University Partners v.
Filed 4/18/13 University Partners v. Maryland Casualty CA3
NOT TO BE PUBLISHED
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opinion has not been certified for publication or ordered published for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
THIRD APPELLATE DISTRICT
(Sacramento)
----
UNIVERSITY PARTNERS,
LLC, et al.,
Plaintiffs and Appellants,
v.
MARYLAND CASUALTY
COMPANY et al.,
Defendants and Respondents.
C065521
(Super. Ct. No. 07AS03379)
UNIVERSITY PARTNERS,
LLC, et al.,
Plaintiffs and Appellants,
v.
ZURICH AMERICAN
INSURANCE COMPANY,
Defendant and Respondent.
C067398
Plaintiffs
University Partners, LLC (University Partners), and its managing member, Thomas
Westley, appeal from a judgment of
dismissal following orders granting summary adjudication and sustaining
demurrers of plaintiffs’ property insurers, Maryland Casualty Company
(Maryland), Northern Insurance Company of New York (Northern), and Zurich
American Insurance Company (Zurich) (hereafter collectively defendants). Plaintiffs contend issues of fact remain on
their claims against defendants stemming from the latter’s refusal to pay the
full replacement cost of plaintiffs’ building after it was destroyed by
fire. According to plaintiffs, the
record contains evidence that, several years before the fire, defendants
participated in various misrepresentations made by their agent, defendant
Cummins Insurance Agency (Cummins), that induced plaintiff to switch from an
insurance policy with guaranteed replacement cost (GRC) coverage (the Fireman’s
Fund policy), that would have provided full replacement cost of their building,
to policies with only replacement cost (RC) coverage, that provided only
partial replacement cost.
Plaintiffs
do not contend defendants misled them into believing they were receiving GRC
coverage, inasmuch as there is no evidence in the record to support such a
claim. Instead, plaintiffs contend
Cummins made certain misrepresentations as to the nature of the insured
premises in the application for insurance.
In particular, the application falsely stated that the building had a
sprinkler system and that it was built of fire resistant materials. Plaintiffs assert these misrepresentations
were made in order to reduce the price of the policy offered by defendants to
below that of the Fireman’s Fund policy, thereby inducing plaintiffs to switch
coverage. Plaintiffs further assert
defendants became aware of these misrepresentations but failed to adjust the
price of the policy accordingly, thereby acquiescing in Cummins’s “price
fraud.â€
We reject
plaintiffs’ novel “price fraud†theory.
The misrepresentations they allege were not directed at plaintiffs but
at defendants in order to induce defendants to provide coverage to plaintiffs
at a price below what it would otherwise have been. Neither defendants nor Cummins misrepresented
to plaintiffs the nature of the policy being provided or the price to be paid
for it. Plaintiffs received exactly what
they bargained for.
Plaintiffs’ claim boils down to
this: They were given too good a
deal. If the price charged for RC
coverage had been based on the true characteristics of their building, i.e., built
of wood with no sprinklers, the price of the insurance would have been
higher. Instead, they were given the
policy at a reduced rate, which induced them to switch coverage. And, but for that switch, plaintiffs would
have retained GRC coverage under the Fireman’s Fund policy and would have
recovered the full replacement cost of the building.
However, this is not a claim for
negligent or intentional misrepresentation but the natural result of
free-market competition. In the absence
of antitrust considerations, the supplier of a product is not prohibited from
selling that product at cut-rate prices.
Absent misrepresentations to the customer about the nature of the
product, one who buys a lower-priced product based on price alone may not later
claim he was duped out of buying the higher-priced product which, as it later
turns out, might have proven a better fit.
Because
this is the essence of plaintiffs’ claim, we affirm the judgment of
dismissal.
Facts
and Proceedings
Prior to July 27, 2005, Westley was the managing member
of University Partners, LLC, the successor in interest of 300 University
Avenue, Ltd. (University Partners).
University Partners owned a building located at 300 University Avenue in
Sacramento (Building). On that date, the
Building was destroyed by fire.
Prior to May 30, 2001, the Building was insured under a
policy issued by Fireman’s Fund Insurance Company and obtained from defendants
John O. Bronson, a California corporation, and one of its employees, Paul F.
Bystrowski (hereafter collectively Bronson).
Although the Fireman’s Fund policy contained a coverage limit of
$2,431,000, it included a policy amendment for GRC coverage, which provided
that, in the event of a covered loss of the Building, the insurer would pay the
full amount required to rebuild the structure without regard to the coverage
limit.
