Opinion
NO. CIV. S-07-101 FCD DAD.
May 2, 2008
MEMORANDUM AND ORDER
This matter is before the court on a motion for summary judgment, pursuant to Federal Rule of Civil Procedure 56, filed by defendant Hartford Casualty Insurance Company ("defendant" or "Hartford"). Plaintiffs Lawrence Caso ("Caso") and the Caso Trust (the "Trust") (collectively, "plaintiffs") oppose the motion. For the reasons set forth below, defendant's motion is GRANTED in part and DENIED in part.
BACKGROUND
Unless otherwise noted, the facts contained herein are undisputed. (See Pls.' Response to Def.'s Stmt. of Undisputed Facts ("PRUF") [Docket #64], filed Apr. 7, 2008.) Where the facts are disputed, the court recounts plaintiffs' version of the facts. (Def.'s Response to Pls.' Stmt. of Additional Disputed Facts ("DRAF") [Docket #72], filed April 18, 2008.)
On December 30, 2004, Hartford issued an insurance policy for the Building for the period of March 12, 2005, to March 12, 2006 (the "Policy"). (PRUF ¶ 1.) The policy contained a "Stretch Endorsement," which provided additional coverage for losses caused by water backing up through sewers or drains. (DRAF ¶ 53.) For this additional coverage, Hartford charged an additional premium. (DRAF ¶ 53.)
On or about December 30, 2005, it rained heavily in Placerville. (PRUF ¶ 10.) Published data indicates a rain gauge in the area recorded 4.9 inches of rain during the twenty-four hour period ending at 9:00 a.m. on December 31, 2005, and 5.3 inches of rain for the period ending at noon. (PRUF ¶ 10.) The gauge readings indicated that at no time did the rainfall exceed .6 inches per hour. (DRAF ¶ 60.)
On December 31, 2005, Caso discovered the Building had sustained water damage. (PRUF ¶ 4.) At the time the water damage occurred, water was standing at the rear of the Building at a level of at least five inches and was above the slab foundation of the Building. (PRUF ¶ 13.) Water penetrated the Building at the rear and southeast corner. (PRUF ¶ 14.)
Caso reported the loss to Hartford on January 3, 2006. (PRUF ¶ 23.) On January 6, 2006, Hartford insurance adjuster, Ivan Yount ("Yount"), inspected the Building. (PRUF ¶ 15.) Yount reviewed the Policy, met with Caso, inspected the property, took photos, made a diagram, and made notes of what he observed. (PRUF ¶ 24.) At the time of the inspection, there was some degree of water flowing from an outlet of an exterior drain. (PRUF ¶ 15.) Hartford denied the claim for coverage on January 16, 2006. (PRUF ¶ 27.) Yount determined the cause of the loss was excluded flooding; namely, surface water from heavy rains that pooled in the three to five foot "trench" between the Building's rear wall and the nearby vertical 115-foot cliff behind the Building. (PRUF ¶ 26.)
On January 25, 2006, Hartford insurance agent Steven Shortes wrote a "Business Memo" to Yount, on behalf of plaintiffs, requesting reconsideration of the claim. (PRUF ¶ 28.) The memo indicated sump pumps had pumped water into the building. (PRUF ¶ 28.) Hartford contends claim supervisor Scott Wilson ("Wilson") reviewed the Caso file, as of February 20, 2006, and concluded the disclaimer of coverage was warranted. (PRUF ¶ 29.) Hartford did not, however, respond to Shortes or Caso as to why the claim remained denied. (DRAF ¶ 55.)
Plaintiffs object to the admission of Wilson's statement under California Insurance Claims Practices Act, 10 C.C.R. § 2695.3. However, the CICPA contains regulations regarding an insurer's unfair claims settlement practices; the regulations have no bearing on the admissibility of certain evidence at trial. Wilson is competent to testify about the actions he took in response to Shortes' request for reconsideration, and his declaration is properly before the court. Plaintiffs' objection is therefore overruled.
In March 2006, a large rootball was discovered in the main drain for the exterior drainage system. (DRAF ¶ 57.) Caso contacted Shortes about the discovery. (DRAF ¶ 58.) Shortes wrote to Hartford regarding the rootball. (DRAF ¶ 58.) Hartford did not respond to the letter. (DRAF ¶ 58.)
