all risks save for those risks specifically excluded.’ ”
(Vardanyan v. AMCO Ins. Co. (2015) 243 Cal.App.4th 779,
797-798 (Vardanyan), italics omitted.) In a coverage dispute
involving such a policy, the burden is on the insurer denying
liability to “ ‘prove the policy’s noncoverage of the insured’s loss—
that is, that the insured’s loss was proximately caused by a peril
specifically excluded from the coverage of the policy.’ ” (Ibid.)
When there are multiple possible causes of a loss, only
some of which are excluded from coverage, the insurer’s burden
of proving noncoverage includes both identifying which was
the “efficient proximate cause” and establishing it is excluded.
(State Farm Fire & Casualty Co. v. Von Der Lieth (1991) 54
Cal.3d 1123, 1131–1132 (Von Der Lieth) [“[w]hen a loss is caused
by a combination of a covered and specifically excluded risks, the
loss is covered if the covered risk was the efficient proximate
cause of the loss”].) Appellants argue that the court erred in
granting summary judgment because a triable question remained
as to which of several events was the efficient proximate cause
of the homeowners’ loss. But an insurer can also meet its burden
of proving noncoverage by establishing all possible efficient
11
proximate causes are excluded. (Brodkin v. State Farm Fire
& Casualty Co. (1989) 217 Cal.App.3d 210, 217 (Brodkin).)
The authority appellants cite to support their argument is not to
the contrary. (See Vardanyan, supra, 243 Cal.App.4th at p. 796;
Garvey v. State Farm Fire & Casualty Co. (1989) 48 Cal.3d 395,
413.) This authority addresses situations in which only some of
the possible efficient proximate causes were excluded under the
policy. (See Vardanyan, supra, at p. 796 [insurance agreement
improperly excluded any loss caused by a combination of covered
and excluded causes, regardless of which was the predominate
cause]; Garvey, supra, at p. 413 [whether negligence or earth
movement was the cause of the loss presented “jury questions
because sufficient evidence was introduced to support both
possibilities” but only one was covered under the policy].) As
we conclude below, this is not the case here; First American
established the policy excludes from coverage all possible efficient
proximate causes. (See Discussion post, part A.2.) Thus, First
American has met its burden of establishing noncoverage
warranting summary adjudication, even if a triable question
remains as to efficient proximate cause. (Brodkin, supra, 217
Cal.App.3d at p. 217 [“summary judgment is still proper if all
of the alleged causes of the loss are excluded under the policy,”
even if there remains a dispute as to which was the efficient
proximate cause].)
2. All Possible Efficient Proximate Causes
of the Loss Trigger an Exclusion and
Prevent Coverage
The possible causes of the loss presented on summary
judgment are: the rainstorm, the mudslide, the actions of Melt
construction, and the neighbor’s complaint about the retaining
12
wall. Appellants do not argue on appeal that if the storm or
the mudslide is the efficient proximate cause, the policy covers
the loss. Rather, they argue (1) a jury could have found the
neighbor’s complaint was the efficient proximate cause of the
loss, in which case no enforceable exclusion would apply, and
(2) there remained a triable question of whether the inadequate
construction exclusion applies to Melt’s actions.
a. Neighbor’s complaint not a possible
efficient proximate cause
Appellants argue a reasonable jury could have found
that the neighbor’s complaint was the efficient proximate
cause of the loss. “The efficient proximate cause of a loss
is the ‘predominant’ or ‘most important’ cause of the loss.”
(Coast Restaurant Group, Inc. v. Amguard Ins. Co. (2023) 90
Cal.App.5th 332, 345 (Coast Restaurant Group, Inc.), quoting
Julian v. Hartford Underwriters Ins. Co. (2005) 35 Cal.4th
747, 754.) Nothing in the evidence appellants identify supports
that the neighbor’s complaint was the “predominate” cause
of the loss—only that the neighbor set a series of events in
motion, and that these events may not have otherwise occurred.
This is alone insufficient to establish efficient proximate cause.
