Plesnik v. Those Certain Underwriters at Lloyd's London CA2/5 ( 2016 )

Filed 3/14/16 Plesnik v. Those Certain Underwriters at Lloyd’s London CA2/5
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION FIVE
PALO PLESNIK, B262790
Plaintiff and Appellant, (Los Angeles County
Super. Ct. No. BC473548)
v.
THOSE CERTAIN UNDERWRITERS AT
LLOYD’S, LONDON, et.al.,
Defendants and Respondents.
APPEAL from a judgment of the Superior Court of Los Angeles County, Mitchell
L. Beckloff, Judge. Reversed.
Law Offices of Kyle Kubisch, Kyle Kubisch; Law Office of Eric N. Riezman, Eric
N. Riezman, for Plaintiff and Appellant.
Vanderford & Ruiz, Ty S. Vanderford, for Defendants and Respondents.
Plaintiff and appellant Palo Plesnik lent money to borrower Armen Melkonians
(borrower) and the loans were secured by deeds of trust on borrower’s property on
Roscomare Road in Los Angeles (the Property). Borrower defaulted on the loan, and
plaintiff initiated foreclosure proceedings. Plaintiff bought the Property at the foreclosure
auction and discovered after the sale that the Property had been damaged. Plaintiff
reported the damage and claimed he was entitled to compensation from defendants and
respondents Those Certain Underwriters at Lloyd’s London (Lloyds) and The Harry W.
Gorst Company (Gorst), who had earlier issued a homeowner’s policy for the Property
that named plaintiff as a person entitled to insurance proceeds in the event of a covered
loss (a “loss payee”). Defendants denied plaintiff’s insurance claim, and plaintiff
responded by filing this action. The trial court granted summary judgment for defendants
because it concluded a mutual release executed by plaintiff and borrower to settle a
separate lawsuit extinguished plaintiff’s interest in the Property and thus his right to
collect insurance proceeds. We consider whether the trial court correctly granted
defendants’ summary judgment motion for that reason.
BACKGROUND
The facts necessary to decide this appeal are not disputed.1 Plaintiff is a private
real estate mortgage lender who made two loans to borrower, one for $1.6 million and
another for $450,000, secured by two deeds of trust on the Property. The deeds of trust
required borrower to obtain hazard insurance on the Property that designated plaintiff as a
1
We recognize there are many facts that are in dispute and that were not resolved
by the grant of summary judgment. There are disagreements concerning the
representations made to obtain insurance coverage, the legal status of the parties involved
in that process, and even the existence and extent of coverage. We do not discuss or
consider those facts in deciding whether the trial court erred in granting summary
judgment. For purposes of this appeal, we assume the Property was covered by insurance
issued by Lloyds and plaintiff was a loss-payee on the policy.
2
loss payee. Gorst bound a homeowner’s insurance policy issued by Lloyds that so
designated plaintiff in April 2010.
In the meantime, borrower defaulted on his obligation to make loan payments and
plaintiff commenced non-judicial foreclosure proceedings on the Property by recording
notices of default. Borrower then filed a lawsuit against plaintiff in Los Angeles County
Superior Court seeking an injunction to halt the foreclosure proceedings (the Foreclosure
Lawsuit). The court denied borrower’s request to preliminarily enjoin the foreclosure
proceedings, and plaintiff purchased the Property at a foreclosure auction on May 19,
2010, where he was the high bidder via a credit bid (whereby a lender bids not in cash but
in an amount credited against the borrower’s existing indebtedness).
Plaintiff inspected the Property after he took possession and discovered it had been
stripped of certain items; borrower admitted that he removed appliances from the
property prior to the foreclosure sale. Plaintiff reported the loss and claimed he was
entitled to compensation from defendant Lloyds under the homeowner’s policy naming
borrower as the insured and plaintiff as an “additional interest,” mortgagee, and loss
payee. Lloyds denied the insurance claim, asserting among other things that the policy
application contained material misrepresentations, and notified plaintiff that it was
rescinding the policy.
