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St. Mary & St. John Coptic Orthodox Church v. SBS Insurance Services, Inc.

(Because Residence Was Vacant For 60 Consecutive Days, Vacancy Exclusion in Property Policy Applied to Bar Coverage of Water Damage Claim Under Policy)

(December 2020) - In St. Mary & St. John Coptic Orthodox Church v. SBS Insurance Services, Inc., ----Cal.App.5th--- (November 23, 2020), the California First District Court of Appeal reversed the trial court's entry of judgment in favor of SBC Insurance Services ("SBC") regarding a claim for water damage sustained by a residence owned by St. Mary & John Coptic Church ("St. Mary") under property coverage afforded by a policy issued by Philadelphia Indemnity Insurance Company ("Philadelphia"). The policy was procured by SBC on behalf of St. Mary. Philadelphia denied coverage of the claim based on the vacancy exclusion in its policy, but entered into a settlement and loan receipt agreement, whereby St. Mary gave Philadelphia the right to control litigation in St. Mary’s name against SBC or third parties who might be liable for the loss in exchange for a loan of money to repair and remediate the damage sustained by the residence. The loan was to be repaid out of any recovery made against SBC or third parties. After a bench trial, the trial court found in favor of SBC and held that the vacancy exclusion was ambiguous. Essentially, the exclusion did not apply to the time period prior to the time St. Mary purchased the residence, such that the 60-day vacancy requirement could not be satisfied. The trial court reasoned that since St. Mary did not have an insurable interest in the property before it purchased the property, the 60-day requirement did not include the period before such residence was purchased and St. Mary held an insurable interest.

The parties’ dispute arose of out of the Pope of the Coptic Church requesting St. Mary to purchase a home to be used as his papal residence in the Western United States. St. Mary also intended to use the home as a residence for visiting bishops. The home was purchased on May 28, 2015. As part of the purchase, SBC placed the home under St. Mary’s commercial policy, rather than purchasing a separate homeowner’s policy for the residence. Subsequently, the home sustained water damage due to a broken pipe. The water damage was discovered on July 24, 2015, 57 days after the inception of the Philadelphia policy and the loss. St. Mary tendered the property loss to Philadelphia, which denied coverage of the claim based on the reasoning that the home had been vacant for 60 consecutive days prior to the loss. Subsequently, St. Mary filed suit against SBC after securing the loan receipt agreement with Philadelphia based on the argument that the vacancy exclusion barred coverage of the claim and SBC breached its duty of care by not securing the proper coverage of the home. The trial court entered judgment in favor of SBC finding that the vacancy exclusion did not apply to bar coverage of the loss, such that SBC did not breach its duty of care owed to St. Mary as its broker.

In reversing the trial court’s decision, the Court of Appeal held that the vacancy exclusion applied irrespective of the fact that the Philadelphia policy incepted 57 days before the loss, as the home was vacant for over 60 days from the date of loss, notwithstanding when the Philadelphia policy incepted. The Court of Appeal reasoned:

Vacancy provisions like the one at issue, which bar coverage for loss occurring in a property that is vacant for a certain period of time "before that loss or damage occurs," have been found to be clear and unambiguous in specifying that they apply retrospectively from the time of loss rather than prospectively from policy inception. In Travelers Property Casualty Co. of America Superior Court (2013) 215 Cal.App.4th 561 [155 Cal. Rptr. 3d 459] (Travelers), the court interpreted a vacancy exclusion stating, "'We will not pay for any loss or damage ... if the building where loss or damage occurs has been "vacant" for more than 60 consecutive days before that loss or damage occurs... ." (Id. at p. 575.) There, a property investor (who had purchased the condominium developer's construction loan) submitted a claim after theft and vandalism at the vacant condominium development, and the insurer denied the claim under the policy's vacancy provision. (Id. at p. 565.) The trial court found the loss was not excluded because the 60-day period ran from the date of policy inception and 60 days had not run between the inception date and the date of the loss. (Id. at pp. 575-576.) The appellate court reversed. Contrasting vacancy provisions that are triggered if the property is vacant “‘beyond a period of sixty days,’” which is prospective-looking language commencing at or after policy issuance, the policy language was clearly and unambiguously backward-looking from the date of the loss, irrespective of when the policy issued. (Id. at p. 576; accord' Gas Kwick, Inc. v. United Pacific Ins. Co. (11th Cir. 1995) 58 F.3d 1536, 1539 (Gas Kwick).)

Travelers and Gas Kwick are not on all fours, however, as neither case addressed a situation where the insured did not own the property for the full vacancy period. Nonetheless, their interpretation of similar policy language is persuasive, as they recognize that the policy language at issue does not implicitly impose limitations not set forth in the provision. The courts in Travelers and Gas Kwick rejected policy interpretations that would impose on the vacancy provisions a limitation that the 60-day period commenced only at or after policy issuance. (Travelers, supra, 215 Cal.App.4th at p. 576 ["[t]here is no limitation in the [vacancy] clause" stating that the 60-day period "must commence at or after policy issuance"]; Gas Kwick. supra, 58 F.3d at p. 1538 [vacancy provision excluded coverage where property was vacant for more than 60 days "'before that loss or damage"; rejecting insured's argument that provision was limited to period running after policy inception date].) In this case, SBC asserts that the vacancy provision is limited such that the 60-day period commences only upon the insured's ownership of the property. But the policy language does not contemplate or impose such a limitation, instead excluding coverage for losses resulting from water damage "f the building where loss or damage occurs has been vacant for more than 60 consecutive days before that loss or damage occurs." When a loss occurs, the sole inquiry is whether the building has been vacant for the prior 60 consecutive days. This language unambiguously counts backwards without regard to ownership. (See West Bend Mutual Ins. Co. v. New Packing Co. (Nov. 30, 2012, III.App.Ct., No. 1-11-1507) 2012 IL App (1st) 111507-U [2012 III. App. Unpub. Lexis 2908, pp. **15-17] [vacancy provision denying coverage for certain perils where building was vacant more than 60 consecutive days before that loss or damage occurs clearly counted backwards and included days the building sat vacant in escrow; however, insurer with the opportunity to inspect the building could not rely on the vacancy provision].)