United States District Court, N.D. California
GLOBE IMPORTS LIMITED, INC., GLOBE PROPERTIES, and ROBERT MAXON, Plaintiffs,
ALLIED PROPERTY AND CASUALTY INSURANCE CO. and NATIONWIDE INSURANCE, Defendants.
FINDINGS OF FACT AND CONCLUSIONS OF LAW AFTER BENCH
CLAUDIA WILKEN UNITED STATES DISTRICT JUDGE
damaged two buildings and destroyed a third. All three
buildings are owned by Plaintiff Globe Imports Limited, a
division of which is Plaintiff Globe Properties. Docket No.
63, Joint Pretrial Conference Statement (JPCS) at
At the time, Plaintiffs held a commercial property insurance
policy with Defendant Nationwide Mutual Insurance
Company. The parties dispute coverage for many of
the costs related to repair and replacement of these
bench trial in this matter, the Court instructed the parties
to offer their direct testimony through the designation of
declarations and deposition transcripts. The parties have
filed trial briefs with these declarations, deposition
transcripts and documentary evidence and also include
citations to the material that they submitted previously with
the earlier motions. The parties were given the opportunity
to cross-examine witnesses during the bench trial. The
parties also filed post-trial briefs and written closing
objects to some of the evidence submitted by Globe. The Court
has reviewed these evidentiary objections and has not relied
on any inadmissible evidence. The Court will not discuss each
objection individually. To the extent that the Court has
relied on evidence to which one side has objected, such
evidence has been found admissible and the objections are
Court now enters its findings of fact and conclusions of law.
FINDINGS OF FACT
December 8, 2006, a fire in Eureka, California damaged two
buildings and destroyed a third building owned by Globe. JPCS
at 1. One of the damaged buildings, Building 1, was located
at 527, 531 and 535 Third Street. Id. at 2. The
other damaged building, Building 3, was located at 526 Opera
Alley. Id. Building 2, the destroyed building, was
located at 224, 226 and 236 G. Street. Id.
2 comprised a first floor used as a meat market, a second
floor originally used as a dance hall with a sprung dance
floor and a mezzanine area above the second floor. Docket No.
68, Maxon Dec. in Opp. ¶ 6; Transcript at 27:17-28:4.
The stairway leading to the second floor had two landings.
Maxon Dec. in Opp. ¶ 7. It was lined with ornate
wainscot and heavy trims and finishes. Id. Heavy
trim and wainscot were also prevalent at the top of the
stairway, in the foyer and in adjacent dressing rooms with
showers and bathrooms. Id. ¶¶ 7-8. The
foyer opened into the dance hall, which was 3, 516 square
feet. Id. ¶ 9. The dance hall was surrounded by
ornate framed plaster arches, wainscot, heavy trim and ornate
plaster walls with large double hung windows. Id.;
see also Ex. 56 at 7, 11. Three staircases led up to
the mezzanine level, which comprised a balcony to observe the
dance floor. Maxon Dec. in Opp. ¶ 10; see also
Ex. 56 at 6. Building 2 was constructed using substantial
amounts of old growth redwood. Docket No. 59, Penfold Dec.
have been performed on Buildings 1 and 3, but Building
2's reconstruction has not yet begun. A "different
building" is going to take the place of Building 2.
Transcript at 27:12-14. Instead of two stories and a
mezzanine, there will be three stories. Id. at
27:15-28:16. The new building will differ from the old in
other ways. It will use drywall instead of lath and plaster.
Id. at 29:1-3. Further, it will use a concrete mat
slab, which means there will not be any redwood base beneath
it, id. at 29:4-16, and there will be no redwood
sheathing on the inside of the exterior or interior walls,
Depo. Desig., Ex. A at 113:15-20. The new building will also
have steel framing, which Building 2 did not have.
Id. at 112:23-25, 113:22-25. Using the steel will
"deliver the same sense of quality, the esthetics, sound
deadening, all those things." Id. at 114:5-7.
and Globe entered into a commercial property insurance
contract for the period January 1, 2006 to January 1, 2007.
JPCS at 2. Under the Commercial Property Statement of Values,
the contract contains a blanketed $4, 501, 700 limit.
Id. Buildings 1 and 2 together are assigned a $1,
775, 300 value. Building 3 is assigned a $98, 200 value.
