Collin v. American Empire Ins. Co., No. B073231

CourtCalifornia Court of Appeals
Writing for the CourtFRED WOODS; JOHNSON
Citation26 Cal.Rptr.2d 391,21 Cal.App.4th 787
PartiesWilfred D. COLLIN and Marie Collin, Plaintiffs and Appellants, v. AMERICAN EMPIRE INSURANCE COMPANY, Defendant and Appellant.
Decision Date05 January 1994
Docket NumberNo. B073231

Page 391

26 Cal.Rptr.2d 391
21 Cal.App.4th 787
Wilfred D. COLLIN and Marie Collin, Plaintiffs and Appellants,
v.
AMERICAN EMPIRE INSURANCE COMPANY, Defendant and Appellant.
No. B073231.
Court of Appeal, Second District, Division 7, California.
Jan. 5, 1994.

Page 393

[21 Cal.App.4th 795] Daniels, Baratta & Fine, and Lance Orloff, Los Angeles, for plaintiffs and appellants.

Page 394

Sonnenschein Nath & Rosenthal, Michael A. Barnes and Donald W. McCormick, San Francisco, for defendant and appellant.

FRED WOODS, Associate Justice.

I.

INTRODUCTION AND CONTENTIONS

American Empire Insurance Company ("American") appeals from a judgment entered against it in an action on a general liability policy. Plaintiffs Wilfred and Marie Collin ("Collins") sued American to collect a $200,000 default judgment against American's insured, a contractor known as Southwest Design. The judgment was for conversion and damage to real property caused by Southwest Design while remodeling the Collins' home.

After a trial on stipulated facts, the Honorable David P. Yaffe of the Los Angeles Superior Court entered judgment against American for $100,000, half the amount requested by the Collins. The trial court held that the damage to the Collins' house was not covered by the American policy because Southwest Design's remodeling of the Collins' house was not an "accident" as required by the policy. The court held that Southwest Design's conversion of the Collins' personal property, however, was an "accident" covered by the policy.

American raises the following contentions on appeal:

1. The judgment was predicated upon "willful" misconduct and not an accident thereby constituting an event not covered by the policy;

[21 Cal.App.4th 796] 2. No evidence was adduced as to how Southwest Design "converted" the Collins' property thereby failing in the necessity to present a prima facie case;

3. The trial court erred when it construed the term "accident" by reference to the insured's intent to harm rather than its intent to perform the act creating liability;

4. The trial court erred in finding that conversion of property constituted "property damage" under the policy definition; and

5. The Collins gave late notice of their claim to American which should have relieved American of any obligation under the judgment.

On their cross-appeal, the Collins make the following contentions:

1. The case presents no evidence of intentional misconduct by Southwest Design pertaining to loss, damage or destroyed personal property of the Collins, therefore American should provide indemnity for the judgment relating to those items; and

2. The trial court erred in determining that their judgment against Southwest Design, based upon consequential damages to their home and fixtures, was not covered by the American policy.

II.

STATEMENT OF FACTS

Procedural Background

The Collins commenced this action against American on October 9, 1991. The sole cause of action was to satisfy a $200,000 judgment against American's insured, pursuant to Insurance Code section 11580, subdivision (b)(2). 1

The Collins and American thereafter agreed to try the case on stipulated facts. The trial was held October 9, 1992.

By minute order filed October 13, 1992, the court held that American's policy did not cover the Collins' "real property" damages, but did cover their [21 Cal.App.4th 797] "conversion" damages. The court entered judgment against American on November 12, 1992, in the amount of $100,000, the "conversion" portion of the Collins' judgment against Southwest Design.

Page 395

American and the Collins filed timely notices of appeal.

Because this action is an action to satisfy a judgment in a previous lawsuit, it is necessary to review the original dispute and the previous action arising therefrom, as well as the judgment in this case which is the basis of this appeal.

The Remodeling Of The Collins' Home

This action began as a dispute among the plaintiffs, their renter and the renter's remodeling contractor.

The Collins owned a house on Oriole Way in Los Angeles. Beginning on March 3, 1985, they leased their house to Richard Gordon, with an option to purchase. Gordon thereafter hired a company called "Southwest Design" to do some remodeling work on the Collins' house, presumably because he intended to exercise the purchase option.