(See Sabella v. Wisler (1963) 59 Cal.2d 21, 33–34 [“but for” cause
alone insufficient]; see also Von Der Lieth, supra, 54 Cal.3d at
pp. 1131–1132 [“the loss is not covered if the covered risk was
only a remote cause of the loss”].) An efficient proximate cause
must be capable, “under some circumstances” of “occurr[ing]
independently of the other [potential causes] and [independently]
caus[ing] [the] damage.” (Finn v. Continental Ins. Co. (1990) 218
Cal.App.3d 69, 72; accord, Pieper v. Commercial Underwriters
Ins. Co. (1997) 59 Cal.App.4th 1008, 1020–1021.) A jury could
13
not have found that the neighbor’s complaint was alone capable
of causing the damage to the insured property under any
circumstances. Appellants’ argument merely “characterizes”
Melt’s conduct in a different manner; it does not identify an
efficient proximate cause independent of Melt’s conduct. (See
Pieper, supra, at p. 1021 [“ ‘[i]f every possible characterization
of an action or event were counted an additional peril, the
exclusions in all-risk insurance contracts would be largely
meaningless’ ”].)
Because we agree with the court that the evidence did not
create a triable question of whether the neighbor’s complaint was
the efficient proximate cause, we need not address appellants’
arguments that such a cause would trigger the acts and decisions
exclusion and/or the enforceability of the exclusion.
b. No triable question as to inadequate
construction exclusion
Appellants argue the evidence permits a reasonable jury
to find that Melt’s actions on the Hopevale property did not
constitute “inadequate construction” under the policy. They
argue a “reasonable juror could conclude the unfinished retaining
wall itself was not faulty, inadequate, or defective where
construction was still in progress,” and “Melt did not simply fail
to complete the wall pursuant to the approved plans or abandon
the project. . . . It was for the jury to decide whether pausing
construction under the circumstances rendered the wall faulty,
inadequate, or defective.”
In assessing this argument, we must first interpret
the policy’s “inadequate construction” language. “The ‘clear
and explicit’ meaning of [insurance policy] provisions, interpreted
in their ‘ordinary and popular sense,’ . . . [citation] . . . controls
14
judicial interpretation. ([Civ. Code,] § 1638.) Thus, if the
meaning a layperson would ascribe to contract language is not
ambiguous, we apply that meaning.” (AIU Ins. Co. v. Superior
Court (1990) 51 Cal.3d 807, 822; see ibid. [setting forth
“principles of [insurance policy] interpretation”]; Miller v. Elite
Ins. Co. (1980) 100 Cal.App.3d 739, 751–752 (Miller) [applying
this to interpretation of insurance exclusions].)
A layman would ascribe the same unambiguous
meaning to the term “inadequate” as appears in its simple
dictionary definition: “not enough or good enough[;]
insufficient[;] [¶] . . . not capable.” (Merriam-Webster Dict. (2026)
<https://www.merriam-webster.com/dictionary/inadequate.htm>
[as of Aug. 2026].) Thus, an inadequately constructed structure
is one constructed in a manner “insufficient” to, “incapable”
of, or “not enough” to serve its intended purpose. In Wilson v.
Farmers Ins. Exchange (2002) 102 Cal.App.4th 1171 (Wilson),
for example, the Court of Appeal concluded an incomplete home
renovation that left “most of the exterior walls of the house . . .
stripped down to the studs” (id. at p. 1173) reflected “plainly”
“inadequate . . . construction” (id. at p. 1174). The court in
Wilson interpreted “inadequate construction” as having a
plain meaning that obviously applied to such an incomplete
construction project. (See ibid. [“[a]n unfinished renovation or
remodeling project that leaves the house in disrepair is plainly
‘inadequate’ ” and triggers an exclusion for “loss caused by
inadequate repair, construction, renovation, or remodeling” in
all risk policy].) The court did not rely on any evidence beyond
the structure’s incompletely renovated state in reaching this
conclusion.
15
Just as a house without complete walls cannot function
as a house, an incompletely constructed retaining wall—so
incomplete that 15 feet thereof consists solely of “caisson holes”
and “rebar”—cannot function as a retaining wall. (See Wilson,
supra, 102 Cal.App.4th at pp. 1173–1174.) It is thus “plainly”
inadequately constructed in the same way a house that lacks
complete walls is inadequately constructed. The undisputed
evidence establishing that Melt constructed only a portion
of the retaining wall therefore also establishes the inadequate
construction exclusion applies to Melt’s conduct.4
Appellants attempt to distinguish Wilson by arguing
“Melt did not simply fail to complete the wall pursuant to
the approved plans or abandon the project [as occurred in
Wilson],” but rather “the City requested that Melt temporarily
stop construction.” (Capitalization added.) The fundamental
assumption driving this argument is that the policy use of
the term “inadequate” incorporates negligence or some level
of fault. We are not persuaded. The policy exclusion here—
like that at issue in Wilson—does not require negligence
or inadequacy for a certain reason; only inadequacy. (See
4 Appellants also point to “evidence that Melt installed
sandbags” and “that the City inspected and approved Melt’s
flood prevention measures before the rainstorm.” (Capitalization
added.) But this evidence supports a triable question as to
whether Melt’s flood prevention measures were inadequate.