Id. The general coverage provisions are as follows:
A. Coverage We [Nationwide] will pay for direct physical loss
of or damage to Covered Property at the premises described in
the Declarations caused by or resulting from any Covered
Cause of Loss.
1. Covered Property
Covered Property, as used in this Coverage Part, means the
type of property described in this Section A.1., and limited
in A.2., Property Not Covered, if a Limit of Insurance is
shown in the declarations for that type of property.
a. Building, meaning the building or structure described in
the Declarations . . . . . .
2. Property Not Covered Covered Property does not include: .
d. [W]alks, patios or other paved surfaces; . . .
f. The cost of excavations, grading, backfilling or filling;
g. Foundations of buildings, structures, machinery or boilers
if their foundations are below:
1) The lowest basement floor; or
2) The surface of the ground, if there is no basement; h.
Land (including the land on which the property is located) .
m. Underground pipes, flues or drains; . . .
Id. at 2-3. The contract provides that Nationwide
"will determine the value of the Covered Property in the
event of loss or damage" at "actual cash
value." JPCS at 3. "Actual Cash Value" is
defined as follows:
Actual cash value is calculated as the amount it would cost
to repair or replace Covered Property, at the time of loss or
damage, with material of the like kind and quality, subject
to a deduction for deterioration, depreciation and
obsolescence. Actual cash value applies to valuation of
Covered Property regardless of whether the property has
sustained partial or total loss or damage.
purchased optional replacement cost coverage under the
insurance contract. Id. at 2. The contract states:
G. Optional Coverages
If shown as applicable in the Declarations, the following
Optional Coverages apply separately to each item. . . .
3. Replacement Cost
a. Replacement Cost (without deduction for depreciation)
replaces Actual Cash Value in the Loss Condition, Valuation,
of this Coverage Form. . . .
d. We will not pay on a replacement cost basis for any loss
(1) Until the lost or damaged property is actually repaired
or replaced; and
(2) Unless the repairs or replacement are made as soon as
reasonably possible after the loss or damage.
With respect to tenants' improvements and betterments,
the following also apply:
. . .
(4) We will not pay for loss or damage to tenants'
improvements and betterments if others pay for repairs or
e. We will not pay more for loss or damage on a replacement
cost basis than the least of (1), (2) or (3), subject to f.
(1) The Limit of Insurance Applicable to the lost or damaged
(2) The cost to replace the lost or damaged property with
a. Of comparable material and quality; and b. Used for the
same purpose; or
(3) The amount actually spent that is necessary to repair or
replace the lost or damaged property.
f. The cost to repair or replacement does not include the
increased cost attributable to enforcement of any ordinance
or law regulating the construction, use or repair of any
Id. at 3-4.
contract includes coverage for increased costs of
construction in the Additional Coverages provisions:
Increased Cost of Construction
(1) This Additional Coverage applies only to buildings to
which the Replacement Cost Optional Coverage applies.
(2) In the event of damage by a Covered Cause of Loss to a
building that is Covered Property, we will pay the increased
cost incurred to comply with enforcement of an ordinance or
law in the course of repair, rebuilding or replacement of
damaged parts of that property, subject to the limitations
stated in e. (3) through e. (9) of this Additional Coverage.
(3) The ordinance or law referred to in e. (2) of this
Additional Coverage is an ordinance or law that regulates the
construction or repair of buildings or establishes zoning or
land use requirements at the described premises, and is in
force at the time of loss.
. . .
(6) . . . If a damaged building is covered under a blanket
Limit of Insurance which applies to more than one building or
item of property, . . . the most we will pay under this
Additional Coverage, for the damaged building, is the lesser
of $10, 000 or 5% times the value of the damaged building as
of the time of loss times the applicable coinsurance
This amount payable under this Additional Coverage is
(7) With respect to this additional coverage;
(a) We will not pay for the Increased Cost of Construction:
i. Until the property is actually repaired or replaced, at
the same or another premises; and ii. Unless the repairs or
replacement are made as soon as reasonably possible after the
loss or damage, not to exceed two years. We may extend this
period in writing during the two years. . . .
(8) This Additional Coverage is not subject to the terms of
the Ordinance or Law Exclusion, to the extent that such
Exclusion would conflict with the ...