>Newport>
Harbor>
Lutheran>
Church>
v. Federal Ins.

















Filed 1/3/13 Newport Harbor Lutheran Church v. Federal Ins. CA4/3











>NOT TO BE PUBLISHED IN
OFFICIAL REPORTS





California Rules of Court, rule 8.1115(a), prohibits
courts and parties from citing or relying on opinions not certified for
publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for
publication or ordered published for purposes of rule 8.1115>.





IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA



FOURTH APPELLATE DISTRICT



DIVISION THREE




>

NEWPORT HARBOR LUTHERAN CHURCH, Plaintiff and Appellant, v. FEDERAL INSURANCE COMPANY, Defendant and Respondent.

G046509 (Super. Ct. No. 30-2011-00449639) O P I N I O N

Appeal
from a judgment of the Superior Court of href="http://www.adrservices.org/neutrals/frederick-mandabach.php">Orange
County, Franz E. Miller, Judge. Affirmed.

Law
Office of James L. Miller and James L. Miller for Plaintiff and Appellant.

Newton Remmel,
Stephen L. Newton and Lenell Topol McCallum for Defendant and Respondent.



* * *





This
case arises out of an insurance dispute. The trial court granted summary judgment in
favor of Federal Insurance Company (Federal), after determining as a matter of
law that Federal owed no obligation to defend or indemnify its insured, Abigail
Abbott Staffing Services, Inc. (Abbott), against a claim of liability arising
out of Abbott’s negligent referral of an employee who later embezzled money
from Abbott’s client.

After
Federal denied coverage to Abbott, Abbott stipulated to a judgment in favor of
the client, Newport Harbor Lutheran Church (the church), and assigned its claims against Federal to the
church. The church then filed this
lawsuit, alleging Federal had breached its obligations to Abbott under the
policies when it denied Abbott coverage in connection with the church’s
underlying claim and that Federal had acted in an unreasonably precipitous
manner in doing so.

The
court’s grant of summary judgment in
Federal’s favor was based largely on an interpretation of the policy
terms. First, the court reasoned that
because the church’s claim against Abbott was based on its allegedly negligent
provision of professional services – specifically, Abbott’s failure to
ascertain that the employee it referred to the church had a prior felony record
– coverage was excluded. Second, it
concluded the loss suffered by the church – the employee’s theft of church
money – could not be construed as “property damage” under the language of the
policies, and thus it was not a covered loss.
Third, it determined the undisputed evidence established the losses
suffered by the church occurred outside the policy period. Each of those three reasons independently
justified Federal’s denial of coverage.
And finally, the court concluded the undisputed evidence demonstrated
Federal’s denial of the claim followed a reasonable investigation, and thus
Federal could not be held liable for breach of the implied covenant of href="http://www.mcmillanlaw.com/">good faith and fair dealing.

We
affirm the judgment.



FACTS



Federal
issued both a commercial general liability (CGL) policy and a separate
“commercial umbrella” policy to Abbott, covering the period October 1, 2001 to October 1, 2002. When Federal quoted a price to Abbott for
these policies, it also offered Abbott the option of purchasing “Staffing Errors
and Omissions” coverage for an additional premium. Abbott, acting through its authorized
insurance broker, expressly declined the additional errors and omissions
coverage.

For our
purposes, the salient provisions of the CGL policy are these: Federal was obligated to provide Abbott with
a defense against third party claims for “bodily injury or property damage”
which occurred during the policy period and was caused by an accident, or for
“advertising injury or personal injury” caused by an “offense” committed during
the policy period. Federal was also
obligated to indemnify Abbott against damages it became legally obligated to
pay on account of such a claim.
“Property damage” was defined in the policy as “physical injury to
tangible property including the resulting loss of use of that property” or
“loss of use of tangible property that is not physically injured.” “[L]oss of use” was “deemed to occur at the
time of the occurrence that caused it.”

The
policy also specified a series of exclusions to coverage, including one
entitled “Professional Services,” which specified that the insurance did not
apply to injury or damage arising out of or related to the insured’s “rendering
of or failure to render professional services or advice.” But that exclusion, in turn, carved out an
exception for “the rendering or failure to render staffing placement services
or staffing services unless caused by willful violation of law or
regulation.” (Bold omitted.) Thus, standing alone, the “Professional
Services” exclusion contained in the body of the policy excluded coverage for
claims arising out of any professional services other than staffing and
staffing placement services.

However,
one of a series of separate endorsements
appended to the policy, entitled “Professional Liability,” stated >without exception that “[t]his insurance
does not apply to [injury or damage] arising out of the rendering or failure to
render professional services or advice, whether or not that service or advice
is ordinary to the insured’s profession . . . .”

