Opinion
G056718 c/w G056938
12-15-2020
MICHAEL FAVREAU et al., Plaintiffs and Appellants, v. NAVIGATORS INSURANCE COMPANY et al., Defendants and Respondents.
Law Office of Richard L. Antognini and Richard L. Antognini, for Plaintiffs and Appellants. Wilson Elser Moskowitz Edelman & Dicker and Michelle R. Press, for Defendant and Respondent Navigators Insurance Company. G&P Schick, Malcom D. Schick and Sean Edward Smith, for Defendant and Respondent ProWorks, Inc.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Super. Ct. No. 30-2016-00858966) OPINION Appeal from judgments of the Superior Court of Orange County, William D. Claster, Judge. Affirmed. Law Office of Richard L. Antognini and Richard L. Antognini, for Plaintiffs and Appellants. Wilson Elser Moskowitz Edelman & Dicker and Michelle R. Press, for Defendant and Respondent Navigators Insurance Company. G&P Schick, Malcom D. Schick and Sean Edward Smith, for Defendant and Respondent ProWorks, Inc.
Michael Favreau and Favreau's Custom Woodworking, Inc., (FCW) were denied coverage by Navigators Insurance Company (Navigators) for claims made against them in an underlying construction defect lawsuit. In this case, Favreau and FCW sued both Navigators and Proworks, Inc. (Proworks)—the broker that assisted them in obtaining the Navigators' policy—alleging various causes of action arising out of that denial of coverage.
Navigators successfully moved for summary judgment based on its cross-complaint alleging rescission of the insurance policy. Proworks also successfully moved for summary judgment, arguing plaintiffs had produced no evidence it made a material misrepresentation about the scope of the Navigators policy to Favreau and FCW.
Favreau and FCW appealed from both judgments, and those appeals were consolidated. As against Navigators, Favreau and FCW contend the trial court erred in granting summary judgment because appellants raised a triable issue of fact about whether Navigators waived its right to rescind the policy, and also about the grounds for rescission. We disagree.
Favreau's and FCW's waiver argument is based on the assertion that Navigators' rescission of the policy was based on the same facts it relied upon in denying coverage in the underlying case. Again we disagree. As Navigators points out, its denial of coverage for the underlying action was based on the fact that the work done by Favreau and FCW which gave rise to the underlying lawsuit fell outside the scope of the policy's coverage. Navigators' subsequent rescission of the policy, on the other hand, was based on false statements made by Favreau and FCW in applying for the policy. Those are not the same facts. In any event, even if Favreau and FCW's contentions were well-taken, the mere passage of time would not establish a waiver. Waiver requires some act inconsistent with the intent to rescind, or some reliance by the opposing party that is sufficient to estop a rescission. Favreau and FCW made no such showing here.
Appellants' claimed disputes of fact about the grounds for rescission fare no better. FCW was engaged in several projects that qualified as either structural remodels or new construction in the years before it applied for the relevant policy from Navigators. It was asked about such work on the policy application and failed to answer truthfully. When applying for the relevant policy, Favreau himself described this job as "new construction." Their other defenses require either misreading or unreasonably construing the questions asked. Those strategies do not raise triable issues.
We consequently affirm the judgment entered in favor of Navigators.
As against ProWorks, Favreau and FCW contend the trial court erred in granting summary judgment because there was a triable issue of fact about whether Favreau reasonably relied on ProWorks to ensure he had continuing coverage for jobs involving new residential construction. Once again, we must disagree.
Favreau's and FCW's argument depends upon its ability to establish that ProWorks had a special duty to ascertain what coverage FCW needed—indeed, Favreau explicitly states he relied on ProWorks to do so—but they have failed to make the showing necessary to demonstrate that ProWorks undertook such a duty. We consequently also affirm the judgment entered in favor of ProWorks.
FACTS
FCW is a corporation solely owned by Favreau. Navigators began insuring FCW in November 2007, through an Artisans Contractors Program administered by Navigator's agent. That program serves specific trade contractors including cabinetmakers. It excludes general contractors and construction managers. FCW was represented by ProWorks, an insurance broker, in obtaining the insurance policy from Navigators. The initial policy described FCW's business as "Carpentry - Interior."
FCW renewed its Navigators policy for the last time in 2011. The renewal application included a provision under the heading "Special Conditions," which indicated FCW was paying a lower premium because "no new residential construction work prior to certificate of occupancy is allowed." (Capitalization omitted.)
The application represented that FCW "is a licensed contractor performing residential and commercial cabinetry and wood shop operations," that the "value of its largest current or planned job" was $2600, and that the value of its largest job in the past three years was $3750. The application also represented that 100 percent of FCW's business was "non-structural remodel," and that 0 percent of its business was new construction or "structural remodel." It represented that FCW's annual gross receipts were $150,000.
The application included, among others, these "eligibility questions":
"1. Is the applicant currently performing any work involving new residential properties prior to the certificate of occupancy or does the applicant plan to in the future?"FCW answered "No" to each of these questions.
"2. Other than remodeling, does the applicant act in the capacity of a General Contractor, Builder, Construction Manager, Project Manager or Developer?"
"12. Has the applicant performed or completed any new construction involving, related to, or about the premises of custom homes prior to the certificate of occupancy?"
"13. In the past 2 years has the applicant built or is the applicant currently building any structures as a GENERAL CONTRACTOR (ground up construction) or DEVELOPER, or performed work as a CONSTRUCTION MANAGER or are there any plans to do so in the next year?"
The application also included a section titled "Trade Specific Eligibility Questions." FCW was instructed to answer "No" if it had not performed, supervised, or subcontracted several listed activities in the past 10 years, but to answer "Yes" if it had "or will perform, supervise, or subcontract [any of those] activities." (Italics added.) For "Waterproofing," FCW answered "No."
