Henry v. Associated Indemnity Corp.

• Decision Date: 14 February 1990
• Docket Number: No. D009427,D009427
• Citation: 217 Cal.App.3d 1405,266 Cal.Rptr. 578
• Court: California Court of Appeals Court of Appeals
• Parties: James HENRY, et al., Plaintiffs and Appellants, v. ASSOCIATED INDEMNITY CORPORATION, et al., Defendants and Respondents.

Page 578

266 Cal.Rptr. 578

217 Cal.App.3d 1405

James HENRY, et al., Plaintiffs and Appellants, v. ASSOCIATED INDEMNITY CORPORATION, et al., Defendants and Respondents.

No. D009427.

Court of Appeal, Fourth District, Division 1, California.

Feb. 14, 1990.

Certified for Partial Publication. ¹

Epsten, Cornelius & Grinnell and Douglas W. Grinnell, San Diego, for plaintiffs and appellants.

Klinedinst & Fliehman, Donald R. McKillop, San Diego, Cummins & White and Susan B. Friend, Long Beach, for defendants and respondents.

HUFFMAN, Associate Justice.

Plaintiffs James Henry and Annie Gutierrez (collectively Henry) appeal orders dismissing their second amended complaint (the complaint) after the trial court sustained without leave to amend separate demurrers by defendants Associated Indemnity Corporation, known as Fireman's Fund Insurance Company (Fireman's), and Mayflower Insurance Company, Ltd. and its adjuster, Underwriters Adjusting Company (collectively the Mayflower defendants, except where it is necessary to refer separately to Mayflower and Underwriters).

Henry is the owner of a residence in Bonita which for some years has been undergoing soil subsidence distress and is slowly collapsing. He sued his insurers, Fireman's and Mayflower, who had successively issued all-risk policies on the home, on bad faith insurance theories after they each denied coverage for his property damage claim. The trial court found the complaint fatally defective on a number of grounds, chiefly a lack of timely filing under one-year suit limitations provisions contained in the respective policies.

We conclude Henry has successfully alleged his action was timely filed in light of the nature of the property damage which the home is undergoing, and reverse the orders of dismissal as to the bulk of the

                pleading against the two insurers after first discussing the recent development of case law in the first party insurance context after Moradi-Shalal v. Fireman's Fund Ins. Companies (1988) 46 Cal.3d 287, 250 Cal.Rptr. 116, 758 P.2d 58.   However, only one cause of action against the adjuster, Underwriters, can stand (intentional infliction of emotional distress), and we have also concluded the trial court correctly recognized Henry's cause of action for breach of fiduciary duty against all defendants is unsupported by case law and properly sustained that demurrer without leave to amend.  We thus affirm in part and reverse in part
                

FACTUAL AND PROCEDURAL BACKGROUND

A The Property Purchase

Henry bought the subject residence in March 1984 from Mr. and Mrs. Heard. In a separate action (Henry v. Heard (Super.Ct. San Diego County, 1987, No. 582260)) he sued the Heards for rescission and damages for misrepresentation, alleging Heard misrepresented to him there were no cracks in the concrete slab or the walls of the residence, whereas the true facts were that such cracks existed, indicating the residence is structurally unsound. ²

B The Subject Complaint

The pleading which we must examine, the second amended complaint, is framed in seven causes of action. As against Fireman's, the theories alleged, as numbered, were: (1) unfair claims and settlement practices (Ins.Code, § 790.03), ³ (2) breach of the implied covenant of good faith and fair dealing, (6) breach of insurance contract, and (7) intentional infliction of emotional distress. (In addition, as noted infra at fn. 5, Henry attempted in his first amended complaint to allege breach of fiduciary duty, but Fireman's demurrer was sustained without leave to amend.)

As against the Mayflower defendants, the causes of action alleged, as numbered, were: (3) unfair claims and settlement practices (§ 790.03), (4) breach of the implied covenant of good faith and fair dealing, (5) breach of fiduciary duty, (6) breach of contract, including both a traditional theory against Mayflower for breach of insurance contract and a third-party beneficiary theory against Underwriters, arising out of its claims adjustment agreement with Mayflower, and (7) intentional infliction of emotional distress.

