Supreme Court of California Justia
Citation 51 Cal. 4th 564, 246 P.3d 621, 120 Cal. Rptr. 3d 541
Century-National Ins. v. Garcia

Filed 2/17/11

IN THE SUPREME COURT OF CALIFORNIA

CENTURY-NATIONAL INSURANCE
CO.,
Plaintiff and Respondent,
S179252
v.
Ct.App. 2/7 B209616
JESUS GARCIA et al.,
Los Angeles County
Defendants and Appellants.
Super. Ct. No. BC379522

At issue in this case is a fire insurance policy that contains clauses
excluding coverage for losses caused by the intentional act or criminal conduct of
“any insured.” The question is whether, based on these exclusion clauses, the
insurer properly prevailed on a demurrer to the cross-complaint of two allegedly
innocent insureds who suffered losses when their son, a coinsured under the
policy, intentionally set fire to their home. We conclude the answer is no, because
the clauses impermissibly reduce coverage that is statutorily mandated. We
therefore reverse the judgment of the Court of Appeal, which found otherwise.
FACTUAL AND PROCEDURAL BACKGROUND
Jesus Garcia, Sr., and his wife Theodora Garcia (the Garcias) suffered
substantial damage to their home when their adult son set fire to his bedroom. At
the time of the fire, the home was covered under a homeowner‟s policy issued by
Century-National Insurance Company (Century-National). Under this policy,
Jesus Garcia, Sr., was the named insured, and Theodora Garcia and their son also
1


qualified as insureds. The Garcias filed an insurance claim for the damage, which
Century-National investigated and denied.
Century-National filed a complaint seeking a declaration that it has no duty
to pay for the Garcias‟ loss because its insurance policy contains clauses excluding
coverage for the intentional act or criminal conduct of “any insured” (collectively,
the intentional acts exclusion). The Garcias filed a cross-complaint alleging
causes of action for breach of contract, breach of the implied covenant of good
faith and fair dealing, and reformation.
As relevant here, Century-National demurred to the cross-complaint,
contending the intentional acts exclusion bars any recovery by the Garcias because
their son intentionally set fire to their home. The Garcias opposed the demurrer,
asserting the policy‟s intentional acts exclusion impermissibly conflicts with
provisions of the Insurance Code that would not bar so-called “innocent insureds”
from recovering despite a coinsured‟s intentional or criminal conduct.1
The trial court agreed with Century-National, determining that (1) the
Century-National policy defines the term “any insured,” as contained in the
intentional acts exclusion, to include relatives of the insured who lived at the
insured property, i.e., the Garcias‟ adult son, (2) courts generally interpret policy
exclusions for intentional or criminal acts to exclude coverage for innocent
coinsureds, and (3) Insurance Code section 533 expressly sets forth California‟s
public policy of denying coverage for willful wrongs. The court sustained the

1
A demurrer must assume the truth of a complaint‟s properly pleaded
allegations. (Evans v. City of Berkeley (2006) 38 Cal.4th 1, 20.) Here, the cross-
complaint incorporates the National-Century policy by reference and alleges the
Garcias are innocent insureds, that is, insureds who did not direct or participate in
setting fire to their home.
2


demurrer without leave to amend and entered a judgment dismissing the cross-
complaint. The Court of Appeal affirmed.
DISCUSSION
In California, fire insurance policies are regulated by the Insurance Code.2
Section 2070 provides: “All fire polices . . . shall be on the standard form, and,
except as provided by this article shall not contain additions thereto. No part of
the standard form shall be omitted therefrom except that any policy providing
coverage against the peril of fire only, or in combination with coverage against
other perils, need not comply with the provisions of the standard form of fire
insurance policy . . . ; provided, that coverage with respect to the peril of fire,
when viewed in its entirety, is substantially equivalent to or more favorable to the
insured than that contained in such standard form fire insurance policy.” (Italics
added.) Provisions of the standard form fire policy are set forth in section 2071.
Thus, a policy that does not conform to section 2071‟s standard provisions must
provide total fire coverage that is at least “substantially equivalent” to coverage
provided by the standard form. (§ 2070; see Julian v. Hartford Underwriters Ins.
Co. (2005) 35 Cal.4th 747, 754 [policy exclusions are unenforceable to the extent
they conflict with the Insurance Code].)
As the pleadings reflect, the Century-National policy is a package policy
divided into two sections: Section I pertains to property coverage, while Section
II pertains to liability coverage. There is no dispute the Section I property
coverage is in effect a fire policy subject to the requirements of sections 2070 and
2071. Accordingly, we examine the coverage terms and exclusions applicable to
that section.

