James Mosley v. Pacific Specialty Insurance Company

Plaintiffs and appellants, James and Maria Mosley, rented out a home they own

that defendant and respondent, Pacific Specialty Insurance Company (PSIC), insured

under a homeowners’ policy (the Property). The Mosleys’ tenant started growing

marijuana in the Property. To support his marijuana-growing operation, the tenant rerouted the Property’s electrical system to steal power from a main utility line. The

tenant’s re-routed electrical system caused a fuse to blow, which started a fire that

damaged the Property. PSIC denied coverage, citing a provision in the Mosleys’ policy

that excluded any loss associated with “[t]he growing of plants” or the “manufacture,

production, operation or processing of . . . plant materials.”

The Mosleys sued PSIC for denying coverage. The trial court granted summary

judgment in PSIC’s favor, finding that PSIC properly denied coverage because the

Mosleys had control over their tenant’s conduct.

Because there is no evidence the Mosleys were aware of their tenant’s marijuana

growing operation, and because the record is silent as to what the Mosleys could or

should have done to discover it, we reverse the judgment. We reverse the trial court’s

order granting PSIC summary judgment on the Mosleys’ first cause of action for breach

of contract, but we affirm the trial court’s order granting summary adjudication on the

Mosleys’ second cause of action for breach of the implied covenant of good faith and fair

3

dealing. We also affirm the trial court’s order denying the Mosleys’ motion for summary

judgment.

II.

FACTUAL AND PROCEDURAL BACKGROUND

Between April 2016 and April 2017, PSIC insured the Property under an HO-3

Standard Homeowners Insurance policy (the Policy). Both of the James Mosley was

named as the insured. Paragraph E of the Policy provides in full: “We do not insure for

loss resulting from any manufacturing, production or operation, engaged in: [¶] 1. The

growing of plants; or [¶] 2. The manufacture, production, operation or processing of

chemical, biological, animal or plant materials.”

In February 2016, the Mosleys rented the property to Pedro Lopez. Six months

later, the property was damaged by fire. It was determined that Lopez had “bootlegged”

a main power line into the property’s attic to power his energy-intensive marijuana

growing operation. Lopez’s “illegal power line . . . caused the fire.”

PSIC denied coverage for the loss caused by the fire. PSIC found that the loss was

excluded from coverage under Paragraph E of the Policy because it resulted from

Lopez’s growing marijuana.

The Mosleys sued PSIC for breach of contract and breach of the covenant of good

faith and fair dealing. The parties filed cross-motions for summary judgment. The

Mosleys asserted PSIC’s refusal to cover the fire loss violated Insurance Code section

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20701

, because the Policy provides less coverage than required by section 2071. The

Mosleys further asserted PSIC breached its obligations under the Policy by interpreting

Paragraph E to exclude coverage for the losses caused by the fire. PSIC argued it

properly denied coverage because the Policy permissibly excluded coverage for losses

that resulted from plant growing, such as Lopez’s marijuana-growing operation. PSIC

further asserted this exclusion complied with section 2070. Specifically, PSIC argued

section 2071 allows exclusions for liability that occur from a hazard “increased by any

means within the control or knowledge of the insured,” and Lopez’s conduct was within

the Mosleys control or knowledge, so the Policy provided substantially equivalent

coverage to what section 2071 requires.

The trial court denied the Mosleys’ motion, granted PSIC’s motion, and entered

judgment for PSIC. The trial court found that the Policy properly excluded losses

stemming from Lopez’s conduct under Paragraph E and that the Policy complied with

section 2070 by providing the Mosleys with coverage substantially equivalent to that

required by section 2071.

III.

DISCUSSION

A. Appealability

In their notice of appeal, the Mosleys indicated they appealed only the trial court’s

“[j]udgment after an order granting a summary judgment motion.” In their opening brief,

1

Unless otherwise noted, all statutory references are to the Insurance Code.

5

the Mosleys state they also appealed from the trial court’s denial of their motion for

summary judgment. PSIC contends the Mosley may not do so because they did not

indicate they intended to appeal the denial of their motion for summary judgment in their

notice of appeal.

We disagree. Because the Mosleys appealed from a final judgment, we may

review any nonappealable order encompassed within the judgment, such as the trial

court’s denial of the Mosleys’ summary judgment motion, even if not identified in the

Mosleys’ notice of appeal. (See Gavin W. v. YMCA Metropolitan Los Angeles (2003)

106 Cal.App.4th 662, 669 [notice of appeal from final judgment allows review of

nonappealable order]; see also Lytwyn v. Fry’s Electronics, Inc. (2005) 126 Cal.App.4th

1455, 1469 [“[A] notice of appeal from an appealable order need not specify prior

nonappealable rulings.”].) We therefore address the trial court’s order granting PSIC’s

motion for summary judgment and its order denying the Mosleys’ summary judgment

motion.

B. Summary Judgment Principles and Standard of Review

“The trial court properly grants a motion for summary judgment ‘if all the papers

submitted show that there is no triable issue as to any material fact and that the moving

party is entitled to a judgment as a matter of law.’ (Code Civ. Proc., § 437c, subd. (c).)”