On December 14, 2006, Caso filed suit on behalf of himself and the Trust in El Dorado County Superior Court, alleging six causes of action: (1) breach of contract; (2) breach of the covenant of good faith and fair dealing; (3) negligence; (4) negligent infliction of emotional distress; (5) intentional infliction of emotional distress; and (6) fraud. Plaintiffs sought damages for the repair of the water damage to the Building and alleged lost rents, as well as for expenses relating to snaking the exterior drain on December 31, 2005 and for improvements to the exterior drainage system after the subject loss. (PRUF ¶ s 2, 4, 20.) On January 16, 2007, defendant removed the case to this court on the basis of diversity jurisdiction. (Notice of Removal [Docket #1], filed Jan. 16, 2007.)
On January 11, 2008, plaintiffs moved to amend the pretrial scheduling order to permit amendment of the complaint to add a cause of action for reformation of the Policy to add Caso as a named insured. (Pls.' Mot. to Modify [Docket #42], filed Jan. 11, 2008.) The court denied the motion, finding plaintiffs were not diligent in seeking amendment of the pretrial scheduling order. (Mem. Order [Docket #53], filed Feb. 15, 2008.)
Defendant now moves for summary judgment.
STANDARD
The Federal Rules of Civil Procedure provide for summary judgment where "the pleading, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact." Fed.R.Civ.Proc. 56(c); see California v. Campbell, 138 F.3d 772, 780 (9th Cir. 1998). The evidence must be viewed in the light most favorable to the nonmoving party. See Lopez v. Smith, 203 F.3d 1122, 1131 (9th Cir. 2000) (en banc).
The moving party bears the initial burden of demonstrating the absence of a genuine issue of fact. See Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986). If the moving party fails to meet this burden, "the nonmoving party has no obligation to produce anything, even if the nonmoving party would have the ultimate burden of persuasion at trial. Nissan Fire Marine Ins. Co. v. Fritz Cos., 210 F.3d 1099, 1102-03 (9th Cir. 2000). However, if the nonmoving party has the burden of proof at trial, the moving party only needs to show "that there is an absence of evidence to support the nonmoving party's case." Celotex Corp., 477 U.S. at 325.
Once the moving party has met its burden of proof, the nonmoving party must produce evidence on which a reasonable trier of fact could find in its favor viewing the record as a whole in light of the evidentiary burden the law places on that party. See Triton Energy Corp. v. Square D Co., 68 F.3d 1216, 1221 (9th Cir. 1995). The nonmoving party cannot simply rest on its allegations without any significant probative evidence tending to support the complaint. See Nissan Fire Marine, 210 F.3d at 1107. Instead, through admissible evidence the nonmoving party "must set forth specific facts showing that there is a genuine issue for trial." Fed.R.Civ.Proc. 56(e).
ANALYSIS
A. Standing
Hartford argues Caso lacks standing to sue, in his individual capacity, because he is not a party to the insurance contract. Although insurance policies contain special features, they are still contracts. Palmer v. Truck Ins. Exchange, 21 Cal. 4th 1109, 1115 (1999). Thus, a person "who is not a party to the contract[ual] has no standing to enforce the contract or recover extra-contract damages for wrongful withholding of benefits to the contracting party." Seretti v. Super. Nat'l Ins. Co., 71 Cal. App. 4th 920, 930 (1999) (internal quotations ommitted); see also Burns v. Cal. Fair Plan, 152 Cal. App. 4th 646, 652 (2007) ("The nature and effect of an insurance contract is to indemnify the insured against loss or damage, and not someone else who is not a party to the contract; nor has such other party any lawful claim upon the amount realized by the [in]sured under the policy.").
Defendant also argues that even if Caso was a party to the contract, the contract would be void for lack of an insurable interest. The court need not reach this argument because, as set forth infra, Caso was not a party to the insurance contract.
Caso argues he was a named insured under the Policy. Contrary to his assertion, the undisputed evidence establishes that Caso was not a named insured. Hartford issued the subject insurance policy on December 30, 2004, effective between March 12, 2005, to March 12, 2006. (Def.'s Ex. A [Docket #57-1], filed Mar. 21, 2008.) The Policy named Caso and the Trust as insureds. (Id.) However, on February 21, 2005, Hartford issued a "Policy Change" removing Caso as a named insured. (Id.) Specifically, the Policy Change stated: "This endorsement changes the policy effective on the Inception Date of the policy unless another date is indicated below: . . . Named Insured and Mailing Address: Caso Family Trust UA Dated 9-20-90. . . ." (Id.) The Policy Change lists an effective date of March 12, 2005. (Id.) Accordingly, Caso was not a named insured under the insurance policy.