The
separate umbrella policy provided for two types of coverage: Under “Coverage A,” Federal agreed to pay the
portion of a third-party loss which was otherwise covered by the CGL policy but
exceeded the liability limits
contained in that policy; and under “Coverage B,” Federal agreed to pay claims
against Abbott for “bodily injury, property damage, personal injury, or
advertising injury covered by this insurance which takes place during the
Policy Period of this policy and is caused by an occurrence” (bold omitted), but only to the extent those
claims were not insured against under the CGL policy. Like the CGL policy, however, the umbrella
policy limits covered “property damage” to “physical injury to tangible
property, including all resulting loss of use of that property,” and the “loss
of use of tangible property that is not physically injured.” And like the CGL policy, the umbrella policy
carried a separate endorsement which specified the policy excludes coverage for
liability arising out of the “the rendering or failing to render professional
service or advice, whether or not that service or advice is ordinary to the
insured’s profession . . . .”

On
October 3, 2008, six years after the policy period ended, the church filed suit
against Abbott, alleging causes of action for breach of contract, negligence
and negligent misrepresentation. The
complaint alleged the church had retained Abbott, a corporation engaged in the
business of providing employee staffing, to locate a reliable and trustworthy
candidate to be employed as its office manager.
Although the church relied on Abbott to scrutinize the integrity and
qualifications of any candidate it recommended, Abbott allegedly failed to make
reasonable efforts to do that and consequently recommended the church hire
Cheryl Granger, a woman with a history of criminal conduct. The church did hire Granger and over a period
of approximately three years spanning December 2002 to December 2005, she
allegedly embezzled a total of nearly $400,000 from the church. The church sought recovery from Abbott of its
“actual losses, including embezzled funds due to Granger’s theft,” as well as
“out-of-pocket expenses and interest.”

Abbott
first reported the claim to Federal approximately two weeks after the church
filed its complaint. In response, a
Federal claims adjuster contacted Jeffrey Allen, counsel for Abbott, and
discussed with him “the need to conduct an investigation into coverage.” The claims adjuster called Allen again on
November 25, 2008 – approximately a month later – to ask about additional facts
to support the existence of a claim within the language of the policy. Allen told the claims adjuster he had no
information other than the allegations of the complaint and suggested the
claims adjuster speak directly with James Bernald, Abbott’s defense counsel in
the case. The claims adjuster then
contacted Bernald, who stated he wanted to review the policy before discussing
coverage.

Over
the course of the next month and a half, the claims adjuster made several
attempts to follow up with Bernald, to no avail. The claims adjuster also sent letters to
Allen, advising him of the unsuccessful efforts to contact Bernald.

In
early February 2009, having still heard nothing from Bernald, Federal’s claims
adjuster determined he would recommend denial of the claim on the ground the
church had suffered no covered loss under the terms of the policy and because
“the professional services exclusion was right on point.” On February 6, 2009, the claims adjuster sent
another letter to Allen, informing Allen he had yet to hear back from Bernald,
but felt he had sufficient facts to make a coverage decision and would be
sending out a separate letter informing Allen of that decision.

On
February 19, 2009, Federal sent a letter to Allen explaining it was declining
coverage for the loss claimed by the church because the church’s claim was
based on the embezzlement of money, which did not qualify as a covered loss
under the policies. Moreover, the letter
indicated coverage was also denied because the church’s financial loss had
occurred outside of the policy period and because the claim arose out of
Abbott’s performance of professional services, which were excluded from
coverage.

Four
months later, in June 2009, Bernald sent Federal a letter disputing its
coverage decision and attached discovery responses filed in connection with the
church’s lawsuit against Abbott as well as the police report made in connection
with the embezzlement case. Relying on
those documents, Bernald argued the church had suffered “property damage” both
because “it lost monies stolen from its bank account and a laptop computer
[taken by Granger without authorization.]”
He also asserted the church was seeking to hold Abbott liable for the
loss of use of the laptop computer, which was deemed to have occurred “at the
time of the occurrence that caused it” – meaning the date of Abbott’s negligent
referral of Granger to the church.

Federal
hired its own coverage counsel and on September 21, 2009, that counsel sent a
lengthy letter to Bernald, reaffirming and explaining Federal’s decision to
deny coverage for the church’s claim.

Meanwhile,
on September 9, 2009, Abbott agreed to entry of a stipulated judgment in favor
of the church. Specifically, Abbott and
the church stipulated “Granger stole not less than $323,870.70” from the
church” and further stipulated to entry of a judgment in favor of the church,
and against Abbott, in that specific amount.
Abbott and the church also agreed that in exchange for the church’s
covenant not to record the stipulated judgment against Abbott, or to execute
the judgment against Abbott or any person associated with it, Abbott would
assign to the church any claims it had against its insurers arising out of the
insurers’ failure to defend and/or indemnify Abbott in the case.

