Commercial Building Owner’s Policy Did Not Clearly Limit Loss of Rents Coverage to Instances Where a Signed Lease Was Already in Effect at the Time of Physical Damage
Ventura Kester, LLC v. Folksamerica Reinsurance Co., 219 Cal. App. 4th 633 (Sept. 11, 2013)
Ventura Kester owned a commercial building that was vandalized. Folksamerica Reinsurance Company issued a commercial building owner’s policy that was in effect at the time of the vandalism. There was a tenant leasing the property when the policy was issued but the property was vacant when it was vandalized. The insurer paid for the property damage but denied coverage for any claimed loss of rents because there was no signed lease at the time of the loss. Ventura Kester filed suit, arguing that the policy covered loss of rents regardless of whether there was a signed lease in effect, and claimed that it, in fact, lost rents as a result of the vandalism. The carrier prevailed in the trial court on the parties’ cross-motions for summary judgment.
The Court of Appeal reversed. Among other things, the policy insured against financial loss resulting from “rents including accrued rents which become uncollectible, and extra expense incurred to prevent loss of rents, because of damage to or destruction of covered structures caused by an accident.” With respect to how such amounts were calculated, the policy said: “We will pay: a. your loss of rental income; and b. rents accrued but rendered uncollectible by reason of a covered loss at a location described on the Declarations Page; and c. your extra expenses necessarily incurred to minimize your rental income loss, but only to the extent that the rental income loss we would otherwise pay is reduced.” The court held that the policy was ambiguous about whether there had to be a signed lease in effect at the time of the loss and that it should be resolved in the insured’s favor. The court also found that triable issues of material fact existed in the record, including: whether the insured would have rented the property in the absence of the property damage; the fair market rental value; and mitigation of damages.
© TROUTMAN SANDERS LLP. ADVERTISING MATERIAL. These materials are to inform you of developments that may affect your business and are not to be considered legal advice, nor do they create a lawyer-client relationship. Information on previous case results does not guarantee a similar future result. Follow Troutman Sanders on Twitter.