FAIR PLAN VS. GARNES APPEAL

Appeal No. A143190

IN THE COURT OF APPEAL

OF THE STATE OF CALIFORNIA

FIRST APPELLATE DISTRICT, DIVISION 2

FAIR PLAN OF CALIFORNIA Plaintiff/Cross-Defendant/Respondent, vs. MARLENE GARNES, Defendant/Cross-Complainant/Appellant.

CONTRA COSTA COUNTY
HONORABLE STEVEN AUSTIN
SUPERIOR COURT NO. C1102417

APPELLANT’S FURTHER MOTION FOR JUDICIAL NOTICE;
MEMORANDUM OF POINTS AND AUTHORITIES;
DECLARATION OF COUNSEL

Kerley Schaffer LLP
J. Edward Kerley, SBN 175695
Dylan L. Schaffer, SBN 153612
1939 Harrison Street, Suite 500
Oakland, California 94612
Telephone: 510-379-5801
Telefax: 510-228-0350
Dylan@kslaw.us

Pursuant to Evidence Code §§452(c) and 459, Appellant Marlene Garnes requests the Court take judicial notice of (a) a November 12, 2014, letter from the California Department of Insurance to Elise Kline, counsel for respondent California FAIR Plan, pursuant to its authority under California Insurance Code Section 10106, rejecting FAIR Plan’s request for approval to modify its Insurance Code Section 10102 disclosure form

(Exhibit A); and (b) a June 18, 2015, letter from the California Department of Insurance to Anneliese Jivan, President of California FAIR Plan, pursuant to its authority under California Insurance Code Section 10095(f), rejecting FAIR Plan’s application to modify its dwelling policy form. (Exhibit B.)

In support of that motion, Ms. Garnes submits this motion, as well as the accompanying supporting declaration of counsel and memorandum of points and authorities.

Dated: July 15, 2015

Dylan Schaffer

Counsel for Appellant

MEMORANDUM OF POINTS AND AUTHORITIES

This case is about the proper application of Insurance Code §2051(b). Ms. Garnes’ argument on appeal is that her FAIR Plan homeowners policy has a loss settlement provision that is invalid under that statute, and that as a result, after a fire at her house in Richmond, she was deprived of more than $300,000 in policy benefits. FAIR Plan’s position is that its policy is valid under §2051(b). In resolving that dispute, this Court gives great weight to any administrative construction of the statute. See DeYoung v. San Diego, 147 Cal.App.3d 11, 18 (1983); 7 Witkin, Summary 10th (2005) Const. Law, §
127, citing cases.

Ms. Garnes very recently learned that in the midst of this litigation, FAIR Plan twice sought to obtain approval from the California Department of Insurance of the very loss settlement provision/method that is at issue in this lawsuit and is before this Court on appeal. In both instances, in formal rejection letters that are cognizable here by way of judicial notice,1 the Department of Insurance set forth its position that FAIR Plan’s reading of the relevant statutes is wrong and that its policy is invalid. The Department ordered FAIR Plan to stop using the policy.

Exhibit A: On October 8, 2014, Elise Kline, counsel for FAIR Plan, wrote to the Department of Insurance seeking permission to alter its Insurance Code §10102 form. Insurers are required to send that form to insureds for the purpose of explaining applicable coverages. The purpose of the modification would be to inform policyholders of the very loss settlement method that is at issue in this lawsuit and appeal.

On November 12, 2014, Risa Salat-Kolm, counsel for the Department, replied, formally rejecting the request, pursuant to the Department’s oversight authority under California Insurance Code Section 10106. The letter rejected any attempt by FAIR Plan to “reword its loss settlement provision to support its payment of a partial loss as a total loss in cases where it would cost FAIR more to have the damaged portion of a dwelling repaired than to pay the FAIR market value of the entire dwelling.” (Exhibit A.)

The November 12, 2014, letter thus sets forth in unambiguous terms the opinion of the Department that the loss settlement method at issue in this case violates California law, and rejects FAIR Plan’s position regarding “constructive total loss”. The letter mentions this case expressly, and refers to conversations between Ms. Kline and Ms. Salat-Kolm relating to this litigation: “In the Garnes case that we have been discussing, where a fire damaged Ms. Garnes’ kitchen and a portion of the back of the residence, I see no reason (other than financial reasons on the part of FAIR) why Ms. Garnes’ loss was not treated as a partial loss [under Insurance Code 2051(b)(2).” In other words, the letter makes clear the Department’s position that FAIR Plan’s conduct vis a vis Ms. Garnes is illegal, precisely Ms. Garnes’ position in this appeal.

The letter is relevant to the pending appeal and the Court should take judicial notice of it under Evidence Code §§452(c) and 459.