(Mills v. Forestex Co. (2003) 108 Cal.App.4th 625, 639.) We independently review the

trial court’s ruling on the parties’ cross-motions for summary judgment, “applying the

same three-step analysis required of the trial court. [Citations.] First, we identify the

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issues framed by the pleadings. . . . [¶] Second, we determine whether the moving

party’s showing has established facts which negate the opponent’s claim and justify a

judgment in movant’s favor. . . . [¶] . . . [T]he third and final step is to determine

whether the opposition demonstrates the existence of a triable, material factual issue.

[Citations.]” (AARTS Productions, Inc. v. Crocker National Bank (1986) 179 Cal.App.3d

1061, 1064-1065.) “[W]e construe the moving party’s affidavits strictly, construe the

opponent’s affidavits liberally, and resolve doubts about the propriety of granting the

motion in favor of the party opposing it.” (Szadolci v. Hollywood Park Operating Co.

(1993) 14 Cal.App.4th 16, 19.)

C. Breach of Contract Claim

1. PSIC was not entitled to summary adjudication on the Mosleys’ Breach of

Contract Claim

PSIC moved for summary adjudication on the Mosleys’ first claim for breach of

contract on the ground that Paragraph E of the Policy excluded loss for the fire damage

caused by Lopez’s altering the property’s electrical system to support his marijuana

grow operation. The trial court agreed with PSIC’s interpretation.

“The ordinary rules of contract interpretation apply to insurance contracts.

[Citation.] To protect the interests of the insured, coverage provisions are interpreted

broadly, and exclusions are interpreted narrowly.” (Stellar v. State Farm Gen. Ins. Co.

(2007) 157 Cal.App.4th 1498, 1503.) We read the Policy’s words “‘in their ordinary

sense,’” and interpret the Policy de novo, giving no deference to the trial court’s

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interpretation. (California Casualty Ins. Co. v. Northland Ins. Co. (1996) 48 Cal.App.4th

1682, 1691.)

“An insurer may ‘seek[] summary judgment on the ground the claim is excluded,’

in which case it has ‘the burden . . . to prove that the claim falls within an exclusion.

[Citation.]’ [Citation.] To satisfy its burden, an insurer need not ‘disprove every possible

cause of the loss’ and once the insurer establishes the claim is excluded, the burden shifts

to the insured to show a triable issue of material fact exists.” (Roberts v. Assurance Co.

of America (2008) 163 Cal.App.4th 1398, 1406.) “‘[A]n insured has the burden of

proving its claim falls within the scope of the policy’s basic coverage, even where the

insurer brings a motion for summary judgment.’ [Citation.]” (Gonzalez v. Fire

Insurance Exchange (2015) 234 Cal.App.4th 1220, 1230.) “Thus, when an insurer meets

its initial burden on summary judgment of showing there is no coverage under the policy,

the burden shifts to the insured to show a triable issue of material fact as to coverage.”

(Medina v. GEICO Indemnity Co. (2017) 8 Cal.App.5th 251, 259-260.)

Paragraph E of the Policy excludes losses “resulting from any manufacturing,

production or operation, engaged in . . . [t]he growing of plants.” It is undisputed that the

fire that damaged the property “result[ed] from” Lopez’s re-wiring the property’s

electrical system in order to power his marijuana growing operation. But the parties

dispute whether that means the damage “result[ed] from” “the growing of plants.”

California courts broadly interpret the term “resulting from” in an insurance

contract. (St. Paul Fire & Marine Ins. Co. v. American Dynasty Surplus Lines Ins. Co.

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(2002) 101 Cal.App.4th 1038, 1050; see Acceptance Ins. Co. v. Syufy Enterprises (1999)

69 Cal.App.4th 321, 328 [broadly interpreting “‘arising out of’” in policy’s exclusion];

The Travelers Property Cas. Co. of America v. Actavis, Inc. (2017) 16 Cal.App.5th 1026,

1045-1056 [collecting cases interpreting “‘arising out of’” or “‘arising from’” broadly];

id. at p. 1045 [interpreting “‘results from’” and “‘arising out of’” in the same way].)

The term “resulting from” “broadly links a factual situation with the event creating

liability, and connotes only a minimal causal connection or incidental relationship.”

(Fireman’s Fund Ins. Cos. v. Atlantic Richfield Co. (2001) 94 Cal.App.4th 842, 849;

accord, Vitton Construction Co., Inc. v. Pacific Ins. Co. (2003) 110 Cal.App.4th 762, 767

[holding “a minimal causal connection will suffice to trigger coverage under an ‘arising

out of’ clause”].) Thus, the term “resulting from” is “generally equated . . . with

‘origination, growth or flow from the event.’ [Citation.]” (Southgate Recreation & Park

Dist. v. California Assn. for Park & Recreation Ins. (2003) 106 Cal.App.4th 293, 301.)

In determining whether a loss “results from” a liability-creating event, we use “common

sense.” (Vitton Construction Co., Inc. v. Pacific Ins. Co., supra, 110 Cal.App.4th at

p. 767.)

The undisputed evidence shows that (1) the fire was caused by Lopez’s altering

the property’s electrical system and (2) Lopez altered the property’s electrical system to

power his marijuana growing operation. Thus, there was a “minimal causal connection”

between Lopez’s growing marijuana, the fire, and the resulting loss. (Fireman’s Fund

Ins. Cos. v. Atlantic Richfield Co., supra, 94 Cal.App.4th at p. 849.) We therefore

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conclude that the loss resulted from an operation engaged in the growing of plants, which

Paragraph E excludes from coverage. (Cf. Anh Hung Huynh v. Safeco Ins. Co. of

America (N.D. Cal. Nov. 23, 2012) 2012 WL 5893482, at *4 [holding “any reasonable

insured who read [analogous provision] would understand that it excludes coverage for

loss arising out of an illegal marijuana grow operation”].)

