Chateau Chamberay Homeownwers Assoc. v. Assoc Int'l Ins Co.

• Decision Date: 29 June 2001
• Citation: 108 Cal.Rptr.2d 776,90 Cal.App.4th 335
• Court: California Court of Appeals Court of Appeals
• Parties: (Cal.App. 2 Dist. 2001) CHATEAU CHAMBERAY HOMEOWNERS ASSOCIATION, Plaintiff and Appellant, v. ASSOCIATED INTERNATIONAL INSURANCE COMPANY, Defendant and Respondent. B137320 SECOND APPELLATE DISTRICT, DIVISION THREE Filed

108 Cal.Rptr.2d 776 (Cal.App. 2 Dist. 2001)

CHATEAU CHAMBERAY HOMEOWNERS ASSOCIATION, Plaintiff and Appellant, v. ASSOCIATED INTERNATIONAL INSURANCE COMPANY, Defendant and Respondent.

B137320

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT, DIVISION THREE

Filed 6/29/01

Amended 7/30/01

(Super. Ct. No. SC043443)

APPEAL from a judgment of the Superior Court of Los Angeles County.

Hugh C. Gardner, III, Judge. Affirmed.

Girardi and Keese, Anne M. Huarte, and John A. Girardi for Plaintiff and Appellant.

Cummings & White, Annabelle M. Harris and Daniel G. Bath for Defendant and Respondent.

CERTIFIED FOR PUBLICATION

CROSKEY, J.

This appeal tests the validity of an order of the trial court summarily adjudicating, in favor of the insurer, the claim that the insurer was liable for its bad faith adjustment of the insured's claim of loss. Following the Northridge earthquake on January 17, 1994, the appellant, Chateau Chamberay Homeowners Association (HOA), submitted a claim of loss to its insurer, the respondent, Associated International Insurance Company (AIIC). When it was finally calculated, HOA's claim totaled $5,771,522.

During the investigation process, AIIC paid to HOA several interim payments, which together represented the total amount AIIC believed was due; that amount totaled $1,949,161. A subsequent stipulated arbitration determined that AIIC had underpaid the total amount of HOA's covered loss and ordered that AIIC pay an additional $610,753, plus interest; thus, HOA's total covered loss was determined to be $2,559,914, or approximately 45% of its claimed total loss.

While the amount of HOA's covered loss was resolved by arbitration, its claim for bad faith conduct on the part of AIIC went forward in the trial court. Concluding from the evidence presented that AIIC and HOA had a "genuine dispute" as to what was covered under AIIC's policy and the proper amount of HOA's loss, the trial court determined that AIIC could not be found liable in bad faith for its adjustment activities and the resulting delayed payment of HOA's claim. Based on that determination, it granted AIIC's motion for the summary adjudication of HOA's cause of action for bad faith. As all other issues have now been resolved and a final judgment entered, that ruling may now be reviewed.

The record before us reflects that AIIC and HOA did have a genuine dispute as to (1) just what portion of HOA's claimed loss was actually covered under the policy and (2) the proper amount of HOA's covered loss. In addition, we can find no factual support for the conclusion that AIIC acted unreasonably or without proper cause in its adjustment of HOA's claim. We thus are able to determine, as a matter of law, that AIIC cannot be found liable in bad faith. As a result, we conclude that the trial court did not err in summarily adjudicating HOA's bad faith claim. We therefore will affirm the judgment.

FACTUAL AND PROCEDURAL BACKGROUND¹

Prior to January 17, 1994, AIIC had issued a $5 million policy of property insurance (including earthquake coverage) to HOA covering the common areas of its 66-unit condominium building at 2385 Roscomare Road in Los Angeles.² On that date, the Northridge earthquake caused significant damage to HOA's building. HOA promptly notified AIIC and made a claim of loss.

On or about January 20, 1994, AIIC employed an adjuster to assist in the adjustment of HOA's loss. It also retained the services of a general contractor and a structural engineer to evaluate the nature and extent of the damage sustained to HOA's building. Within the following week, site inspections of the property were completed and AIIC paid an advance of $50,000 to HOA on February 1, 1994.

