TRB Investments (and several partner entities, from hereon referred to as TRB) bought a property insurance policy from Fireman's Fund Insurance Company (Fireman's). The commercial property policy included a provision that suspended coverage involving loss due to water damage and several other perils when the insured property met the policy's vacancy definition. The provision also reduced available coverage for vacant premises by 15% for all remaining sources of loss or damage.

The commercial property policy was in effect for a location in Bakersfield, California where, during July 2001, substantial water damage was discovered. The building had been undergoing extensive renovation so that its interior space could be modified to accommodate business tenants of various sizes. TRB filed a claim for the water damage (caused by a burst water heater) and Fireman's denied the claim, alleging that the building was vacant. TRB, after failing to get Fireman's to change its decision, sued the insurer. Both the original court and a court of appeals ruled in favor of Fireman's, agreeing that the vacancy exclusion applied. TRB, again, appealed.

TRB, again, presented its position with the higher court. It challenged Fireman's position, stating that the property was not vacant since it had been regularly occupied by various work crews that readied it for rental. The policy wording included statements that a building which did not contain adequate business personal property to support regular operations was considered vacant. That is the wording that the previous courts and the insurer relied upon in their decision. However, TRB relied on a final part of the vacancy provision. That part was an exception for properties that are under construction. The higher court's focus was on this exception.

TRB argued that, the extensive and continuous renovation being made during the time of the loss qualified the building as being under construction. TRB documented that construction workers regularly occupied the building as they, eventually, made more than $1,000,000 worth of renovations throughout the structure. The insurer and the lower courts claimed that "under construction" referred to new building construction, rather than renovations; so the building activity did not qualify for the policy exception. The court reviewed this position against the previous rulings, examining the lower decision including it's reliance on several dictionaries that supported an interpretation of building under construction as meaning new construction. The court noted that other courts have, in other relevant decisions, interpreted "under construction" both ways; only referring to new construction and including renovations and repairs. Therefore, it seems reasonable that "under construction" could reasonably interpreted in more than one manner. The court also noted that the commercial property's wording included another important issue. Under the form's cancellation provision, an insurer could not consider a building vacant (and issue cancellation) while it was undergoing renovation and repairs. The court found it unreasonable for an insurer to conclude that renovations or repairs could prevent it from canceling a contract; yet, at the same time, permit it to suspend coverage.

The higher court found that a reasonable reading of the policy's intent was to avoid the substantially increased hazard presented by an unoccupied building. In this instance, the major construction activity provided a risk similar to a regular operation and was not a vacancy. The lower court decision was reversed in favor of TRB and remanded.

TRB Investments, Inc. et al., plaintiffs and appellants, v. Fireman's Fund Insurance Company, defendant and respondent. CASUPCT. No. S 136690. Filed November 13, 2006. Reversed and remanded.