However, the Mosleys argue that, even if Paragraph E excluded loss for damages

caused by Lopez’s marijuana growing operation, the Policy is void because it provides

less coverage than section 2070 mandates.

“Section 2070 generally requires fire policies in California to be on the standard

form set forth in [Insurance Code] section 2071, but permits insurers to deviate from the

form ‘provided, that coverage with respect to the peril of fire, when viewed in its entirety,

is substantially equivalent to or more favorable to the insured than that contained in such

standard form fire insurance policy.’ (§ 2070.)” (California Fair Plan Assn. v. Garnes

(2017) 11 Cal.App.5th 1276, 1290.) Put another way, “a policy that does not conform to

section 2071’s standard provisions must provide total fire coverage that is at least

‘substantially equivalent’ to coverage provided by the standard form” in section 2071.

(Century-National Ins. Co. v. Garcia (2011) 51 Cal.4th 564, 567.) If a policy’s

exclusions do not conform with section 2071, the policy is unenforceable. (Julian v.

Hartford Underwriters Ins. Co. (2005) 35 Cal.4th 747, 754.)

To determine whether the Policy’s fire coverage is “substantially equivalent” to

the coverage required by section 2071, we evaluate whether the Policy’s fire coverage “is

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at least as favorable to [the Mosleys] as the coverage provided in the standard form”

outlined in section 2071. (Century-National Ins. Co. v. Garcia, supra, 51 Cal.4th at p.

573.) “If application of the . . . exclusion in the former results in coverage that is not at

least substantially equivalent to the level of protection available in the latter, the

exclusion is to that extent invalid.” (Id. at p. 569.)

Section 2071 provides, in relevant part, that an insurer “shall not be liable for loss

occurring . . . while the hazard is increased by any means within the control or knowledge

of the insured.” The trial court found that the Policy was valid and enforceable because it

provided “substantially equivalent” coverage to section 2070’s standard form because,

like the standard form, the Policy limits coverage for hazards increased by means within

the insured’s control or knowledge. The trial court thus found that PSIC was not liable

for the loss caused by the fire because Lopez’s marijuana grow operation, as well as the

electrical alterations he made to the property, increased a hazard “‘within the control or

knowledge’” of the Mosleys.

PSIC asserts the trial court was correct because “there would be no coverage for

[the Mosleys’] claim under the standard form policy if the marijuana growing operation

increased the hazard by means within [their] control or knowledge.” PSIC implicitly

concedes the Mosleys had no knowledge of Lopez’s marijuana growing operation, but

argues they had control over it because they “had control over what occurred in their

home.” To support its position, PSIC relies exclusively on Uccello v. Laudenslayer

(1975) 44 Cal.App.3d 504, 511, which PSIC correctly observes stands for the proposition

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that landlords generally are liable in tort for dangerous conditions on their property. That

may be true, but it does not necessarily follow that a landlord has “control” of a tenant’s

illegal conduct under section 2071 when the landlord is ignorant of that conduct.

PSIC does not cite, and we have not located, any binding California authority

interpreting what constitutes a “hazard . . . increased by any means within the control . . .

of the insured” under section 2071. We therefore look to “[t]he decisions of sister-state

courts interpreting their versions of section 2071,” which are “‘particularly persuasive.’”

(Aliberti v. Allstate Ins. Co. (1999) 74 Cal.App.4th 138, 147.) Because language like the

“control or knowledge” clause contained in section 2071 is routinely part of insurance

policies used throughout the country, we also look to decisions interpreting the clause as

part of an insurance contract. (See Sagar v. Farm Bureau Mut. Ins. Co. (Iowa 2004) 680

N.W.2d 8, 12 [“As we have previously pointed out, however, ‘[t]he standard type of

insurance policy is what is generally known as the New York type. It was first adopted in

the state of New York and has been followed in Iowa and many other states since its

original adoption.’”].)

In Plaza Equities Corp. v. Aetna Cas. & Sur. Co. (S.D.N.Y. 1974), 372

F.Supp.1325, the insured sought coverage for losses it suffered due to a construction

defect. (Id. at p. 1327.) The insurer argued coverage was excluded under the parties’

policy, which provided that the insurer was not “‘liable for loss occurring (a) while the

hazard is increased by any means within the control or knowledge of the insured.’” (Id.

at p. 1331.) The district court disagreed, reasoning that “[a]n increase of hazard occurs

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only when the insured performs acts which are reasonably calculated to increase the risk

and which he knows or should know will increase the risk. The negligence or

misjudgment of the insured, which caused the loss here, is insufficient.” (Ibid., italics

added)

In Continental Western Fire Ins. Co. v. Policy Industries, Inc. (Minn. App. 1984)

349 N.W.2d 606, the court held the insurer properly denied coverage due to the insured’s

increasing a risk of hazard. (Id. at p. 606.) The insured used a flammable substance,

which caused a fire and damage to the insured’s building. (Ibid.) The insurer denied

coverage, pointing to a provision in the insured’s policy that stated the insured “shall not

be liable for loss occurring . . . [¶] while the hazard is increased by any means within the

control or knowledge of the insured,” which was taken from Minnesota’s section 2071

equivalent. (Id. at p. 607.) The court held there was “no doubt” the insured had control

over the hazard because it ordered and used the flammable substance in its business

operations. (Ibid.) In rejecting the insured’s argument that its “‘control’ requires or

means ‘knowledge,’” the court explained that the authority the insured relied on was not

applicable because the “cases involved landlord/tenant situations where the insuredlandlord was not actually on the premises, and merely indicate that to be liable for an

increase in hazard a landlord must actually know of the activity.” (Ibid.; Holtorf v.

