Burns v. California Fair Plan
(June 25, 2007) ___Cal.App.4th ___, 07 C.D.O.S. 7406

Holders Of Life Estate And Remainder Interest In Fire Destroyed Property Were Not Both Entitled To Recover Full Value Of Property

The California Court of Appeal for the Second Appellate District held multiple insureds could not recover more than the value of property destroyed resulting from a single occurrence. The Court of Appeal affirmed the trial court's order granting summary judgment in favor of the insurers.

Ann Burns held a life estate on a residence and the Kent Burns Trust (the "Trust") held the remainder interest. Both separately purchased fire insurance policies on the home from different insurance companies. Burns obtained insurance through California Fair Plan ("Fair Plan"). The Trust separately insured its interest through Clarendon National Insurance Company ("Clarendon"). A fire destroyed the home.

Burns and the Trust brought an action each seeking to obtain the full value of the residence under their respective insurance policies, a total amount in excess of the damage to the residence. Invoking the "other insurance" provision of each policy, the insurers moved for summary judgment on the ground they had fulfilled their contractual obligations by paying Burns and the Trust on a pro rata basis according to the value of their insured interests in the destroyed property. The trial court granted the motion and Burns and the Trust appealed. The Court of Appeal affirmed.

The Court of Appeal disagreed with Burns and the Trust's position the trial court improperly allowed the insurers to pay pro rata, which deprived them of the ability to fully protect their insurable interests. Burns and the Trust could not recover the maximum allowed under their respective insurance policies without regard to the value of the destroyed property. The California Supreme Court long ago recognized the nature of insurance does not provide for recovery in excess of the value of the property destroyed where there is only one loss.

The Supreme Court stated, "[i]nsurance is a contract whereby one, for a consideration, undertakes to compensate another if he shall suffer loss. It is a contract of indemnity. 'This principle underlies the contract, and it can never, without violence to its essence and spirit, be made by the assured a source of profit, its sole purpose being to guarantee against loss or damage'" (Davis v. Phoenix Ins. Co. (1896) 111 Cal. 409, 415 [internal citations omitted].) The interests of Burns and the Trust in the property was necessarily less than the total value of their combined interests, because Burns' life estate was of limited duration, and the Trust's remainder interest depended on how long Burns survived.

The Fair Plan determined the actual cash value at the time of loss was $474,000. Clarendon received an estimate for reconstruction for $486,080.46. If Burns and the Trust were paid these amounts, recovery would be $960,080.46, far in excess of the loss suffered.

The Court of Appeal rejected Burns and the Trust's reliance on out-of-state authorities for their contention the owner of a life estate may insure his or her estate for the full value of the property and be compensated in that amount. The out-of-state authorities are factually distinguishable because none involved multiple claims for insurance proceeds under separately obtained policies.

Burns and the Trust contended pro rata payments on fire insurance are appropriate only when there is "double insurance" as defined in Insurance Code sections 590 and 591. Double insurance exists where the same person is insured by several insurers separately, covering the same subject and interest. (Ins. Code § 590.) Because the insurance policies in this case did not constitute "double insurance" under Insurance Code sections 590 and 591, they argued pro rata payments were not permitted. The Court of Appeal rejected this argument. It held such a finding (a) offends a well-established rule of law barring profit under an insurance contract, and (b) is contrary to the Legislature's intent in the area of "other insurance."

Fire insurance policies on California properties must be on a standard form, including language as follows: "This company shall not be liable for a greater proportion of any loss than the amount hereby insured shall bear to the whole insurance covering the property against the peril involved, whether collectible or not." (Ins. Code § 2071.) Both policies in this case included "other insurance" provisions.

The Court of Appeal held the other insurance provisions of Insurance Code sections 2070 and 2071 show a legislative intent to allow pro rata payment of claims even where there is no "double insurance" and where there are different insureds. Combined, Burns and the Trust were paid $478,202.98. This amount was more than the actual cash value of the destroyed property of $477,000 and more than a recent reconstruction estimate of $449,508.59.

This opinion is not final. It may be withdrawn from publication, modified on rehearing, or the California Supreme Court may grant review. These events would render the opinion unavailable for use as legal authority.

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