In August 2011—over a year after the foreclosure sale and plaintiff’s discovery of
the loss, and over seven months after Lloyds denied plaintiff’s insurance claim—plaintiff
and borrower agreed to settle the Foreclosure Lawsuit that was still then pending. There
is little additional information about that lawsuit in the record before us. The record on
appeal does not include a copy of the complaint borrower filed to commence the action,
but plaintiff describes it as including a usury claim. There is no information in the record
related to settlement negotiations.
3
The record does include, however, a copy of the agreement plaintiff and borrower
executed to settle the Foreclosure Lawsuit.2 The agreement states the parties’ desire “to
settle and compromise their differences in the [Foreclosure Lawsuit] and to give
assurances that any and all claims made in the [lawsuit] will not be further prosecuted.”
In the paragraph of the agreement labeled “Consideration,” plaintiff agreed to pay
$15,000 to borrower and each man agreed to bear his own costs and attorneys’ fees. In
the next paragraph of the agreement—the provision upon which the disposition of this
appeal turns—the parties agreed as follows:
Release. In consideration of the above-referenced payment and mutual
promises and releases contained herein and except with respect to the
obligations set forth herein, [plaintiff] on the one hand and [borrower] on
the other hereby release and discharge each other of and from any and all
manner of action or actions, cause or causes of action, in law or in equity,
suits, debts, contracts, agreements, promises, liability, claims, demands,
damages, loss, cost or expense, of any nature whatsoever, known or
unknown, fixed or contingent, which the parties now have or may hereafter
have against one another based upon or relating to any of the matters, facts,
or things alleged or set forth in the pleadings on file in the Action, and
based upon or relating to any other matter, fact, circumstance, action,
2
The settlement agreement refers to a cross-action but does not provide any further
details about the cross-claim(s). Defendants argue that plaintiff filed a cross-complaint
against borrower alleging fraud, waste, and construction defects, and that the allegations
of the cross-complaint include alleged property damages for which plaintiff also
submitted the insurance claims at issue in this lawsuit. Defendants provide no citation to
the record in their brief on appeal to support this assertion. At oral argument, counsel for
defendants identified a select few questions and answers in excerpts of plaintiff’s
deposition that concern certain allegations apparently made in the cross-complaint
plaintiff filed against borrower, but the document itself is not included in the record and
the few deposition references shed little light on the matter.
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agreement or occurrence which arose from the beginning of time to the date
of this Agreement. (Italics added.)
After settling the Foreclosure Lawsuit, plaintiff in November 2011 filed this action
against Lloyds, Gorst (Lloyd’s agent for purposes of doing business in the United States),
and named defendants MJV Insurance Brokers and its owner Vakili Jalilaldien. One or
more of these defendants brought a series of unsuccessful motions for summary judgment
or adjudication between December 2012 and May 2014.
Lloyds and Gorst filed another motion for summary judgment in July 2014
contending the release plaintiff executed in connection with the Foreclosure Lawsuit
operated as a complete defense to all of plaintiff’s causes of action. Specifically,
defendants argued the “insurable interest” doctrine only permits a party to collect
insurance proceeds if he or she has an interest in the insured asset, and plaintiff no longer
had such an interest in the Property because it had been extinguished by the broadly
worded mutual release of debts that plaintiff and borrower agreed to when they settled the
Foreclosure Lawsuit.
Where the prior motions for summary judgment had failed, this one succeeded: the
trial court accepted defendants’ argument that the mutual release plaintiff agreed to
extinguished his insurable interest in the Property and, with it, his right to recover
compensation under the insurance policy. In its written ruling, the trial court
acknowledged the question of whether plaintiff made a “full credit bid”3 for the Property
at the foreclosure auction was a material disputed fact, and the court did not refer to, or
rest its decision on, the nature of the claims between plaintiff and borrower in the
Foreclosure Lawsuit. Rather, the court pointed solely to what it saw as “unambiguous
and express terms” in the release and decided that “the debt remaining after the non-
3
A full credit bid is a credit bid at a foreclosure sale in an amount equivalent to the
full amount of the debt that a borrower owes on the loan for which the property served as
collateral, plus foreclosure expenses. (Alliance Mortgage Co. v. Rothwell (1995) 10
Cal. 4th 1226, 1239 (Alliance Mortgage).)