Caso contends he never requested to be removed from the Policy. Rather, Caso asserts he only requested the word "Family" be added to the insurance policy. (Proposed First Amended Compl. ¶ 28 [Docket #42-2], filed Jan. 7, 2008.) Hartford contends Caso requested to change the named insured on the Policy from Lawrence A. Caso and the Caso Trust to "Caso Family Trust UA Dated 9-20-90." (Decl. of Ann K. Johnston ¶ 3 Ex. A [Docket #46], filed Jan. 18, 2008.) While the parties dispute the underlying reason for the Policy Change and what specific change was requested, this dispute is irrelevant to the determination of whether Caso was a named insured under the Policy. Because Caso was not a party to the contract at the time of loss, or at any time during the effective dates of the Policy, he lacks standing to bring a claim to enforce the contract or recover extra-contractual damages.
The parties previously briefed this issue pursuant to plaintiffs' motion to amend the pretrial scheduling order to amend the complaint. (See Pls.' Mot. to Modify [Docket #42-2], filed Jan. 7, 2008; Def.'s Opp'n [Docket #45], filed Jan. 18, 2008.) Pursuant to that motion, plaintiffs sought to add a seventh cause of action for reformation of the Policy to add Caso as a named insured. The court denied the motion because even under plaintiffs' version of the facts, they waited over four months, after allegedly discovering defendant's position with respect to the lack of personal coverage under the Policy for Caso, to seek amendment of the pretrial scheduling order. (Mem. Order, filed Feb. 15, 2008, at 5.)
Moreover, the parties' dispute regarding the Policy Change does not pertain to any cause of action plead in the complaint. Their dispute over the propriety of the Policy Change is relevant, if at all, to a claim by Caso, individually, for reformation and/or fraud. (See supra n. 6.) However, no such claims are plead in this case. (See Mem. Order, filed Feb. 15, 2008 [denying leave to amend to add a reformation cause of action].)
Caso also denies ever receiving the Policy Change. Caso's present denial is insufficient to raise a triable issue of fact because it is flatly contrary to the evidence in this case. Plaintiffs attached a copy of the Policy Change to their complaint. (Ex. A to Pls.' Compl. [Docket #1-3], filed Jan. 16, 2007.)
Caso argues that even if he was not a named insured under the Policy, he was an insured under the Policy's definitions of "additional" insureds. Section C of the Policy contains the following definitions of additional insureds:
If you are designated in the Declarations as: . . . [a] trust, you are an insured. Your trustees are also insureds, but only with respect to their duties as trustees. Each of the following is also an insured: . . . [a]ny person (other than your 'employee'), or any organization while acting as your real estate manager.
As used in the insurance policy, "you" and "your" refers to the named insured, the Trust. (Def.'s Ex. A at 1 [Docket #57-1], filed Mar. 21, 2008.)
(Def.'s Ex. A at 9-10 [Docket #57-1].)
Relying on these provisions, Caso argues he was an insured under the Policy as either a trustee of or a real estate manager for the named insured, the Trust. However, Caso ignores the plain language of the Policy limiting insurance coverage to acts performed "with respect to [his] duties as a trustee" or "while acting as . . . real estate manager." Id. Because the loss suffered in this case — water damage to the building — was not incurred as a result of Caso fulfilling his functions as either a trustee or real estate manager, he does not qualify as an additional insured for the loss and, therefore, lacks standing to enforce the Policy or collect extra-contractual damages thereon. See Century Surety Co. v. Polisso, 139 Cal. App. 4th 922, 940-41 (2006) (spouse of glass installer sued for damages arising from installation subcontract found to be an additional insured because loss was incurred "with respect to conduct of a business of which [named insured] is a sole owner"); Nourigat v. Perferred Risk Mutual Ins., 59 Or. App. 362, 366 (1982) (real estate manager was not covered as additional insured for tractor-motorcycle collision where manager was not performing functions as real estate manager at the time of the collision).
