Triable Issues Exist About Insured’s Right to Lost Rents Even Though No Actual Tenant Was on Premises at Time of Loss

The California Court of Appeal, Second Appellate District, recently reversed a trial court order granting summary judgment to a commercial property insurer.  The trial court held the insurer properly denied its insured’s lost rents claim in connection with vandalism damage where there was not an existing tenant when the damage took place.  The Court of Appeal disagreed, holding in Ventura Kester, LLC v. Folksamerica Reinsurance Co. that the policy did not clearly require the insured to have a tenant in place as a condition of coverage for lost rents.  Whether the insured would have been able to rent the property, but for the vandalism, raised triable issues of fact.  Therefore, the court concluded summary judgment in favor of the insurer was improper.

Folksamerica Reinsurance issued a commercial building owner’s policy to Ventura Kester as owner of a property in Sherman Oaks.  The policy, in effect from September 2006 to September 2007, covered the structure and promised to pay the insured’s “net loss of rental income” due to damage to covered property.  A tenant was in place when the policy was issued, but it subsequently vacated the premises.  Ventura began discussions with potential tenants, including entering into a letter of intent with OfficeMax. But no agreement was in place at the time of the loss.

On Sept. 11, the court held an ambiguity existed in the policy as to whether an actual tenancy was required for coverage to exist.  The court also held triable issues existed about whether the insured had actually sustained damages from the vandalism.