These plainly were not the “ ‘predominant’ or ‘most important’
cause of the loss” (Coast Restaurant Group, Inc., supra, 90
Cal.App.5th at p. 345) and thus not the efficient proximate cause.
Thus, whether there is a triable question as to the inadequacy of
these efforts is not the applicable inquiry in assessing whether
the inadequate construction exception might apply.
16
Wilson, supra, 102 Cal.App.4th at p. 1174 [excluding “ ‘loss
to property . . . caused by . . . [¶] . . . [¶] [f]aulty, [i]nadequate
or [d]efective; [¶] . . . workmanship, repair, construction,
renovation, [or] remodeling’ ”].) We may not and do not read
these additional concepts into the policy language.
Appellants argue we must interpret insurance exclusions
in favor of finding coverage. But it is only when an exclusion
is ambiguous that courts must interpret it narrowly and against
the insurer. (See State Farm Mutual Auto Ins. Co. v. Jacober
(1973) 10 Cal.3d 193, 201 [“an insurer cannot escape its basic
duty to insure by means of an exclusionary clause that is
unclear”]; Miller, supra, 100 Cal.App.3d at p. 751 [“any ambiguity
is to be interpreted against the insurer and reasonable doubts as
to uncertain language should be resolved against the insurer”].)
Appellants further argue the court employed “ ‘a
strict, literal interpretation of [the] clause [that] unreasonably
restrict[s] the coverage of the policy’ ” and thus cannot stand.
(Quoting Miller, supra, 100 Cal.App.3d at pp. 751–752.) But we
do not rely on the court’s reasoning in applying the “inadequate
construction” exception.5 Moreover, the authority appellants
cite rejects only literal interpretations that “foist[ ] onto a
layman [here, the homeowners]” an unexpected interpretation
that cannot “be defended in terms of the risks which the layman
5 The court reasoned that because the incomplete
retaining wall did not stop the mudslide, the wall was necessarily
inadequately constructed. That analysis speaks to whether
Melt’s conduct—however characterized—contributed to the
loss, which is a separate issue. In assessing the applicability of
the inadequate construction exception, we consider whether the
incompleteness of the wall rendered it incapable of functioning
at all—not whether, in the storm, the wall did function properly.
17
[insured] sought to insure against.” (Miller, supra, 100
Cal.App.3d at pp. 751–752.) Appellants do not identify what
unexpected meaning the dictionary definition and commonsense
meaning of the term “inadequate” lead to here, nor what other
plain, popular meaning they expected this term to have. Nor do
they explain why the plain meaning of the term “ ‘does not make
any sense in terms of the risks insured’ in a homeowners policy.
(Schilk v. Benefit Trust Life Ins. Co. (1969) 273 Cal.App.2d 302,
308.)” We perceive no reason why the risks insured against in
a homeowner’s policy must necessarily include an incomplete
construction project on a neighboring property, such that
the court’s interpretation of the exclusion would “result in
unreasonable and unjust forfeitures or an absurd result.” (Id.
at p. 307.) Indeed, the homeowners’ policy excluded numerous
types of risk from its coverage with no apparent common theme.
3. First American’s Conduct and Statements
During the Investigation Do Not Estop It
from Asserting Noncoverage as a Defense
Appellants argue that, regardless of whether the policy
covers the loss, First American is estopped from asserting
noncoverage as a defense. They point to evidence suggesting
that First American initially led the homeowners to believe the
loss was covered. We agree with appellants that the evidence
creates a triable question as to whether First American agents
made such statements and whether the homeowners reasonably
relied on them. But we disagree with appellants as to the legal
effect of such statements on their claims.
“Estoppel cannot be used to create coverage under an
insurance policy where such coverage did not originally exist.”
