United Speciality Ins. Co. v. Zaracotas CA4/1
D079384
| Cal. Ct. App. | May 18, 2022Background:
- In June 2019 the Zaracotas hired Camelot (Sergio Anaya) to repair two commercial roofs; during the work a torch allegedly caused a fire and substantial property damage.
- The Zaracotas sued Camelot for negligence; United Specialty Insurance Company (United), Camelot’s CGL insurer, defended Camelot under a reservation of rights and later filed a declaratory relief action seeking a ruling it had no duty to defend or indemnify.
- The policy contained a broad "fire or heating devices" exclusion, an endorsement limiting recovery to $50,000 if strict safety conditions were met, and a $5,000 self-insured retention (SIR) the insured had to pay as a condition precedent to coverage.
- The Zaracotas answered United’s complaint asserting affirmative defenses of fraud (seeking reformation/conspiracy) and equitable estoppel, alleging agents/brokers misrepresented coverage via certificates of insurance and concealed the heating-device exclusion.
- The trial court sustained United’s demurrer to those defenses (first with leave to amend, then without leave after an amended answer) and later granted United’s unopposed motion for summary adjudication, finding Camelot failed to pay the SIR; judgment entered for United.
- On appeal the Zaracotas challenged the demurrer rulings; the Court of Appeal held any error was harmless because summary adjudication for United based on nonpayment of the SIR would have been entered regardless, so the judgment was affirmed.
Issues:
| Issue | United's Argument | Zaracotas' Argument | Held |
|---|---|---|---|
| Were the fraud and equitable estoppel defenses sufficiently pleaded? | Defenses were legally insufficient: reformation improper by non-party, no agency pleaded, no basis for coverage; demurrer proper. | Defenses adequately pleaded: misrepresentations via certificate/producer, agency/conspiracy, and they could seek reformation/estoppel; they had standing as third-party beneficiaries. | Trial court sustained demurrer; appellate court found any error harmless and affirmed judgment. |
| Did United owe a duty to defend/indemnify given the heating-device exclusion and endorsement conditions? | No — exclusion applied and endorsement’s conditions (including SIR payment) were not satisfied. | Coverage could be created/rehabilitated by reformation/estoppel based on alleged misrepresentations. | Summary adjudication granted for United: Camelot failed to pay $5,000 SIR, so United had no duty. |
| Could the Zaracotas, as alleged third-party beneficiaries, enforce or reform the policy? | They were only incidental beneficiaries with no standing to assert coverage or to obtain reformation. | They were intended third-party beneficiaries and thus had standing to seek reformation and estoppel. | Trial court found no standing; appellate court did not reach the merits but ruled absence of prejudice (harmless error). |
| Could alleged fraud in the execution render the policy void ab initio and nullify the SIR? | If policy were void, no enforceable contract or duty exists — favors United. | They argue fraud in execution would void the contract and eliminate SIR, so United could not rely on SIR. | Court rejected the voidness argument as inconsistent with plaintiffs’ other positions (they pleaded mutual assent/third-party beneficiary) and noted voidness would defeat any duty to insure, so no prejudice from demurrer. |
Key Cases Cited
- Deere & Co. v. Allstate Ins. Co., 32 Cal.App.5th 499 (2019) (defines self-insured retention/retention concepts in liability policies)
- Brown v. Wells Fargo Bank, N.A., 168 Cal.App.4th 938 (2008) (distinguishes fraud in execution: fraudulently executed contract is void ab initio)
- Oatman v. Niemeyer, 207 Cal. 424 (1929) (a void contract cannot be reformed)
- McClure v. Cerati, 86 Cal.App.2d 74 (1948) (void agreements cannot be reformed or enforced)
- F.P. v. Monier, 3 Cal.5th 1099 (2017) (prejudice standard for reversal; harmless-error framework)
- Cassim v. Allstate Ins. Co., 33 Cal.4th 780 (2004) (miscarriage-of-justice standard; assessing whether error was prejudicial)
- Travelers Prop. Cas. Co. of Am. v. Superior Court, 215 Cal.App.4th 561 (2013) (certificate of insurance is evidence a policy was issued; identifies limits/dates)
- Cohen v. Kabbalah Centre Int'l, Inc., 35 Cal.App.5th 13 (2019) (harmless-error precedent where summary judgment would have resolved dismissed claims)
- Tanguilig v. Neiman Marcus Grp., Inc., 22 Cal.App.5th 313 (2018) (cases where appellate court declines to address some demurrer issues because other dispositive rulings render error harmless)