Allstate Ins. Co. v. Madan

• Decision Date: 14 February 1995
• Docket Number: No. CV 94-4414-JCD.,CV 94-4414-JCD.
• Citation: 889 F. Supp. 374
• Court: U.S. District Court — Central District of California
• Parties: ALLSTATE INSURANCE COMPANY, Plaintiff, v. Subhash MADAN and Shobhana Madan, Defendants.

889 F. Supp. 374

ALLSTATE INSURANCE COMPANY, Plaintiff, v. Subhash MADAN and Shobhana Madan, Defendants.

No. CV 94-4414-JCD.

United States District Court, C.D. California.

February 14, 1995.

Melody S. Mosley, Berger Kahn Shafton Moss Figler Simon & Gladstone, Irvine, CA, and Peter H. Klee, and Charles A. Danaher, Luce Forward Hamilton & Scripps, San Diego, CA, for Allstate Ins. Co.

Grace A. Carter, Paul Hastings Janofsky & Walker, Los Angeles, CA, for Subhash and Shobhana Madan.

ORDER GRANTING PLAINTIFF'S MOTION FOR PARTIAL SUMMARY JUDGMENT

DAVIES, District Judge.

On January 23, 1995, Plaintiffs Motion for Summary Judgment or, in the Alternative, Partial Summary Judgment, came on before the Court for hearing. Having considered the parties' written submissions, and the oral argument of counsel, the Court hereby GRANTS Plaintiffs Motion for Partial Summary Judgment on the Defendants' and Counterclaimants' bad faith and intentional infliction of emotional distress claims.

I. FACTS

A. Procedural History

On June 30, 1994, Plaintiff Allstate Insurance Company filed a Complaint for declaratory relief against Defendants Subhash Madan and Shobhana Madan (collectively, the "Madans"). Allstate seeks to determine its obligation under a homeowners insurance policy. Allstate is an Illinois corporation with its principal place of business in Illinois, and the Madans are citizens of California. The Court has diversity jurisdiction.

On August 3, 1994, the Madans filed an answer and counterclaim. The Madans assert that Allstate representatives assured them the claim would be paid, and discouraged the Madans from retaining a public adjuster. In the course of investigating the claim, Allstate discovered that the cost of rebuilding and replacing the home would exceed $6 Million. According to the Madans, Allstate sought to avoid or delay payment of the claim.

The counterclaim alleges claims for (1) declaratory relief, in which the Madans seek a declaration that Allstate is obligated to indemnify and pay in full all losses sustained by the Madans; (2) breach of contract; (3) breach of the implied covenant of good faith and fair dealing; (4) intentional infliction of emotional distress; and (5) injunctive relief, in which the Madans request the Court to order Allstate to pay the full amount of outstanding mortgages on the residence. The Madans seek to recover punitive damages on the third and fourth claims.

B. Underlying Events

In 1981, Allstate issued a Deluxe Homeowners Policy, number 004 183123, to the Madans. Said policy provides a variety of coverages. It insures the Madans's residence premises at 3060 Doyne Road, Pasadena, California. The policy provides coverage for direct loss caused by fire. Earthquake coverage is excluded. The policy was renewed yearly and was effective from August 26, 1993 until cancelled or terminated. There is no question that at the time of the events described herein the policy was in effect. The policy does not cover bodily injury or property damage resulting from an act or omission intended or expected to cause injury or property damage. Policy, Section II, at 23.

In the early morning hours of October 27, 1993, a brush fire started in the hills above Eaton Canyon Park in the Pasadena-Altadena area of Los Angeles County. Santa Ana winds spread the fire to surrounding hillsides and mountains. The fire burned in residential neighborhoods. Many persons were evacuated, and over 120 homes in Pasadena and Altadena were destroyed.

The Madans' premises consisted of their residence and a number of rented apartments. On the morning of the brush fire, the premises were destroyed by fire. It was the only residence on Doyne Street so destroyed. In the Kinneloa Mesa community where the premises are located, over 30 homes were damaged or destroyed. The community is less than one square mile in area.

On the same day, the Madans filed a claim under the policy for damage to the structure, damage to personal property, and additional living expenses. Allstate did not contest coverage for living expenses, and paid them. Allstate retained Michael Whedon, a licensed fire investigator, to investigate the fire at the insured premises and provide an opinion as to the cause and origin of the fire. Whedon conducted the first site inspection on November 12, 1993.