Rochester Farmers Mutual Fire Ins. Co. (1933) 190 Minn. 44, 250 N.W. 816 (Holtorf);

Schaffer v. Hampton Farmers Mutual Fire Ins. Co., (1931) 183 Minn. 101, 235 N.W. 618

(Schaffer).)

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In Holtorf, the insured owned a farm, and her son was its tenant. (Holtorf, supra,

190 Minn. at p. 45.) Without the insured’s knowledge, her son stored a barrel of gasoline

in the barn, which caused a fire that burned down the barn. (Ibid.) The insured denied

coverage, citing a clause in the insured’s policy that stated the insurer would not be liable

“if the risk shall be increased by means which are within the control of the assured.”

(Ibid.) The Holtorf court rejected the insurer’s position because “the factor which

increased the risk (presence of gasoline in the barn) was not within [the insured’s]

control” (id. at p. 48.) because she “had no knowledge of the presence of gasoline in the

barn, and did not consent to its being there.” (Id. at p. 47.)

Schaffer involved a similar situation. There, the insured leased his farm to tenants

who, without the insured’s knowledge or permission, installed an illegal alcohol still that

started a fire and damaged the insured’s property. (Schaffer, supra, 183 Minn. at p. 102.)

Citing the insured’s policy that the insurer was not liable for risks “‘increased . . . by any

means whatever within the control of the assured,’” the insurer denied coverage for the

fire caused by the tenant’s still. (Ibid.) The Schaffer court disagreed and held that the

insurer could properly deny coverage for an increased risk only if it proved that the

insured knew about the distillery because, if he did, “then its existence . . . could be said

to be within his control.” (Id. at p. 106; see Security Ins. Co. of New Haven v. Dazey 7th

Cir. 1935) 78 F.2d 537, 541 [“Bringing a quantity of kerosene into the house for the sole

purpose of setting it on fire and burning it would not, in our judgment, fall within the

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purview of the [hazard] clause, unless indeed the insured knew of and co-operated in the

act.”], italics added.)

The Eighth Circuit came to the same conclusion on largely identical facts in

Patriotic Ins. Co. of America v. Franciscus (8th Cir. 1932) 55 F.2d 844 (Franciscus). As

in Schaffer, the insured in Franciscus rented out his property to tenants, who ran an

alcohol distillery in the property that caused a fire. (Franciscus, supra, 55 F.2d at p.

846.) The insured’s policy excluded losses caused by any “‘hazard . . . increased by any

means within the control or knowledge of the insured.’” (Id. at p. 846.) After a multijurisdiction survey, the Eighth Circuit explained that the language “by means within the

control or knowledge” had been considered “in a great many cases, and the

overwhelming weight of authority is that the landlord is not an insurer against the

introduction of increased hazard, but that his liability depends upon his knowledge, or

upon circumstances which, by the exercise of ordinary care and diligence, would result in

such knowledge. [Citations.]” (Id. at p. 847; see Procacci v. U.S. Fire Ins. Co. (App.

Div. 1937) 118 N.J.L. 423, 424-425 [“We take it[,] therefore[,] that the policy was not

invalidated in any event by the increase in hazard, due to the operation of a still, when the

record is innocent of proof that the owner had knowledge of this condition that increased

the hazard, or, by the exercise of ordinary care and diligence, was chargeable with such

knowledge.”].) The Franciscus court held that whether the insured should have

discovered the tenant’s still under the circumstances was a factual issue for the jury to

decide. (Franciscus, supra, 55 F.2d at p. 849.)

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Similarly, in St. Paul Fire & Marine Ins. Co. v. Bachmann (1932) 285 U.S. 112,

114-115 (Bachmann), the insured’s tenant use of gasoline to operate its illegal moonshine

stills sparked a fire, and the insurer refused coverage on the ground the insured violated

its policy provision that held the insurer was not liable for hazards “increased by any

means within the control or knowledge of the insured.” The United States Supreme

Court held the provision was “not violated[,] unless there [was] increase of hazard within

the knowledge and control of the insured.” (Id. at p. 116, italics added.)

The Eighth Circuit followed Bachmann, observing that it could “find no case

holding that insurance has been forfeited under the increase of hazard clause in the

absence of proof or knowledge on the part of the insured.” (American Mfrs. Mut. Ins. Co.

v. Wilson-Keith & Co. (8th Cir. 1957) 247 F.2d 249, 259.) The court reasoned: “‘“The

expression “control or knowledge,” as used in the policy, is synonymous with “control

and knowledge.” Reasonably interpreted and construed favorably to the insured,

“control” presupposes knowledge. It would be unreasonable to hold that a person had

control of a thing of which he had no knowledge or to say that he had control of a

dangerous substance when he did not know of its danger.” [Citation.]’” (Id. at p. 259.)