Prior to the renewal date of the Fireman’s Fund policy,
University Partners approached Cummins to determine if it could obtain
equivalent coverage at a lower price.
Bronson had previously prepared a one-page document titled “Evidence of Property
Insurance†(the Evidence Form) that briefly listed the coverage provided in the
Fireman’s Fund policy. However, the
Evidence Form misstated the coverage limit as $2,341,000, rather than
$2,431,000, and indicated the policy provided RC coverage rather than GRC
coverage. University Partners was
unaware of any misstatements in the Evidence Form and provided it to
Cummins. The actual Fireman’s Fund
policy was not provided. University
Partners informed Cummins the Building was of frame construction and did not
tell Cummins the Building contained sprinklers.
Cummins submitted to Zurich an application for insurance
that erroneously described the Building as containing sprinklers and being
built with fire resistant materials. The
application was not signed by plaintiffs.
Cummins also provided Zurich with the Evidence Form.
Zurich prepared a written offer of insurance through its
subsidiary, Northern, based on the information contained in the application and
the Evidence Form. The premium price was
$1,600 per year, which was well below the renewal price for the Fireman’s Fund
policy. Cummins forwarded the offer to
plaintiffs with a cover letter indicating the coverage duplicated that of the
Fireman’s Fund policy. In fact, however,
the offer was for RC coverage rather than GRC coverage. It also contained a coverage limit of
$2,341,000 rather than the $2,431,000 limit of the Fireman’s Fund policy. Cummins was unaware before the fire that the
Fireman’s Fund policy provided GRC coverage.
University Partners agreed to the offered policy (the
Northern policy). However, when
University Partners contacted Bronson to cancel the Fireman’s Fund policy,
Bronson indicated it had previously rated the coverage of the Fireman’s Fund
policy with Zurich and found the Zurich price to be $300 higher than that of
the Fireman’s Fund policy. Bronson
suggested that University Partners might want to verify the accuracy of the
Northern policy. Westley thereafter
contacted Cummins and asked why University Partners was receiving such a
favorable price. Westley asked if the
coverage was the same as the Fireman’s Fund policy and Cummins indicated it
was. Westley also asked if the size of
the Building was correct and was told it was.
Westley asked if the policy contained RC coverage and was told it
did. Cummins explained the reason for
the price difference was an error regarding the nature of the insured
Building.
Westley informed Cummins that it would not cancel the
Fireman’s Fund policy until the price issue for the Northern policy was
resolved. Westley further informed
Cummins that the only reason University Partners was agreeing to switch
coverage was because the Northern policy contained the same coverage for less
money. Cummins later informed University
Partners that they had made arrangements with Zurich to stand by the quoted
price. Plaintiffs agreed to retain the
Northern policy and cancel the Fireman’s Fund policy.
The Northern policy remained in effect from May 30, 2001
to May 30, 2002, when it was replaced by an equivalent policy issued by
Maryland (the Maryland policy). The
Maryland policy remained in effect until the fire. Over the years, the coverage limit on the
Maryland policy increased such that, by May 30, 2005, it had reached
$2,999,000. Both the Northern and the
Maryland policies provided RC coverage.
As noted earlier, the Building was destroyed by fire on
July 27, 2005. At the time, the cost to
replace the Building was $4,864,613, well above the Maryland policy limit. University Partners therefore decided not to
rebuild and was paid $3,010,914 under the Maryland policy.
Plaintiffs made arrangements with International Adjusting
Service (International) to adjust their insurance claim. International contacted Zurich, claiming
$1,478,172 in unpaid replacement cost.
Zurich referred the matter to legal counsel.
Plaintiffs initiated this action against Maryland,
Cummins, Bronson, and two Cummins employees, Dick Dotters and Debbie
Cummins. The first amended complaint
contained eight causes of action: (1)
negligent inducement to enter into the Maryland policy, (2) negligent
adjustment of the policy limits, (3) breach of oral contract to adjust the
policy limits, (4) breach of express or implied contract to adjust policy
limits, (5) negligent misrepresentation of the terms of the Fireman’s Fund
policy, (6) declaratory relief, (7) fraudulent inducement to enter into the
Northern policy, and (8) a separate claim for damages on behalf of
Westley. Plaintiffs later added Northern
as a defendant.
Bronson demurred to the first amended complaint,
asserting the fifth, sixth and eighth causes of action fail to state a claim
against them. The trial court sustained
the demurrers without leave to amend.
