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Richard Hall et al v. United Services Automobile Association


November 9, 2011


(Super. Ct. No. SC20080024)

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

Hall v. USAA



California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

In 2004 appellants sought insurance for their planned retirement home in Hawaii. Appellant husband expressed concern that there be sufficient coverage to rebuild the house in the event of loss, and respondent's representative assured him that respondent had the expertise to calculate the replacement value of the home based on information provided by appellant. Though evidence indicates that the replacement cost of the home in 2004 was actually $531,000, respondent calculated the replacement cost at only $285,000 and thereafter issued a policy in the amount of $253,000. The policy, which included a cost of living increase rider, was renewed annually and, at the time of the 2007 fire that destroyed the residence, had a limit of $280,000, though the replacement cost was $687,000. Appellants sued, asserting the insurer was negligent in calculating the replacement cost. The trial court granted summary judgment, finding no evidence supported a finding of duty or misrepresentation. We conclude that appellants' declaration in opposition to summary judgment raised triable issues as to whether USAA undertook a special duty to provide an accurate cost estimate and breached that duty. We reverse.


The facts can be briefly stated because the disposition of this appeal turns on a few paragraphs in the insured's declaration. Nevertheless, we provide a short lead-up to the pertinent paragraphs.

In June 2004 the insureds, Richard and Nancy Hall, purchased a homeowner's insurance policy from United Services Automobile Association (USAA) for their retirement home in Hawaii. They provided the agent the following information about the home: it was built in 1953, it was about 2,073 square feet, and it was valued at $89,000. At the insured's request, the insurer calculated the replacement cost for the home at $285,691.96. The insurer issued a policy effective August 2, 2004, through August 2, 2005, with a dwelling policy limit of $253,000. Renewal policies were issued for three subsequent policy periods until a fire occurred at the Hawaii property on August 27, 2007. At the time of the fire, the policy limit was $280,000 with a $2,800 deductible. The insurer paid the policy limit after the fire. There is evidence that the cost of replacement in 2004 would have been $531,000. The cost of replacement after the fire was $687,000.

The insureds stated a cause of action for general negligence that survived demurrer, alleging that the insurance policy limits were less than the replacement cost due to the insurer's negligence in calculating the replacement cost. According to the insureds, "USAA specifically adopted a special duty to [them] when it processed physical information about the subject residence and then provided calculations as to replacement value based upon a computer program designed for that purpose."

The insurer filed a motion for summary judgment. In a declaration filed in opposition to the motion, Mr. Hall asserted:

"2. On or about June 2004, I contacted USAA for the purpose of obtaining insurance for my home in Honolulu, Hawaii, located [at] 3802 Mariposa.

"3. When I contacted USAA, I was asked for information about my home, such as the purchase price, square footage and other physical descriptions pertaining to my home. I provided all the answers to the best of my ability and was told that this information would be used to assist USAA in their evaluation of the cost needed to replace the structure. I was assured by the USAA representative that they had the experience and expertise to accurately, adequately and professionally insure my home.

"4. Upon providing the information requested, the USAA representative told me that USAA had the experience, expertise, and the ability to calculate the replacement value of the subject residence so that we could calculate the amount of insurance coverage for my home. I specifically expressed that there be enough coverage to rebuild the house, as this was to be my retirement home and I am looking forward to this stage of my life. For this purpose I also purchased insurance to rebuild to code and include automatic cost of living increase riders. I was assured by the USAA representative that my goals would be met."

The insureds admit that they did not inquire about, express concerns about, or object to the policy limit of the policies at any time after the initial policy was issued in 2004 until after the fire in August 2007. By the time they lost their house, they could not remember the name of the agent who sold them the policy in 2004.