Exhibit B: In the spring of 2015, during this appeal, FAIR Plan sought approval from the Department for proposed modifications to its dwelling policy, pursuant to the Department’s authority under California Insurance Code Section 10095(f). On June 18,
2015, in a letter from Ms. Salat-Kolm to Anneliese Jivan, FAIR Plan’s president, the Department rejected the proposed changes. The Department informed Ms. Jivan that FAIR Plan’s policy is invalid because, in violation of CIC 2051(b), the “policy form contains a Loss Settlement provision that misstates how Actual Cash Value (ACV) is required to be measured for both a ‘total loss to the structure’ and a ‘partial loss to the structure.’” That, of course, is precisely Ms. Garnes’ position in this appeal.

The Department reminded Ms. Jivan that it had “advised FAIR Plan of these defects in its policy form in conversations between the Department and FAIR Plan in October 2014, and followed up with a letter dated November 12, 2014 . . . .”

Finally, in the letter to Ms. Jivan, the Department formally requested that “FAIR Plan cease utilizing this noncompliant policy form and provide us with a revised policy form that complies with the law.”
The letter is relevant to the pending appeal and the Court should take judicial notice of it under Evidence Code §§452(c) and 459.

Dated: July 15, 2015

J. Edward Kerley
Dylan Schaffer

Counsel for Appellant
Marlene Garnes

DECLARATION OF COUNSEL IN SUPPORT OF MOTION FOR JUDICIAL NOTICE

Dylan L. Schaffer declares under penalty of perjury as follows:

1. I am licensed to practice law in this state, and with J. Edward Kerley, I am counsel for Appellant Marlene Garnes.
2. I very recently became aware that in the spring of 2015 California FAIR Plan, respondent here, filed an application for approval of its modified Dwelling Fire Policy by the Department of Insurance.
3. The application, related documents, and Department rejection of the application are public documents. I obtained them online.
4 The application file reflects the fact that twice in the course of this litigation California FAIR Plan sought from the Department of Insurance approval for the specific loss settlement practice that is at issue in this lawsuit, and which is the subject of this appeal.
5. Counsel for FAIR Plan did not at any time inform me that they had attempted to obtain Department of Insurance approval for FAIR Plan’s loss settlement practice that is the subject of this lawsuit and appeal, or that the Department had expressly rejected its efforts, informed FAIR Plan that its loss settlement practice is illegal, made clear its view that the adjustment of Ms. Garnes’ claim was invalid, and barred FAIR Plan from continuing to use its dwelling policy until it reforms the very loss settlement language that is at issue in this lawsuit and appeal.
6. The application file contains letters to counsel for FAIR Plan (Exhibit A, dated November 12, 2014) and the President of FAIR Plan (Exhibit B, dated June 18, 2015), which, respectively, comprise formal Department action on FAIR Plan’s request to modify its Insurance Code §10102 form and Department rejection of FAIR Plan’s application for approval of its modified dwelling policy because of FAIR Plan’s continued use of the loss settlement provision that is at issue in this lawsuit and appeal.

Executed this 15th day of January, 2015, at Oakland California,

Dylan L. Schaffer
EXHIBIT A

STATE OF CALIFORNIA
DEPARTMENT OF INSURANCE
Legal Division, Enforcement Bureau – San Francisco

45 Fremont Street, 21st Floor
San Francisco, CA 94105
Risa Salat-Kolm
Attorney III
TEL: 415-538-4127
FAX: 415-904-5490
E-Mail: Risa.Salat-Kolm@insurance.ca.gov
www.insurance.ca.gov

November 12, 2014

Elise Klein, Esq.
Lewis Brisbois Bisgaard & Smith
221 North Figueroa Street, Suite 1200
Los Angeles, CA 900 12

SUBJECT: Your October 8, 2014

Dear Ms. Klein:

Thank you for your October 8, 2014letter to Tony Cignarale. You state, in the Introduction, that the FAIR Plan (FAIR) does not seek to change the way it pays total and partial losses, but, instead, seeks to clarify the definition of “total loss.” However, in coming up with its own definition of “constructive” loss, FAIR does intentionally change the way it pays total and partial losses.

The Department understands the financial reasons why FAIR Plan wishes to reword its loss settlement provision to support its payment of a partial loss as a total loss in cases where it would cost FAIR more to have the damaged portion of a dwelling repaired than to pay the fair market value of the entire dwelling. However, California Insurance Code (CIC) Section 2051(b) specifies that, in the case of a partial loss to the structure, the measure of recovery is the amount it would cost the insured to repair, rebuild or replace the structure minus depreciation. In other words, a partial loss is not a “constructive” total loss.

