No coverage existed where a building was “vacant” for more than 60 days before a theft and vandalism loss, even though the policy itself was issued less than 60 days before the loss. ( Travelers Property Casualty Company of America v. Superior Court (2013) 2013 WL 1638157)
Facts
A developer obtained a construction loan from a bank, and began construction on a multi-unit condominium complex. The bank required the developer to maintain builder’s risk insurance on the property and to have the bank (and the bank’s successors and assignees) named as a loss payee on the builder’s risk policy.
When the condominium complex was near completion, the builder’s risk policy lapsed and the developer sought a new policy. At this point, the developer represented to its insurance broker that a homeowners association had been created, and that most of the condominium units had been sold. Given those facts, the broker suggested replacing the lapsed builder’s risk policy with a condominium homeowners association policy. The developer agreed, and the broker procured from Travelers Property Casualty Company of America a condominium policy for the homeowners association.
The broker, who was one of Travelers’ appointed agents, issued a certificate of insurance naming the bank (and its successors and/or assignees) as “certificate holder,” and further stating that “[t]he certificate holder is named as mortgagee.” However, the homeowners association policy itself did not actually include a loss payable endorsement.
Shortly after the inception of the homeowners association policy, the property was damaged by theft and vandalism. The developer filed for bankruptcy and the bank assigned the loan to an investor, who foreclosed on the property. Subsequently, the investor (as the bank’s assignee) filed a claim against Travelers for the losses from the theft and vandalism. The policy excluded coverage for various losses, including theft and vandalism that occurred after the building had been “vacant” for more than 60 days before the loss. The policy further provided that a building is “vacant” unless at least 31% of its total square footage is used by the owner to conduct customary operations.
After investigating the claim, Travelers learned that no certificate of occupancy was ever issued for the condominium complex, that no units were ever occupied and that any sales that might have been pending had failed to close. Travelers denied the claim on the grounds that, at the time the loss occurred, the building had been “vacant” (as that term was defined in the policy) for more than 60 consecutive days.
The investor then sued Travelers for breach of contract and the broker and Travelers (as the broker’s principal) for professional negligence. Among other things, the investor asserted that, although the building had been vacant for 60 days before the loss, the policy itself had not yet been in effect for 60 days when the loss occurred.
Holding
The Court of Appeal held that the 60-day exclusion applied retrospectively from the date of loss, and clearly barred coverage for the claim the investor had submitted. The Court also held that the investor’s claim of negligence against the broker failed, because the broker owed no duty of care to the investor (who had purchased the loan from the bank, and who purported to be a loss payee merely by virtue of a certificate of insurance). The Court noted that, at most, the investor had a claim against the developer for failing to maintain the original builder’s risk policy with a loss payable provision.
Comment
Here, the vacancy exclusion clearly stated that the 60-day period was calculated retrospectively from the date of loss. However, some vacancy exclusions are triggered if the property is vacant ” beyond a period of sixty days,” and in some cases courts have held that the term “beyond” means the 60-day period cannot begin to run until at or after the inception of the policy.
Note that, if the policy actually had included a loss payable provision in favor of the lender, the outcome of the case might have been very different, since many loss payable provisions expressly state that they do not eliminate coverage for a lender prior to foreclosure or unless the lender otherwise has assumed management and control of the property.