The court went on to cite over a dozen authorities that, in the court’s view, supported the

Bachmann court’s interpretation of what constitutes “control or knowledge” in the

context of an increase of hazard clause. (Ibid.; see Goldman v. Piedmont Fire Ins. Co.

(3d Cir. 1952) 198 F.2d 712, 718 (dis. opn. of McLaughlin, J. [“the overwhelming

majority of reported cases categorically support the principle” that an increase of hazard

16

in a fire insurance policy “must not only have been within the control of the insured but

to his knowledge”]).)

The Oregon Court of Appeals relied on Franciscus’s analysis in Farmers Ins. Co.

of Oregon v. Trutanich (1993) 123 Ore. App. 6, 15 (Trutanich), where a tenant’s illegal

methamphetamine lab damaged the insured-landlord’s property. The insurer argued the

landlord’s insurance was void under an Oregon statute that allowed the insurer to deny

coverage if “‘“the hazard is increased by means within the control or knowledge of the

insured.”’” (Id. at p. 14.) Relying on Franciscus, the Trutanich court agreed the

methamphetamine lab was an increase in hazard, but there was “no evidence from which

the jury could find that [the insured] in fact knew of that hazard, or that by exercising

ordinary care or diligence he should have known that [the tenant] would cook

methamphetamine in the house.” (Trutanich, supra, at p. 15.) The court therefore

rejected the insurer’s argument that the insured increased a hazard within his control or

knowledge. (Id. at pp. 14-16.)

We interpret these authorities to stand for the proposition that an insured increases

a hazard “within its control” only if the insured is aware of the hazard or reasonably could

have discovered it through exercising ordinary care or diligence. PSIC does not cite, and

we cannot locate, any authority that suggests a landlord-insured is strictly liable for a

hazard created by the insured’s tenant even if the insured is unaware of the hazard.

It is undisputed the Mosleys did not know about Lopez’s marijuana growing

operation or his altering the property’s electrical system. There is likewise no evidence

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as to whether the Mosleys could have discovered Lopez’s marijuana growing operation

“by exercising ordinary care or diligence.” On this record, we believe whether Lopez’s

conduct was “within the control” of the Mosleys is a fact issue for the jury to decide

because the record is silent as to what, if anything, the Mosleys reasonably could have

done to prevent or discover Lopez’s marijuana growing operation. (See Hodge v.

Travelers Fire Ins. Co. (App. Div. 1951) 16 N.J. Super. 258, 263 [“[I]t has been

recognized that where the evidence presents a factual issue as to the landlord’s

knowledge and exercise of care it should be submitted to the jury for its determination.”];

accord, Schaffer, supra, 183 Minn. at pp. 106-107; see Trutanich, 123 Ore. App. at p. 15

[“[T]here is no evidence from which the jury could find that defendant in fact knew of

that hazard, or that by exercising ordinary care or diligence he should have known that

someone other than [the insured’s tenant] would cook methamphetamine in the house.”].)

Further, the trial court did not consider the issue, but instead apparently accepted PSIC’s

erroneous argument that Lopez’s conduct was within the Mosleys’ control simply

because he was their tenant.

To the extent PSIC’s interpretation of the Policy renders the Mosleys strictly liable

for Lopez’s conduct, the Policy is void under section 2071. By holding the Mosleys

responsible for the damage Lopez caused, irrespective of the Mosleys’ knowledge of his

conduct or their responsibility for it, the Policy subjects the Mosleys to increased

liability—and less favorable coverage that is not “substantially equivalent” to coverage

provided under section 2071.

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PSIC nonetheless asserts the Policy is valid because PSIC was entitled to add

exclusions not contained in section 2071, such as the plant-growing exclusion. In

support, PSIC relies on Rizzuto v. National Reserve Ins. Co. (1949) 92 Cal.App.2d 143

(Rizzuto), Taylor v. Garrison Property and Casualty Insurance Company (C.D. Cal.

2018) 2018 WL 5094912 (Taylor), and Nationwide Mutual Fire Insurance Co. v.

McDermott (6th Cir. 2015) 603 Fed. App’x 374. None of these cases supports PSIC’s

contention.

In Rizzuto, the insureds’ policy provided fire coverage for their business

establishment “‘while occupied only for barber shop purposes.’” (Rizzuto, supra, 92

Cal.App.2d at p. 144.) The insureds, however, rented out half of the building to a shop

that cleaned and altered clothes. (Ibid.) After a fire damaged the building, the insurer

denied coverage because it had not been “‘occupied only for barber shop purposes’”

given that half of the building was occupied by the clothing shop at the time of the fire.

(Ibid.) The Rizzuto court held that, because the insureds violated the “‘while occupied’”

condition—a condition precedent to any coverage of the insured’s building—the policy

was suspended for the duration of the violation, so the insurer properly denied coverage

for the fire damage. (Id. at pp. 145, 147.)

In Taylor, the insured obtained insurance for their home, which included a

detached building that the insured used for her professional art studio (“‘the Separate

Structure’”). (Taylor, supra, 2018 WL 5094912, at *1.) After a fire caused by a faulty

furnace damaged the Separate Structure, the insured sought coverage for the losses.

