Loree v. Robert F. Driver Co.

• Decision Date: 05 December 1978
• Citation: 151 Cal.Rptr. 557,87 Cal.App.3d 1032
• Parties: Vera E. LOREE, Plaintiff and Appellant, v. ROBERT F. DRIVER CO., INC., and Ron Guy, Defendants and Respondents. Civ. 16608.
• Court: California Court of Appeals Court of Appeals

Page 557

151 Cal.Rptr. 557

87 Cal.App.3d 1032

Vera E. LOREE, Plaintiff and Appellant, v. ROBERT F. DRIVER CO., INC., and Ron Guy, Defendants and Respondents.

Civ. 16608.

Court of Appeal, Fourth District, Division 1, California.

Dec. 5, 1978.

Wallace R. Nugent, San Diego, for plaintiff and appellant.

Holt, Rhoades & Hollywood and Larry A. Shoffner, San Diego, for defendants and respondents.

STANIFORTH, Associate Justice.

Plaintiff Vera E. Loree's verified complaint sought $7,472.56 damages from insurance brokers Robert F. Driver Co., Inc. (Driver) and Ron Guy. Loree charges these defendants with a negligent failure to procure a Small Business Administration (SBA) "guaranty policy" to her consequential damage. Both the contractor and Summit Insurance Company (Summit), performance bond surety on Loree's home construction project, defaulted on their contractual obligations requiring Loree to complete her home at a cost in excess of the contract price.

After responsive pleadings were filed, Driver and Guy moved for summary judgment on the premise of no triable issue of fact tendered by the pleadings. After consideration of the pleadings, memorandum of points and authorities and the declarations from both sides, the trial court granted the summary judgment and Loree's action was dismissed. Loree appeals pointing to the cause of action and triable issues of fact.

FACTS

These facts are not in dispute. In January 1973 Loree entered into a contract with general building contractor Dyson for construction of a residence for Loree in Coronado, California, for a contract price of $51,120. The Bank of America made the construction loan conditional upon Dyson's obtaining a performance bond naming Loree and the bank as obligees. In March 1973 Dyson applied to Driver for a "payment and performance" bond in an amount equal to the contract price to be issued by Summit as surety. Driver sought out Guy, attorney in fact for Summit, to secure the policy.

Summit agreed to post the bond but as a condition precedent required the bond be further secured by an SBA guaranty (a "Guaranty Agreement under Title IV Part B of the Small Business Investment Act of 1958 as Amended"). Upon Driver's demand (May 15, 1973) Loree paid Driver $863.24, the total premium due for both the Summit policy and the SBA guaranty. For reasons not here appearing, Summit issued its bond to Dyson without first obtaining the SBA guaranty contract. There is nothing showing that Loree was notified in some timely fashion of this failure to secure the SBA guaranty.

Upon issuance of the bond by Summit, the contractor forthwith commenced construction. In March of 1974 Dyson defaulted on his contract and stopped work on Loree's home. Summit was notified of Dyson's default and undertook to complete the house as required by the bond. Before completion, however, Summit was declared insolvent in a New York Supreme Court proceeding and has failed to carry out its surety obligations on Dyson's contract to complete Loree's home. As a consequence Loree completed the house at a cost of $8,302.84 in excess of the contract price.

On August 29, 1974, 16 months after Loree had paid the dual premium, Guy notified Loree that the SBA guaranty agreement Had not been obtained and returned the premium to Loree. The verified complaint alleges Summit "was in receivership" as of August 29, 1974.

The record in the New York Supreme Court proceedings involving the insolvency and liquidation of Summit shows Summit on May 28, 1975, had been declared insolvent; that an agreement was reached between the SBA and the "liquidator" of Summit on January 20, 1976, whereby the obligees on performance bonds issued by Summit And guaranteed by SBA received payment for 90 percent of their loss arising from their contractor's default under his performance bond. ¹

The controlling question is whether there is an issue of fact to be tried.

