Adelman v. Associated Internat. Ins. Co.

• Decision Date: 29 June 2001
• Docket Number: No. B130210.,B130210.
• Citation: 90 Cal.App.4th 352,108 Cal.Rptr.2d 788
• Court: California Court of Appeals Court of Appeals
• Parties: Steve ADELMAN, et al., Plaintiffs and Appellants, v. ASSOCIATED INTERNATIONAL INSURANCE COMPANY, Defendant and Respondent.

108 Cal.Rptr.2d 788

90 Cal.App.4th 352

Steve ADELMAN, et al., Plaintiffs and Appellants, v. ASSOCIATED INTERNATIONAL INSURANCE COMPANY, Defendant and Respondent.

No. B130210.

Court of Appeal, Second District, Division 3.

June 29, 2001.

Girardi and Keese, Ann M. Huarte and John A. Girardi, Los Angeles, for Plaintiffs and Appellants.

Cummins & White, Daniel G. Bath, Los Angeles, and Annabelle M. Harris, Newport Beach, for Defendant and Respondent.

Horvitz & Levy, David S. Ettinger and Mitchell C. Tilner, Eneino, for Truck Insurance Exchange, Fire Insurance Exchange, Mid-Century Insurance Company, Civic Property and Casualty Company, Exact Property and Casualty Company and Neighborhood Spirit Property and Casualty Company as Amicus Curiae on behalf of Defendant and Respondent upon the request of the Court of Appeal.

Sonnenschein, Nath & Rosenthal and Paul Glad, San Francisco, for National Association of Independent Insurers as Amicus Curiae on behalf of Defendant and Respondent upon the request of the Court of Appeal.

Fred J. Hiestand, Sacramento, for Civil Justice Association of California as Amicus Curiae on behalf of Defendant and Respondent upon the request of the Court of Appeal.

Howrey, Simon, Arnold & White, Irvine, and Kirk A. Pasich, Los Angeles, as Amicus Curiae on behalf of Defendant and Respondent upon the request of the Court of Appeal.

Robie & Matthai and Pamela E. Dunn, Los Angeles, for Personal Insurance Federation of California as Amicus Curiae on behalf of Defendant and Respondent upon the request of the Court of Appeal.

Haight, Brown & Bonesteel and Roy Weatherup, Santa Monica, as Amicus Curiae on behalf of Defendant and Respondent upon the request of the Court of Appeal.

CROSKEY, J.

In this appeal, plaintiffs¹ seek reversal of an order dismissing their complaint which had sought damages for the alleged negligent acts and omissions of the defendant Associated International Insurance Company (hereafter, AIIC). Plaintiffs alleged that AIIC negligently failed to timely perform its indemnity obligations under a policy of property insurance issued to a third party. Concluding that plaintiffs, who were not insured parties under the policy, had no standing to complain about AIIC's performance, the trial court sustained AIIC's demurrer without leave to amend.

We have concluded that the trial court reached the correct result. Plaintiffs claimed that AIIC had a "special" relationship with them and thus owed them a duty of care. This claim rested upon the principles articulated by the Supreme Court in Biakanja v. Irving (1958) 49 Cal.2d 647, 650, 320 P.2d 16, and its progeny. To recognize such a duty under the facts presented here, however, would ignore the later limitations imposed upon the Biakanja duty analysis by the court's decision in Bily v. Arthur Young & Co. (1992) 3 Cal.4th 370, 396-399, 11 Cal.Rptr.2d 51, 834 P.2d 745. In addition, to recognize that a non-insured party could have standing to prosecute a tort claim against an insurer for its negligent investigation and adjustment of a claim filed by an insured party would give to the former greater rights than those to which the latter is entitled. An insured can recover in tort against an insurer for the improper handling of a claim only upon a showing that the insurer acted in bad faith; as we explain, such a showing requires something more than simple negligence. We cannot endorse such an anomalous result.

We therefore will affirm the order of dismissal.

FACTUAL AND PROCEDURAL BACKGROUND²

Plaintiffs are the individual owners of condominium units within the Chateau Chamberay Condominium project (project) which is located on Roscomare Road in Los Angeles. The project is a multi-story common interest development within the meaning of the Davis-Stirling Common Interest Development Act (Civ.Code, § 1350 et seq.). It is managed by the Chateau Chamberay Homeowner's Association (hereafter, HOA).