5
judicial foreclosure, if any, was expressly extinguished by the release and the debtor-
creditor relationship between [borrower] and [plaintiff] was terminated.” Thus, the court
concluded, when plaintiff settled the Foreclosure Lawsuit by paying borrower $15,000
and releasing borrower from any and all debts that he had against plaintiff, plaintiff
thereby gave up his right to make a claim under the insurance policy “as a matter of law.”
The trial court entered judgment in favor of Lloyds and Gorst, and plaintiff timely
noticed this appeal.
DISCUSSION
To resolve the central issue before us, whether plaintiff surrendered his right to
collect insurance proceeds for damage to the Property, we must address intersecting
principles of California insurance law; property law, as it relates to mortgages; and
contract law. Specifically, we consider what interest one must have to insure property,
the consequences a foreclosure sale has on the obligations of a defaulting borrower, and
how explicit a contract must be for a third party to invoke its provisions in support of a
claim that one of the contracting parties extinguished a vested right. It is the last of these
three questions that proves most consequential in resolving plaintiff’s contentions of
error, and we conclude there remains a disputed issue of fact as to whether the release
plaintiff executed was intended to extinguish his right to make an insurance claim under
the policy defendants issued. We therefore reverse the grant of summary judgment.
A. Summary Judgment Standard of Review
Summary judgment is appropriate only where the moving party establishes there
exists no triable issue of material fact and that he or she is entitled to judgment as a
matter of law. (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal. 4th 826, 850.) We review
a trial court’s decision on summary judgment de novo, “considering all of the evidence
the parties offered in connection with the motion (except that which the [trial] court
properly excluded) and the uncontradicted inferences the evidence reasonably supports.”
(Merrill v. Navegar, Inc. (2001) 26 Cal. 4th 465, 476; Hyundai Securities Co., Ltd. v. Lee
6
(2015) 232 Cal. App. 4th 1379, 1385.) We “must resolve all doubts in favor of the party
opposing the judgment.” (Morgan v. Fuji Country USA, Inc. (1995) 34 Cal. App. 4th 127,
131; accord Kulesa v. Castleberry (1996) 47 Cal. App. 4th 103, 112.)
B. The Insurable Interest Doctrine
The insurable interest doctrine dates back to 18th century England.4 The purpose
of the doctrine was to discourage a “mischievous kind of gaming” on human life or
property, whereby enterprising individuals would purchase insurance on the lives of
others reported to be seriously ill or on property they did not own. The amount
“wagered” was the policy premium, and the gamble was how soon death or disaster
would befall the person or property insured. This sort of gambling was understandably
believed to create an incentive for wrongdoing by the “gambler.” (1 Jeffrey E. Thomas,
New Appleman on Insurance Law Library Edition (2015) § 1.05[3], pp. 52-54; 7
Williston on Contracts (4th ed. 1997) § 17.5, pp. 567, 576-577.)
California law has long required an insurable interest for an insurance contract to
be valid. (Ins. Code, § 280; Davis v. Phoenix Ins. Co. (1896) 111 Cal. 409.) An
insurable interest exists when “the insured has a direct pecuniary interest in the
preservation of the property and . . . will suffer a pecuniary loss as an immediate and
proximate result of its destruction.” (Davis v. Phoenix Co., supra, at p. 414; accord, Ins.
Code, § 281.) A loan that is secured by real property creates an interest in the property
that serves as the collateral. (See Mosee v. Firemen’s Ins. Co. of Newark (1927) 87
Cal. App. 473, 475 [“[T]he interest created by a mortgage or deed of trust in the nature of
a mortgage is an insurable interest distinct from that of the mortgagor or grantor”].) The
lender’s “interest in the property is the repayment of the debt.” (Track Mortg. Group Inc.
4
The Life Assurance Act [of] 1774 provided “[N]o insurance shall be made . . . on
the life or lives of any person, or persons, or any other event or events whatsoever,
wherein the person or persons for whose use, benefit, or on whose account such policy or
policies shall be made, shall have no interest. . . . ” (14 Geo. 3, c. 48, § 1 (Eng.).)