(Miller, supra, 100 Cal.App.3d at p. 755; accord, Advanced
18
Network, Inc. v. Peerless Ins. Co. (2010) 190 Cal.App.4th 1054,
1066.) “ ‘ “The rule is well established that the doctrines of
implied waiver and of estoppel, based upon the conduct or action
of the insurer, are not available to bring within the coverage of a
policy risks not covered by its terms, or risks expressly excluded
therefrom.” ’ ” (Aetna Casualty & Surety Co. v. Richmond (1977)
76 Cal.App.3d 645, 653; see id. at pp. 652–653 [estoppel “ ‘do[es]
not operate to extend the coverage of an insurance policy after
the liability has been incurred or the loss sustained’ ”]; accord,
Advanced Network, supra, at p. 1066.) Because the policy here
does not cover the claimed loss, estoppel cannot assist appellants
in proving First American breached the policy agreement by
denying coverage.
Further, “if the insurer is under no obligation to [provide
coverage] . . . , it [also] cannot be found liable for . . . [citation] . . .
breach of the implied covenant of good faith and fair dealing, for
its denial of [coverage benefits].” (Waller v. Truck Ins. Exchange,
Inc. (1995) 11 Cal.4th 1, 10 (Waller); Benavides v. State Farm
General Ins. Co. (2006) 136 Cal.App.4th 1241, 1250 (Benavides)
[“an insured cannot maintain a claim for tortious breach of the
implied covenant of good faith and fair dealing absent a covered
loss”].)
Thus, estoppel cannot assist appellants in countering First
American’s noncoverage defense to appellants’ breach of contract
claim or implied covenant claim.
In arguing to the contrary, appellants cite cases applying
an exception to the general rule regarding estoppel and insurance
coverage. (See Miller, supra, 100 Cal.App.3d 739; Tomerlin v.
Canadian Indemnity Co. (1964) 61 Cal.2d 638 (Tomerlin).)
These cases involve liability insurance, also referred to as
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“third-party coverage”—that is, “coverage under which the
insurer contracts to indemnify the insured against liability to
third parties.” (Dollinger DeAnza Associates v. Chicago Title Ins.
Co. (2011) 199 Cal.App.4th 1132, 1154 (Dollinger).) Under this
exception, “ ‘ “if a liability insurer,” ’ ” knows an action is not
covered by the policy, yet “ ‘ “assumes and conducts the defense
of an action brought against the insured, without disclaiming
liability and giving notice of its reservation of rights, [the insurer]
is thereafter precluded in an action upon the policy from setting
up such ground of forfeiture . . . . In other words, the insurer’s
unconditional defense of an action brought against its insured
constitutes a waiver of the terms of the policy and an estoppel of
the insurer to assert such grounds.” [Citation.]’ ” (Id. at p. 1154,
quoting Miller, supra, 100 Cal.App.3d at p. 755.) For example,
in Tomerlin, supra, 61 Cal.2d 638, the insurer’s attorney
defended the insured throughout an entire trial and repeatedly
told the insured his policy would cover any resulting judgment
as well. (See id. at pp. 641–643.) At the conclusion of the trial,
the insurer determined there was no coverage and refused to
pay the judgment. (See ibid.) In “reliance upon [the insurer’s]
representations [of coverage,] [the insured] [had] permitted
his personal counsel to withdraw from the [third party] suit.”
(Id. at p. 643.) Based on this reliance, and citing promissory
estoppel concepts, the high court concluded the insurer was
liable to pay the third-party judgment, even if the policy
did not obligate the insurer to do so. (Id. at p. 649.)
Similarly, in Miller, an insurer began defending the
insured against third party claims and engaging in settlement
negotiations on the insured’s behalf. (Miller, supra, 100
Cal.App.3d at pp. 749–750.) Based on this conduct, the insured
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reasonably believed his liability policy covered the dispute
and that the insurer would pay any resulting judgment. (Ibid.)
The insurer ultimately refused to pay the judgment, however,
contending there was no coverage. When the insured sued
the insurer for the amount of that judgment, the insurer was
“estopped from asserting its coverage defenses” (id. at p. 756),
because the insured had “relied to his detriment on [the insurer’s]
defense under the policy.” (Id. at p. 755.) Specifically, he “fail[ed]
to retain an attorney, . . . fail[ed] to negotiate with [other parties
involved in the lawsuit], and . . . fail[ed] to deal directly with the
[third party plaintiffs] or their attorney. Further, [the insured]
was denied the possibility of choosing to settle the claim by
compromise because” the insurer did not inform him of all
relevant offers. (Ibid.)