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(Taylor, supra, at *1.) The insured denied coverage on the ground that the insured’s

policy did not cover structures used for “business,” which the insured conceded included

the Separate Structure due to her for-profit art studio. (Id. at *3.) The insured argued,

however, that the policy violated section 2070 because the policy’s “business use

exclusion” reduced the insured’s coverage below that required by section 2071. (Id. at

*5.)

Relying on Rizzuto, the district court disagreed. (Taylor, supra, 2018 WL

5094912, at *5.) The Taylor court observed that the business use exclusion was “most

similar to the increased hazard” clause in section 2071. (Ibid.) The Taylor court

reasoned that Rizzuto “indicates that insurance providers may continue to specify the

character of use of the property insured as a precondition for coverage or a condition

suspending coverage without violating” section 2070. (Taylor, supra, at *5.) Thus, like

the Rizzuto court, the district court in Taylor found that the insurer properly denied

coverage because the insured intentionally used the property in a manner proscribed by

the policy. (Taylor, supra, at *5.) In other words, the insured was not entitled to any

coverage of the Separate Structure because, like the insured in Rizzuto, the insured failed

to use the premises only for certain purposes—a condition precedent for any coverage of

the Separate Structure. As the Taylor court put it, “the Separate Structure is covered

unless it is being used in whole or in part for business, in which case coverage is

suspended.” (Taylor, supra, at *5.)

20

As in Taylor and Rizzuto, the insurer in McDermott properly denied coverage for

fire damage caused by the husband’s illegal marijuana growing operation because the

insured violated her policy terms. (McDermott, supra, 603 Fed. App’x at pp. 374-375.)

Specifically, by failing to report the operation to her insurer, the insured violated a

provision in her policy that required her to inform the insurer of “‘any change which may

affect the premium risk under th[e] policy,” including “changes . . . in the occupancy or

use of the resident premises.’” (Id. at p. 377.) By failing to do so, the insurer was

entitled to deny coverage under a policy provision that allowed the insurer to void the

policy if the insured “‘omitt[ed] any material fact . . . during the policy period.’” (Ibid.)

Rizzuto, Taylor, and McDermott do not control here.2

In all three cases, the

insureds intentionally used the covered buildings in a way that violated their respective

fire policies and, accordingly, they were not entitled to any coverage because they

personally breached their insurance contracts. That fact alone—which is not present

here—permitted the insurers in all three cases to deny coverage. Further, in Rizzuto, the

insured increased a hazard indisputably within its control and knowledge. (Rizzuto,

supra, 92 Cal.App.2d at p. 148.) The Rizzuto court found there was “ample evidence” to

support the trial court’s finding that the insured’s renting half the building to the cleaning

shop “materially increased” a hazard risk because it was “self-evident” that the cleaning

2

Although we find Taylor and McDermott are distinguishable, we also decline to

follow them because Taylor is a trial court decision currently on appeal and McDermott is

unpublished. (See America Inc. Online v. Superior Court (2001) 90 Cal.App.4th 1, 6 fn.

2 [court was “hardly inclined” to consider unpublished “out-of-state decisions”].)

21

shop’s services “produced a fire hazard materially higher than that attending a barber

shop.” (Ibid.)

By contrast, the Mosleys did not breach their insurance contract with PSIC.

Unlike the insureds in Rizzuto, Taylor, and McDermott, the Mosleys did not use the

Property in a prescribed way that would have allowed PSIC to suspend their insurance

and deny all coverage. More importantly, contrary to PSIC’s assertion and the trial

court’s finding, there was no evidence Mosleys knowingly increased a risk of fire hazard.

In addition, a fact issue remains as to whether Lopez’s hazard-increasing conduct was

within their control. If it was, then PSIC properly denied coverage. But by denying the

Mosleys coverage for Lopez’s conduct, regardless of the Mosleys’ control over or

knowledge of it, the Policy did not provide “substantially equivalent” coverage to that

required under section 2071. We therefore reverse the trial court’s order granting

summary judgment to PSIC and affirm the trial court’s order denying the Mosleys’

motion for summary judgment.

We affirm the trial court’s order denying the Mosleys’ motion for summary

judgment for an additional reason. As the trial court correctly observed, the Mosleys’

motion for summary judgment failed to address both of their claims. Their separate

statement in support of the motion “only addresse[d] (1) [their] first cause of action for

breach of contract . . . and (2) the issue that defendant had a duty under the policy to pay

the losses incurred by [the Mosleys].” The trial court therefore properly denied the

Mosleys’ summary judgment motion because it did not address their second cause of

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action. (Jameson v. Desta (2013) 215 Cal.App.4th 1144, 1165 [holding party must

address all of the plaintiff’s theories of liability to be entitled to summary judgment].) In

any event, as we explained below, we conclude PSIC is entitled to summary adjudication

on that cause of action.

2. Forfeiture

At oral argument, counsel for PSIC argued the Mosleys forfeited any argument

that Lopez’s conduct was not within their “control or knowledge” because they did not

address the issue in the trial court and their opening brief only addressed it in passing

without argument or citations to the record.

PSIC raised the “control or knowledge” issue in their moving papers. PSIC told

the trial court that it “must determine whether PSIC’s exclusion for plant growing

operations substantially complies with the language of [s]ection 2071 and provides the

insured with coverage that is substantially equivalent to that provided in the statute.”

