Judah v. State Farm Fire and Cas. Co.

• Decision Date: 08 February 1990
• Docket Number: No. A040852,A040852
• Parties: Previously published at 227 Cal.App.3d 1133 227 Cal.App.3d 1133 Clarice JUDAH, Plaintiff and Appellant, v. STATE FARM FIRE AND CASUALTY COMPANY, Defendant and Appellant.
• Court: California Court of Appeals Court of Appeals

Page 455

266 Cal.Rptr. 455

Previously published at 227 Cal.App.3d 1133

227 Cal.App.3d 1133

Clarice JUDAH, Plaintiff and Appellant, v. STATE FARM FIRE AND CASUALTY COMPANY, Defendant and Appellant.

No. A040852.

Court of Appeal, First District, Division 3, California.

Feb. 8, 1990.

As Modified Feb. 23, 1990.

Rehearing Denied Mar. 9, 1990.

Review Granted April 19, 1990.

Clarke B. Holland, Thorton, Taylor & Downs, San Francisco, for plaintiff and appellant.

Jack T. Friedman, Donald T. Ramsey, Carroll, Burdick & McDonough, San Francisco, for defendant and appellant.

WHITE, Presiding Justice.

This is an appeal by defendant State Farm Fire and Casualty Company (State Farm) from a $953,270 judgment entered against it after an adverse jury verdict. Plaintiff Clarice Judah (Judah) also cross-appeals contending that the trial court improperly refused to allow damages for the diminution in value of her property and restricted recovery of prejudgment interest. Pursuant to Garvey v. State Farm Fire & Casualty Co. (1989) 48 Cal.3d 395, 257 Cal.Rptr. 292, 770 P.2d 704, we reverse the judgment.

FACTS

In 1981, Judah purchased a single-family residence at 55 Underhill Road in Orinda, California. At approximately the same time she purchased an all-risk policy from State Farm.

In January of 1982, a landslide occurred approximately 100 to 125 feet from Judah's property. The slide itself did not directly touch Judah's property; however, it blocked the storm drains on Underhill Road. Later efforts to repair the slide damage deposited debris on Judah's property. As a consequence, in subsequent rainstorms increased surface water ran over the street onto Judah's property causing significant erosion.

Judah was not initially concerned about the slide, the debris, or the increased surface water. As time went by, however, she began to notice problems in her house. Cracks appeared in the sheet rock, and various parts of the house began to grow out of level. Sliding glass doors would not slide properly, doors began to stick, and the retaining wall between the garage and the stairway began to pull away from the garage.

On September 11, 1984, Judah wrote to her State Farm agent, making a claim for property damage for "needed repair to land and landscape, threatened/potential damage to house and its foundation" and "depreciated market value of the house and the property." Approximately one month later, State Farm telephoned Judah to set up an appointment to view the property. After State Farm adjustor Bill Denton came and observed the damage, the company sent Judah a reservation of rights letter informing her that the loss might not be covered because the policy excluded losses due to earth movement and water damage.

Civil engineers were subsequently retained by State Farm to evaluate the damage to Judah's home. In their first report, dated January 30, 1985, the engineers concluded that "there is considerable evidence The engineers issued their second report on June 13, 1985. The report, which noted that additional cracking and deterioration had occurred since the time of the first report, opined that "the existing drilled pier foundations of the residence do not extend deeply enough nor are they constructed heavily enough to resist the loads imposed by the surface soil creep." The report further stated: "[T]he only way to completely and effectively repair the residence and to mitigate similar foundation movement in the future would be to construct new, engineered underpinning foundations to support the existing structure."

                of cracking and distress in the foundation of the residence and within the interior drywall of the residence around door and window openings."   The report predicted that, "it is likely that additional foundation movement will occur in the future."   In addition, the report noted that erosion had occurred on the Judah property as a result of water flowing from a catch basin located on the up slope shoulder of Underhill Road.  On February 21, 1985, a State Farm adjuster informed Judah that the company had decided to ask its engineers to proceed with additional studies to determine the cause of the structural distress
                

In July of 1985, Judah spoke with Marie Wimer of State Farm who informed her that design plans for the foundation of Judah's home had come in and that they would be sent out to bid. A few days later Wimer told Judah that she needed to further discuss the matter with her supervisor, but that a coverage determination would be made by State Farm within a week. However, on July 29, 1985, State Farm requested that engineers determine "whether or not the foundation was designed and constructed in accordance with industry standards for the time of construction."

