49 Cal.App.5th 417
Cal. Ct. App.2020Background
- James and Maria Mosley owned a rental house insured by Pacific Specialty Insurance Company (PSIC) under an HO-3 policy containing an exclusion for loss "resulting from" "the growing of plants."
- Their tenant, Pedro Lopez, operated an indoor marijuana grow and illegally tapped the utility line (bootlegging power) to run the operation; that altered wiring caused a fire that damaged the Property.
- PSIC denied the claim relying on the policy’s plant-growing/production exclusion and argued the exclusion was substantively equivalent to Insurance Code § 2071’s increased-hazard exclusion (hazard increased by means within the insured’s control or knowledge).
- The trial court granted PSIC’s summary judgment and denied the Mosleys’ cross-motion, concluding the policy exclusion applied and complied with § 2071 because the hazard was within the Mosleys’ control/knowledge.
- On appeal the Court of Appeal reversed as to the breach-of-contract claim because there was no evidence the Mosleys knew of the grow and the record was silent about what they could reasonably have done to discover it—creating a triable issue on whether the hazard was within their control.
- The Court affirmed summary adjudication for PSIC on the bad-faith claim, holding PSIC had a reasonable coverage position and therefore no liability for breach of the implied covenant of good faith and fair dealing.
Issues
| Issue | Plaintiff's Argument (Mosley) | Defendant's Argument (PSIC) | Held |
|---|---|---|---|
| Whether the policy exclusion for "growing of plants" bars coverage for fire caused by tenant’s marijuana grow | Exclusion cannot be enforced because the policy must provide coverage substantially equivalent to § 2071 and Mosleys had no knowledge or control of tenant’s conduct | Exclusion applies: loss "resulted from" tenant’s growing operation and so is excluded | The Court: the exclusion covers losses that "result from" plant-growing (broad causation), but enforceability turns on § 2071 issues about insured control/knowledge; summary judgment for insurer reversed on breach-of-contract claim because triable fact exists on control/knowledge |
| Whether the policy’s exclusion is void under Ins. Code § 2070/2071 because it provides less favorable fire coverage than the standard form (i.e., whether the increased-hazard rule saves the exclusion) | The exclusion can’t be enforced against Mosleys because § 2071 only excludes hazards increased by means within the insured’s control or knowledge, and Mosleys had neither | The policy is substantially equivalent to § 2071 because increased-hazard doctrine would exclude similar losses when the insured has control/knowledge | The Court: § 2071’s increased-hazard exclusion is limited by insured’s knowledge/control; because Mosleys had no evidence of knowledge and the record is silent on whether they could have discovered the grow by ordinary care, whether the hazard was "within control" is a factual issue for trial; therefore insurer’s summary judgment on contract claim reversed |
| Whether PSIC acted in bad faith by denying coverage | Denial was wrongful and unreasonable | Denial was reasonable because the exclusion applied and the coverage question was debatable | The Court: PSIC had a reasonable, debatable basis to deny coverage given unsettled legal issues; summary adjudication for PSIC on bad-faith claim affirmed |
Key Cases Cited
- Century-National Ins. Co. v. Garcia, 51 Cal.4th 564 (Cal. 2011) (standard for § 2070/2071 substantial-equivalence review)
- Fireman’s Fund Ins. Cos. v. Atlantic Richfield Co., 94 Cal.App.4th 842 (Cal. Ct. App. 2001) ("resulting from"/"arising out of" requires only minimal causal connection)
- St. Paul Fire & Marine Ins. Co. v. American Dynasty Surplus Lines Ins. Co., 101 Cal.App.4th 1038 (Cal. Ct. App. 2002) (broad interpretation of causal phrases in insurance clauses)
- Rizzuto v. National Reserve Ins. Co., 92 Cal.App.2d 143 (Cal. Ct. App. 1949) (policy suspension where occupancy/use violated a condition precedent)
- St. Paul Fire & Marine Ins. Co. v. Bachmann, 285 U.S. 112 (U.S. 1932) (increase-of-hazard clause requires knowledge and control by insured)
- Patriotic Ins. Co. of Am. v. Franciscus, 55 F.2d 844 (8th Cir. 1932) (landlord not liable under increased-hazard clause absent knowledge or proof that ordinary care would have revealed hazard)
- Holtorf v. Rochester Farmers Mut. Fire Ins. Co., 250 N.W. 816 (Minn. 1933) (insured lacked control where tenant introduced hazardous material without owner’s knowledge)