PSIC argued the Policy did provide such coverage because, under the standard form

policy, “PSIC is not liable for a loss occurring due to an increased hazard.” Relying on

McDermott, PSIC argued that the Mosleys’ “loss would be excluded under the increased

hazard provision in Section 2071 and is also excluded under PSIC’s express exclusion for

marijuana grow operations,” so the Policy provided substantially equivalent coverage to

that required by section 2071.” PSIC reiterated these arguments in its opposition to the

Mosleys’ summary judgment motion.

23

In both its moving papers and in opposition to PSIC’s motion for summary

judgment, the Mosleys argue Paragraph E’s exclusion was not enforceable because it

results in the Policy providing less favorable coverage than the standard form fire policy

would provide. The Mosleys therefore argued the exclusion was void as a matter of law.

At the hearing on the motions, both parties agreed that their cross-motions for

summary judgment presented the same issues. PSIC’s counsel explained, “the issue

before the Court truly is purely a legal question. There are no disputed facts as to the

cause of the loss or the application of this exclusion to the loss, assuming it’s enforceable.

The sole issue before the this Court is plaintiff’s claim that the exclusion in the [P]olicy is

unenforceable per se because the coverage it affords under the [P]olicy is less favorable

than what is provided under [section 2071].” (Italics added.)

PSIC’s counsel further explained that, “[t]here’s no dispute the [P]olicy

exclusions, if it would be enforceable, would apply to this loss, and there’s also no

dispute the marijuana growing operation going on at the property increased the hazard of

fire . . . . No one is claiming that did not increase the risk of the hazard of fire. There’s

also no dispute that this growing operation was under the control of the insured.”

PSIC’s counsel then argued, “[u]nder standard form policy, there is a provision

providing that an insurer is not liable for a loss occurring while the hazard is increased by

any means within the control or knowledge of the insured . . . . [T]he insurance company

is not liable for loss occurring while the hazard is increased by any means within the

control or knowledge of the insured . . . . The question for the Court is [whether] the

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policy that we have [is] as favorable as the one that exists under 2017 which excludes

coverage for fire losses that are caused by insured’s conduct that increases the risk of

first. Unfortunately that’s what we have. There’s no dispute that but for this growing

operation, this fire wouldn’t have occurred.” PSIC’s explained that the “[s]tandard form

policy doesn’t say that the hazard has to be unlawful conduct by an insured. It’s anything

an insured does that increases the risk of fire beyond what a reasonable person would be

doing in a residential home which is, among other things, a marijuana grow operation.”

After argument from the Mosleys’ counsel, PSIC’s counsel continued, “[t]he

purpose of this exclusion is that the insurance company in this case has identified certain

types of conduct that an insured can engage in that will increase the risk of first. Under

[section] 2071, we are allowed to exclude those risks. We can use the broad and, frankly,

fairly ambiguous language that appears in the standard form and get into an argument

with every insured who wants to grow marijuana in their home did this or not increase the

risk of fire.”

After brief additional argument from counsel, the trial court stated it would take

the matter under submission. The trial court then issued (1) an order granting PSIC’s

motion for summary judgment and (2) an order denying the Mosleys’ motion for

summary judgment. In granting PSIC’s motion, the trial court found “as a matter of law

that the fire coverage in the subject Policy is substantially equivalent to or more favorable

to plaintiffs than the coverage in the standard form policy in Ins[urance] C[ode] [section]

25

2071.” The trial court therefore found that, “[b]ecause the exclusion is valid and

enforceable, there is no merit to plaintiffs breach of contract claim.”

In denying the Mosleys’ summary judgment motion, the trial court explained,

“[w]hile California Insurance Code 2070 begins by stating that fire policies shall be on

the standard form 2071, it provides for an exception when a policy provides coverage

against perils other than fire, provided that the fire coverage is substantially equivalent to

or more favorable to the insured than that contained in the standard form.” The trial court

then found, “[s]ection 2071 states that the insurer shall not be liable for loss when the

hazard is increased by any means within the control or knowledge of the insured: such

occurred in this case.” The trial court therefore concluded the Mosleys “fail[ed] to

establish that the subject exclusion is not substantially equivalent to or more favorable to

them than the standard form, or that it is otherwise inconsistent with 2071.”

In short, PSIC argued—and the trial court found—that the Policy provided the

Mosleys coverage that was substantially equivalent to or more favorable than the

standard fire insurance form. Based on that finding, the trial court granted PSIC’s motion

for summary judgment and denied the Mosleys’ cross-motion for summary judgment.

Because the trial court’s orders turned on its conclusion that Lopez’s conduct was within

the Mosleys’ control or knowledge, we necessarily must address that issue. (See Aguilar

v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 860 [appellate court exercises

independent judgment in reviewing order granting summary judgment and applies the

same analysis as the trial court].)

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The fact that the Mosleys did not oppose PSIC’s argument that Lopez’s conduct

was within their control or knowledge does not mean the trial court properly granted

summary judgment on that basis. A party is entitled to summary judgment only if it

meets its initial burden of showing there are no triable issues of fact and the moving party

is entitled to judgment as a matter of law. (See Code Civ. Proc., § 437c, subd. (o)(2).)

