Mock v. Michigan Millers Mutual Ins. Co.

• Decision Date: 04 March 1992
• Docket Number: No. B048249,B048249
• Citation: 5 Cal.Rptr.2d 594,4 Cal.App.4th 306
• Court: California Court of Appeals Court of Appeals
• Parties: Owen R. MOCK, et al., Plaintiffs and Respondents, v. MICHIGAN MILLERS MUTUAL INSURANCE COMPANY, Defendant and Appellant.

Page 594

5 Cal.Rptr.2d 594

4 Cal.App.4th 306

Owen R. MOCK, et al., Plaintiffs and Respondents, v. MICHIGAN MILLERS MUTUAL INSURANCE COMPANY, Defendant and Appellant.

No. B048249.

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

March 4, 1992.

Fisher & Hurst, Steven L. Sumnick, Peter O. Glaessner, Lori A. Sebransky, Garth A. Gersten, San Francisco, Kane & Whelan and Mark C. Kane, Glendale, for defendant and appellant.

Musick, Peeler & Garrett, James W. Miller and Brian E. Shear, Los Angeles, for plaintiffs and respondents.

CROSKEY, Associate Justice.

The defendant and appellant, Michigan Millers Mutual Insurance Company ("Michigan Millers"), appeals from a judgment entered following a jury verdict in which the plaintiffs Owen R. Mock and Dora Mock ("plaintiffs") were awarded compensatory Plaintiffs asserted that Michigan Millers had unreasonably delayed its investigation, adjustment and payment of that claim and had improperly attempted to condition the ultimate payment which was made. Plaintiffs sought and obtained a recovery of compensatory and punitive damages based on a special jury verdict which found that Michigan Millers had breached the implied covenant of good faith and fair dealing and had violated Insurance Code section 790.03(h). The jury also found that Michigan Millers had done so with malice.

and punitive damages. The action arose out of a claim made by plaintiffs under a policy of homeowner's insurance issued to them by Michigan Millers.

While we agree that the evidence supports the jury's conclusion on liability for compensatory damages, we conclude that it clearly miscalculated those damages. In addition, the trial court prejudicially misinstructed the jury on the award of punitive damages. We therefore reverse and remand for a new trial on these issues.

FACTUAL AND PROCEDURAL BACKGROUND

A review of the record reflects that there is no significant dispute between the parties as to the facts, that is, what actually transpired. There is, of course, a substantial difference between them as to the reasonable inferences which should be drawn. We will therefore set forth a detailed chronological review of these facts as disclosed by the uncontradicted evidence. Such a recitation is important to our resolution of the principal issue in this case, which turns upon the adequacy of the instructions to the jury on the issue of punitive damages and our necessary evaluation as to whether, in light of the evidence, such misinstruction was prejudicial to Michigan Millers.

In 1966, plaintiffs purchased a home on the cliffs of Palos Verdes overlooking the Pacific Ocean in an area known as Bluff Cove. At the time of such purchase, the home was approximately five years old. For a number of years prior to the filing of this action, plaintiffs carried their homeowner's insurance with Michigan Millers.

At the time that plaintiffs sustained the loss which is the subject of this action, their home had a fair market value which they allege to be approximately $1,500,000. However, the casualty coverage in Michigan Millers' policy in effect at the time of plaintiffs' claim provided only for $139,500 for damage to the dwelling, plus an additional 10% ($13,900) for damage to appurtenant structures (e.g., swimming pool, decking, etc.). Thus, plaintiffs were clearly underinsured.

In the summer of 1986, plaintiffs became aware that a number of their neighbors had sued the City of Palos Verdes Estates (the "City") for earth movement and subsidence damage which had occurred to their property, allegedly due to the City's negligence in the construction and maintenance of a nearby storm drain. Apparently, due to the excess accumulation of water, an ancient landslide had been activated and there was significant earth movement along the entire cliff on which plaintiffs' home was located. However, plaintiffs' home, which was constructed closer to the road and further back from the cliff than many of the other houses, had suffered no apparent actual damage.

In the spring and summer of 1987, plaintiffs did notice some minor damage to their property which consisted of: (1) some movement of the decking around the swimming pool, (2) some cracks in the pool itself, (3) subsidence of some of the cement work surrounding the house (4) and cracking in the driveway. However, there was no obvious earth movement or sliding. Nonetheless, by the summer of 1987, it was clear that a number of nearby homes had sustained or were threatened with serious damage. The City had apparently settled with a number of plaintiffs' neighbors by purchasing their homes.