As a
consequence of that underlying stipulation, the church filed this lawsuit
against Federal on February 14, 2011.
The church alleged Federal breached its obligations to Abbott under the
policies when it refused to either defend or indemnify Abbott against the
church’s claim. Additionally, the church
alleged Federal breached the covenant of good faith and fair dealing implied in
the policies by failing to adequately respond to the communications of Abbott
and its counsel and by denying coverage without conducting a proper
investigation of the facts.

On
August 4, 2011, the church filed a motion seeking summary adjudication in its
favor on various issues. On August 14,
2011, Federal filed its own motion for summary judgment. The motions were scheduled for hearing on the
same date.

In
support of its motion, Federal argued the church’s claim against Abbott was not
covered by its policies for four reasons:
(1) the embezzlement of funds did not qualify as “property damage” under
the policy terms; (2) the church suffered no loss during the policy period; (3)
Abbott’s negligent performance of services did not qualify as an “occurrence”
as defined in the policy; and (4) losses arising out of Abbott’s negligent performance of staffing services
were excluded from coverage.

The
court heard both motions on November 1, 2011, and ordered summary judgment in
Federal’s favor on November 22, 2011.
The court’s formal order explained summary judgment was appropriate for
several reasons. First, the court noted
there was no evidence the church suffered any loss during the policy period
because “[t]he first of the checks forged by Granger was dated September 30,
2002 but was not processed by the bank until October 2, 2002, one day after the
policy period of the Federal Policies expired. . . . The laptop that was stolen by Granger was not
purchased until September of 2005 well after the policy period . . . .”

Second,
the court noted there was no coverage because “professional placement services
and/or advice provided by [Abbott] was the alleged cause of [the church’s
loss],” and “[t]he professional liability exclusion contained in the
endorsement to the Federal general liability policy prevails over any conflict
with the professional liability exclusion in the main body of the policy.” In this regard, the court also pointed to
“the undisputed evidence submitted by Federal [which] demonstrates that Federal
quoted both general liability and staffing services errors or omissions to
[Abbott,] but that [Abbott] declined to purchase errors or omissions insurance
from Federal and purchased only liability insurance . . . .” And finally, the court concluded that a >permanent loss of property caused by a
conversion does not qualify as a “loss of use” of that property for purposes of
the “property damage” definition contained in the policies.

On
December 19, 2011, the court entered judgment in favor of Federal.



DISCUSSION

>1. Standard of Review

“A
trial court properly grants summary judgment where no triable issue of material
fact exists and the moving party is entitled to judgment as a matter of
law. (Code Civ. Proc., § 437c, subd.
(c).) ‘“We apply a de novo standard of
review to an order granting summary judgment when, on undisputed facts, the
order is based on the interpretation or application of the terms of an
insurance policy.” [Citations.] [¶] In reviewing de novo a superior court’s
summary [judgment] order in a dispute over the interpretation of the provisions
of a policy of insurance, the reviewing court applies settled rules governing
the interpretation of insurance contracts.’
(Powerine Oil Co., Inc. v.
Superior Court (2005) 37 Cal.4th 377, 390, 33 Cal.Rptr.3d 562, 118 P.3d
589.) The ordinary rules of contract
interpretation apply to insurance contracts.
(Ibid.) To protect the interests of the insured,
coverage provisions are interpreted broadly, and exclusions are interpreted
narrowly. (MacKinnon v. Truck Ins. Exchange (2003) 31 Cal.4th 635, 648, 3
Cal.Rptr.3d 228, 73 P.3d 1205.)” (>Stellar v. State Farm General Ins. Co.
(2007) 157 Cal.App.4th 1498, 1503.)





>2. Coverage for the Church’s Loss was Excluded by the Professional
Liability Endorsement

The
church first contends the trial court erred in concluding coverage for the
church’s loss was excluded by the “Professional Liability” endorsement attached
to the CGL policy, which the court viewed as overriding the more limited
“Professional Services” exclusion contained in the body of the policy.

Before
addressing the substance of this claim, we note that while the church points to
minor differences in these provisions – i.e., the title of the exclusion in the body of the policy is “Professional
Services” whereas the title of the
endorsement is “Professional Liability,” and the text of the former refers to
potential claims by a “customer” whereas the text of the latter refers to
claims by a “client” – it then expressly concedes “[n]either of these
differences has significance.” What the
church argues instead is that “these . . . virtually identical exclusions” are
patently inconsistent and thus create a fatal ambiguity. We disagree.