At the end of the application, just above Favreau's signature, was a boxed "WARNING:" "State law requires complete and truthful information by an application for insurance. That includes providing any information that would be material to your business organization. Your failure to provide truthful answers and all material information can result in the insurance company electing to rescind your policy. This means they will not be responsible for any claims which are presented. To avoid such a situation, answer all of the foregoing questions truthfully and completely."
In April 2013, Christopher and Theresa Ruiz initiated a lawsuit against Favreau, a company called Favreau's Construction Management—a fictitious business name established by Favreau—as well as FCW. The complaint alleged multiple causes of action including fraudulent inducement of contract, negligent misrepresentation, breach of warranty and fraud, and breach of contract; every claim related to the construction of their new custom home in 2011 and 2012. More specifically, they alleged that Favreau induced them to hire him to build their custom home through various misrepresentations and false promises about his licensure, his qualifications, and the qualifications of the subcontractors he would hire to work on the project. The Ruizes also alleged FCW engaged in a "civil conspiracy" with Favreau and Favreau's Construction Management to commit those misdeeds.
The plaintiffs also alleged that Favreau and Favreau's Construction Management breached their contract by failing to properly supervise and coordinate the work on their house in a professional and workmanlike manner, which resulted in various defects and deficiencies, and that FCW breached the obligations it owed to them as third party beneficiaries of FCW's contract with Favreau's Construction Management. Finally, the Ruizes alleged that all defendants were negligent in constructing their home.
Favreau and FCW tendered the Ruiz lawsuit to Navigators for defense and indemnity under the terms of the policy. According to their complaint in this action, they contend coverage was established by the fact that the Ruiz lawsuit included "allegations of 'property damage' caused by Favreau and FCW for work on cabinetry that was performed off-site at FCW's shop located in Anaheim."
Navigator's initial response to the tender was a reservation of rights letter, in which it noted the complaint suggested the claim arose out of "the new construction of a single family home" and "the complaint states th[at] Favreau's may have been the general contractor or a construction manager." In its letter, Navigators highlighted policy exclusions for "Construction Management for a fee" and for construction of new homes as a general contractor or developer.
In June 2014, after conducting an investigation of the claim, Navigators formally denied coverage because (1) the policy excluded coverage for the expense of repairing, replacing or removing FCW's own work, (2) the policy excluded any construction management performed for a fee (and does not list Favreau's Construction Management as an insured); and (3) the policy excluded work performed on new construction of a dwelling prior to the certificate of occupancy. Navigators seemingly relied on this policy exclusion language as the primary reason for denying coverage, explaining that the determination was based on "the invoices provided by your counsel and a copy of the certificate of occupancy."
The Ruiz lawsuit went to trial in 2016, without Navigators' further involvement. In April 2016, the court issued its statement of decision, ruling in favor of the Ruizes, and against Favreau and his companies. In its ruling, the court referred to the underlying project as "an extensive remodel of the entire structure" and "essentially [a] rebuild" of the Ruizes' home. The court found that Favreau and Favreau's Construction Management were one and the same, and that Favreau induced the Ruizes to hire him by making several false representations about his experience and qualifications. The court found that the Ruizes had paid Favreau $286,515, and ordered Favreau to disgorge that entire amount because he was not a licensed general contractor.
The court found that FCW was a separate entity from Favreau, and that the Ruizes had paid FCW a separate $107,500. The court ordered FCW to disgorge that amount as well, because FCW's license was suspended for failure to maintain workers compensation insurance. That is the sole liability finding made by the trial court against FCW. Although the court found that the quality of the work performed by both Favreau and FCW was "below the promised standard," it found that only Favreau breached his contract.
The court also found that Favreau was liable for fraud and deceit since he hired unlicensed subcontractors, submitted fraudulent billings, took kickbacks, and produced work of inferior quality that did not conform with the plans. The court awarded the Ruizes $700,000 in damages, measured by the diminution in value of the home. The court awarded a further $700,000 in punitive damages against Favreau.
The court concluded the Ruizes did not meet their burden of proving their causes of action for conspiracy or negligence.
In June 2016, two months after the court issued its statement of decision, Favreau and FCW filed this case against Navigators. They also sued ProWorks, alleging it breached its duty to them because FCW "specifically requested coverage for new custom residential home construction" and "Proworks represented that it would obtain such requested coverage, and continued to represent that it would procure a policy with such coverage upon renewal of the policies."
One month after filing their complaint, in July 2016, Favreau and FCW filed for bankruptcy. In January 2017, the trial court held its first status conference, noting the case was not yet at issue. The parties reported that Navigators intended to file a cross-complaint seeking rescission of the insurance policy, and agreed that Favreau and FCW would not seek Navigators' default while it was seeking relief from the automatic stay issued in Favreau's and FCW's bankruptcy. The parties later entered into a formal stipulation reflecting their agreement, which the court entered as an order.
In October 2017, Navigators filed its answer and cross-complaint, and promptly moved for summary judgment. Navigators sought summary judgment based solely on its claim of rescission, as reflected in both its cross-complaint and its "Thirty-Fourth affirmative defense." Navigators claimed rescission was justified based on various misrepresentations made in FCW's 2011 policy application, including material misrepresentations regarding its past—and planned—work on new residential construction before issuance of a certificate of occupancy; the size of its planned projects, the fact that its principal intended to act as construction manager on a job it was involved in, and its participation in waterproofing work.