Finally, Caso argues Hartford is bound by agent Shortes' assurances Caso was an insured under the Policy. An agent may bind an insurer by "any acts, agreements or representations that are within the ordinary scope and limits of the insurance business entrusted him." See Shade Foods, Inc. v. Innovative Prods. Sales Marketing, Inc., 78 Cal. App. 4th 847, 874 (2000). While an agent has the authority to provide interpretations of policy coverage, this authority only extends to reasonable interpretations of ambiguous provisions. Id. (emphasis added). As set forth above, the plain language of the contract named only the Trust as an insured and extended coverage to Caso only with respect to acts performed while fulfilling his duties as a trustee and real estate manager. There is no ambiguity in the Policy with respect to these provisions. The court therefore finds Caso has failed to raise a triable issue of fact as to this agency theory for asserting coverage in his personal capacity.
Based on the foregoing, defendant's motion for summary judgment as to any claims brought by Caso in his individual capacity is GRANTED.
Because the court finds Caso lacks the capacity to sue, in his individual capacity, defendant's motion for summary judgment as to the fourth and fifth causes of action for negligent and intentional infliction of emotional distress is also GRANTED. These alleged damages are for personal injuries suffered by Caso.See Essex Ins. Co. v. Five Star Dye House, 38 Cal. 4th 1252, 1264 (2006) (citing Murphy v. Allstate Ins. Co., 17 Cal. 3d 937, 942 (1976)) (emotional distress damages arise from a personal tort). Moreover, a legal entity such as a trust cannot suffer emotional distress. Cf. Huntingdon Life Sciences, Inc. v. Stop Huntingdon Animal Cruelty USA, 129 Cal. App. 4th 1228, 1260 (2005) (citingTenants Ass'n of Park Santa Anita v. Southers, 222 Cal. App. 3d 1293, 1304 (1990)) (business entity lacks standing to pursue tort of intentional infliction of emotional distress). As Caso has no claims in his individual capacity, these causes of action must be dismissed.
B. Breach of Contract
Hartford moves for summary judgement as to the first cause of action for breach of contract alleging the insurance policy excluded coverage for the loss. Specifically, Hartford contends the Stretch Endorsement excluded coverage for water damage, except damage "solely caused by water that backs up from a sewer or drain." Plaintiffs do not dispute this limitation, but contend the water damage to the Building was caused solely by back up from the exterior drainage system.
Preliminarily, Hartford moves for summary judgment, arguing there is no coverage for plaintiffs' allegations of water damage to the Building under the "Special Property Coverage Form" in the Policy because all suggested causes of loss are excluded. (Def.'s Mem. of P A, filed Mar. 21, 2008, at 8-10.) Plaintiffs did not oppose defendant's motion on this issue. Instead, plaintiffs only dispute defendant's further argument that coverage does not exist under an endorsement that extended coverage to loss "solely caused by water that backs up from a sewer or drain." That so-called "Stretch Endorsement" is the sole basis for plaintiffs' claim of coverage, and thus, the court discusses only that basis for coverage herein. In all other respects, the court finds no coverage for the subject loss, and defendant's motion is granted with respect to their argument under the Special Property Coverage Form.
Plaintiffs argue Hartford has waived any basis for denying coverage other than that stated in its denial letter. However, "the denial of a claim on one ground, absent clear and convincing evidence to suggest otherwise, does not impliedly waive grounds not stated in the denial letter." Century Surety Co. v. Polisso, 139 Cal. App. 4th 922, 953 n. 17 (2006) (citing Waller v. Truck Ins. Exchange, Inc., 11 Cal. 4th 1, 31 (1995)). Plaintiffs have not proffered any evidence, let alone clear and convincing evidence, to suggest Hartford intentionally relinquished its right to deny coverage on other grounds. Therefore, the court cannot find waiver.
Plaintiffs likewise do not challenge the legality of this contractual provision. Such provisions are enforceable. See e.g. De Bruyn v. Sup. Ct., 158 Cal. App. 4th 1213, 1216, 1222 (2008) (citing Julian, 35 Cal. 4th at 759).