The court concluded there were no material misrepresentations in the
Evidence Form and no reasonable insured or insurance agent would have relied on
it without reading the insurance policy itself.
According to the court, the Evidence Form does not invite the insured to
rely on it but rather refers the insured to the insurance policy. Furthermore, according to the trial court,
even if the Evidence Form invited plaintiffs to rely on it, plaintiffs had
ample opportunity over the next several years to review the Northern and
Maryland policies to discover that it did not include GRC coverage like that in
the Fireman’s Fund policy. Finally, the
court concluded the sixth cause of action is moot by virtue of the court’s
ruling regarding the fifth cause of action, and Westley did not oppose the
demurrer to the eighth cause of action.
The court thereafter entered judgment of dismissal in favor of
Bronson.
Plaintiffs appealed, and we affirmed. In an unpublished opinion ( ADDIN BA xc <@cs> xl 54 s
EDKBCB000001 xhfl Rep xpl 1 l "University Partners v. John
O. Bronson
(July 29, 2009)"
(July 29, 2009, C058893) (University
Partners I)), we concluded plaintiffs had no viable claim against
Bronson. On the fifth cause of action
for negligent misrepresentation of the terms of the Fireman’s Fund policy, we
concluded plaintiffs’ reliance on the Evidence Form in applying for replacement
insurance was not reasonable and they had a duty instead to examine the terms
of the Fireman’s Fund policy themselves.
We further concluded there was no evidence to suggest the Evidence Form
was prepared with intent to influence plaintiffs to switch coverage. Finally, we concluded plaintiffs had ample
opportunity to obtain GRC coverage before the fire if that is what they
wanted. Because plaintiffs raised no
arguments on appeal as to the sixth and eighth causes of action, we affirmed
the trial court’s order sustaining demurrers to those claims as well.
On January 8, 2009, the trial court granted
of action for all remaining defendants.
Plaintiffs do not challenge that ruling on appeal.
On January 22, 2009, Northern and Maryland moved for
summary adjudication of the second, third and fourth causes of action. On May 18, 2009, the trial court granted the
motion. Again, plaintiffs do not
challenge that ruling on appeal.
On February 5, 2010, Maryland and Northern moved for
summary judgment or, in the alternative, summary adjudication on all remaining
claims. While this motion was pending,
plaintiffs added Zurich as a defendant.
On June 7, 2010, the trial court issued its order granting the motion
for summary adjudication of Northern and Maryland. On June 23, the trial court entered
judgment of dismissal in favor of Northern and Maryland. Plaintiff appeals from that order
(C065521).
On November 10, 2010, plaintiffs filed a second amended
complaint, in which they added a cause of action for
complaint. On February 1, 2011, the
trial court sustained Zurich’s demurrers without leave to amend and entered
judgment of dismissal. Plaintiffs appeal
from that judgment (C067398).
We have consolidated these two appeals for all
purposes.
Discussion
In its ruling granting summary adjudication to Northern
and Maryland on the first (negligent misrepresentation) and seventh
(intentional misrepresentation) causes of action, the trial court concluded
those insurers provided plaintiffs exactly what they and Cummins requested, RC
coverage, and the insurers made no representations that they would provide the
same coverage as the Fireman’s Fund policy.
The court further concluded plaintiffs failed to present sufficient
evidence that the insurers are vicariously liable for any representations made
by Cummins as their agent. Finally, the
court concluded plaintiffs are estopped by our prior ruling in
any alleged misrepresentation caused them not to have GRC coverage at the time
of the fire. Having so concluded, the
court also granted summary adjudication on the sixth cause of action, seeking
declaratory relief, and the eighth cause of action, seeking relief on behalf of
Westley individually. With the
elimination of all other claims against the insurers, those derivative claims
also disappear.
Plaintiffs take issue with each of the three bases relied
upon by the trial court in support of summary adjudication on the misrepresentation
claims. They contend the
misrepresentations they allege are not limited to whether the Northern and
Maryland policies provided GRC coverage.
They also contend they are not collaterally estopped by our prior
decision from claiming defendants’ actions caused them not to have GRC coverage
at the time of the accident. Finally,
plaintiffs argue there is sufficient evidence that Cummins was acting as
defendants’ agent in connection with the matters at issue.