Favreau and FCW complain about what they contend was a "sixteen month" delay between the date they filed their complaint against Navigators in June 2016, and Navigators' filing of its cross-complaint for rescission in October 2017. We find the claim disingenuous. Favreau and FCW never acknowledge the primary role that their bankruptcies played in causing that delay, nor even acknowledge that the bankruptcy filings occurred. Nor do they acknowledge that Navigators announced its intention to seek rescission at the first status conference. All of the documents relevant to those events are omitted from their lengthy appellants' appendix.
Favreau and FCW assert that "Navigators raised no other coverage defenses besides rescission." But Navigators' answer asserted 34 affirmative defenses other than the one alleging rescission of the policy.
Appellants' opposition to Navigators' motion focused primarily on disputing the grounds for rescission. It asserted that Navigators had waited "for over 4 years, and now seeks to rescind based on the very same information it had to deny the Claim regarding FCW's purported work 'prior to the certificate of occupancy.'" It also argued the doctrine of laches could provide a basis for enforcing a waiver of Navigator's right to rescind without analyzing the doctrine.
The trial court concluded summary judgment was warranted. The court noted Favreau's own deposition established that he understood FCW would be performing "'new construction of a single family residence'" on the Ruiz home. The court also concluded FCW had misrepresented its intention to engage in waterproofing work, and that it had misrepresented the value of its largest planned project as $2600. As to the latter, the court observed that the cost of the cabinetry on the Ruiz home was originally estimated to be more than $87,000, and FCW later invoiced the Ruizes' nearly $70,000 for the cabinets. The court rejected Favreau's claim that he reasonably construed the "value" of a job as the amount of "profit" FCW earned from it. The court characterized that argument as bordering "on [the] frivolous."
The court also rejected appellants' claim of waiver, finding that Navigators had no duty to investigate possible rescission of a policy, "instead of or in addition to denying coverage at the time of tender," in order to avoid a waiver of the right to rescind.
ProWorks' summary judgment motion relied on the fact that it submitted insurance proposals to FCW for each policy year, and that for every year FCW was insured by Navigators—2007 through 2011—the proposals specifically stated that "new residential construction" was excluded from policy coverage. Favreau and FCW accepted each of those proposals and the policies were issued in conformity with them. Additionally, the proposals accepted by Favreau and FCW for policy years 2010 and 2011 specified that FCW engaged in no work on new residential construction.
Although Favreau and FCW attempted to raise a triable issue of fact by asserting that ProWorks' principal had assured him in 2007 that the Navigators' policy proposed for that year would provide the same coverage as the policy ProWorks obtained for FCW from a different insurer in 2006—which included coverage for new residential construction—the court concluded that assertion did not demonstrate a material dispute of fact. Consequently, the court granted ProWorks motion as well.
DISCUSSION
1. Summary Judgment Standards
Any party to an action may move for summary judgment. (Code Civ. Proc., § 437c, subd. (a); Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826 (Aguilar).) The object of the summary judgment procedure is "to cut through the parties' pleadings" to determine whether trial is necessary to resolve their dispute. (Aguilar, at p. 843.)
"A party may move for summary adjudication as to one or more causes of action within an action, one or more affirmative defenses, one or more claims for damages, or one or more issues of duty . . . ." (Code Civ. Proc., § 437c, subd. (f)(1).) "A motion for summary adjudication may be made by itself or as an alternative to a motion for summary judgment and shall proceed in all procedural respects as a motion for summary judgment." (Id., subd. (f)(2).)
"[T]he party moving for summary judgment bears an initial burden of production to make a prima facie showing of the nonexistence of any triable issue of material fact." (Aguilar, supra, 25 Cal.4th at p. 850.) "A prima facie showing is one that is sufficient to support the position of the party in question." (Aguilar, at p. 851.) A defendant moving for summary judgment may satisfy her initial burden either by producing evidence of a complete defense or by showing the plaintiff's inability to establish a required element of the case. (Code Civ. Proc., § 437c, subd. (p)(2); Aguilar, at p. 853.)
If a moving defendant makes the required initial showing, the burden of production shifts to the plaintiff to make a prima facie showing which demonstrates existence of a triable issue of material fact. (Code Civ. Proc., § 437c, subd. (p)(2); see Aguilar, supra, 25 Cal.4th at p. 850.) If the plaintiff opposing summary judgment presents such evidence the motion must be denied. (Aguilar, at p. 856.)
In evaluating the summary judgment motion and any responsive opposition, the trial court "must consider all of the evidence and all of the inferences drawn therefrom." (Aguilar, supra, 25 Cal.4th at p. 856.) The moving party's evidence is strictly construed, while the opponent's is liberally construed. (Id. at p. 843.)
On appeal, we review the summary judgment de novo. (Aguilar, supra, 25 Cal.4th at p. 860.) "In undertaking our independent review of the evidence submitted, we apply the same three-step analysis as the trial court." (Bono v. Clark (2002) 103 Cal.App.4th 1409, 1431.) "First, we identify the issues framed by the pleadings. Next, we determine whether the moving party has established facts justifying judgment in its favor. Finally, if the moving party has carried its initial burden, we decide whether the opposing party has demonstrated the existence of a triable, material fact issue." (Id. at p. 1432.)
2. Summary Judgment in Favor of Navigators
A. Waiver of the right to rescind insurance policy
Favreau and FCW first contend there are triable issues of fact pertaining to whether Navigators waived its right to rescind the policy by unreasonably delaying its investigation of grounds for rescission and its assertion of the right to rescind. We cannot agree.
"A misrepresentation or concealment of a material fact in connection with an application for insurance is grounds for rescission of the policy." (Superior Dispatch, Inc. v. Insurance Corp. of New York (2010) 181 Cal.App.4th 174, 191 quoting Ins. Code, §§ 331, 359; O'Riordan v. Federal Kemper Life Assurance Co. (2005) 36 Cal.4th 281, 286- 87.) "[A]n actual intent to deceive need not be shown." (Thompson v. Occidental Life Ins. Co. (1973) 9 Cal.3d 904, 916.)
