Vandalism and Vacancy


Under California law there isn’t one reported opinion that interprets fire as vandalism.  For obvious reasons fire is a covered peril under the standard fire policy.  (Insurance code section 2071)

In Croskey et al., Cal. Practice Guide: Insurance Litigation (The Rutter Group 2012) 6B-26-27 it states:

[6:254]   Standard Form Fire Policy: By statute (see Ins. C. section 2070), insurance policies providing fire insurance in California property must include the standard form provisions contained in the Ins. C. section 2071 or provisions that are their substantial equivalent.  One of the provisions is that the policy insure against “all LOSS BY FIRE, LIGHTING, : [Ins. C. section 2071; see Unetco Indus. Exch. V. Homestead Ins. Co. (1997) 57 Cal. App 4th 1459, 1467, 67 CR 2d 784, 788-unless policy insures against both perils, it is “miscellaneous insurance,” not fire insurance.

Changes or variations to the standard form do not reduce the insurer’s obligations.  [See Ins. C. section 2070; Century-National ins. Co. v. Garcia (2011) 51 C4th 564, 588, 120 CR3d 541—“If application of (a) exclusion in the (policy) result in coverage that is not at least substantially equivalent to the level of protection available in the (standard form fire policy), the exclusion is to that extent invalid” (parentheses added)] (Emphasis added.)

Vandalism coverage makes no reference to fire or arson as an included peril. The interpretation of an insurance policy is a question of law.  (Waller v. Truck Ins. Exch, Inc. (1995) 11 Cal. 4th 1, 18.)  The fundamental goal of policy interpretation is to give effect the intent of the parties.  (Bank of the West v. Superior Court (1992) 2 Cal. 4th 1254, 1264.)  California courts interpret policies in such a ways as to give meaning to every provision.  (City of Atascadero v. Merrill Lynch, Pierce, Fenner & Smith, Inc. (1998) 68 Cal. App. 4th 445, 473)

The rule by which insurance policies must be read and construed first and foremost is given its “plain meaning”. i.e., the terms must be read in their “ordinary and popular sense” in the context of the policy as a whole and the circumstances of the case.  (See, e.g. AIU Ins. Co. v. Superior Court (1990) 51 Cal. 3d 807, 821-822.) “Under statutory rules of contract interpretation, the mutual intention of the parties at the time the contract is formed governs interpretation… Such intent is to be inferred, if possible, solely from the written provisions of the contract. “(Id.; see also Waller, supra, 11 Cal. 4th at p. 18)

Secondly, if the terms do not have a plain meaning and thus are ambiguous or uncertain, they must be interpreted in the sense the insurer reasonably believed the insured understood them when the policy was issued; i.e., in accordance with the insured’s “objectively reasonable expectations.”  (Bank of the West, supra, 2 Cal. 4th at pp. 1264-1265)

Finally, if, and only if, the previous rule fails to resolve the ambiguity or uncertainly, it is resolved against the insurer as the drafter of the policy.  (Powerine Oil Co., Inc. V. Sup. Ct. (2005) 37 Cal. 4th 377, 391; see Civil Code section 1654)

California courts in the past have a tendency to inter alia follow Michigan cases on fire insurance case issues of first impression.  For example, in Prudential-LMI Commercial Insurance v. Sup. Ct. (1990) 51 Cal. 3d 674, a case involving equitable tolling while an insurance claim is being negotiated, our Supreme Court looked with favor upon two Michigan cases, Ford Motor Company v. Lumbermens Mutual Casualty Co. (1982) 413 Mich. 22, 319 N.W. 2d 320 and Tom Thomas Organization v. Reliance Ins. Co. (1976) 396 Mich. 588, 242 N.W. 2d 396.  (Prudential-LMI at 688)

In Bates v. Hartford Insurance Co. of the Midwest, 787 F. Supp. 657 (2011) a Michigan federal court found that an arson fire is covered by the fire and lighting loss provision in a policy and is not included within a vacancy/vandalism exclusion.  (Id. at 662-663)  The Court noted that the insured purchased an additional coverage for damages caused by vandalism and malicious mischief, but the provision precluded coverage for vandalism-related damage if the subject property had been vacant for more than thirty days prior to the claimed loss. (Id. at 661-662)  The court concluded that arson is contemplated as a peril within the class of losses caused by fire, not by vandalism. (Id at 662-663)  Therefore, the court found that the vacancy/vandalism exclusion did not apply to the insured’s claim. (Id. at 663)

The Bates Court’s interpretation that fire is a covered peril not precluded by separate vandalism coverage is consistent with California’s statutory scheme as it applies to fire insurance coverage.   Under California law fire is a covered peril that is not excluded under vandalism vacancy exclusion.

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