At least one court has concluded the exception reflected
in cases like Miller and Tomerlin applies only in the liability
insurance context and does not apply to “first party coverage”6
like the homeowners’ First American policy. (See Dollinger,
supra, 199 Cal.App.4th at p. 1154 [exception “does not apply here
because [insurer] is . . . not a liability insurer; instead, it is a title
6 “ ‘First-party coverage refers to types of insurance
under which the insurer contracts to pay benefits directly to the
insured, as distinguished from liability or third-party coverage
under which the insurer contracts to indemnify the insured
against liability to third parties. First-party coverage includes
life insurance, health and accident insurance, disability
insurance, title insurance, property damage insurance, fire
insurance, medical payments coverage and other types of policies
providing for payments directly to the insured.’ [Citation.]”
(McKinley v. XL Specialty Ins. Co. (2005) 131 Cal.App.4th 1572,
1576, italics omitted.)
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insurer that provides first party coverage”].) Appellants counter
that, although “[the] cases [applying the exception] involve
policies insuring against third-party claims, there is no defensible
reason why the application of waiver and estoppel should be
limited to liability insurers.” Whether or not this is generally
true, the logic of those cases does not apply here. They involve
insureds relying on an insurer’s representations in a particular
way not present here. Namely, in those cases, the insureds’
reliance caused them to irreparably forego alternatives to
the coverage the insurer led them to believe existed—that is,
alternative means of defending against or otherwise resolving
the third-party lawsuit. Because these alternatives to coverage
were no longer available when the insurer later changed course,
the only means of making the insureds whole was to require
the insurer to provide coverage—even if it did not exist under
the terms of the policy. Here, appellants have not shown they
forewent any alternative means of addressing the damage to
the insured property. To the contrary, they pursued at least
two other efforts: a flood insurance claim and a lawsuit against
Melt and other third parties.
Appellants argue the homeowners obtained a loan in
reliance on First American’s representations. That is at best
a basis for seeking, on a promissory estoppel theory appellants
have disclaimed, the costs of that loan—not full coverage under
the policy. Thus, even if appellants are correct that, under
certain circumstances, a first party insurer may be estopped from
denying coverage for a noncovered loss, no such circumstances
are present here.
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4. “Bad Faith” Theories of Implied Covenant
and IIED Claims
Appellants argue that even if the policy does not cover
the homeowners’ claimed loss, First American’s representations
about coverage reflect separately actionable bad faith conduct
in the investigation of that claim. They also point to evidence
of what they describe as First American’s unreasonable and
inadequate investigation of the claim as further supporting such
a bad faith theory of liability. On this basis, they contend the
court erred in granting summary judgment on what they refer to
as their “bad faith claims.”7 (Boldface & capitalization omitted.)
“[W]hen benefits are due an insured, ‘delayed payment
based on inadequate or tardy investigations, oppressive conduct
by claims adjusters seeking to reduce the amounts legitimately
payable and numerous other tactics may breach the implied
covenant because’ they frustrate the insured’s right to receive
the benefits of the contract in ‘prompt compensation for losses.’ ”
(Waller, supra, 11 Cal.4th at p. 36.) But our state Supreme
Court has rejected such an implied covenant theory in the
absence of coverage for the claim being investigated: “Absent
that contractual right, however, the implied covenant has
nothing upon which to act as a supplement, and ‘should not
be endowed with an existence independent of its contractual
underpinnings.’ ” (Ibid.; accord, Benavides, supra, 136
Cal.App.4th at p. 1250 [“[i]f the insurer’s investigation—
adequate or not—results in a correct conclusion of no coverage,
7 Appellants do not allege a cause of action so captioned.
From context, however, they appear instead to be referring to
bad faith theories of their IIED and implied covenant of good
faith and fair dealing claims.
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no tort liability arises for breach of the implied covenant” (italics
omitted)]; Brodkin, supra, 217 Cal.App.3d at p. 218.)
Appellants argue Wilson v. 21st Century Ins. Co. (2007) 42
Cal.4th 713 (21st Century) is to the contrary. But 21st Century
permitted an implied covenant claim based on unreasonable
delay in paying insurance benefits for injuries that were covered
by the policy and that the insurer ultimately paid. Her implied
covenant claim sought not payment under the policy, but
damages resulting from the insurer’s delay in paying under
the policy. (See id. at p. 720 [permitting suit seeking “damages
in the form of lost interest on the policy benefits, attorney fees
and costs incurred to recover payment, and general damages
including emotional distress”].) 21st Century thus applies the
rule Waller describes; it is not to the contrary.