Prior to January 17, 1994, AIIC had issued to the HOA a homeowner's policy of property insurance which provided coverage for losses from various perils, including earthquake damage. Such policy covered the common areas of the project but did not extend coverage to the individual units owned by the plaintiffs. The policy was in effect on January 17, 1994, when the Northridge earthquake occurred. The project suffered substantial damage, including damage to the structure.³ Such damage as occurred to the project, including its common areas,⁴ was covered under AIIC's policy. The nature and extent of such damage was at all times known to AIIC, whose agents and adjusters visited and inspected the project on multiple occasions after January 17,1994.

The HOA timely made a proper and documented claim under the policy seeking the repair of the damage caused to the common areas of the project. AIIC failed to make such repairs or provide the funds required under the policy which were necessary to complete the repairs. As a result of AIIC's failure to perform under the policy, the necessary repairs to the structure of the project were not made. Such structural repair had to be made before plaintiffs could commence or complete the repairs to their individual units. Indeed, the repair of the damage to the common areas was so necessarily intertwined with the repair of the individual units that the latter could not be accomplished without completion of the former.

As a result, plaintiffs were forced to incur the expense of finding other living quarters, or to live amidst disrepair, and suffered significant diminution in the value of their units. Such additional expenses would not have been incurred had AIIC timely and fully performed its obligations under the policy.

The HOA filed an action against AIIC seeking damages for both breach of contract and breach of the implied covenant of good faith and fair dealing. The latter claim for bad faith was disposed of by the trial court when it granted AIIC's motion for summary adjudication of that claim.⁵ After certain technical coverage issues were resolved by the trial court, the HOA's breach of contract claim was submitted to binding arbitration and resulted in a judgment in favor of the HOA, which awarded it the sum of $707,387.⁶ That judgment is now final.⁷

In view of these circumstances, plaintiffs claim to have a personal economic interest in the prompt performance by AIIC of its obligations under the policy.⁸ They allege that such interest, and their risk of injury and harm if AIIC did not make a timely and proper performance of its indemnity obligations, were reasonably foreseeable at the time AIIC issued its policy to the HOA. Indeed, they argue, the entire aim and purpose of that policy, although describing only the HOA as the "named insured," was the protection of the interests of the plaintiffs who were not only the owners of the insured premises and the persons who would directly benefit from AIIC's performance, they were the parties who would be directly and immediately harmed by the failure of AIIC to render a timely and proper performance.

Plaintiffs allege that as a direct and proximate result of AIIC's negligent failure to discharge its indemnity obligations under the policy, and the resulting delay in the repair of the common areas, they have suffered damages consisting of (1) a delay and inability to make repairs to their individual units, (2) relocation costs, (3) rental and storage expenses, and (4) the diminution of the value of their units, all of which was reasonably foreseeable to AIIC at the time it issued its policy to the HOA.

AIIC responded to the plaintiffs' complaint by filing a demurrer.⁹ AIIC argued that plaintiffs were effectively attempting to recover under the policy and they had no standing (as non-insureds) to seek such a recovery. As individual unit owners they had no standing to prosecute a claim which belonged solely to the HOA. Moreover, the damage to the plaintiffs' individual interests in their units was not covered under the policy and AIIC had no liability therefor as it had not agreed to assume such a burden under the policy. The trial court agreed and, on January 7, 1999, sustained AIIC's demurrer without leave to amend. An order of dismissal was entered on January 25, 1999. Plaintiffs have prosecuted this timely appeal.

ISSUE PRESENTED

Plaintiffs raise a novel issue. In the factual context presented here, may an insurer be subject to liability to a noninsured third party for the negligent performance of its indemnity obligations to the named insured based upon allegations that there is a "special relationship" between the insurer and the third party, as that term has been defined and applied in Biakanja v. Irving, supra, 49 Cal.2d 647, 320 P.2d 16 (Biakanja) and its progeny?

DISCUSSION

1. Our Review Is Limited To A Determination As To Whether A Legal Basis For Imposition Of An Independent Duty In Negligence Has Been Pled

As already noted, we are reviewing an order of the trial court sustaining a demurrer without leave to amend. "In reviewing the sufficiency of a complaint against a general demurrer, we are guided by long-settled rules. `We treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law. [Citation.] We also consider matters which may be judicially noticed.' [Citation.] Further, we give the complaint a reasonable interpretation, reading it as a whole and its parts in their context. [Citation.] When a demurrer is sustained, we determine whether the complaint states facts sufficient to constitute a cause of action. [Citation.]" (Blank v. Kirwan (1985) 39 Cal.3d 311, 318, 216 Cal.Rptr. 718, 703 P.2d 58.) Irrespective of the labels attached by the pleader to any alleged cause of action, we examine the factual allegations of the complaint, "to determine whether they state a cause of action on any available legal theory." (Ellenberger v. Espinosa (1994) 30 Cal.App.4th 943, 947, ...