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February 2010

Fire Insurance Exchange v. The Superior Court of San Bernardino County - Insureds' Mistaken Belief Does Not Qualify For Coverage

Summary Judgment In A Bad Faith Action Was Granted In Favor Of The Insurer Where The Insureds Constructed A Residence On An Adjacent Property Owned By A Third Party And Were Denied Coverage Under A Homeowners Policy That Did Not Cover Nonaccidental Occurrences

(January 26, 2010) ___Cal.App.4th___; 10 C.D.O.S. 1170 (2010)

The California Court of Appeal, Fourth District granted a writ seeking review of the trial court's denial of an insurer's motion for summary judgment in an insurance bad faith action, ordering the trial court to enter summary judgment in favor of the insurer.

Kenneth and Dorothy Bourguignon owned property adjacent to property owned by Louise Leach ("Leach").  Leach granted the Bourguignons an easement over a 5-1/2 foot portion of Leach's property along the border of the two properties.

The Bourguignons' house was subsequently damaged by an earthquake.  To renovate and rebuild the residence, the Bourguignons obtained Leach's signature on an application for a lot-line adjustment for the 5-1/2 foot easement. The application was approved and a certificate of compliance was recorded with the City of Big Bear, California and construction was completed.

Several years later a third party, the Parsons, negotiated to buy Leach's property. The Parsons discovered the lot-line adjustment clouded the title and obtained an assignment of rights from Leach and her sons to contest the lot-line adjustment. The Parsons disputed the lot-line adjustment's validity, claiming that Leach had previously conveyed an interest in the property to her sons, who did not sign the lot-line adjustment application.

The Bourguignons sued the Parsons for quiet title and adverse possession of the easement.  The Parsons cross-complained for quiet title, declaratory relief, and fraud.

The Bourguignons tendered their defense to Fire Insurance Exchange ("Fire"), which had issued the Bourguignons a homeowners policy after their renovation.  Fire refused to defend the Parsons' cross-complaint.  The Bourguignons intentionally built over the lot line and, thus, there was no accident triggering coverage.  Fire also argued the Parsons' claims did not involve any physical injury to, or destruction of the Bourguignons' property and as such, were not covered claims.

The Bourguignons sued Fire for breach of contract and bad faith. Fire moved for summary judgment because there was no accident.  The trial court denied the motion.  Fire sought a writ of mandate from the Court of Appeal.

The Court of Appeal granted the petition, ordering the trial court to enter summary judgment in favor of Fire, because the undisputed facts showed the Bourguignons intended to build their house on the easement. This intentional act of construction was not an accident, even if the Bourguignons had a mistaken belief they had the legal right to build on the easement.

The Court of Appeal reasoned that an accident does not occur when the insured performs a deliberate act unless some additional, unexpected, independent, and unforeseen happening occurs that produces the damage.  In accordance with California precedent, the Court of Appeal refused to find an accident in circumstances where the insured committed an act based on a mistaken belief in their legal right to engage in particular conduct.  Where the insured intended all of the acts that resulted in the victim's injury, the event may not be deemed an accident merely because the insured did not intend to cause injury.

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

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