The loss settlement provisions permit the insurer to pay less on certain claims where the policy limit is not at least 80 percent of the full replacement cost. The policy provides, in pertinent part: "c. Buildings under Coverage A or B at replacement cost without deduction for depreciation, subject to the following: [¶] . . . [¶] (2) If at the time of loss the amount of insurance in this policy on the damaged building is less than 80% of the full replacement cost of the building immediately prior to the loss, we will pay the larger of the following amounts, but not exceeding the limit of liability under this policy applying to the building: [¶] (a) the actual cash value of that part of the building damaged; or [¶] (b) that proportion of the cost to repair or replace, without deduction for depreciation, of that part of the building damaged, which the total amount of insurance in this policy on the damaged building bears to 80% of the replacement cost of the building." (Italics added.)

The trial court granted the insurer's motion for summary judgment on the negligence claim. The court concluded: "The evidence presented by plaintiffs, even construed liberally, is insufficient to raise an inference that a special duty beyond the ordinary duty of an insurance agent was created. There is no evidence of an express agreement or a holding out by the agent that he or she would assume duties beyond the general duties of an insurance agent. There is no evidence of misrepresentation by the agent." We disagree, based on the strict parameters established under Code of Civil Procedure section 437c and an analysis of the four most pertinent cases.

DISCUSSION I Summary Judgment

"Summary judgment is a severe remedy which is to be granted with caution. [Citation.] Where a defendant moves for summary judgment, his motion will only be granted if his declarations and admissible evidence either establish a complete defense to the plaintiff's action or conclusively negate a necessary element of the plaintiff's case and demonstrate, under any cause of action, no material factual issue requires resolution by trial. [Citation.] In examining the sufficiency of declarations filed in connection with a summary judgment motion, the declarations of a moving party are strictly construed and those opposing the motion are liberally construed. [Citation.]

"Code of Civil Procedure section 437c provides a motion for summary judgment is properly granted only where 'affidavits, declarations, admissions, answers to interrogatories, depositions, and matters of which judicial notice shall or may be taken' in support of and in opposition to the motion 'show that there is no triable issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.' (Code Civ. Proc., § 437c, subds. (b), (c).)" (Paper Savers, Inc. v. Nacsa (1996) 51 Cal.App.4th 1090, 1094-1095 (Paper Savers).)

II Duty

We must start with the fundamental proposition articulated in Jones v. Grewe (1987) 189 Cal.App.3d 950 (Jones) that the "general duty of reasonable care which an insurance agent owes his client does not include the obligation to procure a policy affording the client complete liability protection." (Id. at p. 956.) As a general rule, the responsibility resides with the insured to advise the agent of the insurance he wants. (Ibid.) An insurer does not undertake a greater duty even if, as in Jones, the insured has relied on the agent for many years and the agent assures the insured that the policy is sufficient. (Ibid.)

The court in Jones reached the unremarkable conclusion that "[n]either an insurance agent nor anyone else has the ability to accurately forecast the upper limit of any damage award in a negligence action against the insured by a third party. To impose such a duty based on the pleadings in this case would in effect make the agent a blanket insurer for his principal. We fail to see where sound public policy would require the imposition of such a duty upon the agent, unless the latter has by an express agreement or a holding out undertaken that obligation." (Jones, supra, 189 Cal.App.3d at p. 957.)

The facts in Jones bear no resemblance to the facts before us. Third parties sued an insurer for negligence in failing to provide its insured with insurance sufficient to cover every conceivable eventuality, including a child falling into a swimming pool at an apartment complex. The Court of Appeal affirmed the trial court's ruling sustaining the insurer's demurrer without leave to amend.

Three cases, however, present facts very similar to the allegations of the underlying complaint coupled with the facts averred in the insured's declaration submitted in opposition to the summary judgment. In Free v. Republic Ins. Co. (1992) 8 Cal.App.4th 1726 (Free), the insured sought a homeowner's policy with coverage limits adequate to rebuild his home. (Id. at p. 1729.) The agents assured him they were. After his house was completely destroyed by fire, he discovered the property values had increased substantially in the 10 years since he had purchased the initial policy and the $141,000 policy limit was insufficient to replace his home. (Ibid.)