As we shall explain, because we find plaintiffs have not
established any actionable misrepresentations on the part of either defendants
or Cummins, we need not consider plaintiffs’ estoppel and agency
arguments. Even assuming plaintiffs are
not estopped to claim that misconduct by either defendants or Cummins caused
them not to have GRC coverage at the time of the fire, and assuming Cummins was
acting as defendants’ agent for purposes of the claims asserted herein,
plaintiffs have not established that either Cummins or defendants made any misrepresentations
to plaintiffs that caused plaintiffs
to replace their GRC coverage with RC coverage.
Plaintiffs contend there is sufficient evidence in the
record to support their misrepresentation claims based on both conspiracy and
aider and abettor theories. The
misrepresentation they allege does not concern the nature of the policy being
provided by Northern and Maryland.
Plaintiffs do not argue defendants conspired or aided and abetted
Cummins in misrepresenting to plaintiffs that the Northern and Maryland
policies provided GRC coverage. Instead,
plaintiffs contend Cummins engaged in “price fraud†when Cummins misrepresented
the nature of the insured premises as having sprinklers and being made of fire
resistant materials. According to
plaintiffs, Cummins did so in order to induce defendants to offer their
insurance at a rate below that of the Fireman’s Fund policy, thereby in turn
inducing plaintiffs to switch insurance.
Plaintiffs further assert defendants participated in this price fraud
when they agreed to sell the Northern policy to University Partners at this
reduced price after learning that the Building had been misrepresented in the
application. Plaintiffs contend: “[A] trier of fact could reasonably conclude
that Cummins was engaged in a deceptive practice known commonly in the
insurance industry as ‘twisting,’ and that [defendants], with knowledge of this
fact, joined Cummins in this fraudulent plan and conspired with it to actively
conceal it.†According to
plaintiffs: “Twisting is the deceptive
practice of making misrepresentations of the terms, including price, of an
insurance policy to a customer, or allowing the use of these
misrepresentations, for the purpose of inducing the customer into purchasing
it.â€
Assuming plaintiffs are correct that there is sufficient
evidence of defendants’ complicity in Cummins’s actions, either as a
co-conspirator or an aider and abettor, the hole in plaintiffs’ argument is
that there is no evidence of any misrepresentation by Cummins
rise to the tort action for deceit, are (a) misrepresentation (false
representation, concealment, or nondisclosure); (b) knowledge of falsity (or
“scienterâ€); (c) intent to defraud, i.e., to induce reliance; (d) justifiable
reliance; and (e) resulting damage.’ â€
(
ADDIN BA xc <@cs> xl 50 s EDKBCB000002 xhfl Rep xpl 1 l "
Cal.4th 631, 638.) In order to
satisfy these elements, it is not enough that there were
misrepresentations. Those
misrepresentations must have been directed at the victim for the purpose of
inducing the victim to rely to his or her detriment.
In this instance, neither defendants nor Cummins made any
misrepresentations to plaintiffs regarding the terms of the Northern or
Maryland policies. The price quoted,
although artificially low, was the price charged. Although there is evidence Cummins
misrepresented to plaintiffs that the policy coverage was the same as that in
the Fireman’s Fund policy, this was based on a misunderstanding, shared by all
the parties, that the Fireman’s Fund policy provided RC coverage. Thus, in representing that the Northern
policy provided the same coverage as the Fireman’s Fund policy, Cummins was
representing that the Northern policy provided RC coverage, which was
true.
Plaintiffs’ fraud theory is based on misrepresentations
by Cummins regarding the nature of the Building being insured. However, these were misrepresentations made
by Cummins to defendants, not plaintiffs.
Plaintiffs knew the nature of the insured property. If, as plaintiffs allege, Cummins purposely
misrepresented the characteristics of the Building, this was for the purpose of
inducing defendants to offer
insurance at a reduced rate. The
potential danger to an insured in such misrepresentations is that the insurer
might later deny coverage upon learning the true facts. However, that did not occur here. On the contrary, when defendants learned the
true facts, they agreed to sell the insurance to plaintiffs at the reduced
price and, after the fire, provided plaintiffs the full benefit of the
policy.
What plaintiffs’ argument boils down to is that they were
sold insurance at rates lower than normal.
In other words, they received a windfall from the deal. If the circumstances had been as all the
parties understood them to be, i.e., that the Fireman’s Fund policy provided RC
coverage, plaintiffs received the full benefit of what they bought without
having had to pay the full price for it.
Plaintiffs contend they were in fact harmed by the deal
because, but for the change in policy, they would have recovered the full
replacement value of the Building under the Fireman’s Fund policy. Plaintiffs argue it was only because of the
unusually low price for the Northern policy that they decided to switch. Thus, they argue, the fact they were offered
an artificially low price due to Cummins’s misrepresentations about the
Building was a proximate cause of their loss.
