Shaffer v. Debbas

• Decision Date: 14 June 1993
• Docket Number: No. D012858,D012858
• Citation: 17 Cal.App.4th 33,21 Cal.Rptr.2d 110
• Court: California Court of Appeals Court of Appeals
• Parties: Charles G. SHAFFER, et al., Plaintiffs, Respondents and Cross-Appellants, v. Nicholas F. DEBBAS, et al., Defendants, Appellants and Cross-Respondents.

Page 110

21 Cal.Rptr.2d 110

17 Cal.App.4th 33

Charles G. SHAFFER, et al., Plaintiffs, Respondents and Cross-Appellants, v. Nicholas F. DEBBAS, et al., Defendants, Appellants and Cross-Respondents.

No. D012858.

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

June 14, 1993.

Review Denied Sept. 16, 1993.

Haight, Brown & Bonesteel, Roy G. Weatherup, Robert L. Kaufman and Caitlin Doyle Berfield, Santa Monica, Campbell & Associates, John B. Campbell and Anna D. Torres, San Diego, for defendants, appellants and cross-respondents.

Sullivan, Hill, Lewin & Markham, David R. Markham and Stephen B. Morris, San Diego, for plaintiffs, respondents and cross-appellants.

WIENER, Acting Presiding Justice.

Both plaintiff-homeowners and defendant-contractors appeal from a judgment in The Shaffers took possession in August 1983 and almost immediately began experiencing a variety of problems owing largely to drainage defects and improper installation of the heating and air conditioning system. The defects were not repaired despite repeated promises by the builders to do so, and the condition of the house deteriorated. In 1987 the Shaffers moved from the house because of its deteriorating condition and in December 1988 they sold the property for $950,000.

favor of plaintiffs Charles and Betty Shaffer for damages based on theories of negligence and breach of warranty arising from the construction of a custom home. A detailed review of the lengthy record in this case is unnecessary for the purposes of the issues raised in this appeal. It is sufficient to note that the Shaffers contracted with the Avenida Alondra joint venture to build a custom house for them at a purchase price of $1.3 million. The house was warranted to be free from defects in materials and workmanship for one year.

This lawsuit was filed in October 1986. Named as defendants were the two joint venturers, Pieri-Debbas Enterprises (a partnership) and Franton, Inc. Also named were Franton's sole shareholder (Frank Semmo), the two corporate general partners of Pieri-Debbas (Debbas Construction, Inc., and T-Bear, Inc.) and the sole shareholders of Debbas Construction and T-Bear (Nicholas Debbas and James Pieri, respectively). Debbas, Pieri and Semmo were alleged to be alter egos of their individual corporations. These defendants are collectively referred to as the builder-defendants. In addition, the Shaffers also sued the project architects (Sillman/Wyman & Associates) and the heating and air conditioning subcontractors (Strang Heating and Air Conditioning, Inc.). ¹ All defendants were jointly represented at trial.

The jury found in favor of the Shaffers pursuant to a complex set of special verdict forms. The original judgment awarded the Shaffers $204,000 for property damage, of which $3,000 was to be paid by Strang. The special verdicts broke the $204,000 down into three components: (1) $130,000 represented the reasonable cost of repairing the house while the Shaffers lived there; (2) $44,000 represented damage to furniture in the house; and (3) $30,000 represented compensation for expenses the Shaffers incurred in arranging for alternate living quarters. Charles Shaffer was awarded $1,782.42 damages for emotional distress, while Betty Shaffer was awarded $32,083.59 on a similar theory. The judgment provided that the Shaffers would recover nothing from defendants Semmo, Franton, Inc. and Sillman/Wyman. Later amended judgments included attorney's fees (based on a fee provision in the construction contract) and costs. The final amended judgment provided that the Shaffers' award for property damage and emotional distress (other than the $3,000 assessed against Strang) was recoverable against Debbas and Pieri individually, the Pieri-Debbas partnership and Debbas Construction. Costs of $38,073.73 were assessed against the same defendants. Attorney's fees of $241,900 were also assessed against the same defendants and, in addition, T-Bear, Inc.

DISCUSSION

I. Defendants' Appeal

A. Evidence of Collateral Source Payments

In 1987, the Shaffers filed an action against their homeowners' insurer, St. Paul Fire & Marine Insurance Company, to recover for the same property damage at issue in this case. A jury returned a verdict in favor of the Shaffers, awarding $753,000 in damages. Following the judgment, St. Paul and the Shaffers agreed to settle their dispute. In exchange for a discount in excess of $250,000 on the judgment, St. Paul waived any rights of subrogation it had in this action, leaving the Shaffers to prosecute without intervention by St. Paul. Defendants unsuccessfully sought to introduce evidence of the St. Paul settlement as an offset against any property damage judgment in this case. They now contend that the exclusion of the evidence was error. Responding to the Shaffers' argument that the collateral source rule (see Helfend v. Southern Cal. Rapid Transit Dist. (1970) 2 Cal.3d 1, 6, 84 Cal.Rptr. 173, 465 P.2d 61) precludes such an offset, defendants argue that the rule "applies only to personal injury claims, where a company providing medical insurance for which the injured person has paid is not in a position to pursue a subrogation claim."