Additional authority suggests an insured also may not
rely on a noncontractual theory of liability—for example, IIED
or negligence—to recover for a first party insurer’s bad faith
investigation of a loss the policy does not cover. In Benavides, for
example, the court concluded: “[A]bsent coverage, there is no tort
liability for improperly investigating a first-party insurance claim
whether the insurer’s conduct is characterized as an implied
covenant breach or negligence. The same logic that precludes
imposition of damages for breach of the implied covenant in the
absence of coverage . . . also rules out recovery for negligence.
The relationship between the parties is contractual. The
insured’s primary right is to receive compensation for covered
losses. The insurer’s duty is not to unreasonably withhold the
payment of benefits due. When, as here, no benefits are due,
a negligent investigation does not frustrate the insured’s right
to the benefits of the contract. The insured who is not entitled
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to insurance proceeds has suffered no injury as a result of the
manner in which the insurer’s investigation was conducted.”
(Benavides, supra, 136 Cal.App.4th at pp. 1250-1251; see Shade
Foods, Inc. v. Innovative Products Sales & Marketing, Inc.
(2000) 78 Cal.App.4th 847, 880; Brodkin, supra, 217 Cal.App.3d
at p. 218.)
“Some authorities have suggested”—in dictum—
“hypothetical circumstances in which an insurance company
might be liable for bad faith despite the insured’s lack of a
contract right to benefits under the insurance policy.” (Brizuela
v. CalFarm Ins. Co. (2004) 116 Cal.App.4th 578, 594; see Murray
v. State Farm Fire & Casualty Co. (1990) 219 Cal.App.3d 58,
65-66 (Murray) [“[w]hile there may be unusual circumstances
in which an insurance company could be liable to its insured
for tortious bad faith despite the fact that the insurance contract
did not provide for coverage, no such circumstances are presented
here”] (fn. omitted).) The circumstances this dictum hypothesizes
involve the insured suffering—and recovering the value of—a
loss distinct from the ultimate denial of benefits; a “consequential
loss” solely from the insurer’s delay or bad faith. (Murray,
supra, at p. 66, fn. 5; ibid. [“[f]or instance, the insurance company
might be liable if it unreasonably delayed in performing an
investigation of a claim before concluding there was no coverage
and the insured suffered consequential loss as a result of the
delay”].) Thus, even if we were to agree with this dictum, it
would not provide a basis for appellants to recover the value
of the coverage they were correctly denied.
In any event, we decline to follow these suggestions in
dicta. We agree with and elect to follow Benavides on this point.
Bad faith or delay in First American’s insurance investigation of
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a claim the policy does not cover is not a cognizable basis for
an IIED or implied covenant claim.
B. Summarily Adjudication of Fraud Claim
A fraud cause of action requires proof of the following
elements: (1) a misrepresentation, (2) knowledge of the falsity
or scienter, (3) intent to defraud—that is, induce reliance,
(4) justifiable reliance, and (5) resulting damages. (Lazar v.
Superior Court (1996) 12 Cal.4th 631, 638.) Appellants’ theory
of fraud is that First American’s website, by marketing its policy
as comprehensive and recommending separate flood insurance,
implied that the policy covered all water damage events besides
flooding. The court found as a matter of law that First American
made no misrepresentation on their website. We agree.
Appellants point to no evidence suggesting the website
incorrectly described the scope of coverage First American
generally offers. Nor does the website make any representations
as to the coverage the homeowners contracted to receive by
purchasing their specific policy. To the contrary, the website
discusses different levels of coverage one can purchase from
First American and makes clear the coverage each individual
consumer purchases will vary, stating: “You can customize
your policy to fit your needs, and we have many coverage
options available from basic homeowners coverage to guaranteed
replacement cost for high value homes.” The website’s true
statements about the coverage First American generally offers
cannot, as a matter of law, be fairly understood as affirmative
statements of fact about the scope of a particular policy that
particular consumers purchase.
Moreover, we agree with the trial court that the
evidence does not support the justifiable reliance element
26
either. Appellants argue the website’s truthful but selective
representations were so misleading that appellants believed their
insurance contract covered non-flood water damage—even though
the contract itself expressly states it does not cover such damage.
If there are circumstances under which a reasonable person
could have relied on a website’s general representations in lieu
of the terms of the contract he signs in assessing the terms of
that contract, they are not supported by the evidence here. For
these and other reasons we need not reach, we agree with the
trial court that there was no triable question as to appellants’
fraud claim.
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DISPOSITION
The judgment is affirmed. Respondent shall recover its costs
on appeal.
NOT TO BE PUBLISHED.
ROTHSCHILD, P. J.
We concur:
WEINGART, J.
M. KIM, J.
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