WINTERS v STATE FARM, No. 9356412
U.S. 9th Circuit Court of Appeals
WINTERS v STATE FARM
No. 9356412
JACK B. WINTERS, JR.,
Plaintiff-Appellant, No. 93-56412
v. D.C. No.
STATE FARM FIRE AND CASUALTY CV-92-198-WBE
COMPANY; STATE FARM GENERAL ORDER AND
INSURANCE, AND DOES 1 to 25 OPINION
INCLUSIVE,
Defendants-Appellees.
Appeal from the United States District Courtfor the Southern District of CaliforniaWilliam B. Enright, District Judge, PresidingSubmitted March 10, 1995*Pasadena, CaliforniaMemorandum Filed June 9, 1995Order and Opinion Filed December 29, 1995Before: James R. Browning and Robert R. Beezer,Circuit Judges, and Robert E. Jones, District Judge**Opinion by Judge Jones SUMMARY
________COUNSEL Robert E. Adams, Winters & Associates, San Diego, Califor-nia, for the plaintiff-appellant.Stephen E. Smith, Ramsay, Johnson & Klunder, Irvine, Cali-fornia; Peter Abrahams and Holly R. Paul, Horvitz & Levy,Encino, California, for the defendants-appellees.
________ORDER The memorandum disposition filed June 9, 1995, is rede-signated as an authored opinion by Judge Jones. The mandatehas already issued in this matter and no petitions for rehearingwill be entertained.
________OPINION JONES, District Judge:Plaintiff Jack Winters appeals the district court's entry ofsummary judgment in favor of defendant State Farm Fire &Casualty Company ("State Farm"). At issue in this diversityaction for breach of contract is the interpretation of variousprovisions of Winters' business insurance policy, which wasissued by State Farm.Winters is an attorney. His client, Douglas Brown, wasinjured while using an electric-powered handsaw thatBrown's father purchased from J.C. Penney, Inc. (the "Penneysaw"), for approximately $49.00. Winters represented Brownin a personal injury lawsuit against J.C. Penney. 1Winters purchased five exemplar handsaws for $433 foruse at trial. Winters kept the exemplar saws and the Penneysaw in his law office. The saws were stolen before trial andwere never recovered. The trial resulted in a defense verdict.As pertinent to this appeal, Winters submitted claims fortheft of the saws and lost income associated with the theft toState Farm under his business insurance policy. State Farmadjusted the property loss under the business personal prop-erty portion of the policy, paying Winters the actual cashvalue of the saws, less a deductible. State Farm denied Win-ters' loss of income claim.Winters commenced this action for breach of contractagainst State Farm in state superior court in San DiegoCounty, California. State Farm removed the action to federaldistrict court. State Farm then moved for partial summaryjudgment on Winters' claims under the business policy, argu-ing that it had fully satisfied its obligations to Winters underthat policy.The district court concluded that the business personalproperty loss provision covers only the value of the propertyinvolved, and does not cover the insured's potential legal lia-bility to third parties in contract or in tort. The court deter-mined that the policy limited Winters' recovery to the actualcash value of the Penney saw or its replacement cost. BecauseWinters had not replaced the saw, the court found that "[StateFarm] rightfully paid [Winters] the cash value of the sawsminus his deductible."2With respect to Winters' claim for loss of income, the courtdetermined that Winters must demonstrate that loss of thesaws directly prevented him from continuing his law practice,which he could not do. The court also determined that Win-ters' claimed losses did not qualify as recoverable "extraexpenses" because the losses were not incurred during a"period of restoration" as required by the policy language.After the district court entered summary judgment in favorof State Farm on Winters' claims under the business policy,the parties stipulated to dismissal of Winters' remainingclaims to permit an immediate appeal.STANDARD OF REVIEWWe review the district court's grant of summary judgmentde novo. Jones v. Union Pacific R. Co., 968 F.3d 937, 940(9th Cir. 1992); T.W. Elec. Service v. Pacific Elec. Contrac-tors Ass'n, 809 F.2d 626, 629 (9th Cir. 1987). Viewing theevidence in the light most favorable to Winters, we mustdetermine whether there are any issues of material fact andwhether the district court correctly applied the relevant sub-stantive law. Tzung v. State Farm Fire and Cas. Co., 873 F.2d1338, 1339-40 (9th Cir. 1989).DISCUSSION1. The Business Personal Property Loss Claim The district court interpreted the business personal propertyinsuring clause to limit coverage to replacement cost or actualcash value of the Penney saw. The policy language at issueprovides: This policy covers Business Personal Property owned by the insured at the premises described in the Declarations for which a limit of liability is shown . . . This policy covers similar property held by the insured and owned in whole or part by others. The limit of the Company's liability shall not exceed the amount for which the insured is legally liable . . . .