2
All further statutory references are to this code unless otherwise indicated.
3


Section I provides in relevant part that Century-National does “not cover
loss caused directly or indirectly by any of the following excluded perils, whether
occurring alone or in any sequence, or concurrently, with a covered peril: [¶] . . .
[¶] 9. Intentional Loss, meaning any loss arising out of any act committed by or at
the direction of any insured having the intent to cause a loss. [¶] 10. Dishonesty,
Fraud or Criminal Conduct of any insured.” (Italics added.)3
That this intentional acts exclusion uses the term “any insured” is
significant. As we recently explained, “[a]bsent contrary evidence, in a policy
with multiple insureds, exclusions from coverage described with reference to the
acts of „an‟ or „any,‟ as opposed to „the,‟ insured are deemed under California law
to apply collectively, so that if one insured has committed acts for which coverage
is excluded, the exclusion applies to all insureds with respect to the same
occurrence.” (Minkler v. Safeco Ins. Co. of America (2010) 49 Cal.4th 315, 318
[citing cases]; see Western Mutual Ins. Co. v. Yamamoto (1994) 29 Cal.App.4th
1474, 1486-1487.) Consequently, under the policy as written, the Garcias may not
recover against Century-National because, even if they were innocent of
wrongdoing, their fire losses were caused by another insured, who acted
intentionally and criminally.
Although the Century-National policy purports to exclude coverage of the
Garcias‟ losses, section 2070 requires a comparison of the policy with the standard
form fire policy set forth in section 2071. The question is whether the Century-
National policy provides coverage that is at least as favorable to the insureds as the
coverage provided in the standard form. If application of the intentional acts
exclusion in the former results in coverage that is not at least substantially

3
Century-National does not contend that dishonest or fraudulent conduct is
at issue here.
4


equivalent to the level of protection available in the latter, the exclusion is to that
extent invalid. (§ 2070; Julian v. Hartford Underwriters Ins. Co., supra, 35
Cal.4th at p. 754.)
Notably, the statutory standard form contains no express exclusion for
losses caused by intentional acts or criminal conduct. (See § 2071.) By virtue of
section 533, however, “[a]n insurer is not liable for a loss caused by the wilful act
of the insured.” Because section 533 represents “ „an implied exclusionary clause
which by statute is to be read into all insurance policies‟ ” (J. C. Penney Casualty
Ins. Co. v. M. K. (1991) 52 Cal.3d 1009, 1019 [citing cases]), the standard form
fire policy is properly read as excluding coverage for losses caused by “the wilful
act of the insured.” (§ 533, italics added.)
Section 533‟s use of the term “the insured” bears directly on the instant
coverage issue: unlike policy exclusions that refer to “an” insured or “any”
insured, exclusions based on acts of “the” insured are construed as not barring
coverage for innocent coinsureds. (See Arenson v. Nat. Automobile & Cas. Ins.
Co. (1955) 45 Cal.2d 81, 83 (Arenson) [policy exclusion for “ „destruction caused
intentionally by or at the direction of the insured‟ ” did not bar recovery by
innocent insured whose minor son started a fire at a school]; Watts v. Farmers Ins.
Exchange (2002) 98 Cal.App.4th 1246, 1260-1261; cf. Minkler v. Safeco Ins. Co.
of America, supra, 49 Cal.4th at p. 318; Western Mutual Ins. Co. v. Yamamoto,
supra, 29 Cal.App.4th at pp. 1486-1487.) Given the settled meaning of the
language used in section 533, the standard form fire policy must be construed as
including a willful acts exclusion that is protective of innocent insureds.
Viewed as a whole, the standard form reinforces this conclusion. Section
2071 contains no clause providing that exclusions are to operate on a joint or
collective basis. To the contrary, the provisions set forth in section 2071
uniformly indicate that provisions barring insurer liability or excluding coverage
5
are to operate severally. For example, the standard form states that an insurer
“shall not be liable for loss by fire or other perils insured against in this policy
caused, directly or indirectly, by: . . . (i) neglect of the insured to use all reasonable
means to save and preserve the property at and after a loss, or when the property is
endangered by fire in neighboring premises.” (§ 2071 [italics added].)4 The
standard form also contains an “increase in hazard” clause specifying that, unless
otherwise provided in writing, the insurer “shall not be liable for loss occurring (a)
while the hazard is increased by any means within the control or knowledge of the
insured.” (Ibid. [italics added].)5 Finally, the form contains a so-called “fraud
exclusion” stating: “This entire policy shall be void if, whether before or after a
loss, the insured has willfully concealed or misrepresented any material fact or
circumstance concerning this insurance or the subject thereof, or the interest of the
insured therein, or in case of any fraud or false swearing by the insured relating
thereto.” (Ibid. [italics added].)6
That these three standard form provisions all refer to “the” insured evinces
the Legislature‟s intent to ensure coverage on a several basis and protect the
ability of innocent insureds to recover for their fire losses despite neglectful or
intentional acts of a coinsured. (See Arenson, supra, 45 Cal.2d at pp. 83-84; Watts
v. Farmers Ins. Exchange, supra, 98 Cal.App.4th at pp. 1258-1261.) Construing
the statutory policy as including a willful acts exclusion precisely as articulated in

