California “loss of use”

In Advanced Network, Inc. v. Peerless Ins. Co., No. D055632 (Cal. 4^th App. Dist. Dec. 10, 2010), an employee of insured ANI stole cash from ANI’s customer, Mission Federal.  Mission Federal’s fidelity bond holder, Cumis, paid Mission Federal for the loss. Cumis then sued ANI.  ANI’s CGL insurer, Peerless, denied a defense.  ANI settled the Cumis suit and then filed suit against Peerless for breach of contract.    The trial court entered summary judgment for ANI on Peerless’ duty to defend.  During trial, the court directed a verdict in favor of ANI on Peerless’ duty to indemnify.  Peerless appealed the resulting judgment entered against it.  The intermediate appellate court reversed, holding that there was no “property damage.”   Specifically, the court held that “loss of use” unambiguously does not include the “permanent loss of property through conversion” and that the damages for “loss of use” includes (1) rental value for the period of time the claimant is deprived of the use of the property, (2) lost interest on loans, or (3) lost profits on potential investments, but does not include the replacement value of property that is permanently lost.  Here, it was undisputed that the stolen cash was irretrievable.  The opinion does not discuss whether the damages sought by Cumis, in addition to the replacement costs, also potentially included lost interest or profits.