7
v. Crusader Ins. Co. (2002) 98 Cal. App. 4th 857, 864, citing Alliance Mortgage, supra, 10
Cal.4th at pp. 1238-1239.)
California law also defines when an interest in the property or asset insured must
exist, namely “when the insurance takes effect, and when the loss occurs”; the insurable
interest need not exist in the meantime. (Ins. Code, § 286; Liberty Mut. Fire Ins. Co. v.
McKenzie (2001) 88 Cal. App. 4th 681, 689.) Here, it is undisputed that plaintiff held an
interest in the Property when the insurance policy in question issued in April 2010. For
purposes of resolving this appeal, and for reasons we explain in the next part of this
opinion, we also take it as true that plaintiff held an insurable interest when he discovered
the loss in May 2010. Thus, unless a subsequent action extinguished his insurable
interest as a matter of law, plaintiff is entitled to an opportunity to prove at trial that he
has a right to compensation under the policy. (Cf. Ins. Code, § 301 [“A change of
interest in a subject insured, after the occurrence of an injury which results in a loss, does
not affect the right of the insured to indemnity for the loss”].)
C. California’s Non-Judicial Foreclosure Laws, and the Right to Recover
Insurance Proceeds on a Legally Fictitious Debt
“California has an elaborate and interrelated set of foreclosure and antideficiency
statutes relating to the enforcement of obligations secured by interests in real property.”
(Alliance Mortgage, supra, 10 Cal.4th at p. 1236.) “Pursuant to this statutory scheme,
there is only ‘one form of action’ for the recovery of any debt or the enforcement of any
right secured by a mortgage or deed of trust. That action is foreclosure, which may be
either judicial or nonjudicial.” (Ibid.; Code Civ. Proc., §§ 725a, 726, subd. (a).)
When a lender proceeds by way of judicial foreclosure proceedings, the lender
may seek from the court a deficiency judgment—the difference between the amount of
the borrower’s outstanding debt and the fair market value of the property, as determined
by a court—if the property sells for less than the amount of the indebtedness. (Alliance
Mortgage, supra, 10 Cal.4th at p. 1236; Roseleaf Corp. v. Chierighino (1963) 59 Cal. 2d
35, 43-44.) Non-judicial foreclosure proceedings, on the other hand, are quicker and less
8
expensive, but they do not allow a lender to seek a deficiency judgment. (Alliance
Mortgage, supra, 10 Cal.4th at p. 1236.) Rather, the statutory scheme enacted by the
Legislature protects a borrower from personal liability for the debt owed following a non-
judicial foreclosure sale.5 (Code Civ. Proc., § 580d; Cornelison v. Kornbluth (1975) 15
Cal. 3d 590, 602; Smith v. Allen (1968) 68 Cal. 2d 93, 96 [properly conducted foreclosure
sale constitutes a final adjudication of lender and borrower rights]; CADC/RAD Venture
2011-1 LLC v. Bradley (2015) 235 Cal. App. 4th 775, 783-784 [anti-deficiency statutes
prohibit lenders from obtaining judgments against borrowers where the foreclosure sale
proceeds are insufficient to cover the amount of the debt]; Commonwealth Mortgage
Assurance Co. v. Superior Court (1989) 211 Cal. App. 3d 508, 516 [“‘No liability, direct
or indirect, should be imposed upon the debtor following a nonjudicial sale of the
security’”].)
Although a non-judicial foreclosure, in effect, eliminates a borrower’s debt by
preventing a lender from pursuing a judgment against the borrower, courts have treated
the borrower’s debt as if it continues to exist in order to protect the lender’s right to
obtain insurance proceeds for a loss that occurs prior to a foreclosure sale. (Armsey v.