This is true even if the opposing party fails to file any opposition. (Thatcher v. Lucky

Stores, Inc. (2000) 79 Cal.App.4th 1081, 1086-1087.) “The court’s assessment of

whether the moving party has carried its burden—and therefore caused a shift—occurs

before the court’s evaluation of the opposing party’s papers. [Citations.] Therefore, the

burden on the motion does not initially shift as a result of what is, or is not, contained in

the opposing papers. And because a reviewing court employs the same three-step process

in the course of its de novo review of a summary judgment [citation], this conclusion

applies with equal force on appeal.” (Y.K.A. Industries, Inc. v. Redevelopment Agency of

City of San Jose (2009) 174 Cal.App.4th 339, 367-368.)

Accordingly, “[i]f the defendant [moving for summary judgment] fails to meet this

initial burden [of production], it is unnecessary to examine the plaintiff’s opposing

evidence; the motion must be denied.” (Zoran Corp. v. Chen (2010) 185 Cal.App.4th

799, 805.) For the reasons explained above, we conclude PSIC failed to meet its initial

burden because an issue of fact remains as to whether Lopez’s conduct was within their

“control or knowledge.” PSIC’s motion for summary judgment therefore should have

been denied—regardless of what the Mosleys did or did not argue in their opposition—

27

because the burden never shifted to them. (See Denton v. City & County of San

Francisco (2017) 16 Cal.App.5th 779, 794 [“[E]ven without opposition, a court may not

grant a motion for summary judgment unless it first determines that defendants have met

their initial burden of proof.”]; accord, Reilly v. Inquest Technology, Inc. (2013) 218

Cal.App.4th 536, 551 fn. 3 [“Reilly suggests the issue of whether the Act applied was

waived due to Inquest’s failure to oppose the summary adjudication motion. Not so. To

prevail on the motion, the burden fell on Reilly to submit evidence sufficient to establish

each element necessary to sustain a judgment in his favor.”].)

D. Breach of Implied Covenant of Good Faith and Fair Dealing Claim

The trial court granted PSIC summary judgment on the Mosleys’ claim for breach

of the implied covenant of good faith and fair dealing in part because the court found

there was a genuine coverage dispute between the parties. We conclude the trial court

did not err in so finding.

“[T]here are at least two separate requirements to establish breach of the implied

covenant: (1) benefits due under the policy must have been withheld; and (2) the reason

for withholding benefits must have been unreasonable or without proper cause.” (Love v.

Fire Ins. Exchange (1990) 221 Cal.App.3d 1136, 1151.) An insurer is not liable for

breaching the implied covenant if there is “‘a genuine issue as to [the insurer’s] liability

under California law.’ [Citation.]” (Opsal v. United Services Auto. Assn. (1991) 2

Cal.App.4th 1197, 1205-1206.) “‘[A] court can conclude as a matter of law that an

insurer’s denial of a claim is not unreasonable, so long as there existed a genuine issue

28

as to the insurer’s liability.’ [Citation.]” (Fraley v. Allstate Ins. Co. (2000) 81

Cal.App.4th 1282, 1292.)

Thus, to succeed on a claim for breach of the implied covenant, the insured must

show that “the insurer acted unreasonably or without proper cause.” (Jordan v. Allstate

Ins. Co. (2007) 148 Cal.App.4th 1062, 1072.) The insured must show the insurer’s

conduct “demonstrates a failure or refusal to discharge contractual responsibilities,

prompted not by an honest mistake, bad judgment or negligence but rather by a conscious

and deliberate act, which unfairly frustrates the agreed common purposes and disappoints

the reasonable expectations of the other party thereby depriving that party of the benefits

of the agreement.” (Careau & Co. v. Security Pacific Business Credit, Inc. (1990) 222

Cal.App.3d 1371, 1395.) Accordingly, “an insurer does not act in bad faith when it

mistakenly withholds policy benefits, if the mistake is reasonable or is based on a

legitimate dispute as to the insurer’s liability.” (Century Surety Co. v. Polisso (2006) 139

Cal.App.4th 922, 949.) “An insurer which denies benefits reasonably, but incorrectly,

will be liable only for damages flowing from the breach of contract, i.e., the policy

benefits.” (Morris v. Paul Revere Life Ins. Co. (2003) 109 Cal.App.4th 966, 977.)

We conclude PSIC acted reasonably in denying the Mosleys coverage. As our

discussion above shows, there is no clear, controlling California law that establishes

whether PSIC properly denied coverage—an issue that turns on whether Lopez’s conduct

was within the Mosleys’ control, which remains to be determined. Under the unique

circumstances presented and the lack of guiding California precedent, we think PSIC

29

reasonably interpreted Paragraph E as permissibly excluding coverage for the damage

Lopez caused. On this record, PSIC cannot be liable for bad faith. We affirm the trial

court’s order granting PSIC summary judgment on the Mosleys’ second claim for breach

of the covenant of good faith and fair dealing.

The judgment is reversed. The trial court’s order granting PSIC summary

judgment on the Mosleys’ first cause of action for breach of contract is reversed, but we affirm the trial court’s order granting summary adjudication on the Mosleys’ second cause of action for breach of the implied covenant of good faith and fair dealing. The trial court’s order denying the Mosleys’ motion for summary judgment is otherwise affirmed. The matter is remanded with directions to the trial court to enter an order granting summary adjudication in PSIC’s favor on the Mosleys’ second cause of action. Each side shall bear their own costs on appeal.