4
The Century-National policy contains a clause on this topic that substitutes
“any insured” in place of “the insured.”
5
On this point, the Century-National policy states the insurer may “cancel”
the policy upon “[d]iscovery of grossly negligent acts or omissions substantially
increasing any hazard insured against.”
6
The Century-National policy includes a provision on this subject that refers
to “an insured” instead of “the insured.”
6


section 533, so as to provide coverage for an innocent insured when a coinsured
commits arson, advances this legislative objective. By the same token, enforcing
the Century-National intentional acts exclusion against innocent insureds does not.
Accordingly, it stands to reason that the Century-National policy, which purports
to deny coverage to innocent insureds when a coinsured intentionally sets fire to
their home, provides coverage that is markedly less favorable to insureds than the
coverage provided in the standard form.
Arguing to the contrary, Century-National notes California decisions have
consistently held that intentional and criminal act exclusions that expressly bar
insurance coverage for the acts of “an” insured or “any” insured negate all
coverage when applied. (E.g., Zelda, Inc. v. Northland Ins. Co. (1997) 56
Cal.App.4th 1252; Western Mutual Ins. Co. v. Yamamoto, supra, 29 Cal.App.4th
1474; Fire Ins. Exchange v. Altieri (1991) 235 Cal.App.3d 1352; Allstate Ins. Co.
v. Condon (1988) 198 Cal.App.3d 148.) As Century-National acknowledges,
however, such decisions “admittedly involved third-party liability insurance,”
which is not subject to the requirements of sections 2070 and 2071.
We have found no legislative history or published California decision
addressing whether sections 2070 and 2071 bar enforcement of an exclusion
clause in a fire policy that denies coverage to innocent insureds when a coinsured
has committed arson. Significantly, courts in other jurisdictions with identical or
very similar standard form fire policies have reached the same conclusion we do,
i.e., that an insurance clause purporting to exclude coverage for an innocent
insured based on the intentional acts of a coinsured impermissibly reduces
statutorily mandated coverage and is unenforceable to that extent. (E.g., Nangle v.
Farmers Ins. Co. (Ariz.Ct.App. 2003) 73 P.3d 1252; Trinity Universal Ins. Co. v.
Kirsling (Idaho 2003) 73 P.3d 102; Sager v. Farm Bureau Mut. Ins. Co. (Iowa
2004) 680 N.W.2d 8 (Sager); Osbon v. National Union Fire Ins. Co. (La. 1994)
7
632 So.2d 1158; Barnstable County Mut. Ins. Co. v. Dezotell (Mass.Super.Ct.
2006) 21 Mass.L.Rptr. 269; Borman v. State Farm Fire & Cas. Co. (Mich. 1994)
521 N.W.2d 266; Williams v. Auto Club Group Ins. Co. (Mich.Ct.App. 1997)
569 N.W.2d 403 [holding that statutory amendments postdating Borman did not
change Michigan‟s fire policy law protecting innocent coinsureds]; Watson v.
United Services Automobile Assn. (Minn. 1997) 566 N.W.2d 683; Lane v. Security
Mut. Ins. Co. (N.Y. 2001) 724 N.Y.S.2d 670; Volquardson v. Hartford Ins. Co.
(Neb. 2002) 647 N.W.2d 599 (Volquardson); see also Icenhour v. Continental Ins.
Co. (S.D.W.Va. 2004) 365 F.Supp.2d 743.)7
In these out-of-state authorities, the courts made no mention of an implied
statutory exclusion similar to section 533, though they effectively acknowledged
that a wrongdoer should not benefit from his or her wrongdoing. As relevant here,
the courts reviewed the standard fire policies in their respective states and found
that, even though they contained no express intentional acts exclusion, they
included other standard provisions very similar to those in section 2071 that bar
insurer liability or otherwise negate coverage based upon conduct of the insured,
as opposed to an insured or any insured. One court explained the import of these
provisions as follows: “[T]he standard policy uses language indicative of a several
obligation whereby the insured bears the responsibility for his or her own conduct.
We find no provision . . . creating a joint obligation whereby the wrongful actions
of one insured could prejudice the rights of an innocent coinsured.” (Volquardson,