Channel Associates, Inc. (1986) 184 Cal. App. 3d 833, 837 (Armsey) [“The debtor-creditor
relationship between the parties is not totally extinguished during foreclosure proceedings
where the beneficiary purchases property for less than the amount of the balance due
under the deed of trust”]; Redlinger v. Imperial Savings & Loan Assn. (1975) 47
Cal. App. 3d 48, 50 (Redlinger) [same]; see also Birman v. Loeb (1998) 64 Cal. App. 4th
502, 518 [“Defendants correctly assert the nonjudicial foreclosure, at which they
5
Prior cases have held that lenders cannot contract around the preclusive effect of
the statutory scheme, often referred to as the “anti-deficiency statutes.” “Because the
antideficiency legislation was established for a public purpose ‘[t]he debtor cannot be
compelled to waive the antideficiency protections in advance . . . and [the protections]
cannot be contravened by a private agreement.’ (Cadle [Co. II v. Harvey (2000)] 83
Cal.App.4th [927,] 932, citations omitted[].)” (California Bank & Trust v. Lawlor (2013)
222 Cal. App. 4th 625, 632.) Further, “the proscriptions of [the anti-deficiency statutes]
cannot be avoided through artifice.” (Passanisi v. Merit-McBride Realtors Inc. (1987)
190 Cal. App. 3d 1496, 1508.)
9
reacquired the property for less than the full amount of the outstanding indebtedness, did
not extinguish the debt”]; Rosenbaum v. Funcannon (9th Cir. 1962) 308 F.2d 680, 684
[“If the security property does not bring enough to pay the debt, the debt itself remains to
the extent that it is unpaid, notwithstanding extinguishment of the mortgage as such . . . at
foreclosure sale”].) By employing this legal fiction, that the borrower’s debt continues to
exist notwithstanding California’s anti-deficiency statutes, courts allow lenders to collect
insurance proceeds to compensate for the loss in value of their collateral without
undermining the insurable interest doctrine.
Courts, however, have routinely declined to employ this legal fiction to protect a
lender’s right to recover insurance proceeds in one circumstance: where the lender makes
a full credit bid for the property serving as security for the loan. Where such a bid is
made at a public auction, the law treats the amount bid as a concession by the purchaser
that the property is worth (at least) that amount. (Alliance Mortgage, supra, 10 Cal.4th at
p. 1238; Cornelison v. Kornbluth, supra, 15 Cal.3d at pp. 606-607.) Because the lender
has purchased property conceded to be worth the entire amount of the outstanding debt,
courts hold the lender is not entitled to insurance proceeds payable for damage to the
property because the lender’s security interest (the balance due on the loan) has been
satisfied and any other payment would give the lender a double recovery. (Track Mortg.
Group Inc. v. Crusader Ins. Co., supra, 98 Cal.App.4th at p. 864; Rosenbaum v.
Funcannon, supra, 308 F.2d at p. 684; see also Reynolds v. London & Lancashire Fire
Ins. Co. (1900) 128 Cal. 16, 19-20.)
The trial court in this case did not find that plaintiff’s insurable interest in the
Property was extinguished because he made a full credit bid; to the contrary, the court
granted summary judgment notwithstanding its view that the question of whether plaintiff
made a credit bid in the full amount of borrower’s indebtedness was a disputed issue of
material fact. And while it is true, at least in theory, that some post-foreclosure
compensation other than from insurance proceeds could vitiate a lender’s security
interest, there has been no showing by undisputed facts of such repayment to plaintiff
here.
10
Defendants suggest plaintiff was made whole, i.e., he actually recovered the full
amount of his security interest, by settling the Foreclosure Lawsuit. But all we know for
certain from the record about that lawsuit and the agreement to settle it is that plaintiff
paid borrower $15,000 as consideration. Defendants speculate that plaintiff would have
had to pay more than $15,000 to settle the lawsuit if he had “chosen not to settle the
mortgage debt,” and they assert plaintiff “chose to use the debt as a bargaining chip.”
California’s anti-deficiency laws, however, prohibited plaintiff from proceeding against
borrower to recover on that debt after the foreclosure sale. Because release of the
mortgage debt therefore had no value to borrower, it could have had no value to plaintiff
in settling borrower’s lawsuit. Instead, based on the evidence before the trial court at
summary judgment, defendants would have us hold plaintiff paid $15,000 to give up his
own right to collect insurance proceeds for the damage to the property. That makes
neither logical nor financial sense—certainly not for plaintiff, and not for borrower either.