The
“Professional Services” exclusion in the body of the policy stated the
insurance did not apply to injury or damage arising out of or related to the
insured’s “rendering of or failure to render professional services or advice,
whether or not that service or advice is ordinary to the insured’s profession.”
(Bold omitted.) But that exclusion, in
turn, specified it did not apply to “the rendering of or failure to render >staffing placement services or staffing
services unless caused by willful violation of law or regulation.” (Italics added.) The net effect of that exclusion, if
considered in the abstract, was to provide coverage for most errors or
omissions Abbott committed in the course of providing staffing or staffing
placement services, while excluding coverage for liability arising out of any >other professional service it
provided.

But
that exclusion did not exist in the abstract.
Instead, it must be read in the context of the policy as a whole, which
included a series of separate endorsements
– one of which stated, without exception,
that “[t]his insurance does not apply to [injury or damage] arising out of the
. . . rendering of or failure to render professional services or advice,
whether or not that service or advice is ordinary to the insured’s profession .
. . .” (Bold omitted.) And as explained
in Aerojet General Corp v. Transport
Indemnity Co. (1997) 17 Cal.4th 38, 50, fn. 4 (Aerojet), “‘[i]f there is a conflict in meaning between an
endorsement and the body of the policy, the
endorsement controls.’” (Italics added, quoting Continental Casualty. Co. v. Phoenix Construction. Co. (1956) 46
Cal.2d 423, 431.)

The
church attempts to distinguish Aerojet
on the basis the endorsement at issue in that case purportedly reflected a
“bargained for . . . change in [the
insured’s] deductible coverage on a policy it had held for 26 prior years”
(italics added), which the parties necessarily intended would override any
inconsistent language contained in earlier versions of the policy. The church also points to >Narver v. California State Life Ins. Co. (1930)
211 Cal. 176, 181, for the proposition that an “endorsement” is an amendment or
modification to “an existing policy
of insurance.”

The
church then argues that because the “Professional
Liability” endorsement in this case was made part of the initial policy, it
is not a “true endorsement,” and thus should not be accorded the same
controlling effect over conflicting provisions contained in the body of the
policy. In other words, the church
claims that because the two conflicting provisions at issue here were included
within the Federal CGL policy at the same
time, there is no basis for presuming one was intended to override the
other. This is an attractive distinction
at first blush, but upon closer inspection it is revealed to be both factually
incorrect and based on a misunderstanding of what an endorsement is.

The
distinction relied upon by the church is factually inaccurate because while the
operative complaint in Aerojet was
filed “against 54 insurers, under 245 comprehensive general liability and other
insurance policies with periods incepting as early as 1950 and expiring as late
as 1984” (Aerojet, supra, 17 Cal.4th
at pp. 46-47), the Supreme Court’s reference to the controlling effect of
endorsements came in the context of discussing the obligations of one specific
insurer, Insurance Company of North America (INA). The court explained that INA had issued a
series of standard form general liability policies to Aerojet from 1976 to
1984; a period of 13 years, not 27 as suggested in the church’s brief. More significant, however, is that contrary
to the church’s claim, the Supreme Court did not recognize any “bargained for
change” in the coverage offered by INA within that 13 year period. Instead, the Supreme Court simply
characterized the INA policies, as a
group, as offering certain coverages “in the body,” (id. at p. 49), and then limiting or taking away that same coverage
by endorsement. For example: “[A]lthough, in the body, it was stated that
INA had a duty to defend Aerojet, by endorsement it was provided that Aerojet
should pay its own defense costs—under which provision it was understood by
Aerojet that it should defend itself.” (>Aerojet, supra, 17 Cal.4th at p.
50.) The Supreme Court then noted that
in the case of such conflicts in the policy provisions, it is the language of
the endorsement which controls, without in any way suggesting the rule is
dependent upon the relative timing of the provisions. In fact, the Supreme Court has previously
applied the same rule in cases where, as here, it is clear the endorsement
(“rider”) was part of the original
version of the policy. (See >Fageol Truck & Coach Co. v. Pacific
Indem. Co. (1941) 18 Cal.2d 731, 738.)
We consequently reject the church’s attempt to distinguish >Aerojet on factual grounds.

The
church’s more fundamental error is its misunderstanding of what an endorsement
is and how it fits into the structure of an insurance policy. As Aerojet
explains, insurance policies fall into two general categories: “‘standard’” policies, which are described as
those policies “‘issued on standard forms containing terms and conditions
drafted by the [insurer]’” (Aerojet
General v. Transport Indemnity Co. supra, 17 Cal.4th at p. 46, fn. 1), and
“‘manuscript’” policies, which are “‘entirely nonstandard and drafted for the
particular risk undertaken.’” (>Ibid.)
But as the Supreme Court noted, the terms of “standard” policies are
frequently altered because “‘[o]ften, the insurer is willing to >modify or change the standard forms by
“endorsements.”’” (Ibid., italics added.) Thus,
the very purpose of an “endorsement” is to alter what are otherwise
standardized provisions included in the body of a form policy to suit the
particular needs of the parties. (See
Ins. Code § 10274 [defining “endorsement” for purposes of disability
insurance policies as “any amendment, change, limitation, alteration or
restriction of the printed text of a policy by a rider upon a separate piece of
paper made a part of such policy”].)

