Say nope to dope
James and Maria Mosley owned a house that Pacific Specialty Insurance Company (PSIC) insured under a homeowners policy whose term was between April 2016 and April 2017. The Mosleys rented the house to Pedro Lopez, who started growing marijuana on the property. To support his marijuana-growing operation, Lopez rerouted the property’s electrical system to steal power from a main utility line. The rerouted 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 breach of contract and breach of the covenant of good faith and fair dealing. The parties filed cross-motions for summary judgment. The court granted summary judgment in PSIC’s favor, finding that PSIC properly denied coverage because the Mosleys had control over their tenant’s conduct.
The parties agreed that the fire resulted from the rewiring of the electrical system but disagreed on “whether that meant the damage” “result[ed] from” “the growing of plants.” The court held that “resulting from” “broadly linked a factual situation with the event that created liability and connoted only a minimal causal connection or incidental relationship.” In doing so, it equated the terms “results from” and “arising from.”
Although the loss came within the exclusion, the court moved to the Mosleys’ next argument: whether the policy was void because it provided less coverage than that mandated by the California insurance code. The code requires that fire insurance policies be at least as broad and favorable to the insured as that provided in a section of the code that states 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.” PSIC did not maintain that the Mosleys had the requisite knowledge, instead arguing that, as the property owners, they were deemed to “control” the property, a proposition with which the court agreed.
The court denied the Mosleys’ motion, granted PSIC’s motion, and entered judgment for PSIC. The court found that the policy properly excluded losses stemming from Lopez’s conduct and that the policy complied with the insurance code by providing the Mosleys coverage substantially equivalent to that required by the code. The Mosleys appealed.
On appeal, the court noted that the undisputed evidence showed 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” among Lopez’s growing marijuana, the fire, and the resulting loss.
Because no evidence showed that the Mosleys were aware of their tenant’s marijuana growing operation, and because the record was silent as to what the Mosleys could or should have done to discover it, the appellate court reversed the trial court’s order granting PSIC summary judgment on the Mosleys’ first cause of action for breach of contract, but it affirmed 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 court also affirmed the trial court’s order denying the Mosleys’ motion for summary adjudication on the issue of whether PSIC properly denied coverage.
Mosley v. Pacific Specialty Insurance Company—California Court of Appeal, Fourth District, Division 2—May 26, 2020—No. E071287.