Borrower would derive no benefit from any waiver by plaintiff of his right to collect
insurance proceeds because borrower had no claim to the proceeds; he denied ever
requesting the insurance policy.
Defendants imply, with scant support in the record before us, that plaintiff had
viable non-contractual cross-claims against borrower seeking compensation for property
damage, and that plaintiff’s decision to forbear pursuing those claims could have reduced
the amount plaintiff would have otherwise had to pay borrower as consideration for
borrower to agree to dismiss his claims and settle the case. (See Cornelison v. Kornbluth,
supra, 15 Cal.3d at pp. 603-604 [Code Civ. Proc. § 580b bars actions for waste but not
“bath faith waste”].) If that were true, one could argue this assumed savings should be
credited as partial or complete repayment of borrower’s loan debt. But that is a question
of fact that was not considered by the trial court in granting summary judgment, and one
that cannot be considered by this court on appeal, particularly with the paucity of
information in the record about the Foreclosure Lawsuit.
Rather, both the trial court and defendants relied solely on the release that plaintiff
and borrower executed when settling the Foreclosure Lawsuit. Defendants argued, and
11
the trial court agreed, that the “unambiguous and express terms of the broad waiver
released the mortgage debt,” and thus, plaintiff’s right to collect on the insurance policy
defendants issued. We therefore turn to the release and analyze whether it does
unambiguously so provide.
D. The Release Does Not Extinguish Plaintiff’s Insurable Interest as a Matter
of Law
“Release agreements are governed by the generally applicable law of contracts.”
(Neverkovec v. Fredericks (1999) 74 Cal. App. 4th 337, 348 (Neverkovec).) On appellate
review, a trial court’s interpretation of contract provisions, including a determination of
whether the terms are ambiguous, is a question of law that we review de novo. (Appleton
v. Waessil (1994) 27 Cal. App. 4th 551, 554-555; see also Christensen v. Smith (2009) 171
Cal. App. 4th 931, 937 [“Whether the terms of a contract are ambiguous is a question of
law”]; Arntz Builders v. City of Berkeley (2008) 166 Cal. App. 4th 276, 284 [interpretation
of contract provisions is a legal issue subject to de novo review unless the contract is
ambiguous and its interpretation turns on the resolution of factual disputes].)
“However broad may be the terms of a contract, it extends only to those things
concerning which it appears that the parties intended to contract.” (Civil Code, § 1648.)
“‘The fundamental goal of contractual interpretation is to give effect to the mutual
intention of the parties. (Civ. Code, § 1636.)’ (Bank of the West v. Superior Court
[1992] 2 Cal.4th [1254,] 1264.) ‘Such intent is to be inferred, if possible, solely from the
written provisions of the contract.’ (AIU Ins. Co. v. Superior Court [1990] 51 Cal.3d
[807,] 822.) ‘If contractual language is clear and explicit, it governs. (Civ. Code, §
1638.)’” (La Jolla Beach & Tennis Club, Inc. v. Industrial Indemnity Co. (1994) 9
Cal. 4th 27, 37.) But where contract terms are ambiguous, courts consider extrinsic
evidence in determining the intention of the parties. (Wolf v. Walt Disney Pictures &
Television (2008) 162 Cal. App. 4th 1107, 1126; Pacific Gas & Elec. Co. v. G.W. Thomas
Drayage & Rigging Co. (1968) 69 Cal. 2d 33, 37 [if extrinsic evidence demonstrates
12
ostensibly clear language in contract is susceptible to more than one reasonable
interpretation, extrinsic evidence may be used to determine intent].)
Defendants were not a party to the Foreclosure Lawsuit settlement agreement, but
they invoke its release provision—in particular, its reference to “debts”—in support of
their position that plaintiff surrendered his right to collect insurance proceeds. By its own
terms, the release applies only to plaintiff and borrower; it makes no reference to agents
or brokers of either, and it certainly makes no reference to defendants. “[A] nonparty
who claims benefits under [a] contract is entitled to do so long as the claimed benefit
does not flow to him as a mere incident of the agreement, but is one the contracting
parties intended to confer. [Citations.] [¶] The rights of a third party beneficiary thus
depend upon the intent of the contracting parties. (Hess v. Ford Motor Co. (2002) 27
Cal. 4th 516, 524 [].)” (Rodriguez v. Oto (2013) 212 Cal. App. 4th 1020, 1028; see also
Neverkovec, supra, 74 Cal.App.4th at p. 349 [“[T]o obtain summary judgment on the
ground that a general release has discharged him from liability, a third party to the release
agreement must affirmatively show that the parties intended to release him. The burden
of proof is on the third party, under both contract law and the summary judgment
statute”].)
