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By James E. Acret
Homeowner submitted a claim for the cost of repairing two decks that homeowner believed were in a state of imminent collapse. State Farm denied the claim under a policy that provided:
We insure only for direct physical loss to covered property involving the sudden, entire collapse of a building or any part of a building.
Collapse means actually fallen down or fallen into pieces. It does not include settling, cracking, shrinking, bulging, expansion, sagging or bowing.
The trial court held that plaintiff was entitled to coverage, irrespective of the policy language, because collapse was imminent. To hold otherwise, in the trial court's view, would encourage property owners to place lives in danger in order to wait for insurance coverage. The Court of Appeal affirmed. The Supreme Court reversed. Rosen v. State Farm General Insurance Co., 30 Cal.4th 1070, 2003 DJDAR 6353 (2003).
Insurance policies are contracts. If possible, the court wrote, it infers the intention of the parties solely from the written provisions of the policy. If policy language is clear and explicit, it governs. Here, the policy language is clear and explicit. Applying the logic of the Court of Appeal, courts could convert life insurance into health insurance in order to conform to notions of sound public policy. A California court may not rewrite an insurance policy.
Senate Bill 800 (2001-2002 Reg. Sess.), which establishes definitions of construction defects and creates a new pre-litigation process that gives builders an absolute right to repair before a homeowner can sue, does not provide a statutory basis for rejecting the language of the insurance policy defining an actual collapse. It is one thing for the Legislature to rewrite the rules for construction defect litigation for homes to be sold in the future. It would be quite another thing for a court to rewrite the coverage provision of an existing insurance policy. To rewrite the provision would compel the insurer to give more than it promised and would allow the insured to get more than it paid for, thereby denying the parties the freedom to contract as they please.
Concurring, Justice Moreno wrote that the parties to an insurance contract may contract as they please so long as they do not violate the law or public policy. An insurance policy that clearly establishes a financial incentive to maintain a hazardous condition may well be contrary to public policy. But, the power to declare public policy in the context of contract interpretation should be exercised with great caution. Here, the extent of danger to the public is in doubt. The law of torts imposes a duty on property owners not to injure others through the hazardous condition of their property. Here, the insured did not carry the burden of demonstrating that public policy compels re-interpretation of the "actual collapse" provision.
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