7
“Fire insurance is effected in every state through a standard form required
by state statute. The majority of the states follow the New York 1943 form of 165
lines. Although minor differences exist from state to state, there is substantial
uniformity in the provisions.” (Herr, Commercial and Residential Property and
Liability Insurance
(1982) 17 Real Prop. Prob. & Tr. J. 633, 634, fn. omitted; see
Aliberti v. Allstate Ins. Co. (1999) 74 Cal.App.4th 138, 145 [noting the New York
form was adopted by California in § 2071 and by a majority of state legislatures].)
8


supra, 647 N.W.2d at p. 610; see Sager, supra, 680 N.W.2d at p. 13 [quoting
Volquardson].) In light of these legislatively approved standard provisions, the
courts concluded their state lawmakers did not intend to impute the intentional acts
of an insured to an innocent coinsured having no control over the unauthorized
conduct, and found unenforceable any privately drafted policy provision that
purported to do so. Although we are not bound to follow these out-of-state
authorities, they reflect a broad consensus as to the proper interpretation of the
common standard form fire policy. (See Aliberti v. Allstate Ins. Co., supra,
74 Cal.App.4th at p. 147 [“The decisions of sister-state courts interpreting their
versions of section 2071 are „particularly persuasive.‟ ”].)
We further note that in some cases, the courts ruled in favor of the innocent
insureds based primarily on the circumstance that either the privately drafted
policy or the statutory form policy included an increase in hazard clause like the
one set forth in section 2071. (§ 2071 [restricting insurer liability for any loss
occurring “while the hazard is increased by any means within the control or
knowledge of the insured” (italics added)]; e.g., Icenhour v. Continental Ins. Co.,
supra, 365 F.Supp.2d at pp. 748-751; Madsen v. Threshermen’s Mut. Ins. Co.
(Wis.Ct.App. 1989) 439 N.W.2d 607, 612-613.) That is, the courts construed such
clause as an intentional acts exclusion that was reasonably understood as
contemplating property damage coverage for an innocent insured when a
coinsured committed arson. (Ibid.)
Century-National does not discuss these authorities. Instead, it relies on
Mackintosh v. Agricultural Fire Ins. Co. (1907) 150 Cal. 440 and Rizzuto v.
National Reserve Ins. Co. (1949) 92 Cal.App.2d 143 to argue that the increase in
hazard clause applies only when changes are made to the structure or use of the
insured premises. But those two decisions simply addressed the applicability of
the clause in the circumstances presented. Their analyses did not suggest that the
9
clause does not apply to intentional and/or criminal conduct, and neither do the
terms of the clause itself. In any event, we need not resolve whether this particular
clause should be construed to specifically protect innocent coinsureds in cases of a
coinsured‟s wrongdoing such as arson. We merely infer from its language and its
presence in the standard form fire policy that recognizing coverage on a several
basis is consistent with legislative intent.
Century-National next contends the standard form fraud exclusion —
stating the “entire policy shall be void” in the event of willful concealment or
misrepresentation on the part of “the” insured — does not demonstrate a
legislative intent to protect innocent insureds. That is, the exclusion cannot
logically be construed to operate severally, because the only possible meaning of
its language is that the policy is void as to all insureds when a coinsured commits