[1] Winters asserts that the phrase "amount for which theinsured is legally liable" covers his potential liability toBrown as bailee of the Penney saw, a liability he claims mustbe measured by the alleged value of Brown's case if the sawhad not been stolen (asserted to be $1 million). Wintersargues that summary judgment was improper because thevalue of the Penney saw is a disputed issue of material fact.Winters also argues that the term "legally liable " is ambigu-ous and must be construed against State Farm.Under California law, which applies in this case, a courtfaced with an argument for coverage based on "assertedlyambiguous policy language must first attempt to determinewhether coverage is consistent with the insured's objectivelyreasonable expectations." Bank of the West v. Superior Court,2 Cal. 4th 1254, 1265, 10 Cal. Rptr. 2d 538, 833 P.2d 545(1992). The court must "interpret the language in context,with regard to its intended function in the policy. " Id. Lan-guage in a contract cannot be found to be ambiguous in theabstract. Id.[2] Courts interpreting language nearly identical to StateFarm's business personal property loss provision have con-cluded that the policy language affords coverage only to theextent of the value of the bailed property, and does not coverliability to third parties in tort or contract. See, e.g., Penn v.Commercial Union Fire Ins. Co. of New York, 101 So. 2d 535(Miss. 1958) (the phrase "property for which the insured isliable" points to insurance on the property, not on theinsured's potential liability to third parties); see also 10ACouch on Insurance 2d S 42:345 (rev. ed. 1982), which states: In the absence of a clause covering property "held in trust" or in similar custody, a number of cases have found that policy provisions covering property contained in specified places and "for which the insured is liable" were intended to insure against loss of the property and not to indemnify the insured against his legal responsibility in tort or by contract to the owners of the property. That is, the term "liable" as used in the policy was not intended to describe a particular fixed legal liability which would require a showing that the insured was responsible by contract or in tort for the fire loss, but instead referred to his liability or "responsibility" as a bailee. (Emphasis added; footnotes omitted.)[3] The "Conditions" portion of the property coverage sec-tion of the policy (Section I) plainly requires property loss tobe adjusted on the basis of replacement cost or actual cashvalue. That requirement defeats Winters' argument that lossof the Penney saw must be adjusted on the basis of his poten-tial liability to Brown in an amount equal to the alleged valueof the underlying lawsuit. Winters submitted no evidence tothe district court that he was informed by Brown (the bailor)or "had reason to suppose" that the Penney saw itself wasworth $1 million. See Cal. Civ. Code S 1840.[4] Moreover, if "legally liable " is construed as Wintersurges, the business personal property portion of the policywould be redundant of the business liability portion of thepolicy. California courts refuse to construe an insurance pol-icy to create a redundancy. See Helfand v. National UnionFire Ins. Co., 10 Cal. App. 4th 869, 891-92, 13 Cal. Rptr. 2d295 (1992) (refusing to construe policy to create a redun-dancy); AIU Ins. Co. v. Superior Court, 51 Cal. 3d 807,827-28, 838, 274 Cal. Rptr. 820, 799 P.2d 1253 (1990)(same). Read in context of the whole policy, the term "legallyliable" is not ambiguous and does not denote third party lia-bility coverage.Winters also contends that because the policy is silentregarding loss of property that is irreplaceable, the policy isambiguous. Winters urges that the ambiguity entitles him torecover the "intrinsic" value of the Penney saw under the"limit of liability" language of the "Replacement