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Freedman v. State Farm Insurance Co.

May 5, 2009

BERNARD FREEDMAN ET AL., PLAINTIFFS AND APPELLANTS,
v.
STATE FARM INSURANCE COMPANY, DEFENDANT AND RESPONDENT.



APPEAL from a judgment of the Superior Court of Los Angeles County. Judith Chirlin, Judge. Affirmed. (Super. Ct. No. BC348130).

The opinion of the court was delivered by: Rothschild, J.

CERTIFIED FOR PUBLICATION

A contractor remodeling a bathroom in Bernard and Gail Freedman's home drove a nail through a pipe while hanging new drywall. The nail in the pipe apparently caused no leak at the time and went unnoticed until years later, when corrosion around the nail caused a leak and extensive water damage. The Freedmans' insurer, State Farm Insurance Company, denied their claim. The Freedmans filed suit, and the parties filed cross-motions for summary judgment on the basis of jointly stipulated facts. The superior court granted State Farm's motion, denied the Freedmans', and entered judgment for the defense.

The Freedmans timely appealed, arguing that the contractor's negligence is the efficient proximate cause of their loss and that it is a covered peril, so the loss is covered. We conclude, however, that the Freedmans' argument is based on a form of analysis that has been superseded by the Supreme Court's decision in Julian v. Hartford Underwriters Ins. Co. (2005) 35 Cal.4th 747 (Julian). We therefore affirm.

BACKGROUND

The parties submitted their cross-motions for summary judgment on the basis of the following stipulated facts. The Freedmans own a home insured under a homeowners policy issued by State Farm. The policy provides "all-risk" coverage for the Freedmans' dwelling (Section I, Coverage A) and "specified-peril" coverage for their personal property (Section I, Coverage B).*fn1 The policy states: "We insure for accidental direct physical loss to the property described in Coverage A, except as provided in SECTION I -- LOSSES NOT INSURED."

Paragraph 2 of Section I -- Losses Not Insured provides: "We do not insure for any loss to the property described in Coverage A which is caused by one or more of the items below, regardless of whether the loss occurs suddenly or gradually, involves isolated or widespread damage, arises from natural or external forces, or occurs as a result of any combination of these: [¶]... [¶] g. wear, tear, marring, scratching, deterioration, inherent vice, latent defect or mechanical breakdown; [¶] h. corrosion, electrolysis or rust[.]"

Paragraph 4 of Section I -- Losses Not Insured provides: "We do not insure under any coverage for any loss which is caused by one or more of the items below, regardless of whether the event occurs suddenly or gradually, involves isolated or widespread damage, arises from natural or external forces, or occurs as a result of any combination of these: [¶]... [¶] c. Water Damage, meaning: [¶]... [¶] (4) continuous or repeated seepage or leakage of water or steam from a: [¶]... [¶] (c) plumbing system...."

Paragraph 5 of Section I -- Losses Not Insured provides: "We do not insure for loss described in paragraphs 2., 3. and 4. immediately above regardless of whether one or more of the following: (a) directly or indirectly cause, contribute to or aggravate the loss; or (b) occur before, at the same time, or after the loss or any other cause of the loss: [¶] a. conduct, act, failure to act, or decision of any person, group, organization or governmental body whether intentional, wrongful, negligent, or without fault; [¶] b. defect, weakness, inadequacy, fault or unsoundness in: [¶]... [¶] (2) design, specifications, workmanship, construction, grading, compaction; [¶]... [¶] of any property (including land, structures, or improvements of any kind) whether on or off the residence premises...." We will refer to these provisions in paragraph 5 as the "third-party negligence" provisions of the Freedmans' policy.

In or about 2000, the Freedmans' home was repiped, and an upstairs bathroom was remodeled, including the replacement of drywall to cover the new piping. On or about August 12, 2005, "extensive water leakage was discovered in the upstairs bathroom wall. One wall was discolored and wet. The drywall fell apart on touch and mold was seen on pieces of the wall. The tile floor was wet and the ceiling immediately downstairs was wet and soft." When the drywall was removed, it was discovered that a nail that had been used to hang the drywall had penetrated entirely through a pipe. "The pipe was corroded around the points of entry of the nail, and water was release[d] through that area of corrosion." A damage restoration company discovered mold both upstairs and downstairs. On or about August 15, 2005, the Freedmans submitted a claim to State Farm. State Farm conducted an inspection and, on or about August 25, 2005, denied the claim.

The Freedmans filed suit against State Farm, alleging claims for breach of contract, breach of the implied covenant of good faith and fair dealing, and negligence. State Farm answered, and the parties filed cross-motions for summary judgment based on jointly stipulated facts.

The identity of the efficient proximate cause of the Freedmans' loss was not one of the stipulated facts. Rather, State Farm contended that the identity of the efficient proximate cause of the loss did not matter, because each of the possible efficient proximate causes was an excluded peril-corrosion and seepage or leakage of water were excluded, and third-party negligence was excluded whenever it interacted with an excluded peril (such as corrosion or seepage or leakage of water). The Freedmans contended, to the contrary, that the contractor's negligence in driving the nail through the pipe was a covered peril and was the efficient proximate cause of their loss.

The trial court granted State Farm's motion and denied the Freedmans', reasoning that under the stipulated facts "what [p]laintiff contends was the efficient proximate cause of the loss sued upon herein was, under the relevant State Farm policy, excluded as a [l]oss [n]ot [i]nsured." The court further concluded that "none of the resulting ...


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