On or about January 10, 1994, Whedon submitted a report of his findings to Allstate. The report included the following information. The burn patterns on the remains of the exterior walls indicated that the fire originated in the residence. The land surrounding the residence was covered with dried grass and other flammable vegetation. The vegetation had not burned. Bushes and trees adjacent to the residence were burned on the sides facing the structure but were not burned on the sides facing away from the structure. Mr. Whedon viewed a videotape taken by Sheriffs deputies from the Altadena station on the morning of the fire. The videotape showed that the interior of the first floor of the structure was burning. The second floor and roof were not burning at the time the deputies videotaped the premises.

The Whedon Report further stated that a 55-gallon barrel containing kerosene was found in the storage room at the north end of the west wing of the structure. The barrel had not exploded, but the top was bulged upward due to increased pressure from the heat of the fire. A small amount of kerosene was still inside the hand pump attached to the barrel. Mr. Whedon employed a Master Canine Accelerant Detection Team. A dog detected flammable and combustible liquid residues in the interior of the structure. The Madans stated that the only potentially flammable liquids kept in the residence were cleaning products and furniture polishes. The dog was not trained to detect such household products.

Also, two Los Angeles County Fire Department investigators inspected the insured premises. The investigators were in the area during the brush fire, and observed the wind conditions and fire behavior. They consulted with Whedon, and opined that the fire at 3060 Doyne Road was not caused by the Altadena wildfire. Mr. Whedon considered all of this information and concluded that the fire was intentionally set. He expressed this opinion in the report.

Allstate retained Barker Davie, a fire cause and origin expert, to conduct a further investigation. Mr. Davie reviewed the information provided by Allstate, including the Whedon Report and the Sheriff's Department videotape. Mr. Davie opined that the burn patterns found on the roof and walls of the residence were not consistent with a fire caused by embers from a wildfire. From the videotape he determined that the fire in the structure burned rapidly. Based on the size of the fire, Mr. Davie concluded that the fire burned rapidly because a large quantity of accelerant had been used.

Not all of the evidence suggests the fire on the premises was intentionally set. David Boucher is a captain with the Los Angeles County Fire Department. He is stationed at Fire Station 66, less than a mile from the insured premises. He asserts that between 8:15 and 8:30 on the morning of the fire, Mr. Madan arrived at Fire Station 66. Madan informed Captain Boucher that the grounds of his property were on fire. Captain Boucher and Battalion Chief Joseph Graham drove to the Madans' property. They observed that the courtyard grass was smoldering. There was no sign of fire inside the main house or the other buildings. When he left, the residence was not on fire. Captain Boucher concluded that embers carried by the wind could have landed on the premises and started a fire in the interior of the structure.

The Madans retained David A. Lowe, a fire cause and origin expert. He considered all available information and concluded that the Altadena wildfire "is the most obvious source for the fire" at the premises, and "one which cannot be eliminated."

Mr. Lowe evaluated the results of laboratory tests performed on debris samples removed from the premises. Truesdail Laboratories analyzed the samples for kerosene and gasoline. It found no detectable levels of flammable liquids or accelerants. Joe Bramblett, the Truesdail Laboratories Manager who prepared the report, later testified that one or two samples contained benzene, toluene, and xylene. Said compounds are accelerants. Approximately five months later, Armstrong Forensic Laboratory conducted a second analysis. It found "positive" readings for accelerants. Mr. Lowe concluded that the tests were "inconclusive."

Based on the information in Mr. Whedon's report, and other evidence obtained in the investigation, Allstate has taken the position that there is no coverage under the policy. The evidence resulting from the investigation may support a conclusion the fire was the result of an intentional act. It seeks such a determination by its declaratory relief claim.

On September 27, 1994, Allstate issued a draft in the sum of $457,762.40 to the Madans, the lienholders named on the insurance policy, the public adjustors retained on behalf of the Madans, and the Madans' attorneys. Allstate did so without waiving the terms and conditions of the insurance policy, or any of its rights and defenses which are the subject of the action herein.

II. DISCUSSION

Allstate contends that it is entitled to summary judgment because the Madans did not cooperate in the investigation. In the alternative, Allstate contends it is entitled to partial summary judgment on the Madans' counterclaims for bad faith and intentional infliction of emotional distress. Allstate further requests the Court to find as a matter of law that the Madans are not entitled to punitive damages.

A. Summary Judgment Standard

The Federal Rules of Civil Procedure provide for summary judgment if "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine...