Unpublished Disposition, 899 F.2d 1224 (9th Cir. 1988)

MEMORANDUM^* 

The Corners appeal from the district court's order of summary judgment in favor of defendants Farmers Insurance Exchange and Farmers Insurance Company ("Farmers"). We affirm.

* The parties stipulated to the underlying facts. Farmers insured a house that the Corners owned and rented out. The insurance policy insured against damage to or loss of the structure. The policy covered the actual cash value of the structure at the time of the loss. It also covered the reasonable repair or replacement costs above the actual cash value (ACV), up to a total of $40,000, but not "until actual repair or replacement is completed." Farmers Insurance Group of Companies, Your Standard Form Fire Policy, Policy No. 79-3031-60-80, Conditions p 5c(4), at 7, reprinted in Memorandum in Support of Complaint for Declaratory Judgment, Exhibit A at, Clerks's Record No. 16 (filed Nov. 14, 1988). In addition, the policy excluded from coverage losses caused directly or indirectly by the enforcement of any ordinance or law regulating the use, construction, repair, or demolition of the property.

The house was totally destroyed by fire. The Corners and Farmers agreed that the ACV of the structure was $28,782.23 and that the Corners' loss of rents due to the fire was $1800. Accordingly, after taking into account the $100 deductible, Farmers paid the Corners $30,482.23.

The Corners' house had been a nonconforming structure under the local zoning laws. After the fire, the Corners were unable to rebuild on the original lot because of these laws. The Corners nonetheless made a claim for replacement cost in the amount of $11,217.77 (which sum represents the policy limit, $40,000.00, minus the agreed actual value, $28,782.23). Farmers argued that it was not liable under the policy for replacement cost until the Corners actually rebuilt the house. Because the zoning changes made rebuilding on the original lot impossible, Farmers offered to pay the Corners the replacement cost if they rebuilt on any other lot. The Corners refused the offer.

Instead, they filed an action in the Superior Court of the State of Washington for King County, seeking a declaration that they were entitled to the policy limit even though they had not rebuilt. Farmers removed to federal district court on the basis of diversity of citizenship and moved for summary judgment.¹  It argued that the plain language of the policy precluded the Corners from recovering replacement cost unless and until they actually rebuilt the house. The district court agreed and ordered summary judgment in favor of Farmers.

The Corners timely appealed to this court. We have jurisdiction under 28 U.S.C. § 1291. We review de novo the district court's order of summary judgment. See Huber v. Standard Ins. Co., 841 F.2d 980, 983 (9th Cir. 1988).

II

The Corners present a number of arguments to support their contention that the district court erred in ordering summary judgment in favor of Farmers. We consider each in sequence.

* First, the Corners argue that the provision in the insurance contract requiring rebuilding in order for an insured to receive replacement costs is unlawful in the state of Washington.

We do not agree. As the district court noted, and as the Corners concede, "Washington law requires only that an insurer offer actual cash value coverage or coverage more favorable to an insured." Order Granting Summary Judgment at 3 (Dec. 19, 1988) [hereinafter "Order"]; see Wash.Admin.Code Sec. 284-20-010(c) (1986) ("As an alternative form, a form written in clear, understandable language, which provides terms, conditions and coverages not less favorable to the insured than the 'standard fire policy,' may be used."). Farmers' policy is proper because it provides coverage more favorable than actual cash value coverage: viz., replacement-cost coverage on the condition that the insureds rebuild.

B

Second, the Corners contend that Farmers should be estopped from enforcing the rebuilding requirement. They argue that Farmers issued a policy with replacement-cost coverage, even as it had constructive knowledge that the Corners could not rebuild on the particular land.

We reject the contention. The Corners failed to present evidence to establish that the elements of equitable estoppel were met. Further, as the district court noted, Farmers recognized that the zoning change prevents the Corners from rebuilding on the original lot. It therefore offered to pay replacement cost under the policy if the Corners rebuilt on any other lot of their choice. We agree with the district court that the Corners "rejected this reasonable offer and instead sought to recover a windfall. Equity will not grant them such a windfall." Order at 3-4.

C

Third, the Corners assert that they were denied replacement costs because of the zoning ordinance. They contend that because the fire, not the rezoning, caused their loss they should recover the replacement costs.

We disagree with the assertion. First, Farmers does not dispute that the fire caused the Corners' loss. Second, Farmers does not argue that it need not pay replacement cost "because the policy excludes the insurer's liability for loss resulting from the enforcement of ordinance." Appellant's Brief at 12. Farmers argues only that it need not pay replacement cost because the Corners have not rebuilt, as required by the insurance contract. We agree with the perceptive words of the district court, which noted that " [s]howing that the fire caused the loss simply does not demonstrate that the rebuilding requirement should not be enforced." Order at 4.

D

Fourth, the Corners argue that where the law prevents the rebuilding of a destroyed structure, the insured is said to have suffered a constructive total loss and is entitled to recover the full policy limits. From this argument, the Corners conclude that they are entitled to such a recovery.

This argument also fails. Farmers does not deny that the Corners suffered a total loss. It has offered to pay replacement costs should the Corners rebuild on another site. The Corners have not demonstrated why they would not have to fulfill the rebuilding requirement.

E

Fifth, the Corners argue that they need not rebuild in order to receive the replacement cost because the policy should be strictly construed against Farmers.

We disagree. The rule that insurance contracts must be liberally construed in favor of the insured applies only when the language is ambiguous. Muench v. Oxley, 90 Wash. 2d 637, 646, 584 P.2d 939, 945 (1978). The Corners have pointed to no ambiguity here; in fact, the policy unambiguously requires rebuilding to qualify for replacement cost.

F

Sixth and finally, the Corners argue that they should be excused from the rebuilding requirement because it is impossible for them to fulfill it.

We reject the argument. First, the policy expressly provides that in the event of difficulty in rebuilding because of zoning, the insurer is not liable. Second, it is not impossible for the Corners to rebuild, for as they themselves have stipulated, Farmers has offered to pay them the policy limit if they rebuild on another lot. In short, the Corners have not shown that they are unable to rebuild; they have shown that they are unwilling to rebuild. The factual distinction makes a legal difference.

AFFIRMED.

REINHARDT, Circuit Judge, concurring specially.

I concur but differ with the majority on the issue of estoppel. If the policy truly provided for replacement-cost coverage only if the Corners rebuilt on the particular land identified in the policy, and if, as is not disputed, Farmers knew of the zoning prohibition when it issued the policy, I would agree with the Corners as to their estoppel argument. The fact that Farmers subsequently made a voluntary offer to pay the Corners the replacement benefits if they rebuilt elsewhere would not be sufficient to change the policy retroactively from one that contained only an illusory promise to one that provided a real benefit. However, at oral argument, Farmers' counsel stated that notwithstanding the language contained in the replacement coverage provision, under the circumstances present here Farmers was required to pay the replacement benefits if the Corners rebuilt at a different location. He advised the court that, although there were no Washington decisions to this effect, the courts of other states have so held in cases involving similar questions. In view of the general rule that any ambiguity or lack of certainty in a limitation provision contained in an insurance policy should be construed in favor of coverage, I believe Washington would follow the decisions of those states. In other words, Washington courts would conclude that the Corners are entitled under the policy to the payment of replacement benefits if they rebuild at another location. Accordingly, the provision in question is not illusory, and the Corners' decision not to rebuild means that they are entitled to the actual cash value only and not to the replacement benefits.