As this court explained in LA Sound USA, Inc. v. St. Paul Fire & Marine Ins. Co. (2007) 156 Cal.App.4th 1259, 1270-1271, "'"An insurer does not waive its right to rescind a policy on the ground of false representations if it was unaware of the falsity of those representations."' [Citation.] Also, 'an insurer has the right to rely on the insured's answers to questions in the insurance application without verifying their accuracy.'"
As explained in DuBeck v. California Physicians' Service (2015) 234 Cal.App.4th 1254, 1265 (DuBeck), the "test for waiver in the context of insurance contracts comports with the general rule for finding a waiver: '"In general, to constitute a waiver, there must be an existing right, a knowledge of its existence, an actual intention to relinquish it, or conduct so inconsistent with the intent to enforce the right as to induce a reasonable belief that it has been relinquished."'. . . [¶] Waiver is ordinarily a question for the trier of fact; '[h]owever, where there are no disputed facts and only one reasonable inference may be drawn, the issue can be determined as a matter of law.'" (Italics added.) In DuBeck, the court concluded that the insurer waived its right to rescind the policy because it made an earlier decision to cancel the policy, rather than rescind it, based on the same misrepresentation it asserted as the basis for rescission. (See also Pierson v. John Hancock Mut. Life Ins. Co. (1968) 262 Cal.App.2d 86, 91 ["An insurance company will be deemed to waive any ground which would otherwise entitle it to rescind a policy or treat it as forfeited when, despite knowledge of the facts giving it the option, it impliedly recognizes the continuing effect of the policy"].)
Favreau and FCW have not raised a triable issue of fact on the waiver issue. When Navigators denied the claim in June 2014, there is evidence that they were aware the value of the Ruiz job exceeded what FCW had represented was its largest job—by a significant margin—and that the job involved new construction, which was excluded from the policy. At that time Navigators had copies of both the FCW invoices and the certificate of occupancy for the Ruiz home.
However, there is no evidence that Navigator then knew that FCW had already been planning to perform this work when it submitted its policy application. To be sure, Navigators had some reason to suspect that was the case, because it also had a copy of the Ruiz complaint, which alleged that Favreau was committed to acting as construction manager on the project before the application was submitted. But those allegations had not yet been proven, and Navigators could not rescind the policy based solely on an unsupported third party assertion against its insured.
Favreau and FCW do not argue that Navigators engaged in any conduct inconsistent with the right to rescind after learning of the facts they relied upon to deny coverage. To the contrary, they assert that Navigators waived its right to rescind by doing nothing when it had a legal duty to investigate grounds for rescission and failed to do so. We are not persuaded.
Favreau and FCW base their duty to investigate argument on three authorities which purportedly establish that duty: Insurance Code sections 336 and 790.03, subds. (h)(3-4), and Barrera v. State Farm Mut. Automobile Ins. Co. (1969) 71 Cal.2d 659, 684 (Barrera).
Section 336 provides that an insurer may waive its "right to information of material facts . . . by neglect to make inquiries as to such facts, where they are distinctly implied in other facts of which information is communicated." (See West Coast Life Ins. Co. v. Ward (2005) 132 Cal.App.4th 181, 192-193.) However, that rule, which is contained in a Chapter of the Insurance Code titled "Negotiations Before Execution" (Ins. Code, Division 1, Part 1, Chapter 3, §§ 330-361) applies to the application process, and essentially binds the insurer to knowledge of whatever material facts are "distinctly implied" in the information provided by the prospective insured, prior to issuance of the policy, if the insured neglects to follow-up. Nothing in section 336 creates or implies any ongoing duty of investigation after the policy is issued.
Anaheim Bldrs. Supply, Inc., v. Lincoln Nat. Life Ins. Co. (1965) 233 Cal.App.2d 400 (Anaheim Builders) is helpful. There the plaintiff argued that the insurer was bound by the facts that would have been disclosed in medical records that the insurer had requested, but never received, before the insurer decided to go ahead and issue the policy. The court rejected the assertion finding there was nothing in the facts disclosed by the insured to suggest the existence of the information that would have been learned from the records had the insurer seem them before issuing the policy.
Favreau and FCW also rely on Insurance Code section 790.03, subd. (h)(3-4) to establish an insurer's duty "to make a prompt investigation of any grounds for denying coverage." Insurance Code section 790.03, subd. (h) (section 790.03(h)) lists various unlawful claims settlement practices which are a basis for the imposition of statutory penalties by the Insurance Commissioner. (Moradi-Shalal v. Fireman's Fund Ins. Companies (1988) 46 Cal.3d. 287, 304.) The statute establishes no privately enforceable rights. (Ibid. ["Neither section 790.03 nor section 790.09 was intended to create a private civil cause of action against an insurer that commits one of the various acts listed in section 790.03, subdivision (h)"].)
But even if section 790.03(h) were privately enforceable, Favreau and FCW have made no showing that the specific standards they rely upon were violated by Navigators. Section 790.03, subdivision (h)(3), addresses an insurer's "Fail[ure] to adopt and implement reasonable standards for the prompt investigation and processing of claims arising under insurance policies" and section 790.03, subdivision (h)(4), addresses an insurer's "Fail[ure] to affirm or deny coverage of claims within a reasonable time after proof of loss requirements have been completed and submitted by the insured."