The court finds plaintiffs have proffered sufficient evidence to raise a triable issue of fact as to coverage under the Stretch Endorsement. Plaintiffs have produced expert testimony indicating the exterior drainage system behind the Building had a capacity to drain up to 60 inches of water per day or 2.5 inches of rain per hour. (See Decl. of Jim Dillingham ¶ 4 [Docket #60], filed Apr. 7, 2008; Report of Douglas White, Ex. 4 to Decl. of Andrew D. Woll ("Woll Decl.") [Docket #65-6], filed Apr. 7, 2008.) Plaintiffs have also proffered testimony that a large rootball was found clogging the exterior drainage system. (Decl. of Lawrence Caso ("Caso Decl.") ¶ 13 [Docket #61], filed Apr. 7, 2008; Depo. of Jim Gregg at 27:19-22, Ex. 6 to Woll Decl. [Docket #65-9], filed Apr. 7, 2008.) If the exterior drain could handle 60 inches of rain per day, and Placerville experienced 4.9 inches of rain for twenty-four hours ending at 9:00 a.m. on December 20, 2005, water should not have accumulated behind the Building. Evidence that the drain was clogged by a large tree root at the time could explain the pooling of water behind the Building. Thus, the court cannot find as a matter of law that damage to the Building was not caused solely by back up from a drain.
Defendant's objections to plaintiffs' experts' testimony are overruled. (See Defs.' Objs. [Docket #74] at 15-20, 23-24.) The testimony of Dillingham and White is properly admitted under Fed.R.Evid. 702 (see also Pls.' Reply to Defs.' Objs. [Docket #77]); defendant's objections do not provide a basis for exclusion of the subject testimony but rather raise issues which are the proper subject of cross-examination of the experts at trial.
Hartford asserts plaintiffs cannot show back up from the exterior drain was the sole cause of the damage because "by all accounts the loss was dependent on the accumulation of surface water from heavy rain." (Def.'s Mem. of P A at 11:20-21.) In essence, Hartford argues the cause of the water accumulation was not a clogged drain but heavy rain. (PRUF ¶ s 5-14 [defendant claims the evidence shows surface water collected in the "trench" behind the Building at a time of heavy rain, and that this surface water seeped into the Building].) However, this type of factual dispute between the parties precludes the court from granting summary judgment to the defendant. Fed.R.Civ.P. 56(c). Because a triable issue of fact exists as to the cause of the water damage, defendant's motion for summary judgment as to the first cause of action is DENIED.
Defendant also separately moves for a finding that there is no coverage under the Policy for expenses plaintiffs claim they incurred for work done to the exterior drain system after plaintiffs discovered the loss. (PRUF ¶ s 18-19.) Because the court finds a triable issue exists as to the cause of the water damage, it likewise cannot grant summary judgment to defendant regarding repairs to the exterior drain. If plaintiffs can succeed in proving coverage, they can seek these damages under the contract which permits recovery of expenses for "direct physical loss of or damage to Covered Property. . . . caused by or resulting from any Covered Cause of Loss." (PRUF ¶ 2.) However, the court makes no findings as to whether the Policy, assuming the expenses are covered, otherwise limits such damages. (See Reply, filed April 18, 2008, at 4:14-19.) Defendant did not move for summary judgment on this latter issue.
C. Bad Faith
Hartford next moves for summary judgment as to plaintiffs' second cause of action for breach of the implied covenant of good faith and fair dealing (often referred to as insurance "bad faith" claims). The covenant of good faith and fair dealing is implied in every contract and is of particular significance in insurance law because it may support recovery of tort damages.Shade Foods, 78 Cal. App. 4th at 879. In general, the standard of good faith and fair dealing requires an insurer to act reasonably in denying coverage. Id. An insurer acts unreasonably in denying coverage where, for example, it fails to reasonably investigate a claim. Id. at 879-80. "An unreasonable failure to investigate may be found when an insurer fails to consider, or seek to discover, evidence relevant to the issues of liability and damages." Id. at 880.
Although not entirely clear from plaintiffs' opposition, it appears plaintiffs base their bad faith claim on Hartford's alleged failure to adequately investigate the claim of loss. Caso attests in his declaration, filed in support of plaintiffs' opposition, that insurance adjuster Yount did not investigate the drainage system during his inspection of the Building on January 6, 2006. (Caso Decl. ¶ 11 [Docket #59], filed Apr. 7, 2008.) Further, plaintiffs offer evidence indicating that on two subsequent occasions Hartford was notified of additional facts potentially giving rise to coverage. Insurance agent Shortes wrote a memo to Hartford indicating sump pumps possibly pumped water into the Building causing damage. (Ex. 3 to Woll Decl [Docket #65-3], filed Apr. 7, 2008.) Shortes also testified that he contacted Hartford following the discovery of the rootball in the drainage system. (Depo. of Stephen Shortes at 43:7-10, Ex. 1 to Woll Decl. [Docket #65-1], filed Apr. 7, 2008.) Plaintiffs contend Hartford failed to investigate these additional facts and summarily relied on Yount's initial, faulty assessment. (Caso Decl. ¶¶ 12-13.)