The collateral source rule provides that where "an injured party receives some compensation for his injuries from a source wholly independent of the tortfeasor, such payment should not be deducted from the damages which the plaintiff would otherwise collect from the tortfeasor." (Helfend, supra, 2 Cal.3d at p. 6, 84 Cal.Rptr. 173, 465 P.2d 61.) The rule has been repeatedly reaffirmed by the California Supreme Court as "a policy judgment in favor of encouraging citizens to purchase and maintain insurance for personal injuries and other eventualities." (Id. at p. 10, 84 Cal.Rptr. 173, 465 P.2d 61; see also Hrnjak v. Graymar, Inc. (1971) 4 Cal.3d 725, 729-730, 94 Cal.Rptr. 623, 484 P.2d 599.) We are, of course, bound by the Supreme Court's pronouncements. (Auto Equity Sales, Inc. v. Superior Court (1962) 57 Cal.2d 450, 455, 20 Cal.Rptr. 321, 369 P.2d 937.) As to defendants' suggestion that the rule can somehow be limited to cases of personal injury involving medical insurance payments, the Supreme Court's statement of the rule suggests no such limitation and its reference to "other eventualities" (quoted above) is inconsistent with the proffered interpretation. Indeed, the Supreme Court has expressly stated the rule so as to include property damage. (Anheuser-Busch, Inc. v. Starley (1946) 28 Cal.2d 347, 349, 170 P.2d 448.) As the court summarized in Philip Chang & Sons Associates v. La Casa Novato (1986) 177 Cal.App.3d 159, 166, 222 Cal.Rptr. 800, "The rule has been oft repeated to provide that where a person suffers property damage, the amount of damages shall not be reduced by the receipt by him of payment for his loss from a source wholly independent of the person who caused the injury." The contrary rule suggested by defendants would result in a substantial windfall to those parties principally responsible for a plaintiff's property damage.

Moreover, the rule worked as it should have in this case. As Helfend explains, the feared "double recovery" by a plaintiff seldom occurs because the paying insurer is subrogated to the rights of the insured as against the defendants who caused the injury. (See Helfend, supra, 2 Cal.3d at pp. 10-11, 84 Cal.Rptr. 173, 465 P.2d 61.) Here, St. Paul was subject to a $753,000 judgment in favor of the Shaffers. In exchange for a $250,000 discount, it was apparently willing to wager that the Shaffers would recover no more than that amount as against defendants. As it turns out, the total award for property damage less alternate living expenses was $174,000. ² In effect, St. Paul obtained more than it would have had it paid the judgment and pursued its subrogation rights.

We accordingly conclude the trial court correctly prohibited defendants from introducing evidence of the Shaffers' receipt of insurance payments from St. Paul.

B. Reduction of Property Damage Award Due to Failure to Mitigate Damages

By special verdict the jury found that 25 percent of "the total amount of property damage to the house ... could have been avoided by plaintiffs' reasonable care and diligence to avoid loss and minimize the damages." Also, in a separate special verdict on negligence, the jury found that 5 percent of "the total negligence which was the legal cause of the plaintiffs' damage" was attributable to the "contributory negligence" of the Shaffers. The trial court refused to reduce the property damage award by any amount attributable either to a failure to mitigate damages or the Shaffers' comparative negligence.

We agree with defendants that the component of the damage award represented by the reasonable cost of repairing the property--$130,000--must be reduced by the 25 percent "mitigation of damage" figure determined by the jury. A plaintiff who suffers damage as a result of either a breach of contract or a tort has a duty to take reasonable steps to mitigate those damages and will not be able to recover for any losses which could have been thus avoided. (E.g., Brandon & Tibbs v. George Kevorkian Accountancy Corp. (1990) 226 Cal.App.3d 442, 460, 277 Cal.Rptr. 40 [contract]; Green v. Smith (1968) 261 Cal.App.2d 392, 396, 67 Cal.Rptr. 796 [tort].) Here the jury determined that 25 percent of the "property damage to the house" could have been avoided. That damage was measured by the cost of repair, i.e., $130,000. The court was obligated to give effect to the jury's finding and reduce this aspect of the award to $97,500.

The Shaffers argue the jury must have intended the 25 percent reduction to apply only if the property damage was measured by the diminution in value of the residence. (See post, p. 117.) In support of this assertion they point to evidence indicating the Shaffers sold the house at a below-market price. While this may be what the jury focused on, the special...