Only the latter provision applies to the insurer's handling of an individual claim, and it says nothing to suggest an insurer might waive its right to rescind a policy if it unreasonably delays in affirming or denying coverage. Favreau and FCW complain that Navigators took an entire year to formally deny their claim but they provide no context for the assertion. When the delay is understood in its proper context that delay provides no basis for the relief sought by appellants.
Finally, Barrera, supra, 71 Cal.2d 659, imposes a duty on an automobile liability insurer to promptly check the applicant's driving record with the DMV, or forfeit the right to base a claim of rescission on any facts that would have been discovered by doing so. The Supreme Court based its analysis on the fact that our state's public policy requiring that drivers obtain liability insurance is based in part on the need to protect other drivers, and that checking an applicant's driving record is an act an insurer can easily accomplish at a modest cost (at that time, 25 cents.) (Id, at p. 668.) Allowing an insurer to forego that inquiry until after the insured has injured a third party, and then using the information later learned to rescind the policy, undermines public policy by increasing the number of effectively uninsured drivers on the road. Barrera's analysis has no application here.
We recognize the general rule that "delay in seeking rescission may result in forfeiture of the right to rescind where the delay results in prejudice to the other party." (DuBeck, supra, 234 Cal.App.4th at p. 1264.) But Favreau and FCW do not offer any evidence suggesting they were prejudiced by Navigators' failure to assert rescission until they filed their claim for bad faith against it. Nor do they claim that they were misled by Navigators' conduct or that they would have acted differently had they known Navigators might claim rescission.
For all of the foregoing reasons, we conclude Favreau and FCW have failed to raise a triable issue of fact on the issue of whether Navigator's waived its right to rescind the 2011 policy.
B. Misrepresentations Justifying Rescission
Favreau and FCW also contend that they demonstrated a triable issue of fact as to whether each of the application misrepresentations relied upon by Navigators was actually untrue. Those misrepresentations were (1) FCW performed no work on new homes prior to issuance of a certificate of occupancy in the years before the 2011 application; (2) FCW knew, at the time it submitted the 2011 policy application, that it planned to perform work on a new residential property prior to issuance of the certificate of occupancy during the policy period; (3) FCW knew it would be performing work on projects with a value substantially in excess of $2,600 during the policy period; and (4) FCW knew it would be performing waterproofing work.
Navigators also asserted that FCW had an obligation to disclose that its owner, Michael Favreau, was working as a construction manager or general contractor, but does not rely on that assertion on appeal.
Navigators relied on Favreau's deposition testimony to demonstrate that FCW had been involved in at least three new residential construction projects before it applied for the 2011 policy. One was a home that became Favreau's own residence, built in 2006-2008, during the term of FCW's policy with Navigators. Favreau described the project as involving a complete tear-down of the existing home, including the concrete foundation. FCW was hired to build the cabinetry, entertainment center, custom closets and a wine cellar. It was paid for the work. The certificate of occupancy was issued some time in 2008.
Favreau also testified that in 2009, he became the "partner" of a general contractor, Charlie Bogner, and that they "built a couple of houses together." Favreau and Bogner initially agreed to purchase the first one of the two properties, located next door to Favreau's own, with the intention to redevelop it for a subsequent purchaser. During the period of 2010-2011, they demolished the home down to the concrete pad and then rebuilt it. FCW was hired to do the kitchen cabinets on the project.
Favreau further testified that he and Bogner partnered on the "complete remodel," of a second home, including structural elements, during the same general time frame—and FCW was hired to build and install the cabinets on that project as well.
In a declaration filed in support of his opposition to the summary judgment motion, Favreau concedes that FCW "was used to build the cabinets and other millwork" on the two custom homes identified by Navigators as having been rebuilt in the 2010-2011 time period. However, he asserts that in both cases "the cabinets and millwork w[ere] designed and completed in [FCW's] shop," and were later installed "after the homes themselves were fully built, water proofed, painted and secured." Neither the location of the cabinet and millwork fabrication, nor the fact that the work may not have been completed until after a certificate of occupancy was issued for the property, establishes that FCW was not engaged in "new construction involving or related to . . . the premises of custom homes prior to the certificate of occupancy." That is the question that was posed in the application. Favreau's declaration is insufficient to create any dispute of fact over whether FCW misrepresented in the 2011 application that no part of its work included "new construction" or "structural remodel[s]."
Favreau emphasized in his declaration that the first of the custom home projects identified by Navigators in its motion was his "personal residence," built in 2008, and that he was the "owner-builder" on that project, but not the general contractor. Neither of those assertions negates the fact that FCW—a separate legal entity from Favreau—was hired and paid to do work on the new home prior to issuance of a certificate of occupancy.
As to the other misrepresentations, Favreau and FCW argue triable issues of fact remain. For example, FCW denies that at the time it submitted the 2011 policy application, it planned to perform work on a new residential property prior to issuance of the certificate of occupancy during the policy period. But Navigators demonstrated in its motion that Favreau submitted his proposal to manage the construction of the Ruizes' new home in March of 2010. And among the line items proposed at that time was "painted cabinetry per our plans and specs" at a cost of $87,869. Then, in March of 2011 - seven months before Favreau signed the 2011 insurance application on behalf of FCW - Favreau signed a contract with the Ruizes on behalf of Favreau's Construction Management for "services in connection with the new construction of a single family residence."
A year later, in April of 2012, FCW entered into its own formal subcontract with the Ruizes, for cabinetry and millwork in the amount of $69,350, which specified that the work was associated with "new construction of a single family residence." And between April and November 2012, FCW invoiced the Ruizes for a variety of services, including installing windows and doors, waterproofing the doors and windows and the perimeter of the house.
