TRB Investments, Inc. v. Fireman's Fund Insurance Company, F055111 (Cal. App. 12/7/2009)

• Decision Date: 07 December 2009
• Docket Number: F055111.
• Parties: TRB INVESTMENTS, INC. et al., Plaintiffs and Appellants, v. FIREMAN'S FUND INSURANCE COMPANY, Defendant and Respondent.
• Court: California Court of Appeals Court of Appeals

Page 1

TRB INVESTMENTS, INC. et al., Plaintiffs and Appellants, v. FIREMAN'S FUND INSURANCE COMPANY, Defendant and Respondent.

F055111.

Court of Appeals of California, Fifth Appellate District

December 7, 2009

Appeal from a judgment of the Superior Court of Kern County, No. S-1500-CV 250247, William D. Palmer, Judge.

Law Office of Timothy L. Kleier, Timothy L. Kleier; Law Office of Mark Ginella, Mark Ginella, for Plaintiffs and Appellants.

Hager & Dowling, Jeffery D. Lim, for Defendant and Respondent.

Not to be Published in the Official Reports

OPINION

WISEMAN, J.

Following a remand from the California Supreme Court, the trial court in this case granted summary adjudication against plaintiff policyholders' claim that defendant insurer denied coverage in bad faith. The case proceeded to trial and the policyholders, after prevailing on coverage and contract damages, appealed on the bad-faith issue.

The trial court's decision to grant summary adjudication on the bad-faith claim was based on its finding that the insurer advanced a reasonable interpretation of the policy when it denied coverage. In the course of analyzing the coverage issue, however, the Supreme Court stated that the insurance policy "cannot reasonably be understood" as the insurer understood it. (TRB Investments, Inc. v. Fireman's Fund Ins. Co. (2006) 40 Cal.4th 19, 22 (TRB).) Since the insurer's motion was based only on the claim that its policy interpretation was reasonable, the motion should have been denied. The Supreme Court did not discuss bad faith in its opinion—only the coverage issue was before it—but the implications of its view that the insurer's interpretation was unreasonable are clear.

We also agree with the policyholders' contention that the trial court erred by awarding prejudgment interest on the contract damages only from the date of the Supreme Court's opinion in 2006. The court should have awarded prejudgment interest from the time the insurer denied coverage in 2001. We reverse and remand.

FACTUAL AND PROCEDURAL HISTORIES

The Supreme Court's opinion states the background facts, which we repeat here. The insurer, Fireman's Fund Insurance Company, issued a policy of property and liability insurance to plaintiffs TRB Investments, Inc., Fran Mar Co., Coldwater Farms, P&R Almond Orchards, Inc., Thomas-Cattani, Inc., and 1731 Chester Group. The policy covered a former bank building on Chester Avenue in Bakersfield, which was leased to the Salvation Army. (TRB, supra, 40 Cal.4th at pp. 23-24.) It included a vacancy exclusion, stating that the insurer would not pay for water damage (among other losses) occurring in a building that has been vacant for more than 60 consecutive days before the loss. (Id. at p. 23.) The policy further provided that a building "`is vacant when it does not contain enough business personal property to conduct customary operations,'" but "`[b]uildings under construction are not considered vacant.'" (Id. at p. 24.)

The Salvation Army moved out of the Chester Avenue building at the end of 2000, leaving it without "enough business personal property to conduct customary operations." The policyholders retained an architect and general contractor to remove interior walls so that the space could be redesigned for a new tenant. The policyholders began negotiating a lease with Goodwill Industries in April 2001 and entered into a lease on July 2, 2001; the lease included the policyholders' agreement to carry out renovations. The contractor did a "walk through" of the building on June 11, 2001, and another, this time with subcontractors, on June 20, 2001. The heating, ventilation, and air conditioning (HVAC) subcontractor made several trips to the building to perform work beginning July 1, 2001. From June 20, 2001 to July 14, 2001, the electrical subcontractor performed work at the building. (TRB, supra, 40 Cal.4th at p. 24.)

On Monday, July 16, 2001, workers discovered that a water line or water heater had broken over the weekend and caused water damage. The renovations continued, with the interior of the building demolished to the shell walls and redesigned; new walls, doors, windows, wiring, plumbing, restrooms, and HVAC were installed. The cost of all the renovations was about $1.3 million. (TRB, supra, 40 Cal.4th at p. 25.)