We are aware of no prohibition against a seller of
products or services offering them at below-market rates, or even below the
seller’s cost. This may not make good
business sense, but it is certainly not a fraud against the purchaser who is
benefited thereby. It would be as if a
consumer who purchased one automobile over another based solely on price and
was later injured in an accident was permitted to sue the seller on a theory
that the higher-priced automobile was in fact safer and he would not have been
injured if he had been driving it at the time of the accident. This is not fraud but free-market
competition. As long as there were no
misrepresentations about the nature of the product being purchased, e.g., the
safety features of the automobile or the breadth of the insurance coverage,
there is no actionable fraud in undercutting the price of a competitor.
Plaintiffs appear to acknowledge as much when they
assert: “Plaintiffs are not suggesting
that [defendants] normally cannot charge any price [they wish] for [their]
insurance policies. Even though in the
business to [sell] insurance policies, if Northern and Maryland want to give up
over $3,000 a year, and over $15,000 over the length of the [Northern and
Maryland policies], [they] normally [have] the right to do so.†However, plaintiffs go on to argue: “It is when [Zurich], with actual knowledge
of Cummins’ fraudulent plan and its purpose, makes the conscious decision to
facilitate the commission of the tort by allowing Cummins to continue inducing
University into purchasing the [Northern] policy, is Zurich subject to
liability for aiding and abetting Cummins’ fraud.â€
Once again, plaintiffs are attempting to assert a claim
against defendants based on their complicity in a plan to mislead themselves
into offering insurance at a reduced price.
The only ones harmed in that regard were defendants. It is only because of the fortuity that the
Fireman’s Fund policy contained GRC coverage, a fact not known to any of the
parties herein, that plaintiffs were harmed by the switch in coverage.
Plaintiffs nevertheless contend defendants had a duty to
disclose all material facts relating to the policy of insurance and they failed
to satisfy that duty when they neglected to inform plaintiffs of the fraud
perpetrated by Cummins. We fail to see
where plaintiffs are going with this argument.
Plaintiffs were in fact informed by Cummins that it had misstated the nature
of the insured premises, at least as to the building materials. Plaintiffs therefore knew the price they were
quoted was lower than what would have been the case if the true facts had been
used. Plaintiffs also knew they were
being sold the Northern policy at this lower price notwithstanding the
error. Finally, as explained above, the
only possible fraud concerned the misrepresentations directed at defendants by
Cummins, not misrepresentations directed at plaintiffs.
We conclude the trial court properly granted summary
adjudication to Northern and Maryland on plaintiffs’ misrepresentation
claims. And those being the only
remaining claims against Northern and Maryland, the court properly granted
summary adjudication on the derivative claims.
Plaintiffs nevertheless contend defendants are guilty of
bad faith in handling plaintiffs’ claim.
Plaintiffs argue “a reasonable juror could conclude that Maryland,
through Zurich . . . , did not attempt to effect a prompt, fair, and
equitable settlement of University [Partners’] October 2, 2006 claim once
liability had become reasonably clear.
Instead, on November 22, 2006, it referred the investigation to legal
counsel, implying that this referral was to reasonably investigate the claim,
when in fact it was for the purpose of forcing University [Partners] into
litigation.â€
Assuming plaintiffs adequately alleged a claim for bad
faith, the problem with their argument is that it presupposes liability became
“reasonably clear†to defendants before the matter was referred to legal
counsel. However, the liability to which
plaintiffs refer is the purported obligation of Maryland to provide plaintiffs
the benefit of GRC coverage. However,
the Maryland policy provided only RC coverage.
Maryland paid plaintiffs the full benefit of RC coverage. As explained, above, Maryland’s liability for
the additional GRC coverage was certainly not clear. On the contrary, Maryland had no such
obligation. Thus, Maryland’s refusal to
grant plaintiffs the benefit of GRC coverage cannot be the basis of a bad faith
claim.
Because plaintiffs assert no independent basis for
liability on the part of Zurich alone, but instead rely on a respondeat
superior theory, we conclude the trial court also properly sustained Zurich’s
demurrers to the second amended complaint.
Disposition
The
judgments of dismissal in favor of Northern, Maryland and Zurich are
affirmed. Defendants are entitled to
their costs on appeal. (Cal. Rules of Court, rule 8.278(a)(1).)
HULL ,
J.
We concur:
RAYE ,
P. J.
DUARTE ,
J.
