TRB Investments, Inc. v. Fireman's Fund Insurance Company

“Vacancy Exclusion” May Not Apply During Building Renovations

Submitted by Brian J. Colombana

In TRB Investments, Inc., et al. v. Fireman’s Fund Insurance Company, No. S136690 (Cal. Sup. Ct. filed Nov. 13, 2006), the California Supreme Court held that the vacancy exclusion may not apply during building renovations because renovations are within the plain meaning of “under construction.”

Plaintiffs procured a property insurance policy from Fireman’s Fund Insurance Company. An endorsement to the policy precluded coverage for certain perils while the building is vacant, unless the building is “under construction.”

Plaintiffs were renovating the building for a new tenant. During the renovations, a water heater in the building burst, causing extensive water damage. Fireman’s Fund denied Plaintiffs’ claim based on the vacancy exclusion. Plaintiffs filed suit. Fireman’s Fund, pointing to the vacancy exclusion in the policy, moved for and received summary judgment in their favor. The Court of Appeals affirmed, finding that “under construction” does not encompass renovations.

Exceptions to an exclusion are construed broadly in favor of the insured, thereby ensuring that the end result conforms to the insured’s objectively reasonable expectations. Aydin Corp. v. First State Ins. Co. (1998) 18 Cal. 4^th 1183, 1192. While the interpretation of “construction” generally includes the building of a new structure, the plain meaning does not seem to exclude other types of building endeavors, “such as substantial improvements or modifications to an existing structure.” In fact, the Legislature has also, in many contexts, defined “construction” in such a way that laypersons would not limit the phrase to the erection of new buildings.

The Supreme Court found the proper inquiry for determining whether a building is “under construction” for purposes of defining an exception to the vacancy exclusion is whether the building project results in “substantial continuing activities” at the premises. Citing Will Realty Corp. v. Transp. Ins. Co. (Mass.App.Ct. 1986) 492 N.E.2d 372, 373. Relevant to this inquiry are the number of people associated with the construction project, how many hours per day or days per week they were in the building, and how much of the building was occupied by these persons at any given time. This test better serves the purposes underlying the vacancy exclusion and more accurately reflects the reasonable expectations of an insured than any test turning upon technical distinctions between “construction” and “renovation.”

The Supreme Court reversed and remanded the case so that facts regarding “substantial continuing presence” could be presented.

This newsletter and any information contained herein is intended for informational purposes only and should not be construed as legal advice. In addition, this opinion is not final and may be withdrawn from publication, modified on rehearing, or reviewed by the California Supreme Court. Any of these events would render the opinion unavailable for use as legal authority. Seek competent counsel for advice on any legal matter.