The mutual release agreed to by plaintiff and borrower, while admittedly broad, is
ambiguous as to the meaning of the term “debts.” (See Neverkovec, supra, 74
Cal.App.4th at pp. 341, 353 [triable issue of fact as to whether release applied to the
defendant despite language “that appears to excuse everyone in the world from
liability”].) As we have explained, when plaintiff and borrower executed the agreement
to settle the Foreclosure Lawsuit over a year after plaintiff purchased the Property at
auction, no actual debt existed between them. Under California’s anti-deficiency statutes,
the foreclosure sale extinguished plaintiff’s ability to pursue a judgment against borrower
for any part of his unpaid loan balance that was not covered by plaintiff’s credit bid.
To be sure, a “debt” between the two persisted as a legal fiction to protect
plaintiff’s ability to collect insurance proceeds for the loss he suffered, but there are
insufficient indicia on the face of the settlement agreement that the parties to that
13
agreement intended to extinguish a debt that existed as a mere legal fiction. On the one
hand, we have no reliable basis on the record before us to conclude that plaintiff intended
to extinguish his right to collect insurance proceeds from defendants when signing the
agreement. And on the other hand, there is no reason to believe borrower would have
wanted or bargained for a release from this legally fictitious debt—he was effectively
released from his mortgage debt long before by operation of California’s anti-deficiency
statutes.
The sole function of the fictitious debt that remained was to protect plaintiff’s
right to collect insurance proceeds from an insurer that was not a party to the Foreclosure
Lawsuit settlement agreement. To avoid ambiguity under these uncommon
circumstances, and as a matter of law, the agreement would have had to have been more
specific about the nature of the interest being released—even a fairly perfunctory
reference to insurance (which was of course absent) would have done the job. (See
Appleton v. Waessil, supra, 27 Cal.App.4th at pp. 555-556 [reasoning if parties had
intended to release third party they would have named him specifically in the release].)
The only extrinsic evidence as to the meaning of the release that was before the
trial court on summary judgment was from plaintiff.6 In his declaration, he averred that
he did not intend, in executing the Foreclosure Lawsuit settlement agreement, to release
any claims he had against defendants in this action. Courts have appropriately held such
declarations of subjective intent are not dispositive. (See, e.g., Neverkovec, supra, 74
Cal.App.4th at p. 351; Rodriguez v. Oto, supra, 212 Cal.App.4th at pp. 1034-1035.) But
defendants introduced no extrinsic evidence at all, and given the ambiguity we find in the
release under the circumstances, defendants did not carry their burden to demonstrate as a
matter of law that plaintiff intended to surrender his insurable interest by executing the
Foreclosure Lawsuit settlement agreement. The parties intentions in executing that
6
Where an agreement is ambiguous as to the intended sweep of a release clause, the
presence of an integration clause in the agreement does not preclude consultation of
extrinsic evidence to determine the intent of the parties to the agreement. (Epic
Communications, Inc. v. Richwave Technology, Inc. (2015) 237 Cal. App. 4th 1342, 1354-
1355.)
14
agreement, and the question of whether plaintiff retains an insurable interest, will have to
be settled at trial.
Because we hold plaintiff’s insurable interest was not forfeited as a matter of law
and reverse the grant of summary judgment, we need not address his other contentions of
error.
DISPOSITION
The judgment is reversed. Appellant is to recover his costs on appeal.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
BAKER, J.
We concur:
KRIEGLER, Acting P.J.
KUMAR, J.

Judge of the Los Angeles Superior Court, assigned by the Chief Justice pursuant to
article VI, section 6 of the California Constitution.
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