Here,
the CGL policy issued to Abbott by Federal was a standard form policy – indeed,
it was identified on the bottom of each of its 27 pages as “Form 80-02-2045(Ed.
8-98).” The policy, entitled “General
Liability for Staffing Services,” was specially formulated to meet the expected
needs of an insured in the business of staffing services. The policy’s standard exclusion for liability
arising out of professional services, found on page 16 of the form, carved out
a special rule preserving coverage for liability arising out of the rendering
of professional staffing services; the form policy thus assumed coverage >would be provided for the ordinary
professional errors or omissions committed by a staffing services insured. That is the standard form. But as we have already noted, the policy
issued to Abbott also included a separate “Professional Liability” endorsement,
which the Supreme Court explained in Aerojet
represents an agreement to “modify or change” an otherwise standard term of the
27-page form. (Aerojet, supra, 17 Cal.4th at p. 50, fn. 4.) And that endorsement excluded >all coverage for liability arising out
of professional services “whether or not that service . . . is ordinary to the
insured’s profession.” (Bold
omitted.) Given the specific role played
by endorsements in an otherwise standard form policy, the “Professional
Liability” endorsement necessarily overrode the more limited professional
services exclusion contained in the body of the policy.

But
even if these provisions were considered to operate on equal footing, their
inconsistency could be resolved by reference to what Abbott knew at the time it
purchased the coverage. “Ambiguity in an
insurance policy, if it exists, must be found in the circumstances of the
particular case; it may not be created in the abstract.” (Nabisco,
Inc. v. Transport Indemnity Co. (1983) 143 Cal.App.3d 831, 835-836; >Producers Dairy Delivery Co. v. Sentry Ins.
Co. (1986) 41 Cal.3d 903, 916, fn. 7 [“[l]anguage in [an insurance]
contract must be construed in the context of that instrument as a whole, and in
the circumstances of that case, and cannot be found to be ambiguous in the
abstract”].) Here, the undisputed
evidence demonstrates Federal offered Abbott the option of purchasing “errors
and omissions” coverage, and Abbott expressly rejected that option. Having done that, Abbott could not reasonably
argue it was entitled to coverage for its professional errors and omissions
under the policy Federal issued. And
because the church stands in the shoes of Abbott for purposes of this case, it
cannot claim that either.

Finally,
the church also argues the term “professional services” is vague and ambiguous
because it is not defined in the policy, and hence it was reasonable for an
insured such as Abbott to conclude that even the “Professional Liability”
endorsement excluded only liability arising out of services provided by a
regulated “professional,” such as a doctor, lawyer, or engineer. We find the assertion unpersuasive for two
reasons. First, contrary to the church’s
assertion, courts have long since determined that a standard “professional
services” exclusion found in a CGL policy is not limited to liability arising
out of the practice of licensed professions.
Instead, as explained in Hollingsworth
v. Commercial Union Ins. Co. (1989) 208 Cal.App.3d 800, 807, “as commonly
understood, the term ‘professional services’ . . . generally signifies an
activity done for remuneration as
distinguished from a mere pastime.”
(Italics added; see also Amex
Assurance Co. v. Allstate Ins. Co. (2003) 112 Cal.App.4th 1246,
1251-1252.)

And
second, although the CGL policy at issue in this case did not “define” the
phrase “professional services,” it nonetheless made clear that “professional
services” means something other than services provided by a >licensed professional. It did that by including a >separate coverage exclusion for “Special
Professional Services,” which governed liability arising out of the rendering
or failure to render professional services or advice by an “attorney,”
“engineer,” “accountant,” “architect,” “medical professional,” “stock broker”
and “other licensed professionals.” In
light of that distinct coverage exclusion for “Special Professional Services,”
we have no trouble concluding the regular “professional services” exclusion in
this case was not intended to refer specifically to the licensed
professions. To conclude otherwise would
render meaningless the separate exclusion for “Special Professional Services.” Such a construction must be avoided. (Civ. Code, § 1641 [“The whole of a
contract is to be taken together, so as to give effect to every part, if
reasonably practicable, each clause helping to interpret the other”].)

For
all of these reasons, we conclude the church has failed to demonstrate the
trial court erred in determining that coverage for the claim it asserted
against Abbott was excluded by the Professional Liability endorsement of
Federal’s CGL policy.