Despite all of this, Favreau and FCW contend there are triable issues of fact about whether FCW misrepresented in the 2011 policy application that it would not undertake work on new residential construction. They claim it is not clear that the Ruizes' home actually qualified as "new residential construction" for purposes of the application because the trial court in the underlying case referred to the project as an "extensive remodel of the entire structure," and never used the term "new construction." The assertion is frivolous. The nature of the project is apparent from the record. The court in the underlying case was not asked to determine whether the Ruiz project qualified as "new construction" for purposes of the policy application; its failure to characterize it as such cannot therefore be spun into an implied finding in appellants' favor.
Favreau and FCW also claim that even if they misrepresented their intention to engage in new residential construction during the policy period, there is a question of fact about whether the misrepresentation was material because such work was excluded from the policy's coverage. This contention flies in the face of the rule that "[t]he fact that the insurer has demanded answers to specific questions in an application for insurance is in itself usually sufficient to establish materiality as a matter of law." (Imperial Casualty & Indemnity Co. v. Sogomonian (1988) 198 Cal.App.3d 169, 179 (Imperial Casualty).)
The materiality of a misrepresentation or concealment is determined "solely by the probable and reasonable influence of the facts upon the party to whom the communication is due, in forming his estimate of the disadvantages of the proposed contract, or in making his inquiries." (Ins. Code, § 334; see also § 360.) This is a subjective test viewed from the insurer's perspective. (Imperial Casualty, supra, 198 Cal.App.3d at p. 181.) "Thus, a misrepresentation or concealment is material if a truthful statement would have affected the insurer's underwriting decision." (Superior Dispatch, Inc. v. Insurance Corp. of New York (2010) 181 Cal.App.4th 175, 191.)
In this case, Navigator's evidence clearly establishes that the issue of FCW's planned participation in new construction projects was material in its determination of whether it should issue the policy and, if it did, how to price it. Indeed, for what other reasons would Navigators ask the questions?
Navigators explained its thinking in this regard: new residential construction is inherently more complicated and it gives rise to a greater exposure to claims against all the contractors involved. And, as this case demonstrates, the assertion of such claims against an insured contractor may result in significant expense to the insurer. These considerations establish materiality. (See Old Line Life Ins. Co. v. Superior Court (1991) 229 Cal.App.3d 1600, 1604.) Favreau and FCW have not raised a triable issue of fact on the point.
Favreau and FCW also contend that their failure to disclose their planned waterproofing work in the Ruiz home was not a misrepresentation because the application asked only if FCW had done waterproofing "in the past 20 years." Not so. The application specifically asked if "you have or will perform . . . the . . . activit[y]."
Finally, Favreau and FCW contend they cannot be faulted for representing in the application that the "value" of FCW's "largest current or planned job" was $2,600 because the term "value" is vague. According to Favreau, he understood the "value" of a job to be the "amount of profit for each job, not the amount that FCW charges to customers." He claimed that defining "value" as "profit" is an "industry standard term." The trial court dismissed that contention as "border[ing] on frivolous." We concur.
It makes no sense that a cabinetmaker's liability insurer would inquire about how much profit a craftsman earns from a job, while expressing no interest in the overall size of that job. We reject Favreau's proposed interpretation of a job's "value," as used in the 2011 policy application, as an unreasonable one. Because he offers no other alternative interpretation, we also reject his claim of vagueness.
According to Favreau, it would be impossible to extrapolate the size of the job from the profit earned. He explained that the profit margin on his jobs can vary widely, between 15 percent and 5 percent of the overall cost, and that larger jobs often have a narrower profit margin than smaller ones.
In any event, even if we were inclined to accept Favreau's contention that the "value" of a job may have referred to the amount of profit he earned from it, he has still not raised a triable issue of fact about the truthfulness of his representation that the "value" of his largest planned job was $2,600. After asserting that "the value of FCW's average job was about $2,500 to $3,500 in profit," Favreau acknowledged that "the Ruiz job had the potential to be greater [because] it was an atypical job." As proposed by Favreau back in March of 2010, this job was anticipated to involve $87,000 worth of cabinetry—which would have meant substantially more than $4,300 profit even if calculated at FCW's thinnest margin of 5 percent. Atypical indeed.
The undisputed facts demonstrate that Favreau anticipated the Ruiz job would generate profit far in excess of $2,600 for FCW, long before he signed the 2011 insurance application on its behalf. Consequently, even if we adopted Favreau's unreasonable interpretation of "value" as meaning "profit," we would conclude his claim that the value of FCW's largest planned job was $2,600 was a significant misrepresentation.
Having concluded that Favreau and FCW raised no triable issues of fact regarding the misrepresentations relied upon by Navigators in rescinding the policy, we find no error in the trial court's decision to grant summary judgment in Navigators' favor.
3. Summary Judgment in Favor of ProWorks
FCW's negligence claim against ProWorks was based on allegations that FCW "specifically requested coverage for new custom residential home construction" and "Proworks represented that it would obtain such requested coverage, and continued to represent that it would procure a policy with such coverage upon renewal of the policies." Appellants alleged they "relied upon these defendants' advice that they had in fact obtained coverage for new custom residential home construction, and continued to have coverage for new custom residential home construction on each subsequent renewal policy.
Favreau and FCW also alleged that ProWorks assumed a duty to "review Favreau and FCW's business and Proposal Questionnaire, and expressly advise, approve, or otherwise warn Favreau and FCW of the type of policy required for the business, with the requested and required coverages." Although such a duty is not an inherent part of a broker's obligations, it may be created if the parties have "an express agreement to ensure adequate coverage or a holding out by the agent to assume a greater duty toward an insured." (Paper Savers, Inc. v. Nasca (1996) 51 Cal.App.4th 1090, 1096 (Paper Savers).)