While plaintiffs brief may not have set forth a clear argument in this regard, the court must view the evidence in the light most favorable to the nonmoving party. Lopez, 203 F.3d at 1131. When so viewed, plaintiffs have sufficiently raised a triable issue of fact as to a claim of inadequate investigation.
Hartford denies that it failed to adequately investigate plaintiffs' claim. Hartford proffers the testimony of Yount's supervisor indicating he reviewed plaintiffs' claim following Shortes' letter regarding the sump pumps and concluded the claim should still be denied. (Decl. of Scott Wilson ("Wilson Decl.") ¶ 4, Def.'s Ex. R [Docket #57-7], filed Mar. 21, 2008.) Moreover, Yount testified that, in his opinion, any rootball existing in the exterior drainage system would not have affected the determination of coverage. (Yount Depo. at 62:24-63:16.) The parties' factual disputes preclude entry of summary judgment. See e.g. Egan v. Mutual of Omaha Ins. Co., 24 Cal. 3d 809, 824 (1979). The court finds a triable issue of fact exists as to whether defendant acted reasonably in denying coverage.
Notwithstanding these factual disputes, Hartford argues that a "genuine dispute" with an insured as to the existence of coverage precludes a finding of bad faith as a matter of law. Wilson v. 21st Century Ins. Co., 42 Cal. 4th 713, 723 (2007). However, the "genuine dispute" rule applies "where the insurer's position is maintained in good faith and on reasonable grounds."Id. "The genuine dispute rule does not relieve an insurer from its obligation to thoroughly and fairly investigate, process and evaluate the insured's claim." Id.; see also Egan, 24 Cal. 3d at 819 ("[A]n insurer cannot reasonably and in good faith deny payments to its insured without thoroughly investigating the foundation for its denial."). Thus, an insurer is not entitled to summary judgment where the evidence establishes triable issues of fact as to whether the disputed position was reached reasonably and in good faith. Id. at 824. As set forth above, plaintiffs have proffered evidence raising a triable issue of fact whether Hartford acted reasonably in denying the claim in this case. Therefore, Hartford is not entitled to summary judgment based on the genuine dispute rule.
Based on the foregoing, defendant's motion for summary judgment on this claim is DENIED.
D. Negligent Claims Handling
Hartford asserts summary judgment should also be granted as to plaintiffs' third cause of action for negligent handling of an insurance claim. Specifically, Hartford contends negligence cannot be maintained as a separate cause of action from breach of contract or breach of the implied covenant of good faith and fair dealing.
Generally, California courts enforce the breach of a contractual promise through contract law, except when the actions constitute a breach of a social policy that merits the imposition of tort remedies. Erlich v. Menezes, 21 Cal. 4th 543, 553 (1999). One such exception permits the recovery of tort damages for breach of the implied covenant of good faith and fair dealing in insurance contracts. Egan, 24 Cal. 3d at 817. The California Supreme Court has held the covenant entails a duty to "fully inquire into possible bases that might support the insured's claim." Id. at 819. Thus, failure to adequately investigate an insured's claim constitutes a breach of the implied covenant of good faith and fair dealing in insurance contracts. Id. at 817.
The California Supreme Court has cautioned against expanding the availability of tort remedies in contract cases. Recovery of tort damages has been limited to a few carefully delineated situations where "the duty that gives rise to tort liability is either completely independent of the contract or arises from conduct which is both intentional and intended to harm." Erlich v. Menezes, 21 Cal. 4th 543, 552 (1999). A claim for negligent claims handling does not satisfy either of these criteria. See Benavides v. State Farm Gen. Ins. Co., 136 Cal. App. 4th 1241, 1251-52 (2006); see also Sanchez v. Lindsey Morton Claims Servs., Inc., 72 Cal. App. 4th 249, 254-55 (1999) (noting that "negligence is not among the theories of recovery generally available against insurers").