Cost" clauseof the policy. That clause provides: a. Unless otherwise specified, loss shall be adjusted on the basis of the replacement cost value of the property insured hereunder, but the limit of liabil- ity of the Company shall not exceed the least of: (1) the full cost of replacement of such property at the same site with new material of like kind and quality, with- out deduction for depreciation;* * * (3) the limit of liability under this policy applicable to such property at the time of loss; * * * Unless the time is extended by the Company in writ- ing, loss to property not repaired or replaced within one year after loss will be settled on an actual cash value basis . . . .[5] The term "limit of liability " in section a(3) refers to themaximum amount of property coverage available under thepolicy; it does not provide an alternative for measuring thevalue of covered property. The district court did not err inconcluding that because Winters did not inform State Farmthat he had replaced the Penney saw within one year of theloss, Winters was entitled to recover only the actual cashvalue of the saw.Finally, as the district court observed, Winters' claim con-cerning any loss he might suffer as a result of the theft isspeculative because he cannot prove that had the saw not beenstolen, he would have obtained a favorable verdict for his cli-ent. Winters' claim that the intrinsic value of the saw is equalto the value of the underlying lawsuit thus rests on pure spec-ulation.2. The Claim for Loss of IncomeState Farm's loss of income insuring clause provides: This policy covers the following losses which result from suspension of "operations" at the premises shown in the Declaration caused by direct physical loss of or damage to property resulting from a Peril Insured: 1. loss of "business income" sustained by the insured during the "period of restoration"; 2. any necessary "extra expense" incurred to avoid or minimize the interruption of business and to continue "operations": a. at the described premises; or b. temporarily at other locations including relocation expenses and costs to equip and operate the temporary locations; 3. any necessary "extra expense" incurred to mini- mize the interruption of business if "operations" cannot continue.(Emphasis added.) The term "operations" is defined as "thetype of business activities occurring at the premises shown inthe Declarations."[6] The district court concluded that before Winters is enti-tled to recover lost income under the policy, he must demon-strate that loss of the saws directly prevented him fromcontinuing his law practice. That is a correct statement of Cal-ifornia law. See, e.g., Pacific Coast Engineering Co. v. St.Paul Fire & Marine Ins. Co., 9 Cal. App. 3d 270, 274-275,88 Cal. Rptr. 122 (1970) (business interruption insurance pro-vides coverage only for losses directly resulting from inter-ruption of business and not merely from interruption of workon a particular product).[7] Winters does not dispute that his law practice continueduninterrupted after the theft of the saws. He argues that hemay nevertheless recover reduced earnings and increasedcosts resulting from the theft of the saw as "extra expenses"under subsection 2 of the loss of income provision, becausethey were incurred to "avoid or minimize" the interruption ofbusiness.The district court determined that Winters' claimed lossesdo not qualify as "extra expenses" because they were notincurred during a "period of restoration" as required by policylanguage. "Period of Restoration" is defined as the period of time that: a. begins with the date of direct physical loss or damage caused by or resulting from any Peril Insured at the premises shown in the Declara- tions; and b. ends on the date the damaged property could be repaired, rebuilt or replaced with reasonable speed and similar quality. * * *(Emphasis added.)The district court concluded that because Winters wasunable to replace the Penney saw, there was no "period ofrestoration" and Winters' losses were not covered as "extraexpenses" under the policy.[8] The plain language of the insuring clause limits the cov-erage to losses, including extra expenses, "which result fromsuspension of `operations' at the premises." (Emphasisadded.) It is undisputed that there was no suspension of opera-tions attributable to the theft. Accordingly, Winters did notsuffer a loss of income covered under State Farm's policy.AFFIRMED. 16080