In moving for summary judgment, ProWorks argued that Favreau's and FCW's allegations were conclusively negated by documents demonstrating that it had "obtained the exact insurance requested and approved by FCW and [Favreau]" which "contained an exclusion for new construction."
The evidence submitted by ProWorks established that it provided FCW with an insurance proposal in late 2006 that stated, under the heading "Provisions," that the proposed policy excludes (among other things) "construction of Condos, Tract Homes, Townhomes or Apartments." Consistent with that proposal, the policy issued to FCW in late 2006 by Certain Underwriters at Lloyds of London includes a "Multi-Unit Construction Exclusion" but does not appear to have any exclusions applicable to the "new construction" of an individual home.
The insurance proposal produced by ProWorks in late 2007 for the next policy period is similar in form to the 2006 proposal. However, the "Provisions" section of that proposal specifies that "construction of Condos, Tract Homes, Townhomes, Apartments, or Residential new construction are basic exclusions to your policy." (Italics added.) The proposal required that various provisions be initialed, including the "Provisions" section. Favreau returned the proposal with the section initialed.
Favreau's wife, Laura Favreau, declared that after Favreau reviewed and approved the proposals, she sometimes initialed them where indicated and returned them, at his direction.
It was in accordance with the terms of that 2007 proposal that Navigators issued a policy to FCW in late 2007. The same process was repeated for policy years 2008 through 2011. The evidence on that issue is undisputed. ProWorks annually submitted a proposal to FCW reflecting that the policy, when issued, would exclude new residential construction. The proposal was appropriately initialed, signed and returned to Proworks by FCW. The Navigators' policy was then renewed for each applicable period in accordance with the approved proposal.
The proposals for policy years 2010 and 2011 also included a section headed "Required Information," which included quantitative information about the company's business. Among other things, the required information in each proposal stated that FCW's business was 70 percent residential and 30 percent commercial or industrial, and that it was 100 percent remodeling and 0 percent new construction.
In the trial court ProWorks relied on Eddy v. Sharp (1988) 199 Cal.App.3d 858, 867, for the proposition that a proposal prepared by an insurance agent and accepted by the client is a binding contract. ProWorks argued that as a consequence of that rule, its only obligation to FCW in connection with the 2011 policy year was to obtain the insurance described in the proposal that FCW accepted, which it did.
In opposition to the motion, Favreau and FCW submitted evidence reflecting that when Favreau first spoke to ProWorks about insurance in 2006, he submitted a questionnaire that answered "Yes" to the question of whether FCW's business included "[a]ny new residential home construction," and interlineated "custom homes" right above the question. Favreau stated in his declaration that when he filled out the questionnaire in 2006, he did not believe that FCW's work qualified as "new residential construction"—a term he associated with building new homes, rather than cabinet making—but he answered "yes" out of "an abundance of caution." He swore that he wrote in the phrase "custom homes" because FCW had "done a job for a customer who had built a custom home" although he "wasn't sure if custom homes were 'new residential construction,' or really what 'new residential construction meant at all in the context of insurance."
Favreau does not claim he ever indicated to any representative of ProWorks that he did not understand the meaning of the terms used in the questions he answered. Instead, he states that because he "knew that I was not qualified to get the right insurance for FCW, . . . I relied on brokers like Proworks . . . to get the correct insurance for FCW." Favreau also stated that although he read the declarations page of the insurance policy sent to him, "as a layperson, I would not have known whether something would cause me a concern. I had relied on Proworks to get FCW a policy covering the FCW business as it was described." Favreau does not claim that he told anyone at ProWorks he expected them to determine what insurance was appropriate, or that they ever agreed to do so.
Favreau states that when he got the proposal for the 2007 policy, he was asked by ProWorks to confirm there were no changes to the business, and told that if there were no changes, to sign and return the proposal. Because there were no changes to the business and "[n]othing else in the 2007 document stood out at me as being different in any way," Favreau instructed his wife to initial, sign and return the proposal to ProWorks with payment.
Laura Favreau was also involved in those communications with ProWorks.
When Favreau received the actual policy for 2007, he understood that it was issued by a different insurance company and so he called ProWorks to inquire whether the coverage had changed. According to Favreau, he spoke to Scott Scudieri, who told him "that FCW had that same coverage as before, it was now just with Navigators instead of Lloyds." Favreau stated that he also "skimmed through the policy, but did not read it, since I wouldn't understand it anyway, and I was relying on and paying ProWorks to obtain the right coverage." He further stated "I could not understand most of the documents that ProWorks sent to me, so I just picked up the phone and talked to [Scudieri] whenever I had any questions."
Favreau stated that he repeated the "same routine" with Scudieri every year, asking him "if anything had changed," and Scudieri replied each time that "[n]othing has changed." Favreau again emphasized that "not once did anyone at Proworks ever (prior to 2014) discuss with me the definition of 'New Construction', 'New Residential Construction', 'Residential New Construction', or discuss the term 'prior to the certificate of occupancy.'"
Based on the evidence of Scudieri's repeated assurances to Favreau that FCW's insurance coverage had stayed the same from year to year, Favreau and FCW argued there was a triable issue of fact as to whether ProWorks impliedly represented to FCW that it had maintained continuous coverage for jobs involving new residential construction, throughout the entire period it was insured by Navigators.
ProWorks countered by relying on the parol evidence rule, arguing that Scudieri's alleged statements were inadmissible because they would directly contradict the provision of the successive insurance proposals which stated that the proposed policy would exclude new residential construction.