In Benavides, the court found that a claim for negligent claims handling cannot be sustained independent of a claim for breach of contract. Benavides, 136 Cal. App. 4th at 1252. In that case, a tenant sued her insurer following the denial of a claim for mold in a condominium unit. Id. at 1245. Although the court ultimately held that mold contamination was not a covered loss, it considered whether a cause of action for negligent handling of an insurance claim could be sustained against the insurer. Id. at 1251-52. The court concluded the tenant's negligence claim did not "fall within the circumstances identified by the California Supreme Court which allow a contract-based cause of action to be pursued as a tort claim;" namely, the tenant's negligence claim was not based on a duty independent of the contract and the alleged conduct by the insurer was not intentional. Id. at 1252.
Thus, this court holds, following Benavides, that plaintiffs cannot sustain a cause of action for negligent handling of an insurance claim. Allowing an insured to sue in negligence for failure to adequately investigate a claim is redundant, since an insurer is liable for unreasonable investigation or claims handling pursuant to the implied covenant of good faith and fair dealing. Further, the California Supreme Court has expanded the availability of tort remedies in contract cases only where the conduct breaches a duty independent of the contract or is intentional. A claim for negligent claims handling does not satisfy this criteria. Therefore, defendant's motion for summary judgment as to the third cause of action for negligent handling of an insurance claim is GRANTED.
E. Fraud
Hartford also moves for summary judgment on the sixth cause of action for fraud. The elements for a claim of fraud are: (1) misrepresentation (i.e., false representation, concealment or nondisclosure); (2) knowledge of falsity; (3) intent to defraud; (4) justifiable reliance; and (5) resulting damage. Lazar v. Super. Ct., 12 Cal. 4th 631, 637 (1996).
Plaintiffs argue Hartford made a false representation in selling its insurance Policy. Specifically, plaintiffs allege Hartford's website falsely states: "If you add The Hartford's money-saving Stretch Endorsement to your basic business owner's plan, it will include valuable insurance for sewer and drain back ups. This coverage will protect you against losses caused by water backing up through the sewers or drains — or by water overflowing from a pump." (Ex. B to Pls.' Compl. at 5 [Docket #1-4], filed Jan. 16, 2007.) Plaintiffs argue this advertisement misrepresents that the Stretch Endorsement covers drain or sewage back up because the evidence in this case demonstrates defendant does not provide such coverage. (Opp'n at 16:21-22 [Docket #62], filed Apr. 7, 2008 [claiming "the evidence is that they do not provide such insurance as a reasonable lay person would understand they represent"].) Plaintiffs' assertion is contrary to the plain language of the Policy and the breach of contract claim plaintiffs press in this case. The Stretch Endorsement does provide coverage for damages "solely caused by water that backs up from a sewer or drain." Indeed, plaintiffs' claim for breach of contract hinges upon this provision. Because the Policy includes coverage for drain and sewer back up, and plaintiffs admit as much in alleging their breach of contract claim, the court finds plaintiffs have not raised a triable issue of fact whether Hartford made a false statement on its website. Accordingly, the court need not consider whether plaintiffs have sufficient evidence to support the other elements of this claim, and defendant's motion for summary judgment is GRANTED.
In its reply, defendant attacks Caso's declaration, wherein he attests he relied on the subject statement from the website in purchasing the Policy. Defendant asserts Caso's declaration contradicts his deposition testimony and should therefore be disregarded. The court does not reach the issue of reliance as plaintiffs clearly fail to establish the first element of a claim of fraud — a misrepresentation of fact.
F. Punitive Damages
Finally, Hartford moves for summary judgment on the issue of punitive damages. Under California Civil Code section 3294, the recovery of punitive damages is limited to cases where the "defendant has been guilty of oppression, fraud, or malice. . . ." Cal. Civ. Code § 3294(a). "Oppression" is defined as "despicable conduct that subjects a person to cruel and unjust hardship in conscious disregard of that person's rights." Cal. Civ. Code § 3294(c)(2). "Malice" means "despicable conduct which is carried on by the defendant with a willfully and conscious disregard of the rights and safety of others." Id. § 3294(c)(1). A plaintiff must prove a defendant acted with oppression or malice "by clear and convincing evidence." Basich v. Allstate Ins. Co., 87 Cal. App. 4th 1112, 1118 (2003); Shade Foods, 78 Cal. App. 4th at 891-92 (citing Stewart v. Truck Ins. Exchange, 17 Cal. App. 4th 468, 482 (1993)).