At about the same time, HOA retained a public adjuster and two structural engineers to assist it with the evaluation of its loss. On February 4, 1994, one of its engineers submitted a structural damage report which reflected, in part: "Internally the building seemed to have survived the earthquake with relatively little damage, with the exception of the four units located in the north and south wings of the building fronting the street . . . damages to units on levels A & B were negligible." However, the report went on to make repair recommendations which were designed to "minimize any further damage which may occur from future seismic activity" (e.g., the installation of plywood on all exterior walls of the first and second floors). Within 10 days to two weeks thereafter, it was reported to AIIC that the general contractor retained by HOA was installing shear paneling unnecessary for "emergency shoring," but apparently for the purpose of meeting current building codes.³

After several more site inspections during the spring of 1994, representatives of the adjusters hired by AIIC and HOA agreed that HOA's adjuster would submit to AIIC a repair scope and estimate which would be used as a basis for attempting to resolve HOA's claim. On or about March 28, 1994, AIIC discovered that public records reflected that the property had a settlement problem which had existed before the earthquake. In addition, AIIC later learned (through a review of HOA board meeting minutes) that there were other pre-earthquake problems, including land erosion, and water intrusion and tile buckling problems. It is AIIC's position that the impact these circumstances would necessarily have upon the damage sustained by HOA's building and the extent of HOA's covered loss had to be investigated.

Although HOA's scope and repair estimate had not yet been provided, AIIC advanced another $100,000 to HOA on May 24, 1994. On June 22, AIIC formally advised HOA's adjuster of its position on the scope of coverage under the policy: (1) repairs required by new building codes were not covered under the subject policy, (2) asbestos removal was covered only from those areas of the property which were damaged by the earthquake, (3) only consequential damage to the interiors of the units resulting from repairs to the common area were covered, and (4) no coverage existed for the plywood shear panels which were installed after the earthquake absent evidence that they were installed on an "emergency" basis to stabilize the building.⁴

HOA finally submitted its scope and estimate of repairs on September 29, 1994, which was nine months after the loss. It totaled $6,493,793 and included items such as (1) fortification of a defectively constructed foundation, (2) removal of stucco in order to install plywood sheathing, (3) repair of pre-existing floor vibration problems, (4) repair of water intrusion problems, and (5) repair of the individual units. AIIC had significant problems with this estimate and, over the next several months, it had a number of discussions with HOA's adjuster. During the same time period, AIIC continued site inspections, including inspection of individual units.

On December 19, 1994, despite its reservations about HOA's repair estimate, AIIC made another advance payment, this time in the amount of $300,000. At the time of this payment, there was still no agreement on the scope or cost of covered repairs under the policy, and AIIC contended that HOA's estimate was grossly overstated. Finally, in March 1995, HOA's adjuster withdrew the estimate, citing "problems with it."

During the spring of 1995, AIIC attempted to ascertain the extent of the pre-existing problems with HOA's building. In AIIC's view, this was critical because problems with the property that pre-existed the earthquake could not properly be included in the earthquake claim. On or about May 9, 1995, AIIC's adjuster requested all expert reports and construction repair estimates which pre-dated the earthquake so that AIIC could evaluate these problems. Subsequently, on June 2, 1995, the HOA submitted a new repair estimate. This estimate was in the amount of $5,771,522, and it far exceeded AIIC's evaluation of the covered loss. Still included were the cost of repairs of items not covered under the policy such as (1) compliance with current building code regulations, (2) repair of pre-existing damage and construction and design defects, including the improperly constructed foundation, (3) installation of caissons and grading and (4) repair of floor vibrations and (5) repair of the interior of certain individual homeowner units.⁵

Based on its investigation, and what it believed to be covered under the policy, AIIC paid another $1 million on the claim on September 14, 1995, bringing the total payments to HOA, as of that date, to $1,450,000. Thereafter, in order to reach an agreement on the balance of HOA's claim which was not disputed, AIIC's adjuster entered into negotiations with HOA's representative. AIIC proposed a compromise agreement on the scope and cost of repair of the earthquake damage to the HOA property covered under the policy in the amount of $2,287,783. An effort was then made to negotiate a narrative of what claims would be settled by payment of such amount, and what disputed items would remain open. HOA, however, ultimately refused to agree to a narrative. AIIC thereafter nonetheless paid an additional sum of $449,161.48, bringing the total payments made to HOA to $1,949,161.48. Following that payment, AIIC took the formal position that there was no more owing under the policy.

HOA responded by filing this action on January 25, 1996, for breach of contract and breach of the implied covenant of good faith and fair dealing. With respect to its bad faith claim, HOA sought punitive damages, arguing that AIIC's conduct, in delaying the payments that it had made and refusing to pay HOA's claim in full, constituted acts committed with malice and oppression.

The basic dispute between AIIC and HOA with respect to the latter's claim for earthquake damage to its property raised several issues on which the parties could not agree: (1) whether HOA's claim included losses for which it was not at risk (i.e.,...