fraud. Century-National, however, cites no authority supporting this construction,
and numerous jurisdictions have either held or recognized to the contrary,
including our own. (E.g., Watts v. Farmers Ins. Exchange, supra, 98 Cal.App.4th
at pp. 1258-1261; Steigler v. Ins. Co. of North America (Del. 1978) 384 A.2d 398,
399-402; Fireman’s Fund Ins. Co. v. Dean (Ga.Ct.App. 1994) 441 S.E.2d 436,
437-438; Trinity Universal Ins. Co. v. Kirsling, supra, 73 P.3d at p. 106;
Hildebrand v. Holyoke Mut. Fire Ins. Co. (Me. 1978) 386 A.2d 329, 331; Morgan
v. Cincinnati Ins. Co. (Mich. 1981) 307 N.W.2d 53, 54-55; Watson v. United
Services Automobile Assn., supra, 566 N.W.2d at pp. 691-692; Hogs Unlimited v.
Farm Bureau Mut. Ins. Co. (Minn. 1987) 401 N.W.2d 381, 384-385; Volquardson,
supra, 647 N.W.2d at p. 610.)
Relying on Erlin-Lawler Enterprises, Inc. v. Fire Ins. Exch. (1968)
267 Cal.App.2d 381, Century-National additionally argues that “nothing . . .
suggests that the drafters of the standard policy or the California Legislature
sought to imbue the words „the insured‟ with the meaning or significance that has
10
since been recognized in relation to the terms „an insured‟ or „any insured‟ found
in modern personal insurance policies.” This argument is off the mark. Erlin-
Lawler concerned an appeal by an insured corporation that sought to recover for
losses caused by a fire intentionally set by two shareholders (one current and one
former). The principal question was whether the corporation was merely the alter
ego of the arsonists; the decision did not analyze the policy language in assessing
the corporation‟s right to recover. Erlin-Lawler offers no basis for revisiting the
settled meaning of the term “the insured.”
Finally, the Court of Appeal concluded below that the Century-National
policy “complies with section 2070 because the addition of the provision at issue
is not inconsistent with the fire coverage of the standard form policy, which does
not address intentional acts.” The Court of Appeal also minimized the relevance
of section 533, noting the statute “does not govern mandatory requirements for
policy language, but rather provides the basis for exclusion of coverage.” We are
not persuaded.
The question is whether the Century-National policy provides coverage that
is at least as favorable to the insureds as the coverage provided in the standard
form. Under the Century-National policy, the intentional acts exclusion bars
coverage for property losses sustained by insureds who are innocent of
wrongdoing. But under the standard form, which must be read as including
section 533‟s exclusion for losses caused by “the wilful act of the insured” (italics
added), innocent insureds would not be barred from coverage. Thus, under section
2070, it cannot be said that the coverage provided by the Century-National policy,
“with respect to the peril of fire, when viewed in its entirety, is substantially
11
equivalent to or more favorable to the insured than that contained in such standard
form fire insurance policy.”8
CONCLUSION AND DISPOSITION
As to innocent insureds, application of the intentional acts exclusion in the
Century-National policy results in coverage that is not at least substantially
equivalent to the level of protection provided in the statutory standard form fire
policy. We therefore hold the exclusion is to that extent invalid. The judgment of
the Court of Appeal is reversed, and the matter is remanded to that court for
further proceedings consistent with the views expressed herein.

BAXTER, J.

WE CONCUR:
CANTIL-SAKAUYE, C.J.
KENNARD, J.
WERDEGAR, J.
CHIN, J.
MORENO, J.
CORRIGAN, J.

8
Because our analysis concerns a fire policy subject to the requirements of
sections 2070 and 2071, it should not be read as necessarily affecting the validity
of clauses that deny coverage for the intentional acts of “any” insured in other
contexts.
12



See next page for addresses and telephone numbers for counsel who argued in Supreme Court.

Name of Opinion Century-National Insurance Company v. Garcia
__________________________________________________________________________________

Unpublished Opinion

XXX NP opn. filed 12/2/09- 2d Dist., Div. 7
Original Appeal
Original Proceeding
Review Granted

Rehearing Granted

__________________________________________________________________________________

Opinion No.

S179252
Date Filed: February 17, 2011
__________________________________________________________________________________

Court:

Superior
County: Los Angeles
Judge: Maureen Duffy-Lewis

__________________________________________________________________________________

Counsel:

Beverly Hills Law Associates, Stephen M. Losh and Angelica M. Leon for Defendants and Appellants.

Haight Brown & Bonesteel, Valerie A. Moore and Christopher Kendrick for Plaintiff and Respondent.



Counsel who argued in Supreme Court (not intended for publication with opinion):

Stephen M. Losh
Beverly Hills Law Associates
9461 Charleville Boulevard, #613
Beverly Hills, CA 90212
(310) 552-2490

Valerie A. Moore
Haight Brown & Bonesteel
6080 Center Drive, Suite 800
Los Angeles, CA 90045-1574
(310) 215-7100


Petition for review after the Court of Appeal affirmed the judgment in a civil action. This case presents the following issue: May an insurer enforce an exclusion clause in a fire insurance policy that denies coverage to innocent insureds for damages from a fire intentionally caused by a coinsured, or does such a clause impermissibly reduce coverage that is statutorily mandated?

Opinion Information
Date:Citation:Docket Number:Category:Status:
Thu, 02/17/201151 Cal. 4th 564, 246 P.3d 621, 120 Cal. Rptr. 3d 541S179252Review - Civil Appealsubmitted/opinion due

Parties
1Century-National Insurance Company (Plaintiff and Respondent)
Represented by Valerie A. Moore
Haight Brown & Bonesteel, LLP
6080 Center Drive, Suite 800
Los Angeles, CA

2Century-National Insurance Company (Plaintiff and Respondent)
Represented by Christopher Victor Kendrick
Haight Brown & Bonesteel, LLP
6080 Center Drive, Suite 800
Los Angeles, CA

3Garcia, Jesus (Defendant and Appellant)
Represented by Stephen M. Losh
Beverly Hills Associates
9461 Charleville Boulevard, PMB 613
Beverly Hills, CA

4Garcia, Theodora (Defendant and Appellant)
Represented by Stephen M. Losh
Beverly Hills Associates
9461 Charleville Boulevard, PMB 613
Beverly Hills, CA