The engineers issued their third report on August 27, 1985. They concluded that the general design of the foundation was "typical" for similar residences and similar site conditions at the time of construction. Nevertheless, they recommended that the question be answered by a structural engineer who specialized in residential design.

On September 5, 1985, State Farm sent a letter to Judah which stated in part: "In our opinion, this report does not support a conclusion that third party negligence was a concurrent cause of the subject stress." It was at this point that Judah retained an attorney.

Despite its representation to Judah that the contractor had not been negligent, State Farm had already filed a subrogation suit against the contractor, Wally Anderson, alleging that he negligently designed and constructed the foundation of Judah's house. ¹

On November 6, 1985, the structural engineers, Integrated Design Services, reported to State Farm that the contractor had failed to utilize existing technical information available at the time of construction. ²

In December of 1985, the Court of Appeal filed its unpublished opinion in Garvey v. State Farm. ³ In Garvey, the plaintiffs claimed that although their policy excluded coverage for damage caused by earth movement, it provided coverage for damage caused by negligence. They further asserted that damage to their house was caused mainly by negligent construction and therefore the loss was covered. The Court of Appeal reversed State Farm denied coverage under Judah's policy on March 31, 1986. According to State Farm there was no coverage because the "claimed damages [were] dependent upon the excluded perils of earth movement and surface/subsurface water. There is no independent concurrent proximate cause of loss."

a trial court finding of coverage, despite the fact that negligent construction was a given.

At trial below, State Farm requested that the court adopt a coverage theory consistent with Sabella v. Wisler (1963) 59 Cal.2d 21, 27 Cal.Rptr. 689, 377 P.2d 889. Judah argued that the correct standard was set forth in Farmers Ins. Exchange v. Adams (1985) 170 Cal.App.3d 712, 216 Cal.Rptr. 287, which in turn was based upon State Farm Mut. Auto. Ins. Co. v. Partridge (1973) 10 Cal.3d 94, 109 Cal.Rptr. 811, 514 P.2d 123. The court agreed with Judah and instructed the jury: "When there are two concurrent proximate causes of a loss, an insured is covered as long as one of those proximate causes is covered by the policy. p The law does not require that the covered peril independently caused the damage or that the covered peril be the prime moving or efficient cause of the damage."

DISCUSSION

Garvey Issues

In March of 1989, our Supreme Court filed Garvey, supra, wherein the majority rejected the application of Partridge to first party property insurance claims. The high court held that Sabella "set forth a workable rule of coverage ⁴ that provides a fair result within the reasonable expectations of both the insured and the insurer whenever there exists a causal or dependent relationship between covered and excluded perils. In multiple cause cases, a proximate cause analysis, focusing on the efficient proximate cause, could be employed to determine whether or not the insured was covered for the loss under the property portion of the homeowner's insurance policy." (Garvey, supra, 48 Cal.3d at p. 404, 257 Cal.Rptr. 292, 770 P.2d 704.)

Clearly, the instruction given to the jury at trial was based on the Partridge analysis of concurrent liability and thus misstated the correct standard to determine coverage of a property insurance policy. The resulting judgment must therefore be reversed.

There is no merit to Judah's contention that Garvey should not be applied retroactively. As was recently stated in La Bato v. State Farm Fire & Cas. Co. (1989) 215 Cal.App.3d 336, 343-344, 263 Cal.Rptr. 382: "[T]he rule of Garvey is not a new rule of law, in three significant senses. First, Garvey is a confirmation and explication of the rule of Sabella v. Wisler, supra, 59 Cal.3d 21, 27 Cal.Rptr. 689, 377 P.2d 889 which the Supreme Court of California decided over 20 years before the trial of this case. Second, Garvey overrules no prior decision of the California Supreme Court. [Citation.] Third, both Garvey and Sabella give effect to a statutory rule codified in Insurance Code sections 530 and 532. Contrary cases constitute a misconstruction of that statutory rule. Under these circumstances, no exception to the usual rule of retroactivity can apply. Garvey applies in all cases not yet final at the time of its decision, including the present case. [Citation.]"

Nor need we address Judah's contention that State Farm should be estopped from relying upon the Garvey decision because Judah was led to believe she was protected under the policy or because the company shifted grounds for denial of her claim. It is long settled that an estoppel must be specially pleaded; the eventual failure to so plead constitutes a waiver of an estoppel theory. (Holzer v. Read (1932) 216 Cal. 119, 124, 13 P.2d 697; Green v. Travelers Indemnity Co. (1986) 185 Cal.App.3d 544, 555, 230 Cal.Rptr. 13; California Teachers' Assn. v....