The remodeling work which Gordon commissioned included the installation of an air conditioner, the removal of a glass wall and a bar, painting over of certain interior surfaces and miscellaneous structural modifications. Notes which appear to belong to Southwest Design mention removal of the bar, painting and etching of the front door, painting of the walls, ceiling and floors, and replacement of light fixtures with newer fixtures. Southwest Design performed this work at Gordon's direction.

The Collins' Dispute With Gordon

The Collins were unaware of Gordon's remodeling efforts, or at least unaware of their extent. This came to light in the fall of 1985, when the Collins discovered that Gordon had renovated their house without their permission and had taken several personal items from the house.

The Collins' attorney wrote Gordon on September 24, 1985, stating, "you have made major structural changes, including the removal of a ten-foot, beveled glass wall, and the removal of the built-in bar." The Collins' letter also referred to the removal of a chandelier, the painting over of walls and floors, and other tasks which Gordon hired Southwest Design to perform. In his September 24, 1985, letter, the Collins' attorney also pointed out that Gordon had removed numerous personal items belonging to the Collins. The [21 Cal.App.4th 798] attorney was particularly concerned about "the removal of almost all of the furniture my clients left in the house when you took possession." The Collins' attorney stated further, "[i]t is my understanding that you have stored all the items removed from the subject premises in a warehouse," and demanded "within one week, a complete inventory of the items stored, and the location of the storage facility." The Collins' attorney added: "My clients also require that all items in storage be fully insured, with proof of this coverage provided on or before October 15, 1985." Finally, the Collins' attorney stated that, if Gordon did not exercise his option to purchase the house, "my clients will want the premises restored exactly the way it was when you took possession." (Original emphasis.)

Gordon did not return the items, purchase insurance for them, or restore the premises to their previous condition. Instead, his business faltered and he was unable to meet his financial obligations. Gordon not only stopped paying rent on the Collins' home, but he stopped paying Southwest Design as well. As a result of Gordon's failure to pay rent, the Collins commenced an unlawful detainer action against him.

With Gordon's permission, the Collins went in November of 1985 to the warehouse where Gordon had stored their personal property under his own name. When they arrived, however, the property stored there had either been removed or destroyed.

Upon retaking possession of their home, the Collins hired the Greenspan Company, an independent insurance adjuster, to estimate the value of the personal property which Gordon had taken from the house, as well as the cost of restoring the premises to their previous condition. The adjuster's report divides the loss between missing property and structural repairs. The magnitude of the loss in these two categories was $55,763.30

Page 396

and $21,322, respectively, in 1979-1980 values, or a total of $77,085.30. The report also lists values in 1986 dollars: $92,543 in missing personal property and $32,833 in structural loss, for a total of $125,376. The record is silent as to how the property was converted, because, as stipulated, the Collins "do not know what happened to their property."

The Previous Litigation

After Gordon stopped paying Southwest Design for the work on the Collins' house, Southwest Design filed an action against Gordon and the Collins to recover the value of the work it had performed. Southwest Design alleged in that action that it had performed $40,000 worth of services on the Collins' home and sought payment in that amount.

[21 Cal.App.4th 799] In response, the Collins filed a cross-complaint against Southwest Design. Only two causes of action in the cross-complaint were alleged against Southwest Design: the third, entitled "Damages To Real Property," and the fourth, entitled "Conversion."

The third count alleged that Southwest Design's construction work "was commenced without the knowledge, consent, or agreement of cross-complainants," that Southwest Design "damaged the subject property as set out more fully in paragraph 12(c) of the herein cross-complaint," and that "[s]aid construction work was not performed in a proper, workmanlike manner, further damaging said property, and has thereby reduced the value of cross-complainants' property."

Paragraph 12(c), mentioned in the third count, sought damages for "major structural changes, including the removal of a ten-foot bevel glass wall; the removal of a built-in bar; the removal of hanging fixtures, including but not limited to chandeliers; the removal of several works of art; the painting over of custom wallpaper, cabinets and wooden floors; the removal of windows and wall coverings; the removal of all outdoor furniture; the removal of furniture and personal possessions belonging to cross-complainants and the changing of all locks on the subject premises." The Collins alleged that Southwest Design knew the work was unauthorized and, despite this knowledge, damaged the house willfully and maliciously.

The fourth cause of action alleged that the Collins "were, and still are, ... entitled to possession of certain personal property, including, but not limited to, furniture, artwork and fixtures, which were...

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