Opinion Authors
OpinionJustice Marvin R. Baxter

Dockets
Jan 5 2010Request for publication filed (initial case entry)
Plaintiff and Respondent: Century-National Insurance CompanyAttorney: Christopher Victor Kendrick  
Jan 8 2010Petition for review filed
Defendant and Appellant: Garcia, JesusAttorney: Stephen M. Losh Defendant and Appellant: Garcia, TheodoraAttorney: Stephen M. Losh  
Jan 8 2010Record requested
  via email
Jan 12 2010Received Court of Appeal record
  one doghouse
Mar 10 2010Petition for review granted
  Votes: George, C.J., Kennard, Baxter, Werdegar, and Corrigan, JJ.
Mar 10 2010Letter sent to:
  All parties with a copy of the grant order and the form for certification of interested entities and persons.
Mar 12 2010Received Court of Appeal record
  B209616 -- one doghouse
Mar 24 2010Certification of interested entities or persons filed
  Respondent Century National Insurance by Christopher Kendrick of Haight Brown & Bonesteel LLP
Mar 29 2010Certification of interested entities or persons filed
  Jesus Garcia and Theodora Garcia, Defendants and Appellants by Stephen M. Losh, Retained counsel
Apr 9 2010Opening brief on the merits filed
Defendant and Appellant: Garcia, JesusAttorney: Stephen M. Losh  
Apr 28 2010Request for extension of time filed
  to and including June 8, 2010, to file respondent's answer brief on the merits
May 4 2010Extension of time granted
  On application of respondent and good cause appearing, it is ordered that the time to serve and file the answer brief on the merits is extended to and including June 8, 2010. No further extensions of time are contemplated.
Jun 8 2010Answer brief on the merits filed
Plaintiff and Respondent: Century-National Insurance CompanyAttorney: Christopher Victor Kendrick  
Jun 25 2010Request for extension of time filed
  counsel for aplt. requests extension of time to July 28, 2010, to file the reply brief on the merits.
Jun 29 2010Extension of time granted
  On application of appellant and good cause appearing, it is ordered that the time to serve and file the reply brief on the merits is extended to and including July 28, 2010.
Jul 28 2010Reply brief filed (case fully briefed)
Defendant and Appellant: Garcia, JesusAttorney: Stephen M. Losh  
Oct 1 2010Supplemental brief filed
Plaintiff and Respondent: Century-National Insurance CompanyAttorney: Christopher Victor Kendrick  
Dec 1 2010Case ordered on calendar
  to be argued Wednesday, January 5, 2011, at 9:00 a.m., in San Francisco
Jan 5 2011Cause argued and submitted
 
Feb 16 2011Notice of forthcoming opinion posted
  To be filed Thursday, February 17, 2011 at 10 a.m.

Briefs
Apr 9 2010Opening brief on the merits filed
Defendant and Appellant: Garcia, JesusAttorney: Stephen M. Losh  
Jun 8 2010Answer brief on the merits filed
Plaintiff and Respondent: Century-National Insurance CompanyAttorney: Christopher Victor Kendrick  
Jul 28 2010Reply brief filed (case fully briefed)
Defendant and Appellant: Garcia, JesusAttorney: Stephen M. Losh  
Brief Downloads
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s179252-2-appellants-opening-brief-on-the-merits.pdf (218747 bytes) - Appellants Opening Brief on the Merits
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s179252-1-appellants-petition-for-review.pdf (251889 bytes) - Appellants Petition for Review
If you'd like to submit a brief document to be included for this opinion, please submit an e-mail to the SCOCAL website
Jul 5, 2011
Annotated by harrison reynolds

FACTS:

The adult son of defendants Jesus Garica, Sr., and Theodora Garcia set fire to his bedroom, resulting in substantial damage to the defendants’ home. At the time of the fire, the home was covered under a homeowner’s policy issued by the plaintiff, Century-National Insurance Company. Jesus Garcia, Sr., was the named insured, but his wife and son also qualified as insureds.

Century-National investigated the fire and denied the Garcias’ insurance claim for the damage. Century-National then sought judgment declaring that they indeed owed no duty to pay the Garcias for the fire damage, based upon the terms of the insurance policy which state that Century-National does not cover “Intentional Loss, meaning any loss arising out of any act committed by or at the direction of any insured having the intent to cause a loss.” (Emphasis added.)

PROCEDURAL HISTORY:

Plaintiff (Century-National) filed a complaint seeking declaratory judgment that it had no duty to cover the fire damages. The defendants (Garcias) filed a cross complaint citing provisions of the Insurance Code which would not bar “innocent insureds” from recovering for losses even in the face of intentional or criminal conduct by a coinsured. In response, Century-National filed a demurrer to the Garcias’ cross-complaint.

The court granted Century-National’s demurrer based on (1) the defined terms of the policy which deny coverage of losses resulting from intentional acts by a coinsured, (2) a history of courts interpreting similar policy exclusions to exclude innocent coinsureds, and (3) Insurance Code section 533, setting forth California’s public policy of denying coverage for willful wrongs.

The Court of Appeal affirmed the demurrer. The Garcias subsequently appealed to the Supreme Court of California.