In granting the motion for summary judgment, the trial court focused on the fact that even if Scudieri's alleged assurances were admitted into evidence, they were too vague to qualify as a representation that each successive policy would include coverage for "new residential construction." As the court noted, "Favreau does not claim that Scudieri ever told him that new residential construction was or would be covered by any insurance policy. Nor would he be expected to inasmuch as Favreau represented to ProWorks that he did '0% new construction' in the 2010-2011 and 2011-12 insurance proposals."
The court also observed out that Favreau's own declaration undermined his assertion that Scudieri's alleged assurance misled him into agreeing to the 2011 Navigators policy because he would not have accepted the policy it if he had understood it excluded coverage for new residential construction. Specifically, Favreau remained adamant in his 2018 declaration that "FCW has never done 'new residential construction'" and that "[n]either building cabinets nor installing cabinets and other woodwork and millwork into a home is considered to be 'construction.'" The trial court reasoned that "[g]iven the foregoing statement, as well as Favreau's written representations (at least in 2010 and 2011), that he did '0%' new construction . . . it would mean that he expected to be charged for insurance coverage that he did not need or want."
Finally, the court reasoned that because each year's insurance policy is a separate contract (citing A.B.S. Clothing Collection, Inc. v. Home Ins. Co. (1995) 34 Cal.App.4th 1470, 1484), "the evidence as to what allegedly was said in late 2007 or early 2008 is not sufficient to raise a question of fact regarding the scope of coverage of the applicable policy for 2011-2012 . . . particularly since the ProWorks proposals for insurance . . . spelled out the exclusion for new residential construction and he affirmatively acknowledged this exclusion in writing."
Favreau and FCW contend the court erred in granting summary judgment because its "interpreted Scudieri's alleged statements to Favreau as meaning the coverage had not changed for the 2007-2008 policy," but not that it remained unchanged in subsequent years as well. As Favreau and FCW argue, "[t]he problem with this ruling is that Favreau understood Scudieri's statements to mean that FCW's coverage had not changed since the Lloyd's policies and continued to include protection for new residential construction." They consequently assert there was a triable issue of fact about whether ProWorks impliedly represented to Favreau that FCW retained that coverage under the 2011 Navigators' policy.
In making that argument, Favreau and FCW ignore the initial portion of the trial court's analysis, which focused on Favreau's unequivocal assertion that he did not believe—and indeed, through the date of his 2018 declaration has continued to deny—that FCW's work ever involved new residential construction. In light of Favreau's consistent position on this issue, as well as FCW's clear representation in both the 2010 and 2011 insurance proposals that it was engaged in no such work, we find it undisputed that Favreau never asked ProWorks to secure coverage for new residential construction. Why would he when he has so consistently denied that either he or FCW ever engaged in this type of work? Why would he seek coverage for a type of work he never did? Consequently, ProWorks had no duty, in the abstract, to obtain that coverage. (Ahern v. Dillenback (1991) 1 Cal.App.4th 36, 42-43 [agent has no duty to procure more or different insurance coverage than insured requested]; Shultz Steel Co. v. Hartford Accident & Indemnity Co. (1986) 187 Cal.App.3d 513, 522-523 [public policy militates against imposing duty on insurer to advise of availability of coverage beyond that requested by insured].)
The burden was on Favreau and FCW to raise a triable issue of fact about whether ProWorks undertook a special duty to advise him about the coverage FCW needed. He could do that be showing either "an express agreement to ensure adequate coverage or a holding out by the agent to assume greater duties than otherwise implied in the agency relationship." (Paper Savers, supra 51 Cal.App.4th at p. 1096.)
Favreau and FCW argued below that ProWorks assumed that special duty by holding itself out as being "a specialist in the field of 'difficult to place policies' including construction related insurance." But being an expert in finding insurers that are willing to provide coverage in a broad range of specialty areas—not even limited to "construction related" insurance—does not reasonably imply special expertise in determining the particular scope of coverage needed by each client within that diverse group.
Nor does any evidence in the record demonstrate that ProWorks held itself out as having that particular expertise in 2006, when Favreau began purchasing FCW's insurance through it. What Favreau relies upon is a screenshot of ProWorks Web site taken by its attorney, and the deposition of its principal, Christian Brborich, taken in 2017. Neither establishes what type of expertise ProWorks claimed in 2006. Favreau does not assert that Brborich, with whom he spoke by telephone in 2006, made any specific representations to him about ProWorks's purported expertise in determining the scope of FCW's insurance needs during their conversation. Instead, he asserts that Brborich "pitch[ed] his company on the competitiveness and expertise they had in procuring insurance for the construction industry."
Brborich testified that when he started ProWorks in 2000, his plan was to target "business owners" and that he advertised ProWorks specialized in "[h]ard to place policies." He denied advertising that ProWorks had expertise in placing insureds with 'construction related policies." At the time of his deposition, Brborich stated ProWorks "currently specializes" in "[h]ard to place" policies, with subcategories of specialization in hard to place policies in "[c]onstruction, truckers, and manufacturers."
Favreau and FCW have not raised a triable issue of fact suggesting that ProWorks held itself out to FCW as having expertise in determining the scope or type of insurance that FCW needed. What ProWorks promised was expertise in placing FCW with insurers that would cover the business; it did that.
Beyond that, "the onus [was] squarely on [Favreau] to inform the agent of the insurance he requires." (Paper Savers, supra, 51 Cal.App.4th at p. 1096.) The undisputed evidence demonstrates that Favreau and FCW failed to do that.
For all of the foregoing reasons, we find no error in the order granting ProWorks' motion for summary judgment.
DISPOSITION
The judgments entered in favor of Navigators and ProWorks are affirmed. Navigators and ProWorks shall recover their costs on appeal.
GOETHALS, J. WE CONCUR: MOORE, ACTING P. J. IKOLA, J.