The policyholders filed a water-damage claim with Fireman's Fund on July 18, 2001; on August 14, 2001, they submitted invoices for repair work totaling $155,261.68. Fireman's Fund denied the claim in a letter dated December 7, 2001. Relying on the vacancy clause, adjuster Anne-Marie Schmoeckel stated that there was no coverage because "the demolition for the tenant[']s improvements started on August 16, 2001, which is some 30 days after this water damage occurred." The policyholders retained counsel, who wrote to Fireman's Fund that the renovations began several weeks before the loss. After further correspondence, Fireman's Fund reiterated its denial of coverage in a letter dated December 6, 2002. Schmoeckel took note of the activities of contractors and subcontractors in the building in June and July 2001, but stated that these activities did not "mean that the building was `under construction'" as that term was used in the policy. Instead, the work constituted renovation. "Renovation means renovation, additions means additions, and `under construction' means `under construction,'" Schmoeckel concluded. In the alternative, she asserted that the described activities would not constitute construction even if renovation were a type of construction. A demolition permit had not yet been obtained and the electrical and HVAC work was merely preparatory to construction or renovation.

The policyholders filed the complaint initiating this litigation on May 19, 2003. It alleged that, by denying coverage, Fireman's Fund breached the insurance contract and violated the implied covenant of good faith and fair dealing. It prayed for contractual damages, punitive damages, attorneys' fees, and a declaration that Fireman's Fund was liable. The claim for attorneys' fees was based on Brandt v. Superior Court (1985) 37 Cal.3d 813 and required proof of bad faith. In their briefs in the present appeal, the policyholders claim their attorneys' fees exceed $400,000.

Fireman's Fund moved for summary judgment or summary adjudication. It argued that, while no California case law existed on the issue, the trial court should rule as a matter of law that a construction exception to a vacancy exclusion like the one in Fireman's Fund's policy encompasses only new construction, not renovation. The trial court agreed and granted summary judgment for Fireman's Fund. We affirmed in case No. F045816, filed July 15, 2005.

The Supreme Court reversed on November 13, 2006. It held that the relevant inquiry was not whether the work was new construction or renovation, but whether there was a "substantial and continuing presence of workers at the premises." (TRB, supra, 40 Cal.4th at p. 22.)

The Supreme Court remanded the matter to the trial court "to permit either party to bring a new summary judgment motion based upon the proper standard." (TRB, supra, 40 Cal.4th at p. 23.) Although the facts described above were undisputed, other facts were necessary to determine whether there was a continuous and substantial presence of workers on the property before the loss:

"It is true that there is no dispute regarding the facts elicited by the parties here. However, since they were unaware of the standard we adopt today, the parties did not elicit key facts which might have a bearing on the relevant inquiry, i.e., whether the construction project here was such that there were substantial continuing activities on the premises during the relevant period (here, within 60 days prior to the loss). The record reflects that electrical and HVAC subcontractors engaged in various activities at the building, and that various other personnel, such as the contractor and the architect, also spent time there in the weeks prior to the loss at issue. But, the record does not disclose the number of people associated with the construction project, how many hours per day or days per week they were in the building, and how much of the building was occupied by these persons at any given time. Those and similar facts would be needed to determine whether there was a substantial continuing presence of construction personnel." (TRB, supra, 40 Cal.4th at p. 31.)

As the Supreme Court anticipated, Fireman's Fund filed a new motion for summary judgment or summary adjudication in the trial court on remand. Despite the Supreme Court's statement that additional facts were needed, however, Fireman's Fund's new statement of undisputed facts was nearly identical to its previous statement of undisputed facts. It did not add facts about "the number of people associated with the construction project, how many hours per day or days per week they were in the building, and how much of the building was occupied by these persons at any given time." (TRB, supra, 40 Cal.4th at p. 31.) In their opposition to the motion, by contrast, the policyholders did submit additional evidence relevant to the new standard, including a declaration tabulating 884 person-hours of work on the building between June 20 and July 14, 2001.

In May 2007, while the motion was pending, Fireman's Fund tendered, and the policyholders accepted, a check for $163,024.76, representing the $155,261.68 in receipts the policyholders had submitted plus interest for six months, the period since the Supreme Court ruled. The letter's explanation of the reversal of Fireman's Fund's coverage position was ambiguous, seeming both to assert and to deny that the Supreme Court's decision prompted the insurer's action:

"After the Supreme Court changed the law in this case, we have reconsidered the claim in light of all available evidence. While we still believe that the evidence does not show that the building...