C Henry's Alleged Facts

We summarize the facts alleged, which are deemed admitted by the demurrer and which must be liberally construed with a view to determining if Henry is entitled to any relief from the courts (Gruenberg v. Aetna Ins. Co. (1973) 9 Cal.3d 566, 572, fn. 4, 108 Cal.Rptr. 480, 510 P.2d 1032): Fireman's insured Henry's property with an all-risk property insurance coverage policy that was in effect from March 15, 1984, through July 31, 1985. From July 31, 1985, the Mayflower defendants insured the same property with the same type of policy, with Underwriters acting on behalf of Mayflower in carrying out Mayflower's legal obligations as an insurer. To describe the property damage that occurred, Henry makes the following allegations:

"10. Plaintiffs are informed and believe, and thereon allege, that during the "11. In short, Plaintiffs' home is slowly being pulled apart and is collapsing and has been pulling apart and collapsing for several years and was collapsing during the aforesaid period during which Defendant FIREMANS FUND insured Plaintiffs' home.[ ⁴ The aforementioned damages are not just 'settling, cracking, shrinking, bulging, or expansion of pavements, patios, foundations, walls, floors, roofs or ceilings.' The entire residence is affected. The aforementioned property losses occurred in a gradual, progressive, continual, evolving fashion. Plaintiffs did not realize the true extent of the aforesaid damages and losses until approximately 1987. At no time prior to August 1987 had such damages and losses manifested to such an extent that they would put a reasonable person on notice that an insurance claim should be filed. Upon learning of said damages and losses, and the true extent thereof, Plaintiffs promptly gave notice of said damages and claims to Defendant FIREMANS FUND." (Italics added.)

aforesaid policy period, the subject property experienced substantial property losses and damages, including: the building was damaged, producing damage to dwelling and apartment structures, including cracks, separations, and elevation differences in walls, floors and ceilings; concrete slabs were damaged, producing damage to other structures, fixtures, and personal property; the walls, wall systems, slabs, driveway, footings, stucco, drywall, and walls cracked, separated, tilted and failed, causing damage to other structures and personal property; the dwelling and other structures collapsed; the structural elements of the dwelling experienced cracking, causing damage to other structures and personal property; the property experienced loss and damage from inadequate drainage, from moisture, dampness, seepage and heavy water flow, damaging structures and personal property; the soils, fill, earth, and ground were damaged, failed, sank, settled, collapsed, and caused cracking and separating; the structural members, including beams and columns were damaged and failed, producing structural sagging, cracking, and extraordinary stresses, strains, and deflections, damaging the dwelling and structures, fixtures and personal property, and creating a hazardous condition of structural inadequacy to withstand earthquakes; the soils supporting the dwelling and structures were damaged and failed, producing structural damage to the structures, fixtures and personal property.

Some seven months after making his claim with the insurers, Henry filed this action. He alleges in the first and third causes of action his claims were handled in such a manner as to violate section 790.03, subdivisions (h)(1) (misrepresentations of pertinent facts or policy provisions), (h)(3) (lack of reasonable standards for the prompt investigation and processing of claims), (h)(5) (failing to effectuate prompt and fair settlement where liability is reasonably clear), (h)(13) (failing to promptly explain the basis of denial of the claim).

The same conduct as previously described and more is alleged to have constituted breaches of the covenant of good faith and fair dealing (second and fourth causes of action). In addition, Henry alleges Fireman's had a conflict of interest in its investigation of the claim in that it also insured the previous owners, the Heards.

In the fifth cause of action, and earlier in the first amended complaint, Henry generally alleged breach of fiduciary duty on the part of the two insurers, claiming he was invited and encouraged by them to trust them, to rely on their honest and reliable claims processing services, and to allow the insurers control of Henry's property rights and "affairs therein." From these facts, Henry pleads a fiduciary relationship of trust and confidence arose.

Specifically with regard to the breach of fiduciary duty claim against Underwriters, Henry alleges that because of the close business relationship between Mayflower and Underwriters, he and members of the public were unable to distinguish between Mayflower and Underwriters for the purpose of pursuing their legal rights. He attaches as an exhibit a sample advertisement by Mayflower and Underwriters promising good service, and then alleges he was a third-party beneficiary of the claims adjustment contract between Mayflower and Underwriters, and is thus entitled to fiduciary duties in the form of fair and good faith performance of the contractual obligations undertaken by those two entities to Henry and to each other.

In the sixth cause of action, traditional breach of contract theories are alleged with respect to the two contracts of insurance, as well as an innovative third-party beneficiary theory arising from the Mayflower-Underwriters contractual relationship. Henry pleads he is entitled to performance of all these insurance contracts in the form of fair and expeditious investigation and adjustment of his losses so that he is not deprived of the benefits of the agreements.

Finally, intentional infliction of emotional...