". . . If it finds one, it is then powerless to proceed further, but must allow such issue to be tried by a jury unless a jury trial is waived. By an unbroken line of decision in this state since the date of the original enactment of section 437c, the principle has become well established that Issue finding rather than issue determination is the pivot upon which the summary judgment law turns. (Citations.)" (Walsh v. Walsh, 18 Cal.2d 439, 441, 116 P.2d 62, 64; emphasis added; Blair v. Pitchess, 5 Cal.3d 258, 284, 96 Cal.Rptr. 42, 486 P.2d 1242.)

As was stated in Parker v. Twentieth Century-Fox Film Corp., 3 Cal.3d 176, at page 181, 89 Cal.Rptr. 737, at page 740, 474 P.2d 689 at page 692:

"Summary judgment is proper only if the affidavits or declarations (fn. omitted) in support of the moving party would be sufficient to sustain a judgment in his favor and his opponent does not by affidavit show facts sufficient to present a triable issue of fact."

In resolving the question of whether there was any factual issue to be tried, the trial court was obliged to construe the moving party's declarations strictly and those of Loree liberally to the end that the latter would not be summarily deprived of the full hearing which would be her due at the trial of this case. (Freidberg v. Freidberg, 9 Cal.App.3d 754, 761, 88 Cal.Rptr. 451.)

The summary procedure is drastic and should be used with caution so that it does not become a substitute for the open trial method of determining facts. We accordingly view the relevant facts as they tend to support Loree's cause of action and as they were presumably accepted by the trial court.

It is Loree's factual contention that the construction money lender (Bank of America) required a performance bond conditioned against the contractor's default to the end that there would be money available to complete the dwelling according to contract without loss to Loree. The surety in turn required Loree to procure and pay for an SBA guaranty bond. Loree states it was then the understanding of all parties that if a loss occurred by reason of the general contractor defaulting, the funds necessary to complete the work of improvement would flow from the United States government by and through the SBA, at least as to 90 percent of the cost required to complete the work of improvement.

In short, Loree contends the SBA guaranty was a reinsurance of Summit's bond. This view is inferentially supported in Guy's letter of August 29, 1974, returning Loree's premium payment where he stated "This bond (Summit's) was not Re-insured by the Small Business Administration, therefore the charge is not applicable." (Emphasis added.) This notice to Loree was given After the conceded default of the contractor and the alleged insolvency of Summit.

Defendants deny Loree's factual assertions in this oblique fashion. They contend "(t)he SBA Guarantee did not, by its very terms, ever undertake to assure to Anyone the solvency of the Surety." This assertion as to the meaning to be given to the SBA guaranty agreement may or may not be true, but it does not squarely meet or deny Loree's contention that she was billed for, paid for and did not get the reinsurance of the Summit bond. These oblique defenses do not negate Loree's charge of negligence in failure to provide reinsurance for her protection. Loree asserts she had an expectation of SBA's reinsurance of the Summit performance bond. She paid an additional premium in anticipation of a double protection upon the contractor's default not only from Summit's bond but also from the United States government's reassurance of Summit's undertaking. Here is a clear factual dispute concerning the circumstances of her paying for a bond premium she did not get. It cannot be resolved by the summary judgment process. She is entitled to a hearing on the factual issues so framed.

The statement of the California Supreme Court in Barrera v. State Farm Mut. Automobile Ins. Co., 71 Cal.2d 659, 673, 79 Cal.Rptr. 106, 116, 456 P.2d 674, 684, lends legal substance to Loree's factual position.

"California has developed a line of decisions imposing a duty upon all insurers to act promptly upon an application for insurance. The rationale underlying the extra-contractual imposition of this duty parallels the philosophy underlying the Financial Responsibility Law and related statutory and judicial rules governing automobile liability insurance.

"The rule that an insurer must act promptly finds its source in the quasi-public nature of the insurance business and the reasonable expectation of the applicant and the general public. 'Since insurance companies are held to a broader legal responsibility than are parties to purely private contracts, having solicited and obtained an application for insurance, and having received payment of a premium, they are bound either to furnish indemnity or decline to do so within a reasonable time.' (12 Appleman, Insurance Law and Practice, Supra, § 7226, at p. 330; see also Funk, The Duty of an Insurer to Act Promptly on Applications, supra, 75 U.Pa.L.Rev. 207, 222, 224.)"

(See also Snyder v. Redding Motors, 131 Cal.App.2d 416, 422, 280 P.2d 811; ...