The Court of Appeal reversed the order of dismissal. The court cited Jones for the basic rule that an insurer has no general duty of care to advise an insured "regarding the sufficiency of his liability limits or the replacement value of his residence." (Free, supra, 8 Cal.App.4th at p. 1729.) But Jones was not dispositive in Free. The facts in Free triggered a special duty of care. Once the insurer elected to respond to an insured's inquiries, a "special duty arose requiring [it] to use reasonable care." (Ibid.)

Whereas it is impossible to accurately forecast the upper limit of any damage award in a negligence action against an insured by a third party as occurred in Jones, Free did not involve those types of uncertainties. Thus, the court concluded: "Here plaintiff sought to be protected against a very specific eventuality--the destruction of his home. It appears from the record before us that there were at least two methods by which he could have achieved his goal: (1) he could have requested a guaranteed replacement endorsement as part of his homeowners policy; or (2) he could have had the value of the building determined and a specific valuation named in the policy as provided by Insurance Code section 2052. Defendants apprised him of neither option. Nor did they decline to offer an opinion. Rather, they assured plaintiff his coverage was sufficient. Under the circumstances, defendants must be deemed to have assumed additional duties, which, if breached, could subject them to liability." (Free, supra, 8 Cal.App.4th at p. 1730.)

Similarly, in Desai v. Farmers Ins. Exchange (1996) 47 Cal.App.4th 1110 (Desai), before agreeing to purchase a Farmers insurance policy, the insured informed the agent that he wanted 100 percent coverage for the cost of repairing or replacing improvements to the property, including any increases for inflation, in the event of an earthquake, fire, or other hazard. The agent, as in Free, assured him that the policy provided "'100% coverage for the costs of repairs and/or replacement of the improvements to the property including any and all increases in costs of repair or rebuilding in the event of a loss.'" (Id. at p. 1114.) Following an earthquake and a fire, the insured sustained a total loss of $546,757. Yet Farmers refused to pay more than the policy limit of $158,734. (Id. at p. 1115.) Again, the trial court sustained the insurer's demurrer without leave to amend and the Court of Appeal reversed.

The court explained: "This is not a situation wherein an insured belatedly realized--after an accident occurred and a claim was made and denied--that he or she should have had more or different coverage. Rather, Desai demanded a particular level of coverage at the outset, before he agreed to purchase a policy. It was then represented to him that he was receiving the demanded level of coverage from Farmers, and only afterwards did he discover the coverage he purchased was not what he had demanded nor what the insurer and its agent warranted it was. This is not a 'failure to recommend more coverage' case; it is a 'failure to deliver the agreed-upon coverage' case." (Desai, supra, 47 Cal.App.4th at p. 1119.)

Replacement cost coverage was also at the center of the controversy in Paper Savers, supra, 51 Cal.App.4th 1090. The court expressly rejected the insurer's arguments that a special duty only arises if there are affirmative representations or a specific request to appraise the property. Nor did the court accept the insurer's position that an agent's misleading comments are irrelevant as long as the policy language is clear and that the insured's reliance on the agent's statements was unjustifiable as a matter of law. (Id. at pp. 1101, 1103-1104.)

The court reversed the summary judgment, explaining that "the extent of an insurance agent's duty depends on the nature of the interaction between the agent and the insured and the representations the agent made regarding coverage when discussing the policy. . . . [T]he parties give varying accounts of the factual circumstances surrounding the recommendation and purchase of the policy at issue in this case. We therefore conclude this case may not be appropriately resolved through a summary proceeding.

". . . [T]here are triable issues of fact whether [the agent] misrepresented the meaning and effect of the 'replacement cost coverage' endorsement. This factual question must be resolved to determine whether in making the representations he assumed a special duty toward Paper Savers to ensure it had adequate insurance coverage to in fact replace all the business's personal property in the event of a total loss, as he allegedly claimed. In addition, it is a factual question whether [the purchaser] reasonably relied on [the agent's] alleged negligent representations regarding the coverage he recommended, and if so, whether Paper Savers was denied the coverage [the purchaser] thought he had purchased." (Paper Savers, supra, 51 Cal.App.4th at pp. 1104-1105.)