>3. Theft of the Church’s Funds Did Not Fall Within the Definition of
Property Damage Contained in the Policies

Although
the Professional Liability endorsement is sufficient, in and of itself, to
justify Federal’s denial of coverage in this case, we would also agree with the
trial court’s determination that the underlying claim asserted by the church
against Abbott did not qualify as a claim for “property damage” under Federal’s
policies.

The
church’s contention is that Granger’s embezzlement of its funds, as well as her
theft of a laptop computer owned by the church, gave rise to a claim for “loss
of use of tangible property that is not physically injured,” and thus fell
within the definition of “property damage.”
There are several flaws in this argument.

First,
the fact the church lost the ability to use the money (and the laptop) stolen
by Granger is not the same thing as the church making a claim against Abbott for “loss of use.” There is no evidence the church made such a
claim. What it sought, instead, was the
replacement value of what was stolen. In
the complaint it filed against Abbott, the church sought recovery of its
“actual losses, including embezzled funds due to Granger’s theft . . . plus
interest thereon.” In a later discovery
response, the church described its property loss as follows: “Plaintiff lost lots of property,
particularly in the form of monies stolen from its bank account; and a laptop
computer.” The church did not identify
any distinct losses it suffered as a result of its inability to use the money
or the laptop.

In Advanced Network, Inc. v. Peerless Ins. Co. (2010) 190 Cal.App.4th
1054, 1061-1064 (Advanced Network), a
case very similar to this one, the court concluded that claim for the permanent
loss of property through conversion is not a claim for “loss of use” under the
terms of a standard CGL policy. In >Advanced Network, the plaintiff was a
company which serviced cash machines in credit unions. It filed suit against its commercial general
liability insurer for breach of contract and breach of the implied duty of good
faith and fair dealing after the insurer denied it coverage for a claim arising
out of an employee’s theft of cash from a credit union client. Relying on a line of cases beginning with >Collin v. American Empire Ins. Co.
(1994) 21 Cal.App.4th 787, the appellate court noted that “it is established in
California that [“loss of use”] cannot reasonably be interpreted to include the
permanent loss of property through
conversion.” (Id. at p. 1061.) The court
explained “that the terms ‘loss of use’ and ‘loss’ are not interchangeable for
insurance purposes. If we were to hold
otherwise, we would have to ignore the words ‘of use’ in the term ‘loss of
use.’” (Id. at p. 1063.) Moreover,
the court noted that allowing recovery for “loss of use” in circumstances where
the property has been permanently lost would lead to absurd results. For example, if the stolen property were a
car, the measure of damages for it “loss of use” value would likely be the
rental value of a replacement vehicle, and “the measure of damages of a stolen
car cannot be its rental value ad infinitum on the ground there was a permanent
‘loss of use’ of the property.” (>Id. at p. 1064.)

The church seeks to
distinguish Advanced Network by
arguing its loss of the funds stolen by Granger should be viewed as merely
temporary, rather than permanent, because the church later received some
payment from its own insurer, Zurich Insurance Co. on account of the loss, and
might yet receive other payments. But
the church’s receipt of insurance proceeds does not reflect any >recovery of the stolen funds; those funds
remain permanently lost. Moreover, it is
well-settled that an injured party’s receipt of insurance benefits cannot
affect his claim for damages against the party responsible for his loss. “[I]f an injured party receives some
compensation for his [or her] injuries from a source wholly independent of the
tortfeasor, such payment should not be deducted from the damages which the
plaintiff would otherwise collect from the tortfeasor.” (Helfend
v. Southern Cal. Rapid Transit Dist. (1970) 2 Cal.3d 1, 6.)

Instead, whatever funds
are paid by the church’s own insurer on account of a loss caused by Abbott
would simply give that insurer a subrogated right to, in turn, recover the
value of its payment from Abbott (or its insurer.) (Fireman’s
Fund Ins. Co. v. Maryland Casualty Co. (1998) 65 Cal.App.4th 1279,
1291-1292 [“In the case of insurance, subrogation takes the form of an
insurer’s right to be put in the position of the insured in order to pursue
recovery from third parties legally responsible to the insured for a loss which
the insurer has both insured and paid”].)
Consequently, such a payment could not be viewed as affecting either the
character or the size of the church’s loss for purposes of its claim against Abbott.

The
church also relies on a footnote in Advanced
Network, in which the court acknowledges that a financial institution’s
“temporary deprivation of a large amount of cash” might qualify as a “loss of
use,” because such a loss “would presumably cause damages such as lost interest
on loans (a possible equivalent of rental value) or lost profits on potential
investments.” (Advanced Network, supra, 190 Cal.App.4th at p. 1064, fn. 2.) But the acknowledgement is of no help to the
church – just as it was of no help to the plaintiff in the case – because the
fact remains the church’s underlying claim against Abbott was not based on a
mere temporary deprivation of the money.
The church’s loss was permanent and what it sought from Abbott was the
replacement value of its money, not compensation for a temporary inability to
use it.

