Allstate Insurance Company v. Dwight H. Smith, M.D.

In this diversity action, Dwight H. Smith, M.D. (Smith) appeals from the district court’s declaratory judgment, finding that Allstate Insurance Co. (Allstate) was not required to reimburse Smith pursuant to his “all risk” insurance policy for damage to his business equipment and improvements, and for his loss of earnings. We reverse.

BACKGROUND

Smith rented space in a Los Angeles office building for his medical practice. In the fall of 1988, he bought an “all risk” insurance policy from Allstate covering his business property for “loss or damage resulting from direct physical loss” with certain enumerated exclusions including those for losses caused by faulty workmanship and rain.

On December 18, 1988, a roofing contractor was working on the building pursuant to an earthquake standards compliance or der issued by Los Angeles's Department of Building & Safety. During the day, the contractor removed most of the roof but did not put a temporary cover over the exposed premises. Unfortunately, that night it rained and Smith’s office equipment and improvements were damaged.

Subsequently, Smith filed a claim with Allstate for the repair and replacement of his business property and…