Because Free, Desai, and Paper Savers all involved replacement cost coverage, as here, the potential coverage was finite and did not give rise to the policy concerns first advanced in Jones, wherein the court rejected the notion that an insurer should have a general duty to provide blanket coverage for a limitless number of contingencies. Homeowners, anxious to purchase enough insurance to rebuild what they might lose through calamity, often inquire about the scope of coverage provided under a replacement cost policy. And, as the facts bear out in all three cases, insurance agents take on a special duty to provide accurate information requested by the insured.

USAA makes much of the fact that the insureds did not make a specific inquiry before renewing their policy each year whether the policy limit was sufficient to cover the cost of replacement. Nor do they allege that USAA told them the policy limit was sufficient. In short, USAA argues that the insured's declaration does not assert facts with sufficient specificity to fall within the scope of a special duty framed in Free, Desai, and Paper Savers. We disagree.

Like their counterparts in these three cases, the insureds told the insurer's agent that they wanted sufficient coverage to rebuild their house. Indeed, Mr. Hall informed them that he planned to retire in the Hawaii house and wanted to make sure the policy was sufficient to achieve his goal. It is true that here, unlike in Free, Desai, and Paper Servers, the insured relied on the cost estimate prepared by the insurer to determine how much insurance would be needed to rebuild the house. As a result, the insured alleges USAA undertook a special duty to provide accurate information about the cost of rebuilding rather than, as in the earlier cases, a special duty to provide accurate information that the insurance was sufficient.

We conclude, however, that is a distinction without a difference. In all of these cases, the insureds sought information to make informed decisions about how much insurance they needed to rebuild their homes and replace their properties in case of a catastrophic loss. USAA, according to the Hall declaration, used a computer program to provide the potential insured with an estimate of how much it would cost to replace the Halls' home. Equipped with this information, the Halls could determine what policy limits would enable them to rebuild. Thus they, like the other insureds, communicated their objectives to the agent and expected accurate information upon which they could make an educated assessment of their insurance needs. If, as the Halls allege, USAA underestimated the cost of rebuilding by about $300,000 the year they bought the insurance, it may have breached its special duty to provide accurate information.

The trial court found the declaration insufficient to create a triable issue of fact because of its lack of specificity, pointing out that Mr. Hall could not name the agent with whom he spoke and had not contacted USAA annually to reassess the sufficiency of his coverage. We find neither fact dispositive as a matter of law. Whether USAA had undertaken a special duty in 2004 by holding itself out to have the expertise to provide an accurate cost estimate is not dependent on the insured's ability to name the agent who sold him the policy many years later. Nor would Hall's failure to review the policy limits on an annual basis relieve USAA retroactively of the duty, on request, to use reasonable care in preparing the facts upon which the insured could determine the amount of insurance required to accomplish his objective.

Hall's declaration may not be a model of specificity, and it may not track the allegations in Free, Desai, or Paper Savers precisely. Nevertheless, construing it liberally as we must, the declaration does create triable issues of fact -- whether USAA provided Hall with a cost estimate, whether the cost estimate was reasonable and prepared with due care, whether USAA held itself out to have the expertise to provide accurate cost estimates, and whether the cost estimate was flawed. These factual issues would then pose the ultimate legal question whether USAA had undertaken a special duty to provide an accurate cost estimate and the factual issue whether USAA had breached that duty. But as the court concluded in Paper Savers, "[g]iven the numerous factual matters on which this case turns, we conclude it was error for the trial court to grant the insurers' motions for summary judgment." (Paper Savers, supra, 51 Cal.App.4th at p. 1105.)


The judgment is reversed. Appellants shall recover costs on appeal. (Cal. Rules of Court, rule 8.278(a)(1)-(3).)

We concur: NICHOLSON ,J. MAURO ,J.


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