And
finally, the church’s claim that it suffered separate “loss of use” damage on
account of the embezzlement, because it was forced to incur the expense of
borrowing other money to make up for the lost funds, adds nothing to the
analysis. That added cost of borrowing
funds is still a consequence of a permanent – rather than temporary – loss of
the embezzled funds. Because the
permanent loss of property as a result of theft or conversion does not qualify
as a covered “loss of use” of that property, the trial court correctly
determined that the church’s underlying claim against Abbott was not a covered
loss under the terms of the Federal policies.


Having
already determined that Federal’s denial of Abbott’s claim was justified on two
independent bases – both because the underlying claim made by the church
against Abbott was not a covered loss and because the Professional Liability
endorsement of the CGL policy excluded coverage – we need not address the
question of whether the denial was also justified on the basis that the
church’s loss did not occur within the policy period.



4. The Church Has Failed to Raise a Triable Issue of Fact on Its Claim For
Breach of The Covenant of Good Faith and Fair Dealing

The
church also argues that even if Federal had no duty to provide coverage to
Abbott under the terms of its policies, there nonetheless remains a dispute of
fact concerning whether Federal breached the covenant of good faith and fair
dealing implied in those policies by denying coverage without conducting an
adequate investigation. We cannot agree.

The
church’s argument is based on Amato v.
Mercury Casualty Co. (1993) 18 Cal.App.4th 1784, and Amato v. Mercury Casualty Co. (1997) 53 Cal.App.4th 825, (the >Amato cases), which hold that an insurer
can be liable for breach of the covenant of good faith and fair dealing based
on its failure to provide a defense to a permissive user of its insured’s
vehicle, even though it was later determined the claim was not covered by the
policy. Unfortunately for the church,
the Amato cases have almost no
bearing on this case. In the >Amato cases, coverage under the policy
turned on whether the permissive user lived in the same home with the insured;
if he did, there was no coverage.
Significantly, at the time the insurer denied coverage, it “had
information which, if true, indicated that at the time of the accident Amato
and Sutton did not live at the same residence.”
(Amato v. Mercury Casualty Co.,
supra, 53 Cal.App.4th at p. 829.)
Thus, “[a]lthough the jury subsequently agreed with Mercury as to the
facts determinative of coverage, those facts were disputed at the time of the
refusal to defend, and Mercury therefore owed a duty to defend.” (Id.
at p. 830.)

In
this case, by contrast, there is no indication Federal ever had information
suggesting the church’s underlying claim might be covered. Indeed, what the record reflects is that the
only information Abbott gave to Federal was a copy of the church’s underlying
complaint – a complaint which, on its face, reflected both that the church’s
loss was a permanent loss of funds as a result of embezzlement and that the
claim arose from Abbott’s provision of professional services. Thereafter, Federal made several attempts to
get additional information from Abbott, but was repeatedly rebuffed over a
period of several months. It was only
after Federal issued a formal denial of the claim that it even got Abbott’s
attention. And the resulting letter from
Abbott’s counsel provided no additional meaningful facts suggesting the
potential for coverage. The insurer’s
duty to provide a defense is not evaluated in the abstract. Instead, it arises only when the insurer >learns of the facts giving rise to the
potential coverage. “The duty to defend
is determined by reference to the policy, the complaint, and >all facts known to the insurer from any
source.” (Montrose Chemical Corp. v. Superior Court (1993) 6 Cal.4th 287,
300, some italics added.)

In
this case, because there is no evidence Federal was ever made aware of any
facts giving rise to potential coverage for Abbott under its policies, Federal
had no obligation to provide Abbott with even a defense against the church’s
claim. That represents a significant
departure from the situation presented in the Amato cases. Moreover,
although the church also suggests that Federal breached a duty to conduct its
own investigation of the facts before denying the claim, the church makes no
effort to detail what additional investigative efforts Federal might have been
obligated to undertake, what information it would have been expected to uncover
had it undertaken that additional investigation, or how that information might
have made a difference in assessing coverage.
Absent that effort, the church has not raised any triable issue of fact.




5. The Church’s Evidentiary Objections Do Not
Warrant Reversal

The
church’s final contention is that the trial court erred by not sustaining some
of its objections to declarations submitted by Federal in support of its motion
for summary judgment. As the church
correctly points out, “the trial court’s failure to rule expressly on any . . .
evidentiary objections did not waive them on appeal.” (Reid
v. Google (2010) 50 Cal.4th 512, 526.)
But merely establishing that its objections are not waived for purposes
of appeal falls far short of persuading us either that those objections were
meritorious or that the challenged evidence is material. And in our view, none of the challenged
evidence is sufficient to raise a triable issue of fact which might warrant
reversal of the judgment.