Plaintiffs brought the matter to the attention of their attorneys, Musick, Peeler & Garrett ("MP & G") who, on May 12, 1987 Michigan Millers assigned an adjuster (Paul T. Zemel of Associated Insurance Adjusters Inc., hereinafter "Zemel") to conduct an investigation. Zemel communicated by telephone with MP & G on June 4 and by letter on June 5, 1987. ³ He requested permission to take a statement from the plaintiffs and to inspect the property. Unfortunately, the plaintiffs were on an extended vacation and Zemel was not able to conduct the interview or inspect the property until July 30, 1987.

wrote to Michigan Millers ¹ and summarized the foregoing circumstances. However, as plaintiffs' home had sustained no observable physical damage to which specific repairs might be directed, the damages which plaintiffs had sustained were [4 Cal.App.4th 315] described as "a decrease in the market value of their property in excess of $600,000." ²

On that date, Zemel, accompanied by a professional geologist, went to plaintiffs' residence to meet with them and to inspect the property (see fn. 4, infra ). The plaintiff Owen Mock gave Zemel a recorded oral but unsworn statement. MP & G attorney James W. Miller was present and, indeed, supplied the answers to a number of the important questions submitted to his client. Mr. Mock described the relatively minor damage to his property which he had recently noticed and summarized what he had read in the newspapers about his neighbors' litigation with the City. He stated that he had not yet sought any professional opinions "from an engineering standpoint, either soil, structural or contractors." He also conceded that he had not yet made any claim against the City.

Mr. Mock was specifically asked, "What is it basically that you're claiming then, right now? I mean, is there a specific thing that you're claiming?" His attorney, Mr. Miller, answered for him and stated, "Well, yes, the repair, any property damage that may be caused by the, what we believe would be acts of the City and the depreciation in the fair market value of the home as a result of the acts of the City." However, neither Mr. Mock nor Mr. Miller provided Zemel with any information or demand as to specific damage to property or any estimates to either repair or prevent damage to plaintiffs' home or property.

Zemel caused a transcript of this interview to be prepared and sent, in early September, to MP & G for review and signature by Mr. Mock. It was signed on September 23, 1987 and returned to Zemel by MP & G letter of September 25, 1987 in which counsel stated that, "As you now have American Geotechnical's Geology Report, and the insureds [sic] statement, it is hoped that a prompt response to Mr. and Mrs. Mock's claim is forthcoming." ⁴

Zemel had forwarded the geology report to Michigan Millers on September 17 and had noted it was rather inconclusive with respect to whether the nearby landslide activity had actually yet damaged plaintiffs' property. It did not appear that there were any pressing circumstances which required an expedited handling of plaintiffs' claims. No specific damage was identified which needed to be repaired, nor did it appear that any conclusions had been reached, either by plaintiffs, their attorneys or Michigan Millers as to how to proceed. ⁵ Nevertheless, on September 29, 1987, Zemel wrote to Michigan Millers and summarized his view of the situation: "Our options seem to be relatively simple; we either go on with very extensive testing which can run anywhere from $30,000 to $60,000, or we can work out some adjustment with the insured's attorney, which appears to be at best only a loan type of situation."

On October 16, 1987, MP & G wrote to Zemel and advised that plaintiffs intended to file suit against the City on October 30, 1987 and expected to receive from Michigan Millers a response as to plaintiffs' claim by that date. This letter, as did the one on September 25, implied that Mr. Mock's oral statement (given on July 30 and signed on September 23), together with the American Geotechnical Geology Report, provided Michigan Millers with sufficient information to make a decision with respect to the claim. Plaintiffs in fact filed their suit against the City on November 4, 1987 based, at least partially, on the American Geotechnical Geology Report of September 1, 1987. ⁶ On November 10, 1987, MP & G On November 18, 1987, officials of Michigan Millers met with Zemel and, contrary to the written legal advice received from counsel, made the decision that no dispute would be raised as to coverage. ⁷ However, in view of the inconclusive nature of the existing geology report, it was not yet possible to determine whether it was feasible to stabilize plaintiff's land and, if so, the cost thereof. Therefore, it was determined that a supplemental report would be requested from American Geotechnical which could be used to justify a policy limits settlement with plaintiffs, as it was very likely that the relatively low amount of plaintiffs' coverage would be exceeded by any reasonable estimate of the cost of land stabilization or other damage prevention efforts. The record reflects that at this time Michigan Millers was also very concerned about protecting its subrogation position. ⁸ It was concerned that payment of policy limits, without a documented...