Having concluded plaintiffs have not raised a triable issue of fact as to fraud, the court will only address "oppression" and "malice" as a basis for awarding punitive damages.
Plaintiffs contend an award of punitive damages is appropriate because Hartford: (1) failed to inspect the hillside behind the building, (Caso Decl. ¶ 11.); (2) failed to determine the capacity of the drainage system, (Caso Decl. ¶ 11.); (3) twice refused to respond to requests for consideration, (Caso Decl. ¶¶ 12-13; Shortes Depo. at 42:6-16, 43:7-18.); (4) cited false and misleading policy language in denying the claim, (Ex. 1 to Caso Decl. [Docket #59], filed Apr. 7, 2008.); (5) failed to document the requests for reconsideration, (Ex. 1 to Wilson Decl.); (6) failed to look at the rootball when reported, (Caso Decl. ¶ 12.); and (7) failed to hire an engineer to assess the drainage system, (Depo. of Ivan Yount at 52:4-10, Ex. 15 to Woll Decl. [Docket #65-8], filed Apr. 7, 2008.). This evidence is sufficient to raise a triable issue of fact whether Hartford engaged in the type of "despicable" conduct for which punitive damages are available. Construed in the light most favorable to plaintiffs, the evidence shows Hartford provided insurance coverage to plaintiffs for back up from drains and sewers. Yet, Hartford refused to adequately investigate the claim of loss and did not respond to repeated requests, tendered by one of its own agents, for reconsideration of its denial of a potentially covered claim. The court cannot find as a matter of law that no reasonable jury could award plaintiffs punitive damages. Accordingly, the court leaves, as is "traditionally" the proper course, the "[d]etermination [of] assessment of punitive damages . . . to the discretion of the jury." Egan, 24 Cal. 3d at 821.
Hartford argues, to the contrary, that this court can preclude punitive damages based on the decision in Shade Foods. 78 Cal. App. 4th at 891-93. There, however, the court considered the sufficiency of the evidence proffered at trial not the sufficiency of the evidence to raise a triable issue of fact on summary judgment. Id. at 892 (finding "the record [produced at trial] [fell] well short of establishing by clear and convincing evidence the sort of contemptible conduct that could be described by the term 'despicable.'") In Shade Foods, the jury awarded punitive damages to an insured where the insurer "unreasonably [denied] first party coverage," "greatly overestimated the strength of its defenses," "never took any meaningful action to reassess its ill-advised denial of first party coverage," and "stubborn[ly] persist[ed]" in denying coverage based on a "careless initial evaluation." Id. at 892. The court disagreed with the jury that this evidence was sufficient to support an award of punitive damages under the heightened clear and convincing standard of proof. Id. at 891-92 (recognizing that while the same evidence is relevant both to the finding of bad faith and the imposition of punitive damages, the conduct required to award punitive damages must satisfy a "distinct and far more stringent standard"). Thus, at this juncture of the case, Shade Foods is inapposite.
Should plaintiffs' proffered evidence at trial fail to satisfy the standards set forth in Shade Foods, Hartford may file an appropriate motion under Federal Rule of Civil Procedure 50 at that time.
Based on the foregoing, defendant's motion for summary judgment as to punitive damages is DENIED.
CONCLUSION
For the reasons set forth above, defendant's motion for summary judgment is GRANTED in part and DENIED in part as follows:
1. Defendant's motion for summary judgment as to all claims brought by plaintiff Caso in his individual capacity is GRANTED;
2. Defendant's motion for summary judgment as to the first cause of action for breach of contract is DENIED;
3. Defendant's motion for summary judgment as to the second cause of action for breach of the implied covenant of good faith and fair dealing is DENIED;
4. Defendant's motion for summary judgment as to the third cause of action for negligent claims handling is GRANTED;
5. Defendant's motion for summary judgment as to the fourth cause of action for negligent infliction of emotional distress is GRANTED;
6. Defendant's motion for summary judgment as to the fifth cause of action for intentional infliction of emotional distress is GRANTED;
7. Defendant's motion for summary judgment as to the sixth cause of action for fraud is GRANTED; and
8. Defendant's motion for summary judgment as to punitive damages is DENIED.
IT IS SO ORDERED