ISSUES:

May an insurer enforce an exclusion clause in a fire insurance policy that denies coverage to innocent insureds for damages from a fire intentionally caused by a coinsured, or does such a clause impermissibly reduce coverage that is statutorily mandated?

HOLDING:

The exclusion clause may not be enforced. To the extent that a policy exclusion “results in coverage that is not at least substantially equivalent to the level of protection available [under the Insurance Code’s provided standard form], the exclusion is to that extent invalid.” Section 533 of the California Insurance Code is impliedly included in the section 2071 standard form terms, and decalres that “[a]n insurer is not liable for a loss caused by the willful act of the insured.” (Emphasis added.) This standard term is distinguishable from the Century-National terms which exclude coverage of loss caused by the willful act of any insured in that the use of the word the instead of any implies that the coinsureds’ exclusion from coverage is several. “Given the settled meaning of the language used in section 533, the standard form fire policy must be construed as including a willful acts exclusion that is protective of innocent insureds.” Thus the Garcias may not be excluded from coverage based upon intentional acts by their son. Accordingly, the Court invalidates the Century-National policy exclusion and remands the case for further proceedings.

ANALYSIS:

Upon review, the Court determines that the Century-National policy as written does in fact exclude the Garcias from because of the intentional and criminal actions of their coinsured son. However, the Court declares that, per section 2070 of the California Insurance Code, the Century-National policy must provide “coverage that is at least as favorable to the insureds as the coverage provided in the standard form” set forth in section 2071.

“The statutory standard form contains no express exclusion for losses caused by intentional acts or criminal conduct.” However, the Court applies section 533 as an implied exclusionary clause of the statutory standard form. As section 533 excludes coverage for losses caused by the willful act of the insured, as opposed to losses caused by the willful act of an or any insured (a critical difference for purposes of application to circumstances like the case at hand), the Court holds that the Insurance Code requires, as a minimum level of coverage, that policies do not bar coverage for innocent coinsureds (notwithstanding intentional acts or criminal conduct by a coinsured).

Additionally, the Court finds that “the provisions set forth in section 2071 uniformly indicate that provisions barring insurer liability or excluding coverage are to operate severally,” which further supports a ruling that the statutory form (serving as a mandatory minimum) protects recovery by innocent coinsureds, and that such protection is consistent with legislative intent.

The court distinguishes the cases cited to by Century-National for support as non-relevant to the case at hand because said decisions all involved third-party liability insurance (which is not subject to the requirements of sections 2070 and 2071), or involved other circumstances which sufficiently differed from the case at hand so as to not prove persuasive. The Court further explains that its ruling mirrors that of many other (out-of-state) jurisdictions with relevant laws similar to California.

TAGS:

insurance, fire policy, loss, intentional act, criminal act, several exclusion, standard form, innocent coinsureds, statutory minimum, intentional act exclusion, severability clause, homeowner insurance, Insurance Code Section 533, insurance contracts and coverage

KEY RELATED CASES & MATERIALS:

Julian v. Hartford Underwriters Ins. Co., 35 Cal. 4th 747, 110 P.3d 903 (2005).

Minkler v. Safeco Ins. Co. of Am., 49 Cal. 4th 315, 232 P.3d 612 (2010).

W. Mut. Ins. Co. v. Yamamoto, 29 Cal. App. 4th 1474, 35 Cal. Rptr. 2d 698 (Cal. Ct. App. 1994).

J. C. Penney Cas. Ins. Co. v. M. K., 52 Cal. 3d 1009, 804 P.2d 689 (1991).

Arenson v. Nat'l Automobile & Cas. Ins. Co., 45 Cal. 2d 81, 286 P.2d 816 (1955).

Watts v. Farmers Ins. Exch., 98 Cal. App. 4th 1246, 120 Cal. Rptr. 2d 694 (Cal. Ct. App. 2002).

Volquardson v. Hartford Ins. Co. of the Midwest, 264 Neb. 337, 647 N.W.2d 599 (2002).

Aliberti v. Allstate Ins. Co., 74 Cal. App. 4th 138, 87 Cal. Rptr. 2d 645 (Cal. Ct. App. 1999).

Cal. Ins. Code §§ 533, 2070-2071.

Annotated by Harrison J. Reynolds