Although FAIR wishes to utilize the concept of “constructive” total loss in cases where it would cost FAIR less to pay the fair market value of homes in depressed areas than to pay to repair damage to those homes, CIC Section 2051(b) does not contemplate “constructive” total loss. Rather, in the case of total loss to the structure, FAIR must pay policy limits or fair market value, whichever is less. In the case of partial loss to the structure, FAIR must pay the amount it would cost the insured to repair, rebuild, or replace the damaged area, less depreciation, up to the.policy limit.

In your letter, you refer to Williams v. Hartford Ins. Co., 54 Cal.442, 450-51, to support the contention that a “total loss” does not mean that the property has to be utterly destroyed. Rather, the determination is whether, after the fire, the thing insured still exists as a building, whether the building still has its identity and specific character. The Department agrees with the premise that a building must no longer exist as a building in order for the building to be declared a total loss.

However, by its policy language and proposed disclosure, FAIR is seeking to change this physical standard to an economic one. In the Garnes case that we have been discussing, where a fire damaged Ms. Garnes’ kitchen and a portion of the back of the residence, I see no reason
(other than financial reasons on the part ofF AIR) why Ms. Garnes’ loss was not treated as a partial loss as, after the fire, her insured home still existed as a building and maintained its unique identity and character.

Therefore, pursuant to CIC Section 10106, the Department is not approving FAIR’s request to modify its CIC Section 10102 disclosure statement. Futiher, as noted above, it is the Depruiment’s position that ru1y policy language which results in a patiialloss being defined as a total loss and measured as fair market value is contrary to CIC Section 2051(b) and must be amended.

Sincerely,

Risa Salat-Kolm
Attorney III

EXHIBIT B

STATE OF CALIFORNIA·

DEPARTMENT OF INSURANCE

Legal Division, Enforcement Bureau – San Francisco
45 Fremont Street, 21st Floor
San Francisco, CA 94105

Risa Salat-Kolm
Attorney III
TEL: 415-538-4127
FAX: 415-904-5490
E-Mail: Risa.Salat-Kolm@insurance.ca.gov
www.insurance.ca.gov

June 18, 2015

Ms. Anneliese Jivan
President-CA FAIR Plan
3435 Wilshire Boulevard, Suite 1200 Los Anges, CA 90010

SUBJECT: FAIR Plan’s Policy Form

Dear Ms. Jivan:

Pursuant to California Insurance Code Section 10095(f), FAIR Plan’s Plan of Operation is subject to the approval of the Insurance Commissioner. In accordance with Division I, Section VII of Fair Plan’s Plan of Operation, all policies issued by Fair Plan are to be on standard policy forms and may only be modified with permission of the Commissioner. The Department has reviewed FAIR Plan’s non-standard policy form submitted for approval under filing# 15-3405 and hereby rejects this filing and this policy form. Therefore, this policy form is not permissible to be issued by Fair Plan. While the Department is still reviewing several portions of the policy form, the policy form is rejected for the following reasons:

The submitted policy form contains policy language that is not in compliance with California law, specifically California Insurance Code (CIC) section 2051. The policy form contains a Loss Settlement provision that misstates how Actual Cash Value (ACV) is required to be measured for both a “total loss to the structure” and “partial loss to the structure”. FAIR Plan’.s policy form language states:
Loss Settlement. Subject to Condition 2 (Insurable Interest and Limit of Liability), we will pay the following amounts for covered property losses:

a. Coverages A and B Losses: For losses to covered property described in Coverages A and/or B, the following rules apply:
(1) Total Loss: If the greater of the cost either to reconstruct or replace the damaged part of the property exceeds .the actual cash value before the loss of all covered property described in Coverages A and B, we will pay such actual cash value.
(2) Partial Loss: In the case of losses that are not described in (1) above, we will pay the least of the following amounts:
(a) The lower of the cost either to reconstruct or replace the damaged part of the property, less a reasonable amount for depreciation; or
(b) The actual cash value before the loss of the damaged property.

In addition, Fair Plan’s definition of “depreciation” (also under its Loss Settlement provision) is not in compliance with CIC Section 2051 (b)(2). This statute only permits “physical” depreciation or depreciation caused by wear and tear. Therefore, the inclusion of “exhaustion” and “obsolescence” is not permissible.

The Department advised Fair Plan of these defects in its policy form in conversations between the Department and Fair Plan in October 2014, and followed up with a letter dated November 12, 2014, attached for your convenience.

We again request that Fair Plan cease utilizing this noncompliant policy form and provide us with a revised policy form that complies with the law. Please contact the undersigned if you have questions or wish to discuss this matter with us.

Cordially,

Risa Salat-Kolm