The
church objects to the entirety of the declaration filed by Starr, Federal’s
claims adjuster, on the basis it was unsigned.
At first blush, this does appear to be a persuasive objection, but as
Federal points out, the declaration was electronically filed with the trial
court, and it was thus governed by California Rules of Court, rule 2.257(a)(1),
which provides: “When a document to be
filed electronically provides for a signature under penalty of perjury, the
following applies: [¶] (1) The document
is deemed signed by the declarant if, before filing, the declarant has signed a
printed form of the document.” As
Federal explains, after the church filed an objection to the declaration in the
trial court on the basis it was unsigned, Federal provided the court with proof
the declaration had been signed on August 1, 2011, three days before it was
electronically filed with the court on August 4, 2011. Consequently, the declaration was deemed
signed and thus the church’s objection was not well-taken.

The
church also objects to the content of Starr’s declaration on the ground he
lacked personal knowledge of the facts, but that objection is similarly
unpersuasive. In substance, the church
argues that Starr’s earlier deposition testimony, in which he claimed to
remember little about the case, conclusively established he could have no
personal knowledge of the facts set forth in his declaration. But as Federal points out, the facts set
forth in Starr’s declaration were essentially reflective of the information
contained in the claims file he had created and maintained – the pertinent
portions of which were attached to his declaration – rather than on any claim
of an independent recollection. Because
Starr was not required to review that file to refresh his recollection before
the deposition, we see no inconsistency between his inability to independently
recollect facts at his deposition and his later ability to summarize the
content of the claims file in a declaration.


The
church also objects to portions of the declaration of Katie Foxx, a vice
president of the division of Federal that issued the policies. Foxx’s declaration established her as a
custodian of records for Federal’s underwriting files, and she vouched for the
authenticity of its records reflecting that Abbott expressly declined Federal’s
offer to provide optional coverage for staffing errors and omissions at the
time it purchased the policies at issue in this case. The church contends that because Foxx “has no
personal knowledge of such alleged
events,” she cannot testify about what coverage Abbott intended to
purchase. But Foxx never claimed to be a
percipient witness or to have personal knowledge; she claimed to be a custodian
of records. And in that capacity, she
could provide foundation for the authenticity of the records. (Evid. Code, § 1271.) It was the records themselves that Federal
relied upon to establish that Abbott rejected staffing errors and omissions
coverage. Any objection to the content
of those records, or arguments about the sufficiency of that content to support
the fact asserted, would be separate issues and are not raised by the church.

The
church also objects to the portion of Foxx’s declaration which characterized
the “broad professional services exclusion which deleted all coverage arising
out of the rendering or failure to render professional advice.” The church asserts this characterization merely
constitutes Foxx’s own opinion about the legal effect of the exclusion, which
was objectionable on several grounds, including hearsay, lack of personal
knowledge, lack of qualification, and because it “usurp[ed] the court’s sole
province to determine what the Policy provided coverage for.” We might agree with some or all of those
grounds for exclusion, but we could not agree that the inclusion or exclusion
of that evidence would have a material effect on the resolution of Federal’s
summary judgment motion. Because our
interpretation of an insurance policy is based on the language of the policy
itself, and not on any witness’s characterization of it, Foxx’s statement is
simply irrelevant to our analysis.

Moreover,
because our review of a summary judgment is de novo, we are not concerned with
the church’s suggestion that the trial
court might have been either persuaded by or confused by any of this
challenged evidence. “We owe the
superior court no deference in reviewing its ruling on a motion for summary
judgment; . . . ‘[i]t is axiomatic that we review the trial court’s rulings and
not its reasoning.’ [Citation.]” (Coral
Const., Inc. v. City and County of San Francisco (2010) 50 Cal.4th 315,
336.) We thus reject the church’s
assertion that the trial court’s purported reliance on inadmissible evidence is
itself a ground for reversal of the summary judgment.

Finally,
the church’s suggestion that the inclusion of the Professional Liability
endorsement in the CGL policy was itself a subject of material dispute in this
case is contrary to the record. In its
response to Federal’s separate statement, the church agreed the policies placed
into evidence by Federal were undisputed.
Moreover, as Federal points out, the church otherwise acknowledges in
its opening brief that “[Federal] submit[ted] with its motion the same, genuine
Policy as does [the church’s] [c]omplaint.”
Although the church has made several arguments about the >legal effect of Federal’s policies as
applied to the facts of this case, it cannot avoid summary judgment by asserting
a belated claim of confusion about the content
of the policies.



DISPOSITION



The
judgment is affirmed. Respondent is
entitled to its costs on appeal.









RYLAARSDAM,
ACTING P. J.



WE CONCUR:







FYBEL, J.







THOMPSON, J.